Al Khorafi family victorious in court
Kuwait's wealthy al Khorafi family scored a courtroom victory this week, clearing the way for a full hearing of their claims that a unit of Switzerland's Bank Sarasin misrepresented risky investments as safe.
Rafed al Khorafi, along with his wife and mother, are seeking triple damages totalling US$225 million (Dh826.2m) from the subsidiary Bank Sarasin-Alpen, alleging they lost $75m on investments they were told could not lose money. The case is being heard at the Dubai International Financial Centre (DIFC) Courts. It is one of the first in the DIFC's court system to stem from allegations of fraudulent or misleading investment advice.
In a judgment on Tuesday, a three-member appeals panel dismissed Bank Sarasin-Alpen's argument that the al Khorafis had not made their claims under the correct DIFC statutes. The panel also reinstated claims of negligence and misrepresentation that another judge dismissed in July while rejecting an attempt by Bank Sarasin-Alpen to strike out breach of contract claims.
In another victory for the al Khorafis, the panel ruled that the family members did not have to post Dh3m as security for legal costs.
The DIFC courts are the judicial wing of the financial free zone. They interpret regulations based on English law that are separate from rules governing cases in Dubai's local courts.
"We are very pleased with the DIFC Court of Appeal's decision, which was in favour of the claimants on all counts," said a spokesman for the al Khorafis. "We welcome, in particular, the decision of the court to reinstate the claims against the defendants based on … misrepresentation and to uphold the decision to refuse to strike out the claim in contract."
A Bank Sarasin spokesman called the ruling "procedural" and said the courts could now begin to address the substance of the case. The bank was optimistic about its prospects for victory, he said, and added that the judgment was in no way a finding for the al Khorafis on the substantive issues.
"As part of the proceedings against Bank Sarasin-Alpen, the Court of Appeal handed down its judgment with regard to certain applications that related to pleading and procedural matters," the spokesman said.
"There was no discussion of the material aspects of the case. In particular, the DIFC Court did not consider nor make any findings on any alleged liability of the defendants or the admissibility and amount of compensation claims for the plaintiffs."
Filed late last year, the suit has been tied up for months in procedural wrangling between lawyers for both sides. The court's rulings on which DIFC laws govern such claims and investors' rights to file them will set precedents.
The al Khorafis' claims stem from investments made in 2007 on the advice of Bank Sarasin-Alpen, according to Tuesday's 20-page judgment. Those investments were allegedly used as collateral for loans to make more investments, the judgment says, "with the result that falls in the mark-to-market value of the products triggered margin calls which, when unanswered, prompted [Bank Sarasin] to close out the claimants' investment at a catastrophic loss, currently calculated to be nearly $75m".
The next hearings in the case have yet to be scheduled.
Updated: November 11, 2010 04:00 AM