Skip to Content

(1) Mr Rafed Abdel Mohsen Bader Al Khorafi (2) Mrs Amrah Ali Abdel Latif Al Hamad (3) Mrs Alia Mohamed Sulaiman Al Rifai v (1) Bank Sarasin-Alpen (ME) Limited (2) Bank Sarasin & Co. Ltd [2009] DIFC CFI 026

(1) Mr Rafed Abdel Mohsen Bader Al Khorafi (2) Mrs Amrah Ali Abdel Latif Al Hamad (3) Mrs Alia Mohamed Sulaiman Al Rifai v (1) Bank Sarasin-Alpen (ME) Limited (2) Bank Sarasin & Co. Ltd [2009] DIFC CFI 026

August 21, 2014

image_pdfimage_print

Claim No: CFI 026/2009

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

IN THE COURT OF FIRST INSTANCE
BEFORE THE DEPUTY CHIEF JUSTICE SIR JOHN CHADWICK

BETWEEN

(1) RAFED ABDEL MOHSEN BADER AL KHORAFI
(2) AMRAH ALI ABDEL LATIF AL HAMAD
(3) ALIA MOHAMED SULAIMAN AL RIFAI

Claimants

and

(1) BANK SARASIN-ALPEN (ME) LIMITED
(2) BANK SARASIN & CO. LTD

Defendants

Hearing: 19-23, 26-30 May 2013 and 10 July 2013

Counsel: Mr Richard Hill QC and Mr Sharif Shivji instructed by KBH Kaanuun for the Claimants

Mr Michael Brindle QC instructed by Al Tamimi & Co for the First Defendant

Mr Michael Black QC instructed by Al Tamimi & Co for the Second Defendant

Judgment: 21 August 2014


JUDGMENT OF THE DEPUTY CHIEF JUSTICE SIR JOHN CHADWICK


Sir John Chadwick, Deputy Chief Justice:

1. The Claimants are Kuwaiti nationals, resident in Kuwait. The First Defendant, Bank Sarasin-Alpen (ME) Limited (“Sarasin-Alpen”), is a company incorporated in the Dubai International Financial Centre (“the DIFC”) and regulated by the Dubai Financial Services Authority (“the DFSA”). The Second Defendant, Bank Sarasin & Co (“Bank Sarasin”), is a company incorporated in Switzerland.

2. In the course of 2007 and early 2008, on the introduction of Sarasin-Alpen, the Claimants purchased structured financial products (“the Notes”) from Bank Sarasin. The purchases were funded by loans made to the Claimants, in part by Al Ahli Bank Kuwait (“ABK”) and in part by Bank Sarasin. The total amount laid out by the Claimants in those purchases was US$200 million. In November 2008 Bank Sarasin made margin calls which the Claimants did not meet. Bank Sarasin closed out the Notes; with the consequence that the Claimants suffered substantial losses. These proceedings are brought with the object of recovering those losses.

3. The principal claims in the proceedings may be summarised as follows:

(1) As against the First Defendant, Sarasin-Alpen:

(a) that Sarasin-Alpen acted in breach of the DFSA Regulations under which it was authorised to offer financial services: in particular (i) that it conducted investment business on behalf of the Claimants without regulatory authority to do so and (ii) that it advised the Claimants in relation to structured financial products (the Notes) which were not suitable for them;

(b) further, that Sarasin-Alpen acted in breach of contract, in that it was negligent in giving such advice; alternatively, that, in misrepresenting that the Notes were suitable products to meet the Claimants’ investment objectives, it was in breach of duties of care.

It is said that, but for those regulatory breaches, breaches of contract and breaches of duties of care, the Claimants could not and would not have purchased the Notes from Bank Sarasin as and when they did and would not have suffered the losses which they seek to recover. The claims against Sarasin-Alpen are said to arise under Article 94 of the DIFC Regulatory Law (DIFC Law No. 1 of 2004) and under the general law applicable in the DIFC.

(2) As against the Second Defendant, Bank Sarasin:

(a) that Bank Sarasin acted in breach of the DIFC Regulatory Law (DIFC Law No 1 of 2004) in carrying on an unauthorised financial services business within the DIFC;

(b) further, that Bank Sarasin acted in breach of contract, in that (pursuant to Article 32 of the Swiss Code of Obligations) the acts and omissions of Sarasin-Alpen and its employees in giving advice as to the structured financial products which it sold to the Claimants are to be attributed to Bank Sarasin; and

(c) that Bank Sarasin is vicariously liable under DIFC law for the misrepresentation and negligence claims made against Sarasin-Alpen.

Again, it is said that, but for those regulatory breaches, breaches of contract and breaches of duties of care, the Claimants could not and would not have purchased the Notes from Bank Sarasin as and when they did and would not have suffered the losses which they seek to recover. The claims against Bank Sarasin are said to arise under Article 94 of the DIFC Regulatory Law (DIFC Law No. 1 of 2004), under the Swiss Code of Obligations and under the general law applicable in the DIFC.

4. Those claims are rejected by the Defendants:

(1) It is said on behalf of Sarasin-Alpen:

(a) that, in its relations with the Claimants, it acted in compliance with its regulatory and other obligations;

(b) that, if (which is denied) it was in breach of any regulatory or other obligation, that breach was not the cause of any loss sustained by the Claimants; in that (i) even if Sarasin-Alpen had not conducted investment business on behalf of the Claimants or Sarasin-Alpen had given different advice the Claimants would, nevertheless, have purchased the same or similar structured financial products, (ii) the Notes were not inherently loss-making (the cause of the losses suffered by the Claimants being a subsequent fall in the markets and the failure on the part of the Claimants to pay the margin calls).

(2) On behalf of Bank Sarasin:

(a) it is denied that Bank Sarasin was carrying on any financial service business in the DIFC; and so denied that it was subject to the DIFC Regulatory Regime;

(b) it is said that, in the light of the expert evidence as to Swiss Law and on a proper understanding of Article 32 of the Swiss Code of Obligations, the claims made against Bank Sarasin under that article must fail; and

(c) it is said that, even if claims in respect of negligence and misrepresentation could be maintained against Sarasin-Alpen under DIFC Law (which is denied), there is no basis on which Bank Sarasin could be held vicariously liable for the acts and omissions alleged.
The underlying facts
The parties

5. The first Claimant, Rafed Al Khorafi (“Mr Al Khorafi”), is a member of a wealthy Kuwaiti family. On the death of his father, Abdul Mohsen Bader Al Khorafi, he inherited control of the family assets. The second Claimant, Amrah Al Hamad (“Mrs Al Hamad”) is the mother of Mr Al Khorafi. She, too, inherited significant wealth from her own family and from her late husband. The third Claimant, Alia Al Rifai (Mrs Al Rifai”) is Mr Al Khorafi’s wife. Again, she inherited significant wealth from her own family.

6. Bank Sarasin is a long established Swiss bank. At the material time it was a subsidiary of Rabobank NV, one of the largest banks in the world. Bank Sarasin provides a full range of banking and investment services. It is not, and never has been, authorised to conduct financial service activities in the DIFC.

7. Sarasin-Alpen was incorporated in the DIFC on 23 February 2005. It is a joint venture between Bank Sarasin, which owns 60% of its shares, and Alpen Corporation Limited (“Alpen”), a company incorporated in Jersey, which owns the remaining 40% of its shares.

8. Sarasin-Alpen was at all material times licensed and regulated by the DFSA as an Authorised Firm pursuant to the DIFC Regulatory Law of 2004. It was authorised to carry out the following Financial Services in and from the DIFC: (i) arranging credit or dealings in investments, (ii) advising on financial products or credit; and (iii) arranging custody. Notwithstanding that its name might suggest otherwise, Sarasin-Alpen was not a bank; and did not carry on business as such.
The Alpen/Bank Sarasin shareholders’ agreement.

9. Prior to the incorporation of Sarasin-Alpen, Bank Sarasin and Alpen had entered into a shareholders’ agreement on 9 December 2004 (updated on 29 June 2006). That shareholders’ agreement provided that the business of Sarasin-Alpen was to be the marketing of the various private banking and asset management products and related services that Bank Sarasin, its subsidiaries and associated partners were licensed to offer (“Products”). Under the shareholders’ agreement, Sarasin-Alpen was to be given the exclusive right (along with other Sarasin Group companies) to market Sarasin private banking products in the Middle East region and the Asian sub-continent. At all material times since the incorporation of Sarasin-Alpen the marketing of Bank Sarasin’s financial products was Sarasin-Alpen’s principal business.

10. Bank Sarasin undertook the following (amongst other) obligations: (i) to serve customers introduced by Sarasin-Alpen with Products and services offered by Bank Sarasin; (ii) to provide comprehensive ongoing Product and technical knowledge and expertise to Sarasin-Alpen, including updates and support to facilitate the marketing and promotion of the Products in the Middle East region; (iii) to share costs and revenues with Sarasin-Alpen; (iv) to second one or more employees to Sarasin-Alpen from time to time; (iv) to maintain, in so far as within its power to do so, such regulatory and/or state registration and licensing in respect of the Products and services; and (v) to grant Sarasin-Alpen a non-exclusive royalty free licence to use the name “Bank Sarasin” in connection with its business in the Middle East Region. All revenue in respect of Products sold by Bank Sarasin to purchasers on the introduction of Sarasin-Alpen was payable by Bank Sarasin to Sarasin-Alpen.
The Bank Sarasin/Sarasin-Alpen delegation agreement.

11. Sarasin-Alpen was appointed as agent for Bank Sarasin in respect of the latter’s account opening procedures. In particular, under the terms of an Intra Group Delegation Agreement made on 18 April 2005 between Bank Sarasin and Sarasin-Alpen, Bank Sarasin delegated to Sarasin-Alpen the task of identifying clients and investigating their background; and it was acknowledged that Sarasin-Alpen’s role was to introduce clients to Bank Sarasin and that “to facilitate the opening of an account with [Bank Sarasin] in compliance with Swiss regulation, [Bank Sarasin] appoints [Sarasin-Alpen] as Delegate”. The Delegation Agreement also provided that Sarasin-Alpen was authorised to verify the client’s identity; and that Sarasin-Alpen’s role was to establish the beneficial owner and to carry out any additional background investigations on the client and the origin of the funds being deposited with Bank Sarasin. The tasks assumed by Sarasin-Alpen included “The provision of background information on the client with the aim of being able to judge whether and to what extent the client relationship carries a higher risk” and “The investigations into the client’s background and the origin of the funds to be deposited with [Bank Sarasin] undertaken by [Sarasin-Alpen] must be documented using the ‘Client Profile’ form provided by [Bank Sarasin]. The client profile must be signed by the employee of [Sarasin-Alpen] who has compiled the profile”.
Mr Kerry and Mr Walia

12. It is common ground that, during the material period, Mr Sharad Kerry (an employee of Sarasin-Alpen) and Mr Rohit Walia (Chief Executive Officer of Sarasin-Alpen) acted as the link between Sarasin-Alpen and Bank Sarasin on the one hand and the Claimants on the other hand. It is common ground, also, (i) that, although Mr Kerry and Mr Walia each met Mr Al Khorafi, neither Mr Kerry nor Mr Walia (nor any other employee of Sarasin-Alpen) ever met or spoke to Mrs Al Ahmad or to Mrs Al Rifai and (ii) that no employee of Bank Sarasin ever met or spoke to any of the Claimants.
An overview of the dealings between the Claimants and Bank Sarasin/Sarasin-Alpen

13. Mr Al Khorafi was introduced to Mr Walia and Mr Kerry in 2007, following discussions between an accountant, Alaa Taha, employed by Mr Al Khorafi and ABK, in the course of which ABK had indicated to Mr Taha that it was willing to lend a total of US$80 million to Mr Al Khorafi and his mother, Mrs Al Hamad, for the purpose of enabling them to make investments outside Kuwait.

14. That introduction led to the purchase by the Claimants of the Notes from Bank Sarasin. The Notes were purchased in three tranches. First, in June 2007, Mr Al Khorafi and Mrs Al Hamad invested US$30 million and US$50 million respectively, financed by lending from ABK. Second, in July 2007, Mrs Al Hamad invested a further US$100 million, financed by lending from Bank Sarasin. Third, in February 2008, Mrs Al Rifai invested US$10 million, financed by lending from both ABK and Bank Sarasin. In April 2008 Mrs Al Rifai invested a further USD 10 million in a fiduciary deposit.

15. On or about 6 June 2007 – before, but in anticipation of, their purchases of the first tranche of the Notes – Mr Al Khorafi and Mrs Al Hamad each signed (i) client agreements with Sarasin-Alpen, described as Additional General Business Conditions Dubai International Financial Centre (“AGBCs”); (ii) application forms for opening current and custody accounts with Bank Sarasin; and (iii) deeds of pledge in favour of Bank Sarasin.

16. At or about the same date Mr Al Khorafi signed a Confirmation of Investment, attaching an Indicative Termsheet dated 16 May 2007 (also signed) in respect of 8% (p.a.) Capital Protected Notes on the REIT Bskt VIII quanto in USD. The document confirmed his investment of an amount of US$30 million in that product. A similar Confirmation of Investment was prepared for signature by Mrs Al Hamad in respect of her investment of an amount of US$50 million in “REIT Bskt”; but there is no record that she signed that document. Nevertheless, attached to the Confirmation of Investment were Indicative Termsheets dated 16 May 2007 (which bear her signature) in respect of 10% (p.a.) Capital Protected Notes on the REIT Bskt VIII quanto in USD.

17. On 23 June 2007 Mr Al Khorafi countersigned a credit facility agreement (set out in a letter from Bank Sarasin dated 21 June 2007) in respect of a credit facility of up to US$21,660,000 for use in respect of overdrafts, fixed advances, guarantees and “options and futures transactions subject to margin requirements, as well as structured products”. The facility was expressed to be secured by assets held in his name by Bank Sarasin in accordance with the deed of pledge.

18. On 25 June 2007 Mrs Al Hamad signed an irrevocable payment order (the “Irrevocable Payment Order” or “IPO”) instructing Bank Sarasin (i) to invest US$50 million in “The Product” (defined as 10% p.a. Capital Protected Notes on the REIT Basket VII quanto in USD, duration 3 years, from an issuer with a rating of at least Aa or AA), (ii) to transfer the redemption amount of The Product to a specified account (“The Account”) in her name at ABK, (iii) to transfer the coupon payments of The Product to The Account and (iv) to declare to ABK that the instructions were irrevocably accepted by Bank Sarasin in the sense of Article 468 of the Swiss Federal Code of Obligations, under the condition that the amount of US$50 million was transferred from the Account to her account with Bank Sarasin.

19. On 26 June 2007 Bank Sarasin opened current and custody accounts in the names of Mr Al Khorafi and of Mrs Al Hamad.

20. This first tranche of investments was booked to Mr Al Khorafi’s and Mrs Al Hamad’s accounts on 28 June 2007 for value on 2 July 2007. On 2 July 2007 the REIT Notes were purchased using the monies advanced to Mr Al Khorafi and Mrs Al Hamad by ABK.

21. On 11 July 2007 Mrs Al Hamad signed a power of attorney in favour of Mr Al Khorafi authorising him to represent her, without restriction, in all dealings with Bank Sarasin in connection with her current and custody accounts.

22. 17 July 2007 Mrs Al Hamad (by Mr Al Khorafi as her attorney) signed Confirmation of Investments in anticipation of her purchase of the second tranche of the Notes. Attached to those documents were, respectively, Indicative Termsheets, each dated 17 July 2007) in respect of (i) 8% (p.a.) SaraFloor on the Special Materials Basket quanto in USD, (ii) 8% (p.a.) SaraFloor on the Energy Basket quanto in USD and (iii) 8% (p.a.) SaraFloor on the Financial Services Basket quanto in USD. The amounts of those products to be purchased (as appears from the Confirmations of Investment) were, respectively US$30 million, US$30 million and US$40 million: a total investment of US$100 million.

23. On 23 July 2007 Mrs Al Hamad signed a further deed of pledge in favour of Bank Sarasin. That was in the same terms as the former deed (signed on or about 6 June 2007). On the same day she countersigned a credit facility agreement (set out in a letter from Bank Sarasin dated 20 July 2007) in respect of a credit facility of up to US$100 million, for use in respect of overdrafts, fixed advances, guarantees and “options and futures transactions subject to margin requirements, as well as structured products”. The facility was expressed to be secured by assets held in her name by Bank Sarasin in accordance with the deed of pledge.

24. On 24 July 2007, the second tranche of investments were booked to Mrs Al Hamad’s account with Bank Sarasin. Definitive Termsheets for the investments purchased were not issued until much later (9 October 2007); and were then reissued for the Special Materials basket on 9 January 2008. The purchase was funded by a loan from Bank Sarasin under her credit facility.

25. On 26 July 2007 Mr Al Khorafi signed a further deed of pledge in favour of Bank Sarasin. That, too, was in the same terms as the deed which he had signed on or about 6 June 2007; save that it stood as security for the bank’s claims not only against Mr Al Khorafi but also for the bank’s claims against Mrs Al Hamad. On the same day (26 July 2007) Mrs Al Hamad countersigned a second credit facility agreement (set out in a letter from Bank Sarasin of the same date) which replaced the earlier agreement and increased the amount of the facility to US$135 million. The new facility letter was also signed by Mr Al Khorafi; and the facility was expressed to be secured on assets held in her name and on assets held in his name in accordance with their respective deeds of pledge.

26. On or about 5 September 2007 Mr Al Khorafi countersigned a second credit facility agreement (set out in a letter from Bank Sarasin of that date) which replaced the earlier agreement and increased the amount of the facility by US$30 million, from US$21,660,000 to US$51,660,000 for use in respect of overdrafts, fixed advances, guarantees and “options and futures transactions subject to margin requirements, as well as structured products”. The facility was expressed to be secured by assets held in his name by Bank Sarasin in accordance with the deed of pledge.

27. On 10 September 2007 Mr Al Khorafi signed a Confirmation of Investment confirming his purchase of a Product described as “1-month Non Callable Witch Hat Note on the USD 3 M Libor in USD”.

28. On 7 January 2008 Mr Al Khorafi countersigned a third credit facility agreement (set out in a letter from Bank Sarasin of 20 December 2007) which replaced the second credit facility agreement and increased the amount of the facility to US$202 million, again for use in respect of overdrafts, fixed advances, guarantees and “options and futures transactions subject to margin requirements, as well as structured products”. The facility was expressed to be secured by a guarantee to be issued by ABK in the amount of US$27,500,000 and by assets held in his name by Bank Sarasin in accordance with his deed of pledge.

29. On 17 January 2008, in anticipation of her purchase of the third tranche of the Notes, Mrs Al Rifai signed (i) a client agreement (in the AGBC form); (ii) an application form for opening current and custody accounts with Bank Sarasin; (iii) a deed of pledge in favour of Bank Sarasin; and (iv) a power of attorney in favour of Mr Al Khorafi.

30. On 22 January 2008 ABK issued a guarantee in the sum of US$27,500,000 to Bank Sarasin. ABK’s potential liability under the guarantee was secured by collateral (in the form of a plot of land in Kuwait) which Mr Al Khorafi had provided to ABK.

31. On or about 12 February 2008 Mrs Al Rifai countersigned a credit facility agreement (set out in a letter from Bank Sarasin of that date) in respect of a credit facility of up to US$60 million for use in respect of overdrafts, fixed advances, guarantees and “options and futures transactions subject to margin requirements, as well as structured products”. The facility was expressed to be secured by a guarantee to be issued by ABK in the amount of US$27,500,000 and by assets held in the name of Mrs Al Hamad by Bank Sarasin in accordance with her deed of pledge.

32. Also on 12 February 2008 Bank Sarasin wrote to Mr Al Khorafi to advise him that the credit facility of up to US$202 million, granted in the letter of 20 December 2007, had been cancelled “as this increase is no longer needed, and that the facility had been reduced to US$51,660,000 “as per credit facility letter of 5 September 2007”.

33. On the same day (12 February 2008) Bank Sarasin issued Definitive Termsheets in respect of (i) 8% (p.a.) SaraFloor on a Agri & Coal Basket II in USD (Asian Style) Notes and (ii) 8% (p.a.) SaraFloor on the JPMorgan Efficiente Index in USD Notes. There is no record that Mrs Al Rifai signed those Definitive Termsheets; or that she signed Confirmations of Investment in respect her investment in the purchase of those Notes. Nevertheless it is common ground that purchases of those Notes (in the amounts of US$5 million each) were booked to her account on 12 February 2008.

34. On or about 5 April 2008 Mrs Al Rifai signed a further deed of pledge in favour of Bank Sarasin, expressed to cover not only the claims which the Bank had or might have in the future against her as Pledger but also claims against Mr Al Khorafi and Mrs Al Hamad. That deed was countersigned by Mr Al Khorafi, for himself and as attorney for Mrs Al Hamad.
35. On 8 June 2008 ABK released Bank Sarasin from its obligations under the Irrevocable Payment Order of 25 June 2007. The consideration for that release was the payment to ABK of US$20 million drawn against Mrs Al Rifai’s credit facility at Bank Sarasin.

36. On 29 September 2008 Bank Sarasin made margin calls against the accounts of Mrs Al Hamad and Mrs Al Rifai in the sums of US$5,077,977 and US$3,423,353 respectively. Those sums were not paid. Further calls were made on 7 October 2008; which, again, were not met. On 8 October 2008 Bank Sarasin terminated the facilities extended to Mrs Al Hamad and Mrs Al Rifai. On the same date Bank Sarasin closed out all of the Notes held on behalf of the Claimants (including Mr Al Khorafi). That resulted in significant losses on the portfolios; and left Mr Al Khorafi and Mrs Al Hamad with outstanding balances on their loans from ABK.

The Notes

37. As I have said, the Notes were purchased in three tranches:

(1) In June 2007 Mr Al Khorafi and Mrs Al Hamad purchased 8% (p.a.) and 10% (p.a.) Capital Protected Notes on the REIT Bskt VIII (“the REIT Notes”).

(2) In July 2007 Mrs Al Hamad purchased (i) 8% (p.a.) SaraFloor Notes on the Special Materials Basket, (ii) 8% (p.a.) SaraFloor Notes on the Energy Basket and (iii) 8% (p.a.) SaraFloor Notes on the Financial Services Basket (together “the July 2007 SaraFloor Notes”).

(3) In February 2008 Mrs Al Rifai purchased (i) 8% (p.a.) SaraFloor Notes on a Agri & Coal Basket II and (ii) 8% (p.a.) SaraFloor Notes on the JPMorgan Efficiente Index (together “the February 2008 SaraFloor Notes”).

38. The REIT Notes were described in Indicative Termsheets dated 16 May 2007. The termsheet in respect of the 8% Notes contained the following introductory paragraph by way of general description:
“Capital Protection Notes on a REIT Basket VIII quanto in USD allow a participation in the positive performance of the Underlying. Simultaneously they enable to protect the invested capital at 76.00% (USD 38,000.00) of the nominal amount and pay interest of 24.00% (USD 12,000.00, 8.00% p.a.) The indicative participation in the Underlying performance at the Final Fixing Date is 88% with unlimited profit capabilities.”
The general description in the Termsheet in respect of the 10% Notes was in the same terms: save that it was said, in the second sentence, that those Notes:
“. . . enable to protect the Invested capital at 70.00% (USD 35,000.00) of the nominal amount and pay interest of 30.00% (USD 15,000.00, 10.00% p.a.)” and the indicative participation in those Notes was 86% (rather than 88%).

39. The Issuer, Lead Manager, and Calculation Agent were all “[tba]”. The Lead Distributor was “Bank Sarasin-Alpen (ME) Ltd, Dubai and Bank Sarasin & Cie AG, Basel”. “Underlying” REIT Basket VIII, in each case, was specified as FTSE EPRA/NAREIT EURO Zone PR index (25%), FTSE EPRA/NAREIT Europe Index (25%) and Tokyo SE REIT Index (50%). The Notes were offered in units of US$50,000.00 (Notional) at an Issue price per unit of 100% of Notional (US$50,000.00). The Redemption Date was “Final Fixing + 5 business days”; Final Fixing was “Initial Fixing + 3 years”; and Initial Fixing was “[tba]”. Capital Protection was stated to be “76% [or 70%, as the case might be] of the Notional (US$38,000.00 [or US$35,000.00, as the case might be]). The Coupon was stated to be “8% p.a. [or 10% p.a. as the case might be] paid semi-annually”. The Redemption Amount was stated in these terms:
Redemption Amount At the Redemption Date the Investor receives per Note an amount in cash (USD)according to the following formula:

Redemption Amount At the Redemption Date the Investor receives per Note an amount in cash (USD)according to the following formula:

N x [CP + P/X x Max (Sγ–X;0)]

with:

N    :  Notional Amount

CP  :  Capital Protection (excluded Coupons)

P     :  Participation

Sγ      :   Official closing price of the Underlying at the

Final Fixing

X     :  Strike Price

As I have said, Participation was stated (in the case of the 8% Notes) to be 88% and (in the case of the 10% Notes) 86%. The formula was illustrated by worked examples based upon an estimate of basket growth of 80% over three years. Based on that estimate of growth, the indicative Redemption Amount on an investment of US$30,000,000 in the purchase of the 8% Notes was US$43,920,000; and, on an investment of US$50,000,000 in the purchase of the 10% Notes was US$69,400,000.

40. The Indicative Termsheets in respect of the REIT Notes included a paragraph in these terms:
“Risk The structure of the Capital Protected Notes is designed to provide Capital Protection, as the product pays back a minimum amount on maturity, but at the same time you participate in the performance of a specific Underlying.
Under certain circumstances the price of the Notes may dip below the Capital Protection Level during the lifetime. The product’s value does not only depend on the Underlying’s performance but also on the credit rating of the Issuer.”

41. The July 2007 SaraFloor Notes were described in Indicative Termsheets dated 17 July 2007.

(1) The Termsheet in respect of the Notes on the Special Materials Basket contained an introductory paragraph, by way of general description, which was in terms very similar to those of the REIT termsheets:

“SaraFloor on the ESSENTIAL (sic) Basket quanto in USD allow a participation in the positive performance of the Underlying. Simultaneously they enable to protect the invested capital at 76.00% (USD 38,000.00) of the nominal amount and pay interest of 24.00% (USD 12,000.00, 8.00% p.a.) The participation in the Underlying performance at the Final Fixing Date is 85% with unlimited profit capabilities.”

(2) The general description in the Termsheet in respect of the Notes on the Financial Services Basket was in the same terms (save that the reference was to “SaraFloor on the Financial Services Basket quanto”). Again, the Issuer, Lead Manager, and Calculation Agent were all “[tba]”; and the Lead Distributor was “Bank Sarasin-Alpen (ME) Ltd, Dubai and Bank Sarasin & Cie AG, Basel. The components making up the Underlying Special Materials Basket (or Financial Services Basket, as the case might be) were specified. The Notes were offered in units of US$50,000.00 (Notional) at an Issue price per unit of 100% of Notional (US$50,000.00). The Redemption Date was 23 July 2010. Capital Protection was stated to be “76% of the Notional (US$38,000.00). The Coupon was stated to be “24.00% (US$12,000.00, 8% p.a.”. The Redemption Amount was stated in the same terms (save for the substitution of the words “per SaraFloor” for the words “per Note”) as in the REIT termsheets. There were no worked examples illustrating the formula.

(3) The general description in the Termsheet in respect of the Notes on the Energy Basket was in similar (but not the same) terms:

“SaraFloor on the Energy Basket quanto in USD allow a participation in the positive performance of the Underlying. Simultaneously they enable to protect the invested capital at 76.00% (USD 38,000.00) of the nominal amount and pay interest of 16.00% (USD 8,000.00, 8% p.a.) Additionally 8.00% (USD 4,000.00, 8.00% p.a.) OR 75% of the underlying performance with unlimited profit capabilities are paid at expiration.”
The Issuer of the Notes was named as Bank Sarasin (CI) Ltd, Guernsey and the Lead Manager as Bank Sarasin & Cie AG, Basel. The components making up the Underlying Energy Basket were specified. The Notes were offered in units of US$50,000.00 (Notional) at an Issue price per unit of 100% of Notional (US$50,000.00). The Redemption Date was “Final Fixing plus 2 weeks”; Final Fixing was “Initial Fixing plus 3 years; and Initial Fixing was “tba”. Capital Protection was stated to be “76% of the Notional excluded coupons (US$38,000.00)”. The Coupon was stated to be “16.00% (US$8,000.00, 8% p.a.”. The Redemption Amount was stated in the same terms (save for the substitution of the words “per SaraFloor” for the words “per Note”) as in the REIT termsheets; and the formula was expanded to:

“MAX (8%; N x [CP + P/X x Max (Sγ –X;0)]”

There was no worked example illustrating the formula.

42. The February 2008 SaraFloor Notes were described in Definitive Termsheets issued on 12 February 2008. Again, the termsheet in respect of the Notes on a Agri & Coal Basket II contained an introductory paragraph, by way of general description, which was in terms very similar to those of the REIT termsheets:
“SaraFloor on the Agri & Coal Basket II in USD allow a participation in the positive performance of the Underlying. Simultaneously they enable to protect the invested capital at 68.00% (USD 34,000.00) of the nominal amount and pay a total coupon of 32.00% (USD 16,000.00, 8.00% p.a.) The participation in the Underlying performance at the Final Fixing Date is 65% with unlimited profit capabilities.”
The general description in the termsheet in respect of the Notes on the JPMorgan Efficiente Index was in the same terms (save that the reference was to “SaraFloor on the JPMorgan Efficiente Index; and the participation in the Underlying performance was 73%. The Issuer of the Notes was named as Bank Sarasin (CI) Ltd, Guernsey, the Lead Manager was Bank Sarasin & Cie AG, Basel and (in the case of the Notes on the JPMorgan Efficiente Index) the Lead Distributor was “Bank Sarasin-Alpen (ME) Ltd, Dubai and Bank Sarasin & Cie AG, Basel”. The components making up the Agri & Coal Basket II were specified: the Underlying in respect of the Notes on the JPMorgan Efficiente Index was stated to be “JPMorgan Efficiente Index in USD”. In each case the Notes were offered in units of US$50,000.00 (Notional) at an Issue price per unit of 100% of Notional (US$50,000.00). The Redemption Date was 21 February 2012 (in the case of the Notes on the Agri & Coal Basket II and 22 February 2012 (in the case of the Notes on the JPMorgan Efficiente Index). Capital Protection was stated to be “68.00% of the Notional excluding coupon (US$34,000.00)”. The Coupon was stated to be “32.00% (US$16,000.00, 8% p.a.”. The Redemption Amount was stated in the same terms (save for the substitution of the words “per SaraFloor” for the words “per Note”) as in the REIT termsheets. There were no worked examples illustrating the formula.

43. The Indicative Termsheets in respect of the July 2007 SaraFloor Notes and the Definitive Termsheets in respect of the February 2008 SaraFloor Notes included a paragraph as to Risk which was in substantially the same terms as the paragraph in the Indicative Termsheets in respect of the REIT Notes to which reference has already been made:
“Risk The structure of the SaraFloor unit is designed to provide capital protection (floor), as the product pays back a minimum amount on maturity, but at the same time you participate in the performance of a specific Underlying.
Under certain circumstances the price of the SaraFloor may dip below the floor during the lifetime. The product’s value does not only depend on the Underlying’s performance but also on the credit rating of the Issuer”

44. The Indicative Termsheets and Factsheets each contained a disclaimer and risk information in these terms:
“…No guarantees are given as to any of the information provided. Please consider carefully whether this investment is, by virtue of its nature, suitable for you, by seeking the advice of an independent financial advisor if necessary…”
The contractual arrangements between the Claimants and Bank Sarasin
The account opening forms

45. The Claimants each signed application forms for opening current and custody accounts with Bank Sarasin. In signing those forms the Claimants confirmed that he or she had respectively:
“…received the Bank’s brochure ‘Special Risks in Securities Trading’ and that he/she is aware that the value of investments may suddenly substantially fall in value and that he/she may not recover the full value of his/her investment on withdrawal”.
The credit facility agreements.

46. Bank Sarasin made credit facilities available to Mr Al Khorafi upon the terms of letter agreements dated 21 June 2007, 5 September 2007 and 20 December 2007 (as revised and reduced by a letter dated 12 February 2008). Bank Sarasin made credit facilities available to Mrs Al Hamad upon the terms of a letter agreement dated 20 July 2007 (as revised and increased by a letter dated 26 July 2007). Bank Sarasin made credit facilities available to Mrs Al Rifai upon the terms of a letter agreement dated 12 February 2008. Each of those credit facility agreements provided for the provision of pledged assets as collateral security; and each contained a paragraph in these terms:

“The total amount of all transactions covered by this credit facility, which will be counted against the credit facility by our institutions, must be covered by the lending value of the above-mentioned collateral at all times (lending value = value of collateral minus margin). The size of the margin is determined by us, at our entire discretion, and is based on the type of collateral, its market-, nominal- or redemption- value where applicable, and its risk profile. Margins applied to individual items of collateral can vary greatly. We reserve the right to adjust these margins in line with prevailing conditions at any time and without prior notice. We will be happy to provide information on the lending value of the collateral on request.”
Each of the agreements contained provision that the credit facility could be terminated with immediate effect by either party at any time.

The pledge agreements

47. Mr Al Khorafi and Mrs Al Hamad each signed a pledge agreement in favour of Bank Sarasin on 6 June 2007. Mrs Al Hamad signed a further pledge agreement in favour of Bank Sarasin on 23 July 2007. Mr Al Khorafi signed a further pledge agreement in favour of Bank Sarasin on 26 July 2007. Mrs Al Rifai signed a pledge agreement in favour of Bank Sarasin on 17 January 2008; and a further pledge agreement in favour of Bank Sarasin on or about 5 April 2008. By each of those agreements Mr Al Khorafi, Mrs Al Hamad or Mrs Al Rifai (as the case might be) as Pledger, pledged in favour of the Bank all securities which were then or in the future held by the Bank for his or her account. In each case the pledge was expressed to cover all claims which the Bank had, or might have in the future, against the Pledger. But, in addition, (i) the pledge given by Mr Al Khorafi in the agreement which he signed on 26 July 2007 also covered claims which the Bank had, or might have in the future, against Mrs Al Hamad and (ii) the pledge given by Mrs Al Rifai in the agreement which she signed on or about 5 April 2008 also covered claims which the Bank had, or might have in the future, against Mr Al Khorafi and/or against Mrs Al Hamad.

48. Each of the pledge agreements contained a paragraph in these terms:

“Should the value of the pledged assets fall below the customary or agreed margin, or if the Bank should, for other reasons, consider the value no longer adequate to cover its claims, the Debtor [meaning the Pledger and the other person or persons against whom the Bank had claims secured by the pledge] shall be bound upon simple demand by the Bank to either reduce the debt by repayment or furnish sufficient additional security to re-establish said margin. In the event of the Debtor failing to comply with said conditions within such time limit as may be set by the Bank at its discretion, the debt shall become repayable and due immediately. If, for any reason or exceptional circumstances, the Bank is unable to notify the debtor immediately of a fall in value of the pledged assets below the customary or agreed margin, the full amount of the outstanding claims of the Bank shall become immediately due and payable.”
Under the terms of the agreements the Bank was entitled, as soon as the debt became due, at its discretion and after previous warnings, to realise the pledge assets by free sale.

The effect of the investment structure into which the Claimants entered

49. It is convenient, at this stage, to draw attention to the effect of the arrangements into which the Claimants entered in the course of making their investments in the Notes. The position may be summarised as follows.

(1) The return on the investments was dependent on the credit of the issuer: that is to say, on the ability of the issuer to make the coupon payments and the redemption payment when they fell due. The investments were not underpinned by assets which had a value independent of the issuer’s covenant. In that context it is pertinent to have in mind that, at the time the Notes were purchased, (i) the issuer was not identified in the Indicative Termsheets (dated 16 May 2007) in respect of the REIT Notes, (ii) the issuer was not identified in the Indicative Termsheets (dated 17 July 2007) in respect of two out of the three purchases of the July 2007 SaraFloor Notes (the Notes on the Special Materials Basket and the Notes on the Financial Services Basket) and (iii) in the cases in which the issuer was identified prior to the purchase (in the Indicative Termsheet in respect of the July 2007 SaraFloor Notes on the Energy Basket and in the Definitive Termsheets in respect of the February 2008 Sarafloor Notes), where the issuer was named as Bank Sarasin (CI) Ltd, Guernsey, the issuer’s credit rating was said to be “Not Available”). The risk of default by the issuer may be described as “Issuer Risk”.

(2) The investment in the Notes was “Capital Protected” only to the extent that, if the Notes were held until maturity, the investor would receive (subject to Issuer Risk) a specified percentage of the notional value (being the difference between 100% and the percentage amount already received as coupon payments). There was no capital protection if the Notes were not held to maturity.

(3) The deeds of pledge (and the associated credit facility agreements) entitled Bank Sarasin to make margin calls against the borrower in the event that the value of the assets pledged fell below the “lending value” (that is to say, the value less the margin); and to realise the assets pledged (by closing out the Notes prior to maturity) if the margin calls were not met. The effect was that, if the value of the “Underlying” fell as a result of market conditions over which the investors had no control, each was at risk of having the Notes closed out prior to maturity – so vitiating such capital protection as the Notes might otherwise provide – if the borrower could not, or did not, meet the margin call. This risk may be described as “Margin Call Risk”.

(4) If, but only if, the coupon payments were treated as a return of capital (with no interest element) could it be said that the Notes provided capital protection of the whole amount invested.

(5) Given that the purchase monies were funded wholly by borrowing, the investor needed to service the cost of that borrowing. The effect of the Irrevocable Payment Order dated 25 June 2007 was that the coupon payments in respect of the 10% REIT Notes purchased by Mrs Al Hamad were to be paid to ABK. To the extent that those coupon payments were to be set against the interest accruing on the US$50 million which she had borrowed from ABK in order to fund that purchase, they could not properly be treated as a return of capital.

(6) The effect of the pledge agreements with Bank Sarasin was that the assets pledged included the coupon payments in respect of the REIT Notes, the July 2007 SaraFloor Notes and the February 2008 SaraFloor Notes. To the extent that those coupon payments were to be set against the interest accruing on the monies borrowed by Mrs Al Hamad and/or Mrs Al Rifai from Bank Sarasin in order to fund their purchases of Notes, they could not properly be treated as a return of capital.

(7) Interest was payable on the ABK loans at a variable rate. The coupon payments in respect of the Notes were fixed. There was a risk that the variable rate at which interest accrued on the ABK loans could exceed the coupon payments on the REIT Notes.

(8) The purchases of the July 2007 SaraFloor Notes and the February 2008 SaraFloor Notes were funded by loans (to Mrs Al Hamad and Mrs Al Rifai respectively) from Bank Sarasin. Those loans were secured by pledges over the Notes purchased by the borrower; and by pledges (by way of cross-collateral) over the Notes purchased by the other investors. In particular, the loan to Mrs Al Hamad was secured not only by a pledge over the Notes held in her name (being the 10% REIT Notes which she had purchased in June 2007 – to the extent consistent with the Irrevocable Payment Order – and the July 2007 SaraFloor Notes which she purchased with the monies lent), but also by a pledge over the 8% REIT Notes held in the name of Mr Al Khorafi and the February 2008 SaraFloor Notes held in the name of Mrs Al Rifai.

(9) The liabilities for which the July 2007 SaraFloor Notes purchased by Mrs Al Hamad were pledged as security included the interest charges accruing on the US$100 million which she had borrowed to fund that purchase; and the liabilities for which the February 2008 SaraFloor Notes purchased by Mrs Al Rifai were pledged as security included not only the interest charges accruing on the monies borrowed by Mrs Al Rifai to fund her purchase but also the interest charges accruing on the US$100 million borrowed by Mrs Al Hamad.
The contractual arrangements between the Claimants and Sarasin-Alpen
The Confirmations of Investment

50. Mr Al Khorafi signed a Confirmation of Investment, dated 6 June 2007, in respect of his investment of US$30 million in the REIT Notes. There is no record that Mrs Al Hamad signed a Confirmation of Investment in respect of her investment of US$50 million in the REIT Notes; although an unsigned Confirmation of Investment form in respect of that investment, to which the Indicative Termsheet (bearing her signature on each page) was attached, has been produced by the Defendants. Mrs Al Hamad signed, by her attorney Mr Al Khorafi, Confirmations of Investment, dated 17 July 2007, in respect of her investments (amounting to US$100 million in aggregate) in the July 2007 SaraFloor Notes. There is no record that Mrs Al Rifai signed Confirmations of Investment in respect of her investments (amounting to US$10 million in aggregate) in the February 2008 SaraFloor Notes.

51. The Confirmations of Investment were on the headed paper of Sarasin-Alpen. They are addressed “Dear Sir/Madam”. They confirm “my purchase of the investment product as mentioned below”. Details of the investment product – which include Product Name, Amount to be invested, Term Sheet/Factsheet Date and Capital Protection Level at maturity – are set out in a table. Immediately below the table there is the following statement:

“By signing below, I/we confirm that I/We have read the attached ‘Indicative Term Sheet/Factsheet/other product information documents in full.
I/We are aware of the product characteristics and the inherent risks of investing in the same.
I/We appreciate that past performance is no guarantee of future results and that the value of my Investment, during its life, may go down as well as up.
I/We confirm that it is suitable to my/our financial condition and circumstances, and corresponds to my/our investment objectives.”
The forms conclude:
“I/We hereby authorise Bank Sarasin & Company Limited to debit my/our bank account for the above mentioned product on or before the settlement date.”

The Additional General Business Conditions

52. The Additional General Business Conditions (“AGBCs”) set out the terms of the contracts between the Claimants (each referred to in the AGBCs as “the Client”) and Sarasin-Alpen (then known as “Bank Sarasin-Alpen (ME) Limited”, and referred to in the AGBCs as “BSA”). The AGBCs contained an introductory paragraph in these terms:

“These Additional General Business Conditions are entered into to ensure compliance with the applicable legislation and rules of the DIFC for Clients of Bank Sarasin-Alpen (ME) Limited (‘BSA’), an Authorised Firm regulated by the Dubai Financial Services Authority (‘DFSA’) and forms part of the business relationship between the Client and BSA. No other agreement entered into with Bank Sarasin & Co Ltd, its branches, representatives offices or affiliated companies (together the ‘Sarasin Group’), or any document executed in favour of the Sarasin Group, shall be replaced hereby. If there is any conflict between such agreements and/or documents and these Additional General Business Conditions regarding the business relationship between the Client and BSA, the Additional General Business Conditions shall prevail.
Capitalised Terms not otherwise defined herein are used in their context as defined terms in the Glossary Module of the DFSA Rulebook. Please refer to the excerpts [from] the Glossary Module attached hereto for ease of reference in this regard.
These Additional General Business Conditions comprise a client agreement for the purposes of the Conduct of Business Module of the DFSA Rulebook and shall come into force upon execution by both parties.”
The AGBCs comprised, or were intended to comprise, in addition to the terms of the agreement (set out in seven clauses on numbered pages 1 to 5), two annexes: (i) Annex 1, headed “Client Declarations, Undertakings & Authorizations” (set out on pages 6, 7 and 8 of the document); and (ii) Annex 1A, headed “Individual Client Analysis” (set out on pages 9 and 10 of the document). The document was intended to be signed by both Sarasin-Alpen and the Client on page 8: that is to say, on the last page of Annex 1, and before Annex 1A.

53. Clause 1 of the agreement (“Client Qualification”) was in these terms:

“1.1 The Client has completed the Client Declarations, Undertakings & Authorization set out in Annex 1.

1.2 The DIFC is a wholesale jurisdiction and the Client, when dealing with BSA, will not be afforded the retail customer protection and compensation rights that may generally be available to them in other jurisdictions.”

54. Annex 1 to the AGBCs contained declarations, undertakings and authorisations to be given by the Client. It comprised eleven numbered paragraphs. Paragraph 1 was intended to contain a declaration in these terms:

“I, the undersigned, hereby:

1. Represent and warrant that I meet the definition of ‘Client’ as set out in the Conduct of Business Module of the DFSA Rulebook as follows (Please tick the appropriate box signifying the criterion for qualification):
 …”
There followed eleven sub-paragraphs, each setting out criteria for qualification as a Client under the Conduct of Business Module of the DFSA Rulebook. The first of those was in these terms:
“ …
 An individual who:
• Has at least US$1 million in liquid assets, having provided BSA with written confirmation of this (where ‘liquid assets’ can be defined as cash or assets that can be readily converted into cash, including but not limited to marketable securities, government bonds, treasury bills and notes that mature within 90 days);
• Has sufficient financial experience and understanding to participate in financial markets in a wholesale jurisdiction (such as the DIFC); and
• Consents hereby to being treated as a Client in a wholesale jurisdiction, such as the DIFC;”

55. The purpose of Annex 1A to the AGBCs was explained in its introductory paragraph:

“If the Client in Clause 1 of the Additional General Business Conditions is stated to be an individual, please complete the following questionKerrye to establish your financial experience and understanding of financial markets in a wholesale jurisdiction, such as the DIFC.”

There followed six numbered questions to which Sarasin-Alpen sought answers from the prospective Client:

“1. State the details of your knowledge and understanding of the relevant financial markets, types of investment and of the risks involved, either generally or in relation to any proposed transaction that you consider entering into with BSA or any other member of the Sarasin Group, or through the intermediation of BSA or any other member of the Sarasin Group:

2. Confirm the length of time you have been active in the relevant financial markets, the frequency of your dealings and the extent you have relied on financial advice from financial institutions in this regard:

3. Give an indication of the size and nature of transactions that have been undertaken for you in the relevant financial markets:

4. State your relevant qualifications relating to the relevant financial markets:

5. Give an indication of the composition and size of your existing financial investment portfolio;

6. Is there anything else you consider relevant in our assessment of your financial experience and your understanding of financial markets in a wholesale jurisdiction?”

56. The remaining numbered paragraphs of Annex 1 included the following (so far as material):

“I, the undersigned, hereby:

2. Declare that the particulars and information provided by me to BSA and/or the Sarasin Group herein are accurate, correct, true and complete as at the date hereto, and that such particulars and information (whether provided to BSA or the Sarasin Group) will be depended on by BSA in making its decision as to whether I qualify as a Client hereunder;

4. Acknowledge and accept full responsibility as to any particulars or information provided at any time to BSA and/or the Sarasin Group proven to be inaccurate, incorrect, untrue or incomplete;

5. Authorise BSA to contact any source of information, or any person or entity nominated herein as a reference in order to verify the accuracy and correctness of the particulars and information provided;

6. Declare and confirm that, in providing this information to BSA and in seeking advice or recommendation from BSA pursuant to the Additional General Business Conditions, I am acting as principal and not as agent for any third party;

7. Declare and further consent to being treated as a Client under the laws and regulations of the DIFC, and confirm that I understand that, by making this declaration and giving this consent, I will not be afforded the retail customer protections and compensation rights that may generally be available to me in other jurisdictions;

8. Authorise BSA and/or the Sarasin Group, in order to assess and decide on my application to make inquiries about me to obtain information as it may consider necessary, from any sources;

9. Authorise any such contacted references, financial institutions, debt collection companies, credit bureau, or any other person or entity to disclose and provide BSA and/or the Sarasin Group with any requested available information about me;

10. Acknowledge having read and fully understood the General Terms & Conditions, the Safe Custody Regulations and the Metal Account Regulations of Bank Sarasin & Co Ltd and the Additional General Business Conditions under which BSA is willing to carry out its services; and

11. Acknowledge that BSA has the discretion to approve or decline my application.”

57. Following those numbered paragraphs and immediately above the position for the signatures of Sarasin-Alpen and the Client (on page 8 of the document) there was the following confirmation by the Client (which appeared in bold print):
“I hereby confirm that BSA is not required to consider the suitability of any particular investment when giving any advice or recommendation to, or accepting instructions or orders from, me in respect of such investments, unless in relation to a specific request for advice or recommendation or other Investment Services, I have supplied to BSA specific information on my situation or requirements for that Investment and requested specifically that these be taken into account when BSA is preparing such advice or recommendation or accepting instructions or orders.”

58. Clause 2 of the agreement (“Investment Services to be provided by BSA”) contained the following (amongst other) provisions:

“2.2 Investment Services

BSA will offer the following services (‘the Investment Services’) to the Client on the terms set out in these Additional General Business Conditions:

2.2.1 Advice and recommendation on investments or arrangements involving investments in instruments or credit including without limitation, shares, stocks, bonds, notes derivative contracts or other similar property;

2.2.2 Advice and recommendation on entities to undertake execution of investments, custody or other banking services on behalf of the Client including, without limitation, other members of the Sarasin Group;

2.2.3 Provision of research and other information and materials related to investment opportunities that BSA considers may be of interest to the Client or which may be requested by the Client; and

2.2.4 Such other services as BSA is authorized and licensed by the DFSA to offer to the Client from time to time.

2.4 Restrictions on Investments

There shall be no restrictions on the types of investments or markets in which you as Client wish to invest except as specifically agreed to in writing between the Client and BSA at the time any advice or recommendation or other Investment Services are requested by the Client pursuant to these Additional General Business Conditions, or as permitted under the applicable laws and regulations of the DIFC or the DFSA’s application or interpretation thereof

2.6 BSA’s Obligations when providing Investment Services

2.6.1 BSA will not be required to consider the suitability of any particular investment for the Client when giving advice or recommendation or accepting instructions or orders in respect of such investment, unless in relation to a specific request for advice or recommendation or other Investment Services, the Client has supplied to BSA specific information on its situation or requirements for that investment and requested specifically that these be taken into account when preparing such advice or recommendation or accepting instructions or orders.

2.6.2 BSA may assist and advise the Client in its investment activities, upon request by the Client, by supplying the Client with research and other information including details of investment opportunities, markets, companies, prices, currencies etc, as well as making specific investment recommendations. Such advice shall be based on information and sources deemed reliable by BSA. The majority of general investment recommendations made by BSA are based on the Sarasin Group’s and/or BSA’s investment policy and are aimed at a wide target group. Any investment recommendations or offers made in direct contact with individual Clients shall only take the Client’s specific situation into account if the Client has supplied such information to BSA when making the enquiry in accordance with sub-clause 2.6.1 above.

2.6.5 The Client acknowledges and agrees that, to the extent permitted by law and the DFSA Rules, neither BSA nor any other member of the Sarasin Group shall be responsible for any loss or damage suffered by the Client as a result of:

(a) any advice or recommendation given under these Additional General Business Conditions (including, without limitation, any adverse tax consequences); or

(b) …

2.6.6 Nothing in this Additional General Business Conditions nor any advice or recommendation given to the Client by BSA will give rise to any fiduciary or equitable duties on our part which would require BSA or any other member of the Sarasin Group to accept responsibilities more extensive than those set out in these terms.”

59. Clause 3 of the agreement (“Information and Communication Authorisation”) provided, at sub-clause 3.2, that:

“3.2 The Client hereby agrees to communicate with each Member of the Sarasin Group directly and agrees to forward messages and orders to the respective Member of the Sarasin Group. The Client agrees that the Sarasin Group may send its messages addressed to the Client through BSA.”
Clause 7 of the agreement provided that the AGBCs were to be governed by and construed in accordance with the laws of the DIFC; and that both Sarasin-Alpen and the Client submitted to the non-exclusive jurisdiction of the DIFC Courts.
The regulatory framework imposed by DIFC Regulatory Law of 2004
The Regulatory Law

60. The provision of financial services in and from the Dubai International Financial Centre is, and was at the material times, regulated by the DIFC Regulatory Law, DIFC Law No. 1 of 2004 (“the Law”).

61. Part 2 of the Law provides that the DFSA is a body established under Dubai law with the powers and functions conferred by the Law. Article 23 of the Law provides that the DFSA has the power to make Rules in respect of any matters related to those functions. In particular, Article 23(2)(c) confers power to make rules in respect of “standards of practice and business conduct of persons in dealing with their customers and clients and prospective customers and clients”.

62. Article 41(1) of the Law contains a general prohibition against carrying out “Financial Services” in the DIFC without a license. Article 41(2) requires the DFSA to make Rules prescribing the activities which constitute a Financial Service. Article 42(1) requires the DFSA to make Rules prescribing which Financial Services may be carried out by a licensed entity. Those articles were (at the relevant time) in these terms:

“41. The Financial Services Prohibition

(1) Subject to Article 41(6), (7) and (9) and Article 42(3), a person shall not carry on a Financial Service in or from the DIFC.

(2) The DFSA shall make Rules prescribing the activities which constitute a Financial Service.

(3) The prohibition in Article 41(1) is referred to in the Law as the ‘Financial Services Prohibition’.

42. Authorised Firms, Authorised Market Institutions and Financial Services

(1) The DFSA shall make Rules prescribing which kinds of Financial Services, with such modifications or limitations as may be specified, may be carried on by:

(a) an Authorised Firm

(3) A person may carry on one or more Financial Services in or from the DIFC if such a person is

(a) an Authorised Firm whose License authorises it to carry on the relevant Financial Services.

(4) An Authorised Firm…shall:

(a) act within the scope of its authority under its License; and

(b) comply with any conditions or restriction applicable to its License.
…”

63. Article 65 of the Law was in these terms (so far as material) :

“65. Unenforceable Agreements — Breach by Party to the Agreement

(1) Subject to Article 65(5), a person who makes an agreement in the course of carrying on a Financial Service in breach of the Financial Services Prohibition . . . shall not be entitled to enforce such agreement against any party (a “relevant party”) to the agreement.

(2) Subject to any agreement that may otherwise be reached between the parties, a relevant party may apply to the Court to recover:

(a) any money paid or property transferred by him under the agreement;

(b) compensation reflecting any loss sustained by the relevant party as a direct result of such payment or transfer; and.

(c) …

(3) …

(4) The compensation recoverable under Article 65(2)(b) is the amount agreed between the parties to the agreement or, following an application to the Court, the amount determined by the Court.

(5) If the Court is satisfied that the person:

(a) carrying on the Financial Service reasonably believed that he was not in breach of the Financial Services Prohibition…

and that it is fair and just in the circumstances to make such an order, it may make one or more of the following orders:

(d) an order that the agreement be enforced between the parties to such extent and under such terms and conditions as the Court sees fit; or

(e) an order that money paid or property transferred under the agreement be retained or dealt with in accordance with the agreement or in such manner as the Court deems fit.

(6) …

(7) In Article 65, “agreement” means an agreement, the making or performance of which constitutes, or is part of, the carrying on of a Financial Service.”

64. Article 85(1) of the Law was, at the relevant time, in these terms:

“85. General Contravention Provision

(1) A person who:

(a) does an act or thing that the person is prohibited from doing by or under the Law or Rules or any other legislation administered by the DFSA;

(b) does not do an act or thing that the person is required or directed to do by or under such Law, Rules or other legislation;

(c) otherwise contravenes a provision of such Law, Rules or other legislation:

commits a contravention of such Law, Rules or other legislation, as the case may be, by virtue of Article 85 unless another provision of such Law, Rules or other legislation provides that the person commits, or does not commit, a contravention.”
Articles 87 to 93 of the Law provide that where there has been a contravention, the DFSA or the Financial Markets Tribunal has the power to issue a fine. Alternatively, the DFSA has the power to issue an administrative censure or to seek an injunction from the Court.

65. Article 94 of the Law provides that there shall be a civil claim for damages in certain circumstances. The article was, at the relevant time, in these terms (so far as material):

“94. Civil Proceedings

(1) Where a person:

(a) intentionally, recklessly or negligently commits a breach of duty, requirement, prohibition, obligation or responsibility imposed under the Law or Rules or other legislation administered by the DFSA; or

(b) …

the person is liable to compensate any other person for any loss or damage caused to that other person as a result of such conduct, and otherwise is liable to restore such other person to the position they were in prior to such conduct.

(2) The Court may, on application of the DFSA or of a person who has suffered loss or damage caused as a result of conduct described in Article 94(1), make orders for the recovery of damages or for compensation or for the recovery of property or for any other Order as the Court sees fit, except where such liability is excluded under the Law or Rules or other legislation administered by the DFSA…”

The DFSA Rules

66. The Rules made by the DFSA were contained in the DFSA Rulebook. The Rulebook comprised a number of Modules. Rules made pursuant to Article 41(2) of the Law prescribing the activities which constitute a Financial Service are contained in Chapter 2 (“Financial Services”) of the General (GEN) Module of the DFSA Rulebook. GEN Rule 2.2.1 provided that:
“2.2.1 An Activity constitutes a Financial Service under the Regulatory Law 2004 and these Rules where:

(a) it is an activity specified in Rule 2.2.2; and

(b) such activity is carried on by way of business in the manner described in section 2.3.”

GEN Rule 2.2.2 provided (so far as relevant to this case) that:

“2.2.2 The following activities are specified for the purposes of Rule 2.2.1:

(f) Arranging Credit or Deals in Investments,

(h) Advising on Financial Products or Credit,

(k) Arranging Custody,
…”
GEN Rule 2.3.1 was in these terms (so far as material):

“2.3.1 Subject to Rules 2.3.2 and 2.3.3, for the purposes of these Rules a Person carries on an activity by way of business if the Person:

(a) Engages in the activity in a manner which itself constitutes the carrying on of a business;

…”

67. The Rules prescribing which kinds of Financial Services might be carried on by an Authorised Firm are contained in Chapter 3 (“Financial Services which may be carried on in or from the DIFC”) of the GEN Module. GEN Rule 3.2.1 provided, in effect, that an Authorised Firm might be authorised to carry on any of the activities specified in GEN Rule 2.2.2 (Financial Services) other than Providing Money Services, Operating an Exchange and Operating a Clearing House.

68. Chapter 4 of the GEN module of the Rulebook contains the Core Principles to be observed by Authorised Firms and Authorised Individuals. Those principles include, at GEN Rule 4.2.8, Principle 8 (“Suitability”). That Principle requires that:

“4.2.8 An Authorised Firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for customers who are entitled to rely on its judgment.”

69. The Rules setting out standards of practice and business conduct are contained, inter alia, in the Conduct of Business (COB) Module of the DFSA Rulebook. COB Rule 3.2.1 is in these terms (so far as material):

“3.2.1 (1) An Authorised Firm must ensure that it does not conduct Investment Business…with or for a Retail Customer.

(2) An Authorised Firm must only conduct Investment Business…with or for a Person who is a Client.

(3) If an Authorised Firm is aware that a Client with or for whom it is intending to carry on Investment Business…is acting as agent for another Person, the ‘second person’ in relation to a particular transaction then, unless the Client is another Authorised Firm or a Regulated Financial Institution, the Authorised Firm must not effect the transaction unless the second person is a Client.”

“Investment Business” includes “Arranging Credit or Deals in Investments” and “Advising on Financial Products or Credit”: activities which are specified in GEN Rule 2.2.2. COB Rule 3.2.2 defines who is a Client and who is a Retail Customer for the purposes of Rule 3.2.1.

70. In summary, therefore, the regulatory framework provided:

(1) That it was contrary to the Financial Services Prohibition – and so in contravention of the Law – to carry on in or from the DIFC a Financial Service without obtaining a license from the DFSA authorising that activity.

(2) That Investment Business could only be conducted with or for a Client and not with or for a Retail Customer.

(3) That standards of practice and conduct of persons dealing with their customers and clients and prospective customers and clients were prescribed by Rules issued by the DFSA.

(4) That a breach of the Law, or of the Rules issued by the DFSA pursuant to the Law, was a disciplinary/regulatory matter for which an Authorised Firm could, inter alia, be brought before the Financial Markets Tribunal and/or fined or censured.

(5) That, in addition, pursuant to Article 94 of the Law, a civil claim for damages might arise where a person intentionally, recklessly or negligently commits a breach of duty, requirement, prohibition, obligation or responsibility imposed under the Law or Rules or other legislation administered by the DFSA.

A more detailed chronology

71. Before addressing the claims made in this action against Sarasin-Alpen and Bank Sarasin it is convenient to set out, in more detail, the events which happened; and, in particular, to set out the evidence as to what took place at the meetings between Mr Al Khorafi and Mr Walia.
Events leading to the purchase of the REIT (Real Estate Investment Trusts) Notes by Mr Al Khorafi and Mrs Al Hamad in June 2007.

72. In February 2007, Mr Al Khorafi recruited Alaa Taha as a financial adviser with the intention that Mr Taha would assist him in raising finance for a proposed real estate development in Kuwait. At or about the same time, Mr Al Khorafi decided to explore the possibility of borrowing against uncommitted assets in order to make investments from which he could derive a regular income. He asked Mr Taha to approach Kuwaiti banks with this in mind.

73. Mr Taha spoke to Steven Cheerian at ABK. Mr Cheerian told Mr Taha that ABK would be willing to lend to Mr Al Khorafi and Mrs Al Hamad for investment outside Kuwait on condition that the funds would be used to purchase capital guaranteed investment products with an AA or higher rated bank. He recommended Bank Sarasin.

74. Mr Cheerian introduced Mr Taha to Mr Kerry of Sarasin-Alpen. In April 2007 Mr Taha and Mr Kerry met at the offices of Mr Al Khorafi in Kuwait. Mr Taha’s evidence (at paragraph 25 of his witness statement dated 4 April 2013) was that he explained to Mr Kerry in the course of that meeting that Mr Al Khorafi and Mrs Al Hamad were looking at investing money; and that ABK had indicated that it would lend money on condition that the investment be “capital guaranteed”. He told the Court (ibid) that “Mr Kerry said they had a product called capital guarantee notes which would be ideal as it would guarantee the investment and pay the interest on the ABK loan”. That evidence was not contradicted – Mr Kerry did not give evidence – and I accept it.

75. Following that introductory meeting, a further meeting took place at Mr Al Khorafi’s offices on or about 24 April 2007. That meeting was attended by Mr Walia and Mr Kerry of Sarasin-Alpen, and Mr Al Khorafi (for part of the meeting), Mr Taha, Mohammed Nour (then an engineer engaged by Mr Al Khorafi in connection with the proposed real estate development, and subsequently employed as Mr Khorafi’s office manager) and Abdullah Al Shatti (the General Manager of the Khorafi National Group and a business associate of Mr Al Khorafi).

76. There is some dispute as to what was said at that meeting. I shall examine the evidence in later paragraphs of this judgment. At this stage it is sufficient to state that I find that, at the meeting on 24 April 2007, Mr Walia and Mr Kerry were made aware (in so far as not already aware from Mr Kerry’s introductory meeting with Mr Taha) (i) that Mr Al Khorafi and Mrs Al Hamad wished to invest moneys which were to be borrowed from ABK; (ii) that they were seeking investment products which would guarantee 100% return on maturity of the capital invested, would service the loan interest on the borrowings from ABK and provide some surplus income; and, further, that Mr Al Khorafi was assured by Mr Walia that Sarasin-Alpen could offer structured financial products which would meet those requirements. I find that, in particular, Mr Al Khorafi was assured by Mr Walia at that meeting that the structured financial products to be offered would ensure that, if held to maturity, there was no risk of capital loss, that the coupon payments would always be sufficient to service the interest on the ABK loans, and that it could be expected (with a high degree of confidence) that the investments would provide capital profits on maturity. In that context it was understood that the “structured financial products” would take the form of derivative instruments under the terms of which the performance of the investment was linked to the performance of other investments or indices.

77. Also on 24 April 2007 – whether before or after the meeting in Kuwait is not clear from the evidence – Shagufta Naz, (an executive manager employed by Sarasin-Alpen) sent Mr Taha account opening forms, to be completed for the purpose of opening accounts with Bank Sarasin, and thanked him for his “interest in Bank Sarasin”. The letter concluded with the assurance that “we are looking forward in providing you with all required banking and investment services”; and stated that if there were any further questions, they should be directed to Mr Kerry on his Dubai mobile number. When Mr Walia was asked in cross-examination (transcript, 23 May 2013, page 49, line 14) whether he thought “we” in that sentence was intended to be a reference to Sarasin-Alpen or to Bank Sarasin (or to both) his immediate response (ibid, line 16) was “Probably Sarasin-Alpen”; but, when the question was put again (ibid, page 50, line 11) his answer was “This would be Bank Sarasin, because again at Sarasin-Alpen, we do not provide banking services”. He accepted (ibid, page 52, lines 4 to 7) that “from the point of view of any recipient of this letter, they would think they are just dealing with Bank Sarasin…”.

78. On 25 April 2007, there were discussions between Mr Kerry and Matthias Leuenberger (an employee in the financial engineering department of Bank Sarasin) as to possible investment structures. Following those discussions Mr Kerry prepared an investment proposal for Mr Al Khorafi and Mrs Al Hamad – which he sent to Mr Taha as an attachment to an email on 29 April 2007. The investment proposal was described in the email as “investment proposal for ‘Real Estate Investment Trust Basket’ capital protected notes with income payments”. Mr Walia accepted (transcript, 23 May 2013, page 102, lines 13 to 15) that the proposal was an investment proposal from Sarasin-Alpen. But, when asked (ibid, lines 16 to 25) whether it was Sarasin-Alpen’s case that the proposal did not involve any recommendation or advice from Sarasin-Alpen, his response was “Yeah, I suppose so”.

79. The attachment to Mr Kerry’s email of 29 April 2007 was an “Indicative Factsheet”. The Factsheet contained particulars of a structured financial product, described as “Public SaraFloor with Coupon on the Real Estate World Basket”. It was on the headed paper of Sarasin-Alpen. It was stated in the introduction that:
“Global quoted real estate is the best performing asset class over the last years. Especially Real Estate Investment Trusts (REITS) are highly attractive as of their liquidity and low correlation to other financial assets. Therefore, we offer a product with the underlying of three indices covering Japan and two European Real Estate Indices.”
When asked in the course of cross-examination (transcript, 23 May 2013, page 104, lines 11 to 20) to whom “we”, in the second sentence of that paragraph, referred, his initial response was “Who are we? Good question”. He went on to say that: “As this reads to me, this is Sarasin-Alpen”. When it was put to him that “we” plainly referred to Bank Sarasin Switzerland, at least as well as, if not instead of, Sarasin-Alpen”, he went on to say this (ibid, page 105, lines 17 to 21):
“You see, like I said, we talk to the client, the client tells us what he wants, we dig out, get on the computer, put it on, it comes as a Sarasin-Alpen letterhead. We put a structure together in the fashion we think we understand what the client wants and sent it to him”.

80. The product offered in the Indicative Factsheet was in the form of a note to be issued by “Bank Sarasin (CI) Ltd,

uernsey”. A section headed “Price Indication” contained the following information:

“Capital Guarantee   100%
Coupon                     10% Annual payment
Maturity                     3 years”

Structure Min Redemption CPN p.a Total Floor Participation
70.00% 10% 100% 90%

and a formula to showing the computation of “Redemption at Expiration”:

Redemption at Expiration Minimum Redemption

+ {(Nominal/Spot at Issue x Participation (%) x (Max(Spot at Expiration – Strike; 0))}”

 

It was put to Mr Walia (transcript, 23 May 2012, page 116, line 12 to page 117, line 20) that the statement “Capital Guarantee – 100%”) was not “clear, fair and not misleading”. Mr Walia’s response was that it was necessary to read the “structure” table to make sense of the capital guarantee and the 10% annual payment. He was asked to explain the formula (or “equation”). His response (ibid, page 121, lines 11 to 13) was:

“That equation is an equation which very clearly specifies how the calculation will be done for redemption purpose.”

But he was not able to explain how the equation worked. As he said:

“I wouldn’t know. I don’t do these equations. The last time I did equations was in school.”

When asked (ibid, page 122, lines 6 to 10) whether the Factsheet was “the first layer of advice and recommendation” but that to understand it “the clients would might need some second layer of advice and recommendation”, he answered “Correct”.

81. Further emails on 3 May 2007 between Mr Kerry and Mr Leuenberger as to a possible investment structure confirm that Mr Leuenberger was relying on Mr Kerry for client instructions in relation to the investment; and show that Mr Kerry was passing on to Bank Sarasin ABK’s requirements as to the nature of the investments (in particular, its requirements as relating to the credit rating of the issuer).

82. On 4 May 2007, Mr Kerry sent an email to Benjamin Zeuggin at Bank Sarasin in which he set out in general terms the proposal for the investment. He described the proposal in these terms:
“Client has usd80mil with a local bank in Kuwait. The clients enjoy some credit facility currently on this amount. The clients bankers are willing to release the funds to Sarasin on the condition we provide them a Pledge prefer AAA bank & all coupons/ final redemption should be transferred into Kuwait. Client would like to invest these funds into capital protected product. If the product is AAA guaranteed? They are happy with Sarasin pledge”.
Mr Walia was asked, in the course of cross-examination (transcript, 23 May 2013, page 124, lines 16 to 19), to whom “we” – in the second sentence – referred. He answered “Bank Sarasin”.

83. On 5 May 2007, Mr Kerry sent an email to Mr Taha to which he attached a process flow document, a sample of the pledge document, Termsheets and detailed investment proposals for the investments (Factsheets). The email concluded: “Please call me for any additional clarification/information”. The process flow document set out various stages leading up to the completion of the investments, including steps to be taken by “Sarasin”; which, in context, must be taken as a reference to Bank Sarasin, as Mr Walia accepted (transcript, 23 May 2013, page 128, lines 7 to 12). The Factsheets, in common with the previous Factsheet sent on 29 April 2007, identified the issuer as Bank Sarasin (CI) Ltd, Guernsey. They contained illustrations. In particular, the Factsheet relating to Mr Al Khorafi was based on an initial investment of US$30 million, It stated that there was a 100% capital guarantee with 5% per annum semi-annual coupon; although an analysis of the small print showed that the capital protection was 85%. The projected return over 3 years was US$57 million. The Factsheet in relation to Mrs Al Hamad provided for a 100% capital guarantee with an 8% per annum semi-annual coupon; although an analysis of the small print showed that the capital protection was 76%. The projected return over 3 years was US$98 million. The Termsheets contained no illustrations. Although not easy for a financially inexperienced reader to understand – in that they contained a list of parameters and formulae – on close analysis it can be seen that they state, correctly, that the levels of capital protection were 85% and 76%, respectively. There was a telephone call the same day in the course of which Mr Taha confirmed that Mr Al Khorafi and Mrs Al Hamad were only interested in coupon payments of 10% per annum, or (if that was not possible), 8% per annum.

84. On 15 May 2007 Mr Kerry emailed Mr Cheerian (of ABK) with a draft guarantee. The email confirmed ABK’s requirements that the guarantee was issued by a high rated guarantor (Rabobank), that it was irrevocable, that a fixed rate of 8% per year would be paid into Mrs Al Hamad’s account with ABK and that on redemption, the proceeds would also be paid into her account with ABK. Mr Kerry confirmed that Mr Al Khorafi’s lawyers, (Al Tamimi & Co), were working on the terms of the guarantee.

85. On 16 May 2007 Mr Malpani (an employee of Sarasin-Alpen) sent an email to Mr Leuenberger (at Bank Sarasin) seeking an indicative participation rate for the proposed investments. The participation rate set the level at which Mr Al Khorafi and Mrs Al Hamad would participate in any growth of the index underlying the investment. It was one of three main factors, together with the level of the capital protection and the coupon rate, which dictated the ultimate level of return that the Claimants would receive on their investments. On 19 May 2007 Mr Leuenberger responded to that request.
86. Also on 19 May 2007 Mr Kerry sent a revised form of guarantee and the Termsheet for the proposed product to Mr Cheerian; and sent a detailed summary of the investment proposal to Bank Sarasin. Mr Kerry informed Bank Sarasin that:
“a new client in Kuwait is interested to invest into capital protected notes a total of USD 80 million (USD 50M + USD 30M). These funds are currently with a local bank known as Al Ahli Bank of Kuwait (ABK). ABK is willing to release these funds to Bank Sarasin on production of a bank guarantee”.

Mr Kerry attached the Termsheets to his email; and he set out the terms of the proposed guarantee. He recognised that, if Bank Sarasin were to provide a guarantee to ABK, it would be necessary to grant the Claimants credit facilities. Under the heading “Credit Progress”, he stated:

“…we have first spoke[n] to Peter Attiger during his visit to our office. He was principally fine with the idea however required credit committee approval. We have also successfully bounced this proposal to our Chairman (Fidelis Gotz)”.
The email set out a timeline for “Successful Completion of this Transaction” which identified the various steps that needed to be completed by both Sarasin-Alpen and Bank Sarasin leading to execution of the transaction. Those were: (i) ABK to approve release of funds; (ii) Sarasin-Alpen to communicate terms and conditions to external lawyers; (iii) Al Tamimi & Co to revert with comments; (iv) Sarasin-Alpen to forward those comments to “Legal/Credit/Bruno in Switzerland”; (v) Bank Sarasin’s legal team to revert with opinion; (vi) “Bruno” to receive in principle approval from Rabobank; (vii) “final clean up & approval to go ahead on the guarantee”; (viii) approval from ABK’s lawyers on the text of the guarantee; (ix) approval from the credit team; (x) the financial engineering team to trade the product three weeks forward; (xi) send SWIFT message to give guarantee on receipt of funds; (xii) receipt of funds and SWIFT message by Bank Sarasin; (xiii) credit team to courier original guarantee document with copy to client.

87. On 19 May 2007, Mr Kerry chased Mr Taha for the return of the Bank Sarasin account opening forms (which had been sent out on 24 April 2007). He told Mr Taha that if there were any difficulties, Mr Taha should contact Mr Walia. Mr Kerry also sent a revised draft guarantee to Mr Cheerian of ABK; stating that this form had been approved by Al Tamimi & Co and that internal approvals from Rabobank were expected in the following week. On 21 May 2007 ABK granted loans to Mr Al Khorafi and Mrs Al Hamad, respectively, of US$30 million and US$50 million. Mr Cheerian and Mr Kerry discussed the form of the guarantee over the following days.

88. In an e-mail sent on 5 June 2007 Mr Taha asked Mr Kerry asking for a worked illustration of the equation used to describe the product in the forms that Mr Al Khorafi and Mrs Al Hamad were to sign, a clear definition of the capital protection and the expected proceeds from the liquidation before or at maturity. Mr Kerry responded on the same day, attaching worked illustrations for the investments and term sheets. The illustrations projected a redemption payment of US$44 million on Mr Al Khorafi’s investment (of US$30 million) and US$69 million on Mrs Al Hamad’s investment (of US$50 million). Mr Kerry attached no Factsheets to his e-mail and said nothing about the level of capital protection.

89. On 6 June 2007 Mr Al Khorafi and Mrs Al Hamad signed (among other documents) Bank Sarasin’s Current and Custody Account Application Forms, and Deeds of Pledge.

90. At or about the same time, Sarasin-Alpen sent its Additional General Business Conditions, Dubai International Financial Centre, (“AGBCs”) to Mr Al Khorafi and Mrs Al Hamad for signature. Mr Al Khorafi and Mrs Al Hamad signed the AGBCs, in the places indicated, and returned the documents to Mr Kerry. The AGBCs, as returned, were not completed: in that neither Mr Al Khorafi nor Mrs Al Hamad completed paragraph 1 in Annex 1 or provided answers to the questions in Annex 1A.

91. The AGBCs were also signed by Mr Kerry, purportedly on 6 June 2007; but that date is difficult to reconcile with the fact that (at least in the case of the AGBC relating to Mrs Al Hamad) the AGBCs were not received by Sarasin-Alpen until 12 June 2007. In the form in which those documents have been produced from Sarasin-Alpen’s files, they contain manuscript entries in paragraph 1 in Annex 1 and answers to the questions in Annex 1A. I examine the circumstances in which those entries were made in later paragraphs of this judgment.

92. In an e-mail sent to Mr Walia on 12 June 2007, Mr Cheerian confirmed that ABK had waived the condition that Rabobank provide a guarantee for US$33.25 million in relation to Mrs Al Hamad’s investment. In its place, as Mr Cheerian explained, ABK required Bank Sarasin (described as the “portfolio manager”) to confirm to ABK that it would “route all payments on the portfolio to ABK” and “confirm that the minimum amount at maturity … will not be less than USD 35MM”. Mr Cheerian asked if Mr Walia would agree to those conditions. Mr Kerry responded later that day (copied only to Mr Walia), confirming that it was so agreed. There is nothing to suggest that the consent of Bank Sarasin was sought or obtained.

93. On 13 June 2007, there was a further email exchange between Mr Kerry and Mr Taha about the investments under the heading “Investment into Real Estate Capital Guaranteed Product”. In the email, Mr Kerry set out two different product structures; one where the coupons were paid out of capital growth and the other where they were guaranteed. Mr Kerry emailed Mr Taha with 2 proposed investment methodologies for the underlying REIT investments. During a telephone call on the same day Mr Kerry advised following the first option.

94. At around the same time, Sarasin-Alpen completed “Client Profile” and “Client and investment profile” forms for Mr Al Khorafi and Mrs Al Hamad. These were dated 12 and 13 June 2007: but were recorded as received by Bank Sarasin in Switzerland on 28 June 2007. Attached to the “Client and investment profile” was a file note signed by Mr Kerry, which purported to set out some information on the Al Khorafi family. That document recorded Mrs Al Hamad as an account holder; and gave her account number. That document was dated 31 May 2007; but that is difficult to reconcile with the fact that Mrs Al Hamad’s account was not opened by Bank Sarasin until, at the earliest, 17 June 2007 (and so her account number would not have been known on 31 May 2007).

95. The Client Profiles purported to record information about Mr Al Khorafi and Mrs Al Hamad and their requirements. I am satisfied from the evidence which they have given (to which I refer later in this judgment) that that information was incorrect in material respects:

(1) The Client Profile in respect of Mr Al Khorafi recorded, incorrectly, that Mr Al Khorafi was a “commerce graduate from USA”, that he was “Managing director of Khorafi businesses” and that “his business line includes Technology, Real Estate, Banks & Finance”. In fact, Mr Al Khorafi’s wealth and technology business interests had been inherited. Further, in the section entitled: “Purpose of the relationship with Bank Sarasin & Co Ltd and the origin of the assets being invested”, there was no mention of the money being lent from ABK: rather, it was stated that the “origin of the assets being transferred” was “Dividend and Income from business inherited from family”.

(2) The Client Profile in respect of Mrs Al Hamad recorded, incorrectly, that she was “Managing Partner of all Khorafi businesses”. Again, in the section headed: “Purpose of the relationship with Bank Sarasin & Co Ltd and the origin of the assets being invested”, there was no mention of the money being lent from ABK; rather, as in the case of Mr Al Khorafi, it was stated that the “origin of the assets being transferred” was “Dividend and Income from business inherited from family”.

96. On 17 June 2007 Bank Sarasin opened current and custody accounts in the names of Mr Al Khorafi and Mrs Al Hamad. It is said on behalf of Bank Sarasin that those accounts were, in fact, opened on 26 June 2007.

97. On 17 June 2007, Mr Kerry emailed confirming the terms of the Irrevocable Payment Order, scheduling a meeting with Mr Al Khorafi in London for 22 June 2007, setting out (for the first time) the bank account numbers for Mr Al Khorafi and Mrs Al Hamad and confirming that he was still looking into the difference between coupon paying out through capital growth or profit lock-in.

98. On 18 and 19 June 2007, Mr Malpani and Mr Leuenberger discussed various alternative structures, depending on whether the capital growth was locked in or used to pay the coupons.

99. On 20 June 2007, Mr Cheerian emailed Mr Kerry confirming that from ABK’s perspective everything was in place. On 21 June 2007, Stephan Wernli (of Bank Sarasin) sent to ABK the form of the Irrevocable Payment Order and the form of Bank Sarasin’s proposed confirmation.

100. Also on 21 June 2007, Mr Kerry emailed Mr Leuenberger asking for all of the versions of the product that had been priced. In an apparent bid to encourage Mr Leuenberger to pull together this information, Mr Kerry said “Please bear in mind this is for a USD 80M new money & client deal with a client that has been having a PB relationship for 40 years with Credit Suisse & HSBC. Bank Sarasin is a total new name for this client!”. Given that Mr Al Khorafi was then aged 40 years, it is difficult to understand how Mr Kerry could have thought that he (at least) had had a 40 year relationship with either Credit Suisse or HSBC.

101. Whilst current accounts for Mr Al Khorafi and Mrs Al Hamad were opened by Bank Sarasin on or about 17 June 2007, it appears that the investment and custody accounts had not been opened by that date. Bank Sarasin was, it seems, hesitant as to whether or not to open the investment and custody accounts. On 21 June 2007, Mr Walia wrote a memorandum (which was produced from Bank Sarasin’s files) which, after asserting that the Al Khorafi family were “incredibly wealthy”, concluded: “Having known the potential of these clients and their financial background, I would recommend going ahead with the opening of these accounts”.

102. On the same date, Bank Sarasin issued a secured credit facility letter to Mr Al Khorafi which confirmed a facility up to a maximum amount of US$21.6 million. The intention was for the credit facility to be secured on Mr Al Khorafi’s investments with Bank Sarasin; and for a guarantee to be issued to ABK (based on the credit facility), thereby satisfying ABK’s requirements that the proceeds on maturity would be remitted back to ABK. The credit facility letter was signed by Mr Al Khorafi on 23 June 2007 in London.

103. On 22 June 2007, Mr Walia, Mr Kerry, Mr Nour and Mr Al Khorafi met again in London. It is common ground that, at this meeting Mr Al Khorafi told Mr Walia to proceed with the investments proposed for him and his mother. It is common ground, also, that there was discussion as to the possibility of borrowing against (or ‘leveraging’) the original US$80 million investment in order to make further investments; but there is disagreement on the question whether (as Mr Walia contended) that possibility as first suggested by Mr Al Khorafi and on the question whether the risks of leveraging were discussed. In any event, Mr Khorafi instructed Mr Walia and Mr Kerry to bring forward proposals based leveraging. I shall examine the evidence as to what was said at the meeting on 22 June 2007 in a subsequent section of this judgment.

104. By 22 June 2007, the form of irrevocable payment order had been approved by Mr Wernli (of Bank Sarasin) and by ABK. On 22 June 2007, Mr Kerry sent Mr Taha the approved form of the irrevocable payment order; stating that “This is designed to protect the rights including NO lien etc for Mr Amra” (sic).

105. By 25 June 2007, Bank Sarasin had still not decided whether to open investment and custody accounts for Mr Al Khorafi and Mrs Al Hamad. Mr Walia updated his memorandum (signed in Dubai) which recommended, on the basis (it was said) of “information from our banking sources in Kuwait”, that Mr Al Khorafi and Mrs Al Hamad be taken on as clients. That seems to have led Bank Sarasin to give the necessary approval. Mr Malpani (of Sarasin-Alpen) gave Bank Sarasin the trading instruction in an email sent on 25 June 2007. It is clear from that trading instruction that Bank Sarasin was able to purchase these instruments from Rabobank at less than their nominal value. In particular, in respect of Mr Al Khorafi’s investment of US$30 million investment, Bank Sarasin paid Rabobank US$29.37 million (but booked the purchase to Mr Al Khorafi’s account at US$30 million); and, in respect of Mrs Al Hamad’s investment of US$50 million, Bank Sarasin paid Rabobank $49,005,000 (but booked the purchase to Mrs Al Hamad’s account at US$50,000,000. The difference (of US$630,000 in the one case and US$995,000 in the other) was treated as the fee earned by Bank Sarasin on the trade; and was remitted to Sarasin-Alpen under the fee sharing agreement.

106. An irrevocable payment order in the form approved by Mr Wernli was also executed on 25 June 2007. Bank Sarasin’s confirmation that the investments would not be subject to a lien or mortgage was sent to ABK; but, because it contained a typographical error, was reissued on 27 June 2007. On 26 June 2007, Bank Sarasin issued a guarantee in favour of ABK in the sum of US$21.66 million. It is accepted on behalf of Bank Sarasin that on 25 June 2007 Mr Kerry emailed Mr Taha the Irrevocable Payment Order to be executed by Mrs Al Hamad. The IPO included an instruction to Bank Sarasin to purchase the 10% REIT Note for US$50 million with capital protection of not less thanUS$35 million.

107. Mr Al Khorafi and Mrs Al Hamad gave written instructions for the purchase of the first tranche of investments; although these instructions were not received by Bank Sarasin until 28 June 2007, after the investments had been purchased. The instructions were in standard form, each on the letterhead of Sarasin-Alpen. Each was described as “Confirmation of Investment in a Structured Note/Certificate/Mutual Fund/Bond”; and confirmed “my purchase of the investment product as mentioned below”. There followed a box in which some of the details of the product were set out.

108. Attached to the confirmation forms was the Indicative Termsheet of 16 May 2007 with the illustration. But, because the termsheet had been prepared as a draft, the issuer, lead manager, calculation agent and clearer were all marked “[tba]” and other material terms had not been completed, including the initial fixing and the secondary market provisions. Mr Al Khorafi signed the first page of his confirmation form and initialled each page of the termsheet. Mrs Al Hamad initialled each page of the termsheet; but she did not sign the first page of her confirmation form.

109. This first tranche of investments was booked into Mr Al Khorafi’s and Mrs Al Hamad’s accounts on 28 June 2007 for value on 2 July 2007. On 2 July 2007 the REIT Notes were purchased using the monies advanced by ABK.

Events leading to the purchase of Notes by Mrs Al Hamad in July 2007

110. The proposals for a second tranche of investments, on the basis of “leveraging” funded by Bank Sarasin, were discussed at the meeting in London on 22 June 2007. It was arranged that Mr Taha should visit Sarasin-Alpen in Dubai in order to take those proposals forward.

111. The first indicative term sheet for this second round of investments was prepared on 28 June 2007. It contained a proposal for a “Sarafloor investment on the Financial Services Basket”. The proposed investment was to be similar to the first investment in structured products; save that the performance of the Note was linked to the weighted performance of a basket of financial institutions. Indicative Termsheets were also produced for investments into an Energy Basket and a Special Materials Basket. In each Termsheet the issuer of the notes was identified as Bank Sarasin (CI) Limited and the Lead Manager and issuer of the warrants was Bank Sarasin. The products were selected by Mr Kerry and others at Sarasin–Alpen or Bank Sarasin.

112. On Monday 2 July 2007, Mr Taha met Mr Walia and Mr Kerry at Sarasin-Alpen’s offices in the DIFC. They discussed the proposals for leveraging which had previously been raised at the meeting with Mr Al Khorafi in London. Mr Taha was asked to send over a document setting out Mr Al Khorafi’s financial position. In an email enclosing that information, Mr Taha asked Mr Kerry for proposals which would expand the investment portfolio to US$180 million; those proposals to be prepared in time for the “final” meeting on 11 July 2007. On 4 July 2007, Mr Kerry responded: confirming the various proposals that were being considered and referring to the meeting to be held in London on 11 July 2007.

113. On 3 July 2007 following a meeting in Dubai, Mr Taha emailed Mr Kerry with information as to the personal financial position of Mr Al Khorafi. On 4 July 2007 Mr Kerry emailed Mr Taha attaching five different “refinancing solutions” by Bank Sarasin for Mr Al Khorafi’s group of companies including a proposal to leverage and expand the portfolio of Mrs Al Hamad/Bank Sarasin to US$180 million.

114. On a date between 4 July and 7 July 2007, Mr Kerry sent a further proposal in relation to leveraging. This proposal was initially sent to Mr Nour; but was sent on to Mr Taha at his request. Two possible leveraging structures were proposed: the one based on a chain of guarantees and the other based on leveraging of US$100 million on the original US$50 million investment made by Mrs Al Hamad. The proposals in respect of the second structure projected a surplus each year of US$9.7 million over the first structure (before taking into account the cost of the leveraging).

115. Shortly before the meeting on 11 July 2007, Mr Taha sent a spreadsheet to Mr Kerry setting out his calculation of the difference between the two different methods of paying the coupon in relation to the first tranche of investments. Mr Taha’s calculation projected a return of between US$82.4 million to US$86.9 million. Mr Malpani responded the same day, on behalf of Mr Kerry, with a spreadsheet which projected the returns (depending on the way that the coupon was paid) at the lower rate of between US$71 million and US$75.6 million.

116. On 11 July 2007, there was a meeting in London attended by Mr Al Khorafi, Mr Nour, Mr Taha, Mr Walia and Mr Kerry. There is a dispute between the parties as to where this meeting took place. Mr Al Khorafi, Mr Taha and Mr Nour say that the meeting took place in the offices of Bank Sarasin; but that is not accepted by Mr Walia (whose evidence was that it took place in a hotel). It is unnecessary to resolve that dispute. The purpose of the meeting was to execute documents – and it may be that the confirmation forms in relation to the first tranche of investments were signed at that meeting – but there were further discussions at this meeting about the leveraging. Further, there was a discussion at this meeting about Bank Sarasin providing a further loan of US$35 million to Mr Al Khorafi for his personal use. The parties disagree as to whether the loan was suggested by Mr Walia; or whether (as Mr Walia contended) it was requested by Mr Al Khorafi. Mr Khorafi signed a power of attorney given in his favour by Mrs Al Hamad in relation to dealings with Bank Sarasin. It is said on behalf of Bank Sarasin that it was agreed that “Mrs Al Hamad would advance [sic] USD$100 million for the purposes of leveraging the investment portfolio in her name”. Mr Walia stated that the coupons would allow Mr Al Khorafi and Mrs Al Hamad to pay the interest due on the ABK loan and the interest due on the leveraging and provide them with additional income as well as repay the ABK and the Bank Sarasin loans in full on maturity. I shall examine the evidence as to what was said at the meeting on 11 July in later paragraphs of this judgment.

117. Shortly thereafter Mr Kerry provided Mr Taha with a number of termsheets. He recommended the leveraged funds be invested in (i) 8% Sarafloor on Special Materials Basket quanto in USD (“Special Materials Basket”), (ii) 8% Sarafloor Energy Basket quanto in USD (“Energy Basket”) and (iii) 8% Sarafloor Financial Services Basket quanto in USD (“Financial Services Basket”). Mrs Al Hamad signed a Power of Attorney in favour of Mr Al Khorafi.

118. On 16 July 2007, following this meeting, there was an adjustment to one of the products. Mr Malpani sent an email to Mr Taha, copied to Mr Kerry, to which he attached a term sheet with an “enhanced participation rate, with reduction in Natural Gas participation to 40% and change of 2 stocks”.

119. On 17 July 2007, Mr Kerry sent to Mr Nour, three subscription agreements, together with their respective term sheets, with the request that Mr Nour “secure Mr Rafed’s signature and send the same back to me by scanned email or fax”. The email gave Mr Kerry’s fax number in the DIFC; and asked that the originals be sent to Mr Kerry at Sarasin-Alpen’s address in the DIFC by courier. Attached to the email were three Confirmation forms in relation to the three investments. Two of the Confirmation forms had (attached) termsheets which differed from the earlier termsheets: amending the issuer of the notes, the warrants and the lead manager to “[tba]” and identifying the lead distributor as Sarasin-Alpen and Bank Sarasin. In the other term sheet, the issuer was specified as Bank Sarasin (CI) Ltd, Guernsey, and no lead distributor was identified. In each of the term sheets, in the section entitled “Secondary Market”, it was explained that Bank Sarasin intended to maintain a secondary market in the product under normal market conditions. Bank Sarasin’s records show that the Confirmation forms were returned to it on or about 24 July 2007; but other records of Bank Sarasin show that the second tranche of investments was purchased on 18 July 2007.

120. On 17 July 2007 Mr Al Khorafi signed the investment Confirmations as attorney for Mrs Al Hamad for US$30 million in the Special Materials Basket, US$30 million in the Energy Basket and US$40 million in the Financial Services Basket.

121. At or about the same time, there was an exchange of emails between Mr Taha and Mr Walia relating to Mr Al Khorafi’s investments in various unlisted companies in Kuwait. The intention was that Mr Walia would assist Mr Al Khorafi to borrow further money from Bank Sarasin in relation to those investments. On 19 July 2007, Mr Walia sent an email to Mr Taha and Mr Nour asking for a valuation report on the unlisted companies, stating that he “would like to carry the same with me to Switzerland on 23 July for discussion with our credit team”, with the explanation that “As the approval process thus credit committee will take some time it is beneficial to submit this report for discussion asap to meet deadlines”.

122. On 20 July 2007 Bank Sarasin issued a secured facility letter, providing for a loan of US$100 million to Mrs Al Hamad to the purpose of funding the proposed second tranche of investments.

123. On 21 July 2007, Mr Taha emailed Mr Kerry asking about updates for the new portfolio and the “over the counter” (OTC) derivatives course.

124. On 22 July 2007, Mr Kerry emailed Mr Taha, attaching the credit facility letter issued on 20 July 2007and a pledge agreement. In his email Mr Kerry requested Mr Taha to obtain Mrs Al Hamad’s signature on the credit facility document and the pledge agreement; and to return the documents, when signed, to him at his DIFC fax number. Mr Kerry provided no explanation of the documents in his email.

125. The credit facility agreement and the deed of pledge were signed by Mrs Al Hamad on 23 July 2007. The combined effect of the credit facility and the deed of pledge was to place Mrs Al Hamad and Bank Sarasin in breach of the agreement with ABK that the investments purchased in June 2007 with the US$80 million loan from ABK loan (the REIT Notes) should not be subject to any lien or mortgage. Later on 22 July 2007 Mr Kerry sent an email to Mr Nour in which he wrote: “As discussed in London, once this document is signed and executed tomorrow, I will create [an] additional credit facility agreement for USD 35 million”.

126. On 24 July 2007, the new purchases were booked to Mrs Al Hamad’s account with Bank Sarasin. Definitive term sheets for the investments purchased were not issued until much later (9 October 2007); and were then reissued for the Special Materials basket on 9 January 2008.

Events leading to the purchase of Notes by Mrs Al Rifai in January 2008.

127. On 25 July 2007, Mr Kerry emailed Mr Attiger and others at Bank Sarasin seeking a US$35 million loan. The email contained an elaborate explanation as to why the money was required: and the suggestion that the bank should lend the money because it would earn them “brownie points” and to get “a share of the USD 350 million [the client] receives thru 45% dis-investment of his company in Dec2007 or Jan2008”. It also said that whilst the increase was only for US$35 million, they could get the client to sign a document for US$150 million.

128. On 26 July 2007, Bank Sarasin issued a further facility letter increasing the facility granted to Mrs Al Hamad to US$135 million. This facility letter was signed by Mr Al Khorafi in London on 26 July 2007, under the power of attorney which Mrs Al Hamad had given to him. Mr Al Khorafi also signed a deed of pledge over assets held for his account as security for liabilities on Mrs Al Hamad’s account. On 26 July 2007 Bank Sarasin issued another secured facility letter to Mrs Al Hamad increasing the available facility by US$35 million: and that sum was, on the same day, transferred to an account of Mr Al Khorafi with HSBC UK.

129. On 3 August 2007 Mr Taha travelled to Basel. The purpose of the visit was for Mr Taha to gain an understanding of the derivatives market and to get a feel for the institution with which Mr Al Khorafi and Mrs Al Hamad had placed investments. He spent three hours with Mr Juergen Anders of Bank Sarasin.

130. By mid-August 2007, there was already a collateral shortfall on Mrs Al Hamad’s account. On 14 August 2007, Mr Kerry sent an internal email to Mr Zeuggin (at Bank Sarasin) referring to a margin call on Mrs Al Hamad’s account and saying that he had set up a conference call with Mr Al Khorafi and “the financial adviser”. In that email Mr Kerry raised a number of questions about the margin call: in particular he pointed out that “We had during the initial discussion informed the client about up to 95% available on Rabo/Sarasin guaranteed products as exception” and asked “if this is possible to show him & her commitment”. The email was copied to “BC Dubai” with the request that Mr Kerry be sent the screenshot showing the shortfall.

131. There is no evidence of a conference call between Mr Kerry, Mr Taha and Mr Al Khorafi at or about this time. I am satisfied that Mr Kerry called neither Mr Taha nor Mr Al Khorafi on or about 15 August 2007. But Mr Al Khorafi did receive a telephone call from Mr Walia. I examine the evidence as to what was said in that telephone call in a subsequent section of this judgment. I am satisfied that Mr Walia made no mention, in the course of that telephone call, of the need to cover collateral shortfall on Mrs Al Hamad’s account by the payment of a margin call.

132. Nevertheless, at Mr Walia’s request – and because he was told, by Mr Walia, that “it would make him [Mr Walia] look good in front of the bank” and “would be good generally for my relationship with the bank and would show that I was a special client” – Mr Al Khorafi did pay US$10 million into his account with Bank Sarasin. Those funds were received by Bank Sarasin on 31 August 2007.

133. On 2 September 2007, Mr Kerry sent an email to Mr Attiger (at Bank Sarasin) to explain that “the margin call situation had been resolved” by the payment of US$10 million into Mr Al Khorafi’s account as collateral. The funds were used to invest in a USD Fiduciary Call 5.15% Money Market Fund.

134. Shortly thereafter, Bank Sarasin granted Mr Al Khorafi a further credit facility of US$30 million (thereby increasing his lending) to be invested, together with the US$10 million already paid into his account, in a short term note. On 5 September 2007, Mr Kerry sent to Mr Taha a credit facility letter of US$51.66 million for Mr Al Khorafi, a blank confirmation of investment from and a term sheet for a proposed investment. The term sheet had the issuer described as “[tba]”. Mr Al Khorafi signed the credit facility letter. On 10 September 2007, Mr Kerry sent Mr Taha the final term sheet for the US$40 million investment.

135. In the period from 3 September 2007 to the end of December 2007 there was limited communication between the Defendants and Mr Al Khorafi and Mrs Al Hamad. The portfolio statements in September 2007 recorded that the capital protected investments sustained losses of between 3.2% and 9.7%.

136. In late September 2007, the first steps were taken to correct Bank Sarasin’s breach of its undertaking to ABK (in the IPO) that it would not permit any lien or mortgage on Mrs Al Hamad’s investments. On 4 October 2007, Bank Sarasin reissued the Irrevocable Payment Order; although without any agreement from ABK that the previous version was to be replaced. On the same day Mr Kerry wrote to Mr Cheerian confirming that the investment had been made in a product with capital protection of not less than US$35 million.

137. In late 2007, discussions resumed as to further investments with Bank Sarasin. On 4 December 2007, Mr Kerry sent an email to Mr Taha with “12 products for your review & feedback” and “3 more products for your review”.

138. On 20 December 2007, Bank Sarasin increased the facilities available to the Claimants to US$202 million as part of these discussions.

139. In January 2008 Mr Al Khorafi told Mr Walia that he was interested in investing further funds on behalf of and in the name of his wife; and that he also wanted to borrow another US$10 million for a real estate company he was establishing. Mr Walia said that Bank Sarasin would supply the funds if Mr Al Khorafi would provide a guarantee from ABK in respect of any facilities made available to Mrs Al Rifai. The guarantee was to be in the sum of US$27.5 million; and was to be secured on land in Kuwait. An “Identification of Beneficial Owner” form in respect of the land was sent to Mr Taha and Mr Nour by Ms Naz on 12 January 2008; and was signed by Mr Al Khorafi. The form recorded the place and date as “Dubai, 30/12/07”; but it was not received and placed on Bank Sarasin’s files until February 2008.

140. At or about the same time, there were discussions between Mr Al Khorafi and Mr Walia and Mr Kerry about the possible listing of Mr Al Khorafi’s real estate venture, “Rafco”.

141. In mid-January 2008, Mr Kerry completed “Client and Investment profile” and “Client Profile” forms in respect of Mrs Al Rifai. A further “Client and Investment profile” completed at Sarasin-Alpen overstated Mrs Al Rifai’s investment experience and misrepresented her investment objectives; in that it recorded that she had knowledge of various asset classes including derivatives, that her investment time horizon was 5 to 8 years and that her risk tolerance was medium.

142. On 17 January 2008 Mr Kerry carried out money laundering checks on Mrs Al Rifai in Dubai. At or about that date Mrs Al Rifai signed: (i) account opening application forms (in the same form as the application forms signed by Mr Al Khorafi and Mrs Al Hamad to which I have referred earlier in this judgment) which recorded that Mr Kerry was processing the application; (ii) a power of attorney in favour of Mr Al Khorafi; (iii) a US tax declaration; (iv) a deed of pledge; and (v) AGBCs. The forms were dated 17 January 2008, but were not received by Bank Sarasin until 15 February 2008),

143. On 22 January 2008, Mr Al Khorafi having provided ABK with collateral in the form of security over a plot of land in Kuwait, ABK issued a guarantee in the sum of US$27.5 million to Bank Sarasin.

144. The AGBCs signed by Mrs Al Rifai were in the same form as the AGBCs signed by Mr Al Khorafi and Mrs Al Hamad (to which reference has already been made). The Claimants make the same complaints in relation to Annex 1 and Annex 1A of the AGBCs signed by Mrs Al Rifai as they do in relation to the AGBCs signed by Mr Al Khorafi and Mrs Al Hamad. As in the case of those earlier AGBCs, Annex 1A of the AGBCs signed by Mrs Al Rifai had been completed in manuscript by someone at Sarasin-Alpen so as to suggest that it had been completed by Mrs Al Rifai (which was not the case). Again, as in the case of the AGBCs completed by Mr Al Khorafi and Mrs Al Hamad, Annex 1A significantly overstates Mrs Al Rifai’s wealth and financial experience. I examine the evidence in relation to these issues in later paragraphs of this judgment.

145. On 22 January 2008 the guarantee was re-issued following comments made by Payal Dalal of Sarasin-Alpen. On 23 January 2008, Mr Kerry confirmed that the ABK guarantee had been received by Bank Sarasin.

146. On 12 February 2008, Ms Naz of Sarasin-Alpen sent an email to Mr Taha, copied to Mr Nour and Mr Kerry, asking that Mrs Al Rifai sign the documents which were attached; that is to say (i) a credit facility agreement issued by Bank Sarasin in favour of Mrs Al Rifai in the amount of US$60 million and (ii) Confirmation of Investment forms and Termsheets for two proposed investments of US$10 million each. There is no evidence that Mrs Al Rifai did sign the Confirmation of Investment forms. Nevertheless, these structured products were purchased for Mrs Al Rifai in two tranches of US$5 million.

147. On the same date (12 February 2008), Bank Sarasin reduced the credit facility available to Mr Al Khorafi from US$202 million to US$51 million. Also on 12 February 2008 Bank Sarasin offered Mrs Al Rifai a collateralised credit facility of USD 60 million. On the same day Sarasin-Alpen emailed Mr Taha with product summaries of (i) a four year note linked to the Efficiente Strategy of Portfolio Optimisation (“Efficiente Strategy”), and (ii) a four year note linked to an Agricultural Basket including coal (“Agri Basket”) On the advice of Mr Kerry, given to Mr Taha, US$20 million was invested; of which US$10 million was used to purchase the two 4 year notes (US$5 million each) and US$10 million was invested in a fixed advance US dollar fiduciary call money market fund.

Events subsequent to the purchase of the third tranche of investments

148. Following the purchase of the third tranche of investments, Sarasin-Alpen and Bank Sarasin continued to market investments to the Claimants. On 26 February 2008, Mr Kerry sent Mr Taha further Bank Sarasin termsheets, with the observation: “Attached please find 3 new ideas for your feedback”.

149. On 5 March 2008 RAK Real Estate Ltd was incorporated in the British Virgin Islands.

150. The portfolio statements supplied to Mr Taha on 28 April 2008 showed falls in the values of Mrs Al Hamad’s and Mrs Al Rifai’s investments.

151. By an email sent on 14 May 2008 Mr Kerry informed Mr Taha that Mr Al Khorafi could not have the US$10 million discussed in January 2008 for financing a real estate company he was intending to set up on the grounds that the whole account was regarded by Bank Sarasin’s credit department as one family relationship; and, on that basis, the account was overdrawn.

152. On 27 May 2008, Bank Sarasin recorded the receipt of updated “Client and Investment profile” forms in respect of Mr Al Khorafi and Mrs Al Hamad. The forms had been completed by Mr Walia. They were dated 10 March 2008; although not received by Bank Sarasin until May 2008. The forms purported to record, for the first time, information about Mr Al Khorafi’s and Mrs Al Hamad’s investment requirements and attitude to risk. In particular, the forms recorded that both Mr Al Khorafi and Mrs Al Hamad had high risk tolerance. Mr Walia did not obtain instructions from Mr Al Khorafi or from Mrs Al Hamad before completing the forms: and the information which the forms recorded was incorrect.

153. At or about this time Mr Taha negotiated a cancellation of the Irrevocable Payment Order of 4 October 2007 – whereby Bank Sarasin had undertaken to ABK (in relation to the US$50 million advance to Mrs Al Hamad to fund her purchase of the 10% REIT Notes) to remit the redemption amount and transfer the yearly coupon – in consideration of a one-off payment to ABK of US$20 million.

154. On 2 June 2008, Mr Kerry sent an email to Mr Taha showing a collateral shortfall of US$3.3 million on the combined accounts. That shortfall took into account the US$20 million payment to be made ABK in respect of the release of the obligation under the Irrevocable Payment Order.

155. On 8 June 2008, ABK released the Irrevocable Payment Order. On the following day (9 June 2008) Mr Taha wrote to Mr Kerry:

“Please be informed that we’re working on the release of the coupon on USD 30MM of Mrs Amra Hamad. In this regard, you’re kindly requested to inform us expressly, how much do you intend to give Mr Rafed against the release of the said coupon in the form of cash loan?”

156. By June 2008, it was becoming clear that there were serious issues with the accounts. In July 2008 the Claimants instructed external advisers in an attempt to investigate their position; but those investigations – and subsequent discussions with Sarasin-Alpen – did not bear fruit.

157. In August 2008 RAK Real Estate Ltd was floated on the PLUS Exchange.

158. On 22 August 2008 there was a meeting between Mr Al Khorafi and Mr Walia and Mr Kerry in Nice attended by Mr Al Khorafi’s banker from HSBC Private Bank, Switzerland. Mr Walia and Mr Kerry required Mr Al Khorafi to make a margin payment of US$5-6 million. Mr Al Khorafi said that he had been promised a steady income as well as servicing the ABK loan payments and that the interest payments with growth would be sufficient to meet the ABK loan. He said that “the mechanism of leverage was not properly explained to him”. He asked for an explanation of the forced early repayment of US$20 million.

159. On 29 September 2008 (after the Claimants had first consulted solicitors) a margin call was made against the accounts of Mrs Al Hamad and Mrs Al Rifai. Mr Kerry sent two letters from Bank Sarasin referring to “cover shortfalls” in relation to the loans taken out on the accounts held by Mrs Al Hamad and Mrs Al Rifai. The amounts were US$5,077,977 and US$3,423,353 respectively. The emails requested that the payments be made by 17 October 2008 “at the latest”. On 7 October 2008 Bank Sarasin sent further letters stating that the 17 October 2008 deadline could no longer be given and that “additional standard collateral needs to be provided by immediately”. The letters required the payments by 8 October 2008.

160. Those calls were not met. The Claimants were unable or unwilling to provide the collateral requested or pay down the loans; and they denied that they were under any obligation to do so. Bank Sarasin terminated the facilities extended to Mrs Al Hamad and Mrs Al Rifai on 8 October 2008; and on the same date closed out the Notes held by each of the Claimants collectively under the cross-collateralisation provided by the pledges which had been given. That resulted in significant losses on the portfolios; and left Mr Al Khorafi and Mrs Al Hamad with outstanding balances on the loans with ABK.
Findings of fact on disputed issues.

161. I turn now to make findings of fact on certain disputed issues. In that context it is necessary to make observations as to the credibility and reliability of the witnesses of fact.

162. Mr Al Khorafi was the principal witness in support of the Claimants’ case. His evidence was given through an interpreter. It was, quite properly, subject to searching cross-examination. It would be fair to say that Mr Al Khorafi’s recollection of events which had occurred some five or six years earlier was, in some respects, incomplete or unreliable as to detail; but I am satisfied that he was an honest witness who was doing his best to assist the Court. His recollection of what was said at the important face to face meetings with Mr Walia and Mr Kerry was corroborated by the evidence of one or more of Mr Nour, Mr Al Shatti and Mr Taha; and I am satisfied that I can accept that evidence.

163. Mrs Al Hamad and Mrs Al Rifai gave evidence as to their own individual circumstances. Their evidence, also, was given through an interpreter. Neither of them were present at any face to face meetings with Mr Walia and Mr Kerry: indeed, it is a striking feature of this case that neither of them ever met Mr Walia or Mr Kerry. Both Mrs Al Hamad and Mrs Al Rifai presented as intelligent, educated and emancipated women; well able to make their own decisions. I reject any suggestion that they would adopt without question any decision taken by Mr Al Khorafi in relation to their own financial affairs. They gave their evidence to the Court in a manner which satisfied me that they were telling the truth as to matters within their own knowledge.

164. Mr Nour and Mr Al Shatti were long-standing – and obviously loyal and conscientious – employees of Mr Al Khorafi. They, too, gave evidence through an interpreter. I am conscious that, in evaluating their evidence, it is necessary to have in mind that they might well have been motivated by a desire to assist and support their employer; but I am satisfied that any such desire did not lead them to give evidence which they did not believe to be true. In my view they were each honest and straightforward witnesses who were seeking to assist the Court.

165. Mr Taha gave his evidence by video-link and through an interpreter. It is fair to say that he was the least satisfactory of the witnesses called on behalf of the Claimants: in that he was prone to be verbose, argumentative and defensive in his answers to the questions put to him. Nevertheless, I am satisfied that he did not seek to mislead the Court. In particular, I am satisfied that he did not seek to mislead the Court in relation to his dealings with Mr Walia, Mr Kerry and other employees of Sarasin-Alpen; and that he did not seek to mislead the Court as to his role in relation to Mr Al Khorafi. I accept his evidence that he had no dealings with Mrs Al Hamad or Mrs Al Rifai: he never met either of them. I reject the Defendants’ attempt to portray Mr Taha as an expert adviser to Mr Al Khorafi (or to Mrs Al Hamad or Mrs Al Rifai) in relation to investments generally or structured financial products in particular. I accept that he had no relevant experience in relation to the investment decisions that were made in this case.

166. Mr Walia was a witness at the trial. For reasons which I shall explain in the course of making the findings of fact which I do, I found it necessary to approach his evidence with great caution. His attempts to evade and to prevaricate – together with his inability to distinguish between matters within his own knowledge, matters of which he had been informed by Mr Kerry or others, and matters of which he had no knowledge (but in respect of which he was ready to speculate as to what might have happened) – led me to the conclusion that he had no interest in assisting the Court in its task of ascertaining the true facts in this case. Through his ownership (in part) of Alpen Corporation he had a financial interest in the outcome of these proceedings, which he only revealed under cross-examination. I found his evidence self-serving, evasive, self-contradictory and unreliable.

167. Mr Kerry gave no witness statement; and was not summoned to give oral evidence. Counsel for Sarasin-Alpen (Mr Brindle QC) explained the reason why neither party had chosen to call Mr Kerry in the course of his opening remarks (transcript, 19 May 2013, page 92, line 24 to page 94, line 12). After referring to a witness statement made by Mr Jonathan Crook, a partner in Eversheds, solicitors formerly acting for the Claimants, he said this:

“…as you will see from that the position was that Mr Kerry, who left at the end of 2008 from my client’s [employment], was aggrieved. He thought he was owed 3 million dollars, which my clients say he wasn’t. Nothing to do with this case. And as is clear from what Mr Crook says, that is a grievance from what Mr Crook says, that is a grievance with him and he then effectively tried to sell himself to the highest bidder [in] terms of evidence. He tried to get the Claimants to pay him …they quite rightly wouldn’t have anything to do with it. But Mr Crook says in effect that Mr Kerry would give evidence to whoever would give him the amounts he [claimed] to be owed. That was his position with us, he wanted the 3 million or he won’t do it.”

Mr Brindle QC went on to say that it was not surprising that, in those circumstances, both the Claimants and his clients had taken the view that they would not call Mr Kerry; and indicated that “Mr Walia can deal with this further in evidence”.
168. When Mr Walia was asked in cross examination why Sarasin-Alpen had not adduced evidence from Mr Kerry (transcript, 23 May 2013, page 54, line 24 to page 56, line 20) he gave a different explanation. He told the Court that Mr Kerry had not been able to obtain approval from his present employer, Julius Baer et Cie, to be a witness at this trial. But he confirmed that Mr Kerry was in the jurisdiction of the DIFC – indeed, that he was “in this building” – and he offered no reason why Mr Kerry could have refused to attend and give evidence if summoned to do so.
169. I found Mr Walia’s explanation implausible. It seems to me that I must approach the matter on the basis that Mr Kerry was available to give evidence at this trial; and that the reason why he was not called to do so was that – notwithstanding that he could be expected to have first-hand knowledge of many, if not most, of the factual matters in issue in these proceedings – neither party thought that his evidence would assist the Court in its task of determining those issues. I make no assumption that Mr Kerry’s evidence (if it had been adduced) would have favoured one party rather than the other. The position is that, whatever his evidence would have been, it is not before the Court.

The meeting on 24 April 2007

170. As I have said, there is some dispute as to what was said at the meeting on 24 April 2007. Mr Al Khorafi’s recollection of that meeting is set out at paragraphs 36 to 53 of his fourth witness statement, dated 4 April 2013. At paragraphs 40 to 46 he said this:

“40. Although the bulk of the meeting was spent with Rohit [Walia] giving his sales pitch, both Rohit and Sharad [Kerry] told us about how wonderful the investments were and how they were perfect for our requirements. I remember being very impressed. Rohit spent a lot of time talking about the fact that Bank Sarasin was effectively Rabobank and Rabobank was the only AAA rated private bank in the world. He said that even the Kuwaiti government had put money with Rabobank and they could never go bankrupt. No distinction was drawn by Rohit between what I now know to be the First Defendant, Bank Sarasin-Alpen (ME) Limited and the Second Defendant, Bank Sarasin & Co Limited. Instead, I was given the impression that I was dealing with the Dubai office of a Swiss bank called ‘Bank Sarasin’ and that Bank Sarasin was backed by Rabobank. In my subsequent dealings with Rohit and Sharad, and others from the bank, it was never made clear to me that there were two entities and, as the Defendants now claim, they were performing different roles. My impression was that Sarasin was simply offering its services to me out of an office in Dubai.

41. Rohit said they had a fantastic track record of making profits for clients and that I would make 50% profit per year. Rohit showed me graphs (covering the period 2003 to 2005 and 2005 to 2007) indicating he had made 45% profit per year for his clients which included a Kuwaiti company although he said for confidentiality reasons that he could not tell me the names of those clients. He said that whilst these clients had invested for a three year period, some had not even waited for the full three years before cashing them in and taking the very significant profits.

42. I explained to him that both my mother and I would be investing. Both Rohit and Sharad were aware that the investments would be funded by loans from ABK. I said to them that I was not a gambler, that I wanted no risk and very secure investments and that I was conscious that I was acting on behalf of my mother.

43, Rohit and Sharad both explained that my mother and I could make a wide range of investments that would meet my requirements and [that] these would offer capital protection combined with a regular income after paying the interest payments on the funds advanced by ABK. I said it was not important how much money I made but that I wanted my capital back at the end.

44. My understanding from that meeting was that Sarasin Dubai and Sarasin Switzerland was a single entity. I explained to both of them my desire for an investment strategy with 100% capital guaranteed products attracting from 8% to 10% interest, and stressed that I was not prepared to lose capital. Both Rohit and Sharad said my mother and I would ‘never lose money’ on an investment strategy based on capital protected investments made with Sarasin Dubai and/or Sarasin Switzerland. They also said that the risk that the capital invested in the recommended products would not appreciate substantially in value was negligible.

45. Rohit and Sharad then said that the capital protected products that they would recommend as part of the investment strategy paid regular ‘coupons’ which would allow my mother and I to pay the interest payments required on the ABK loan and would provide us with the additional income as well as ensuring that the ABK loans would be repaid in full on maturity of the products but result in a substantial capital appreciation.

46. In short, the following representations were made to me by both Rohit and Sharad which I relied on. Those representations were that:

46.1 The coupon would always meet the interest payment to ABK.

46.2 That the capital at the end of the investment would repay the ABK loan.

46.3 That there was negligible risk of not making substantial capital return at the end

46.4 That there was no risk of losing money.”

171. Mr Taha’s evidence as to what occurred at that meeting is found at paragraphs 29 to 37 of his witness statement:

“29. Mr Kerry started the meeting by giving a short introduction. Then Mr Walia used the meeting as effectively a sales pitch for Bank Sarasin and he explained how the bank had an exceptional track record achieving returns for their clients. Mr Walia explained that they had a track record of generating investment returns of up to 45% per annum for their private clients with capital protection, and produced charts which purported to demonstrate investment returns of this level for unnamed clients who were also based in the Middle East. Mr Walia did most of the talking at the meeting with Mr Kerry either repeating what was being said or agreeing.

30. Mr Al Khorafi explained that he had been referred to them by ABK who were willing to lend him and his mother money for foreign investment and he was looking to invest that money in a way that would be secure so that ABK could be repaid but would also provide him with some cash above the level of interest that he had to pay to ABK. He also said that he wanted a no risk investment. The bank did not ask any questions about Mr Al Khorafi’s investment experience nor did they ask about his wealth or the availability of his assets or his cash. They did not ask any questions about his mother either.

31. Mr Walia explained that Mr Al Khorafi and Mrs Al Hamad could make a wide range of investments that would meet Mr Al Khorafi’s requirements. Mr [Walia] and Mr Kerry said that they had capital guaranteed products on which the client would never lose money.

32. We were then told that the capital protected products that they would recommend as part of the investment strategy paid regular ‘coupons’ which would allow Mr Al Khorafi to pay the interest payments required on the ABK loan and would provide him and Mrs Al Hamad with additional income.

33. Mr Kerry and Mr [Walia] said that the coupon would always meet the interest payment to ABK and that the capital at the end of the investment would repay the ABK loan. They also said that there was a negligible risk of not making a substantial capital return at the end [and] that there was no risk of losing any money.

34. There was some discussion about the fact that Mr Al Khorafi owned a real estate company and that he was interested in real estate opportunities. We were then told that Mr Al Khorafi could make a number of different investments that would meet his requirements including real estate.

36. Mr Walia and Mr Kerry did not say that the investments that they were recommending would be limited to those issued by the Sarasin group and that there might be other products available from other institutions which might be a better fit.

37. At the end of the meeting, Mr Al Khorafi said that I would be the point of contact with the bank. However, at no point did Mr Al Khorafi say or suggest that I was authorised to make any investment decisions on behalf of him and his mother. However, save for saying I was the point of contact, I was not discussed at all nor was there any reason to discuss me. This was a matter between Sarasin and Mr Al Khorafi which would have been obvious to both Mr Walia and Mr Kerry.”

172. Mr Nour’s evidence as to the meeting is found at paragraphs 24 and 25 of his witness statement dated 4 April 2013. It was to the same effect:

“24. I recall that Rohit Walia did much of the talking at the meeting and used it as an opportunity to try to impress Mr Rafed [Al Khorafi]. I know Mr Rafed was very impressed with Mr Walia and liked him a lot. He was somebody Mr Rafed thought he could trust and so was happy to be advised by him. Although he put reliance on what both Mr Walia and Mr Kerry said, he placed more reliance on what was said by Mr Walia because he liked him. It was clear from the discussion that Rohit [Walia] and Sharad [Kerry] understood that Mr Rafed and his [mother] were borrowing money from ABK to fund the investments with Bank Sarasin and that they should be capital guaranteed. Mr Rafed was clear that he would be happy with a reasonable steady income but that he wanted no risk.

25. I recall clearly that Mr Walia said that the ‘coupon’ would always meet the interest payment to ABK and that the capital at the end of the investment would repay the ABK loan. Mr Walia also said that there was a negligible risk of not making a substantial capital return at the end and that there was no risk of losing money. I recall Mr Kerry agreeing with Mr Walia and also during the meeting repeating what Mr Walia said. Although I have no experience of investment products and investments generally I can remember thinking that these investments sounded very good. Both Mr Walia and Mr Kerry gave the impression that the investments were perfect for our requirements and that Mr Rafed would ‘never lose money’”.

173. Mr Al Shatti was also at that meeting. He said this, at paragraphs 9 and 10 of his witness statement dated 4 April 2013:

“9. The meeting was essentially a sales pitch by Rohit Walia and Sharad Kerry. It was clear from the discussion that Mr Walia and Mr Kerry understood that Mr Al Khorafi and his mother were borrowing from ABK to fund the investments with Bank Sarasin. Mr Al Khorafi said that he would be happy with a small income but that he wanted no risk.

10. Mr Walia and Mr Kerry told Mr Al Khorafi that the coupon would always meet the interest payment to ABK, that the capital at the end of the investment would repay the ABK loan, that there was no risk of not making a substantial capital return at the end and that there was no risk of losing any money. I remember this as even I thought that this was a very good deal.”

174. Mr Walia’s evidence as to what occurred at the meeting on 24 April 2007 is set out at paragraphs 49 to 65 of his witness statement dated 4 April 2013. So far as material in the present context, he said this:

“56. …Mr Kerry and I showed Mr Al Khorafi and Mr Taha popular products which included products structured and issued by different investment banks other than the ‘Sarasin Group’. We discussed the type of structures that had been devised for other clients based in the Middle East and the returns that had been generated over the previous five year period – a time when global financial markets and in particular the real estate sector was performing well. I do not recall and, therefore, cannot identify which particular products were shown at this meeting or the different issuers of these products save that they would have been products which had been structured for clients of Sarasin-Alpen DIFC.

57. Mr Al Khorafi and Mr Taha focussed almost immediately on the Real Estate Investment Trust (’REIT’) products and expressed a preference for real estate based investments. Mr Al Khorafi explained that he was already involved and experienced in real estate, hence his preference for real estate based investments. Mr Al Khorafi made it clear during this discussion that the assessment/compatibility of the investment products for his and Mrs Al Hamad’s portfolios was Mr Taha’s task. Mr Al Khorafi was very clear in not wanting any recommendation or specific advice from me and verbally confirmed that he would rely on Mr Taha for this.

58. Mr Taha told me and Mr Kerry that Mr Al Khorafi and Mrs Al Hamad wanted a capital guaranteed product however, with a release of funds in the form of a payment or coupon of 8% or 10% in order to service the ABK loan interest payments. Mr Taha also explained his rationale for the 8% and 10% coupon payment was based on the desire to generate some additional cash flow for Mr Al Khorafi after servicing the ABK loan interest payments of around 5%.

59. Mr Kerry and I explained that a 100% capital guaranteed product does not ordinarily produce a guaranteed coupon during the term of the note. However, a bespoke capital guaranteed product could be structured so that the payment of a coupon could be made from the capital during the term of the note with the balance paid out upon maturity of the note. This discussion was general in nature. Whilst I did say that the product could be structured so as to provide some cash during the term of the product through the release of capital, I did not state that this would ensure the ABK loans would be repaid in full upon maturity and would result in substantial capital appreciation. Neither Mr Kerry nor I said that the products would pay coupons out of income earned on the products which would allow Mr Al Khorafi and Mrs Al Hamad to pay the ABK loan interest and provide them with additional income. The suggestion by the Claimants that Mr Al Khorafi and Mr Taha believed that these products offered an 8% or 10% guaranteed return plus 100% capital protection is not worthy of serious consideration.

60. There was no discussion of a recommended investment ‘strategy’. Neither Mr Khorafi nor Mr Taha stated at this meeting that they wanted to retain Sarasin-Alpen DIFC to advise upon the merits, suitability of any investment, transaction or investment strategy or make any recommendations in this regard. Mr Taha had approached Sarasin-Alpen DIFC on behalf of Mr Al Khorafi and Mrs Al Hamad with a strategy that was already in place and presumably devised with Al Ahli Bank which was lending Mr Al Khorafi and Mrs Al Hamad USD 80 million for the purpose of making investments in capital guaranteed products.

61. Mr Taha and Mr Al Khorafi came to Sarasin-Alpen DIFC only looking for capital guaranteed products. Sarasin-Alpen’s role was limited to providing product options based on product preferences and specifications provided by Mr Taha, who was the clients’ financial advisor, and Mr Taha would select the products to be purchased. Mr Al Khorafi and Mr Taha did not look to Sarasin-Alpen DIFC for advice about the merits or suitability of any investments or any investment strategy. Indeed, no one from the Claimants’ side ever asked me or, to the best of my knowledge, anyone else from our side to arrange for either Sarasin-Alpen DIFC or Sarasin Switzerland to give them on advice or recommendations as to any investments or investment strategy.

62. As to the products themselves, neither I nor Mr Kerry told Mr Al Khorafi at the second meeting [the meeting on 24 April 2007] that Mr Al Khorafi and Mrs Al Hamad ‘would never lose money on an investment strategy based on capital protected investments’ nor that the risk that capital invested in the products would not appreciate in value ‘was negligible’. As I explained the discussion was very general in nature. Mr Kerry and I explained that by its nature, a 100% capital guaranteed product means that an investor would not lose the initial capital invested if the product is held to maturity. Whilst Mr Al Khorafi and Mr Taha requested a 100% protected product presumably because that was a term of the ABK loans, it was only Mr Taha who identified that he required a coupon payment of 8% to 10%. We indicated that the product could be structured so as to pay coupons out of the capital invested.

63. Even though Mr Kerry and I did not state at this meeting that the Claimants ‘would never lose money’ this is not in itself an incorrect statement. Except for issuer risk (which is the risk of default by the financial institution issuing the note) a capital guaranteed structured product held until maturity does exactly that – it guarantees repayment of the capital upon maturity of the note whilst allowing the holder of the note to participate in any appreciation of the underlying. Capital guaranteed structured products are by their nature low risk and cautious investments and the products in the present case were some of the most simple and conservative available on the market at the time. However it was Mr Al Khorafi’s and Mr Taha’s strategy of using 100% borrowed money to fund the purchase of these capital guaranteed products that turned low risk investments into a more risky proposition. I am in no doubt that Mr Taha and Mr Al Khorafi fully understood this.

64. …

65. At the conclusion of the part of the meeting in which Mr Al Khorafi was present, Mr Al Khorafi stated that he was happy to deal with Sarasin-Alpen DIFC and start a relationship provided Mr Taha confirmed. The meeting concluded on the basis that Mr Kerry would follow up with an email describing the types of product structures for Mr Taha’s consideration.”

175. In the course of his oral evidence at the trial, Mr Al Khorafi was cross-examined as to the meeting on 24 April 2007 (transcript 20 May 2013, page 9, line 5 to page 11, line 12, page 21, line 20 to page 36, line 6). He was taken (ibid, page 27, line 10 to page 36, line 6) to paragraphs in Mr Walia’s witness statement. When it was put to him that the statement in the first sentence of paragraph 57 of Mr Walia’s witness statement was correct, he said this (ibid, page 32, lines 16 to 20):

“Yes, I have mentioned to Mr Rohit that, namely I said in Arabic ‘I love investing in properties and in real estate’. But I have never experienced any investment in these funds dealing with real estate and I don’t understand it at all.”
In response to a question whether Mr Taha had said what Mr Walia recounted at paragraph 58 of his witness statement, he replied (ibid, page 33, lines 15 to 21):
“In the meeting I explained to Mr Rohit that I had a loan from the Kuwaiti Bank and this loan is due within three years, and I don’t want to risk the capital money of the loan itself or the payments or the interest of that. He [Mr Khorafi] wants to cover that loan. I don’t want to risk myself or my mother…”

He was asked whether he agreed with the first three sentences in paragraph 59 of Mr Walia’s witness statement. He replied (ibid, page 35, lines 4 to 11):
“Mr Kerry – actually listened to me first, I said to him ‘I need 100% guarantee of my capital and I need a return that will cover my interest’. And Mr Walia – Mr Kerry said to me ‘We are going to work on that’, that’s what they said to me. And they did not go into specific details with me. Why? Because normally I do not get into details. I leave the details to other people.”
In answer to the question whether Mr Walia was correct in what he had stated in the first two sentences of paragraph

62 of his witness statement, Mr Al Khorafi said this (ibid, page 35, line 20 to page 36, line 6):

“That is actually contrary, completely opposite to what happened. I might not understand well in investments, but I am not a dumb person and I am not an idiot.

I would never risk my wealth or my mother’s wealth. When I speak about my wealth, this is my children’s wealth. I don’t have any reason to risk it. I don’t have to. I don’t need to. So there’s no reason to push me to go into an investment which is not guaranteed for the capital and not guaranteed for the return, and I put such a big amount at stake and take this risk. That would never happen in a million years.”

176. Mr Taha was also cross-examined as to the meeting on 24 April 2007 (transcript, 22 May 2013, page 56, line 3 to page 59, line 18). He denied (ibid, page 56, lines 9 to 17) that his role at that meeting was as “the person who was dealing with this [the investment of the monies to be lent by ABK] principally on behalf of Mr Khorafi”. He confirmed (ibid, page 58, lines 13 to 17) the statement in the second sentence of paragraph 31 of his witness statement: that “Mr [Walia] and Mr Kerry said that they had capital guaranteed products on which the client would never lose money”. As he put it:

“…Commonsense, when you have capital guaranteed products, that means it does not lose. That’s simple, straightforward.”
He rejected the suggestion, put to him by Mr Brindle QC, that he had been wrong to state, at paragraph 33 of his witness statement that Mr Kerry and Mr Walia had said that the coupon would always meet the interest payment to ABK: it was put to him that the word “always” was not used. He said this (ibid, page 58, line 25 to page 59, line 3):

“I certainly do not agree with you, because if the word ‘always’ is not there, I am is hundred per cent sure Mr Rafed Al Khorafi would never invest with them, if this ‘always’ is not there.”

When it was pointed out to him that the interest on the ABK loan would be based on a floating rate (2% over LIBOR) whereas the coupons would be based on a fixed rate; so that there could be no guarantee that the coupons would always exceed the interest on the ABK loan, he replied (ibid, page 59, lines 11 to 18):

“Exactly. That’s why we went for Sarasin Bank, because this is where the expertise of Sarasin Bank falls. Actually we wanted capital guaranteed, but we did not know how to do it. So they came with the offer: we give you capital guaranteed and at the same time, we are going to pay off your interest and give you profits. So this is the deal that made Sarasin Bank attractive to us.”
Save in those respects Mr Taha’s evidence as to what had been said at the meeting on 24 April 2007 was not challenged in cross-examination.

177. Mr Nour and Mr Al Shatti each gave oral evidence at the trial (transcript, 21 May 2013, page 73, line 1 to page 115, line 5; and page 64, line 24 to page 71, line 4). It was put to each of them (ibid, page 79, lines 1 to 10; and page 69, lines 13 to 16) that Mr Walia had not said, at the meeting on 24 April 2007, that the coupon would “always” met the interest payments due on the ABK loan. In response, each confirmed the evidence which he had given in his witness statement. It was put to each of them (ibid, page 79, line 23 to page 80 line 10; and page 69, line 20 to page 70, line 10) that Mr Walia had not said, at that meeting, that there was a “negligible risk of not making a substantial capital return”. Again, each confirmed the evidence given in his witness statement. And it was put to each of them (ibid, page 80, lines 11 to 21; and page 70, lines 6 to 24) that Mr Walia had not said that Mr Al Khorafi and Mrs Al Hamad “would never lose money”: and, again, each confirmed the evidence given in his witness statement. Save in those respects, the evidence of Mr Nour and Mr Al Shatti as to what had been said at the meeting on 24 April 2007 was not challenged in cross-examination.

178. In the course of his cross-examination at the trial Mr Walia confirmed (transcript, 23 May 2013, page 62, line 9 to page 63, line 22) that the substance of his case as to the meeting on 24 April was, as had been put to Mr Al Khorafi by Sarasin-Alpen’s Counsel, Mr Brindle QC, that:

“What you [Mr Khorafi] made clear to Mr Walia that you wanted was, (1) capital protection, (2) money that you could pay to cover the funds advanced by ABK, and (3) some return.”

But he went on (ibid, page 64, lines 2 to 23) to say this:

“…when we had our second meeting – when I had my first and Sarasin-Alpen second meeting with Mr Khorafi, what was very clear is that he wanted capital guaranteed structured products. He said so himself. It’s in subsequent meetings, or maybe the third meeting, where Mr Alaa [Taha] said that we needed some money to cover the interest payments to Ahli Bank of Kuwait. Because the original structures which were looked at, which is again identical to what we did for our other client in Kuwait were 100 per cent capital guarantee structured. No coupons, no payments out. This was structured for the client subsequently on his request. This was not what we sold normally to any client.

It was done at the subsequent meeting. This was not discussed in my meeting [on 24 April 2007] with Mr Al Khorafi and Mr Taha. It was a 20-minute meeting. I gave a very quick introduction to who we are, what we do and he said ‘We want a similar capital guaranteed structures which you have done for the other client’ who I mentioned before.”

179. Mr Walia’s oral evidence that the need for income to service the interest payments due in respect of the ABK loans had not been raised at the meeting on 24 April 2007 contradicted the statement which he had made in paragraph 58 of his witness statement, was inconsistent with the way in which Sarasin-Alpen’s case had been put to Mr Al Khorafi by its Counsel, and was never put to Mr Taha, Mr Nour or Mr Al-Shatti (each of whom gave evidence that Mr Walia had said, at the meeting on 24 April 2007, that the coupon payments would cover the interest).

180. Mr Walia returned to the point later in the course of his cross-examination. It was put to him (transcript, 23 May 2013, page 82 at lines 18 to 20) that he had said, at the meeting on 24 April 2007, that the products to be offered would provide capital protection, together with an income after paying the interest on the funds advanced by ABK. His response (ibid, page 82, line 21 to page 83, line 1) was this:

“No, no. I would never say that. That’s not possible. They are capital guaranteed products and if Mr Khorafi had stuck to what the first client had done, there would not be a problem. It was their bright idea to come up with coupon requirements, not mine…”

Nevertheless, when it was pointed out to him, shortly after that exchange (ibid, page 85, line 20 to page 86 line 6), that, in the context of Mr Al Shatti’s evidence that “Mr Walia and Mr Kerry had told Mr Al Khorafi, at the meeting on 24 April 2007, that the coupon would always meet the interest payment to ABK”, counsel for Sarasin-Alpen had stated that, if the word “always” was removed, that sentence accurately reflected what Mr Walia had said at that meeting, he confirmed that that did accurately summarise Sarasin-Alpen’s case in this litigation. He went on to accept (ibid, page 90, lines 22 to 24) that he did not advise Mr Al Khorafi or Mr Taha that, where the intention is to service a variable rate loan by a fixed rate coupon, there was a theoretical risk that (if variable rates rise) the fixed rate will not cover the variable rate.

181. It was put to Mr Walia at the trial, in the course of cross-examination (transcript, 23 May 2013, page 9, line 24 to page 10, line 5), that, except to the extent that Sarasin- Alpen could rely on an applicable exception, it was not permitted to advise on financial products or recommend a transaction unless the advice or recommendation was suitable for the client, having regard to the client’s investment objectives and risk tolerance and the client’s other requirements or circumstances. His response was not to answer the question put to him; but to evade it. He said this (ibid: page 10, lines 6 to 12):

“I think…I would like to just maybe enlarge my comment on this one. As far as we were concerned, we did not make any recommendations to clients. We gave generic advice. We showed you or showed a client five or six options and then gave them a chance to do what he would like to do. That’s the way we have run our business for the last 10 years.”
There are numerous other examples of Mr Walia’s approach – to evade rather than to answer the questions put to him – throughout his oral evidence.

182. When it was put to him (transcript, 23 May 2013, page 37, line 13 to page 39, line 20) that it was stated in a Sarasin-Alpen brochure that “…we can financially structure, on request, customised products to meet specific client requirements” – a statement which was plainly inconsistent with his claim that Sarasin-Alpen gave only generic advice – his response was to tell the court (ibid, page 41, line 15 to page 43, line 22), first, that that statement was not true – it was a mistake – and, subsequently, to retract that answer. I set out the relevant passage of his evidence as an illustration of Mr Walia’s willingness to prevaricate:

“MR HILL QC: You’re saying:
‘…we can financially structure…customised products to meet specific client requirements.’
Aren’t you?
A. I think I don’t want to debate this English too much, really – ‘we’. It’s a brochure. We know what we do. We know how we do it. So if a brochure says ‘we’, it’s not — I’m sorry.
Q. This brochure is telling the outside world what you do and how you do it, isn’t it? That’s what it’s there for?
A. That’s incorrect.
Q. It’s publicised for this purpose, to tell clients what you do and how you do it, as you put it?
A. Well, enough brochures have enough mistakes, as I have seen in my 30-year career in banking, so I wouldn’t get stuck on this.
THE COURT: I’m sorry, I had thought this was Bank Sarasin-Alpen’s brochure. Is that accepted or not accepted?
MR HILL: My Lord, I think it is accepted. Could I just check that.
Q. It’s accepted it is your brochure?
A. It is a brochure produced by Banker Middle East, which is a CPI-owned magazine in this town.
THE COURT: I look at page 1376, I see Sarasin-Alpen’s name on it. If I look at the foot of page 1383, I see Sarasin-Alpen’s name on it.
A. Correct.
Q: Are you telling me that it is not Sarasin-Alpen’s brochure?
A. It is a brochure produced for Bank Sarasin-Alpen by Banker Middle
East
Q: So it is Bank Sarasin-Alpen’s brochure?
A. Correct.
Q: Are you telling me that it’s not true?
A. Well, it’s correct. It’s a correct brochure. I’m saying — because this is –
Q If it’s your brochure and you do not tell me that it’s not true, then I shall assume that what is written here is what you wanted to say to the world.
A. My Lord, all I was trying to say is when they come and interview whoever they interview, this was not done with me, and they put down what they want to say, I’m not sure I had a chance to see the final copy, so I haven’t seen this, for all practical purposes, and I definitely have not read the whole brochure. What I’m trying to say is what we do, in actual fact.
Q: What is being put to you is whether this brochure is telling the world what you do with the authority of Bank Sarasin-Alpen. That’s effectively the question. If you say that it’s not your brochure, or that what it says is not true, then I will obviously listen to that evidence. But if you’re not telling me either of those things, then I can read what it says.
A. Correct.
MR HILL: What are you saying?
A. What I’m saying, my Lord, is that the client gives us in reality, forget the English which is put down here, the client tells us what he wants, we relay the information to the provider we think who can execute and then pass it back. We do not structure anything. We don’t have the capability of structuring anything, I would go on to add, in the Dubai office.
Q. So it’s not true?
THE COURT: You can’t tell me to forget the English, Mr Walia. The English says:
‘… we can financially structure, on request, customised products …’
Either that’s true or it’s not true. If it’s not true, tell me.
A It’s not true.
Q: It’s not true?
A. Not in the way it’s –
Q: What is it doing in your brochure?
A. It’s incorrect. It’s a mistake.
Q: Why is it a mistake?
A. Because, like I said, you know, if anybody who knows us, and we have enough clients in this part of the world, the structuring is all done at the office or the product office of the bank who actually sells the product. We don’t do the structuring.
Q: You want me to understand that what is in your brochure is not true; is that the position?

Are you telling me that what is in your brochure is not true?

A. No, it’s true. But we do not do the structuring. What I’m trying to clarify is that we don’t do the structuring here. We can, but we don’t do it here. It’s done by the bank who executes the transaction. That’s reality. We can do it, I’m sure we can. You know, we are all bankers, we can do it. But we don’t do it. That’s ultimately when the transaction gets executed, it gets done by the bank which is executing the transaction.”

183. Where Mr Walia’s evidence was inconsistent with the evidence given by Mr Al Khorafi, Mr Taha, Mr Nour or Mr Al Shatti, I can place no weight upon it.The completion of the AGBCs signed by Mr Al Khorafi and Mrs Al Hamad

184. Mr Al Khorafi’s evidence was that a copy of the AGBC (together with a number of other documents, including the application for the opening of current and custody accounts with Bank Sarasin and the pledge agreement) was sent to him by Bank Sarasin for signature on 6 June 2007. He accepted that he signed the AGBC that had been sent to him, on page 8 of the document, under a pre-typed “Place/Date” of “Kuwait, 6 June 2007”. But he asserts that the document which he signed was uncompleted, but for his name, pre-typed on page 1, and the Place/Date on page 8. At paragraph 59 of his fourth witness statement he stated:

“59. The version of the AGBCs that I signed was blank, save that it had my name typed on the front page. I have since seen a copy of this document from the Defendant’s files which has various handwritten comments purporting to refer to my financial position and investment experience and in which the box consenting to be treated as a client has been ticked. I would not have signed that document if it had contained those handwritten comments because they are not correct.”
Mr Khorafi’s evidence that the document which he signed was uncompleted but for his name, pre-typed on page 1, and the Place/Date pre-typed on page 8 is consistent with the copy of the AGBC which was produced from the Claimants’ files. That copy bears his signature, his name and the Place/Date; but is otherwise uncompleted. In particular, none of the boxes under paragraph 1 of Annex 1 have been ticked and no answers have been given to the questions in Annex 1A.
185. Mrs Al Hamad’s evidence was to the same effect. She, also, accepted that she had signed the AGBC in her name at page 8 of that document; and had signed other documents at the same time. In her second witness statement (also dated 4 April 2013) she said this:

“20. Someone in my son’s office took copies of the documents. These copies show that in the copy of the Additional General Business Conditions…that I signed, there were no handwritten comments and the box indicating consent to be treated as a client had not been ticked. I would not have signed the document if I had seen the handwritten information contained in the Defendants’ version of that document…”
Again, her evidence that the document which she signed was uncompleted but for her name, pre-typed on page 1, and the Place/Date pre-typed on page 8 is consistent with the copy of the AGBC which was produced from the Claimants’ files. That copy bears her signature, her name and the Place/Date; but is otherwise uncompleted. In particular, none of the boxes under paragraph 1 of Annex 1 have been ticked and no answers have been given to the questions in Annex 1A.

186. The evidence given by Mr Khorafi and Mrs Al Hamad as to the state of the AGBCs which they respectively signed and returned to Sarasin-Alpen was not challenged in cross-examination (transcript, 19 May 2013, page 136, lines 6 to 24; transcript, 22 May 2013, page 3, line 14 – page 15, line 23).

187. Sarasin-Alpen rely on the evidence of Mr Walia. At paragraphs 93 and 97 of his first witness statement, dated 4 April 2013, Mr Walia stated that Mr Al Khorafi and Mrs Al Hamad each signed AGBCs on 6 June 2007 (at page 8 of the documents); and that these were returned to Sarasin-Alpen’s offices in the DIFC by courier. At paragraphs 99 and 100 of that witness statement Mr Walia went on to say this:

“99. I understand that the AGBCs were returned signed by each of Mr Khorafi and Mrs Al Hamad to Sarasin-Alpen DIFC, however, page 6 of Annex 1 and pages 9 and 10 of Annex 1A had not been completed. Although I do not know the precise date, I believe that Mr Kerry ticked the box on page 6 of Annex 1 (which indicated that Mr Al Khorafi and Mrs Al Hamad were Clients because they were individuals who met the criteria set out in COB 3.2.2(1)(a)) in June 2007 to record the instructions and information communicated by Mr Taha on behalf of Mr Al Khorafi and Mrs Al Hamad.

100. Also I believe that Annex 1A of…Mr Al Khorafi’s and Mrs Al Hamad’s AGBCs was completed by Mr Kerry during the period 6 to 12 June 2007 either in Kuwait at Mr Al Khorafi’s offices or at Sarasin-Alpen DIFC’s offices in the DIFC. Mr Kerry was in Kuwait on 11 June 2007 and attended a meeting with Mr Taha and Mr Cherian at Mr Al Khorafi’s offices. It is, therefore, possible that Mr Kerry completed Annex 1A at Mr Khorafi’s offices in the presence of Mr Taha or recorded the instructions and information necessary to complete Annex 1A on the instructions of Mr Taha received during this meeting on behalf of Mr Al Khorafi and Mrs Al Hamad. In any event Annex 1A records the instructions and information communicated by Mr Al Khorafi and by Mr Taha on behalf of Mr Al Khorafi and Mrs Al Hamad. I believe that the information contained in Annex 1A of Mr Al Khorafi’s and Mrs Al Hamad’s AGBCs is true and correct and is consistent with what Mr Taha and Mr Al Khorafi told us during the meetings.”

188. It can be seen from those paragraphs that – notwithstanding that the contrary had originally been pleaded by Sarasin-Alpen’s former attorneys – Mr Walia accepted that, when the AGBCs signed by Mr Al Khorafi and Mrs Al Hamad were returned to Sarasin-Alpen on (or shortly after) 6 June 2007, the documents contained no entries in either Annex 1 or in Annex 1A. It can be seen, also, that he was not able to say, of his own knowledge, who (at Sarasin-Alpen or otherwise) had made the entries in Annex 1 and Annex 1A which now appear on the documents produced from Sarasin-Alpen’s files. The suggestion that the box on page 6 of the documents (in Annex 1) had been ticked by Mr Kerry (prefaced by the words “I believe”) must be treated as speculation on the part of Mr Walia. So, also, must the suggestion that Annex 1A was completed by Mr Kerry in the period 6 to 12 June 2007 (whether in Kuwait, at a meeting attended by Mr Taha and Mr Cheerian, or at Sarasin-Alpen’s offices in the DIFC).

189. Mr Walia’s inability to distinguish between what he knew of his own knowledge, what he had been told by others (in particular, by Mr Kerry) and what, in his own mind, he believed to have occurred became very clear when he was cross-examined as to the circumstances in which the entries in Annexes 1 and 1A were made (transcript, 23 May 2013, page 177, line 7 to page 181, line 16). It was a feature which pervaded his evidence generally; and which requires that evidence to be approached with great caution.

190. As I have said Mr Taha is a qualified accountant who was employed by the Al Khorafi National Group from May 2007 until 31 December 2012. At paragraph 51 of his witness statement he asserted that he was not involved in the signature of documents by Mr Al Khorafi and Mrs Al Hamad in June 2007. He went on:

“51. …One of the documents that I now understand was signed by Mr Al Khorafi and Mrs Al Hamad was Sarasin Dubai’s Additional General Business Conditions. …I understand that when these were signed by Mr Al Khorafi and Mrs Al Hamad, they were blank but on Sarasin Dubai’s files, they had been completed with various information about Mr Al Khorafi and Mrs Al Hamad. I did not give Bank Sarasin the information set out in these documents and I do not know where they obtained this information. Insofar as these documents dealt with Mr Al Khorafi’s and Mrs Al Hamad’s investment experience and wealth, as I understand the position, they considerably overestimated both. Further, both documents are wrong insofar as they suggest that I was Mr Al Khorafi and Mrs Al Hamad’s chief financial officer or investment adviser. I have never had any contact with Mrs Al Hamad.”

191. Mr Taha gave oral evidence by video-link. The evidence which he had given at paragraph 51 of his first witness statement was not challenged in cross examination (transcript, 22 May 2013, page 42, line 7 to page 121, line 16). In particular, it was not put to him that, as Mr Walia had suggested at paragraph 100 of his witness statement (set out above), Mr Kerry had completed Annex 1A at Mr Khorafi’s offices in his presence or recorded the instructions and information necessary to complete Annex 1A on his instructions given on behalf of Mr Al Khorafi and Mrs Al Hamad during that meeting.

The meeting on 22 June 2007

192. At paragraph 63 of his fourth witness statement Mr Al Khorafi explained that, in mid-June 2007, he was approached by Mr Cheerian of ABK with the suggestion that he and Mrs Al Hamad should consider borrowing more money from ABK to invest further with Bank Sarasin. Mr Cheerian suggested a further loan of up to US$180 million; in addition to the monies already lent. He, Mr Al Khorafi, asked Mr Taha to set up a meeting in London with Mr Walia and Mr Kerry “to find out where we had got to”. His evidence (at paragraph 64 of his witness statement) was that he did not ask Mr Taha to attend the meeting; and that Mr Taha did not do so. He went on, at paragraphs 65 to 71 of his witness statement, to say this (so far as material):

“65. The meeting on 22 June 2007 took place at the Sofitel hotel in London and I believe lasted about an hour. Rohit [Walia] and Sharad [Kerry] repeated a lot of what they had said at the previous [24 April 2007] meeting in Kuwait. Rohit said he was very excited about the investments and he recommended that the money should be invested in real estate in Japan.

66. In particular Rohit and Sharad said again that the coupons on the investments would be more than sufficient to pay the interest to ABK and would give me a surplus. Both Rohit and Sharad said there was a negligible risk of not making a substantial capital return at the end and that there was no risk of losing money. I was satisfied by this answer as I liked Rohit and trusted his advice. At that point I considered our relationship with both Rohit and Sharad and the Bank to be a good one. Placing reliance on the assurances made by Rohit and Sharad both at this meeting and at our previous meeting, that we would never lose money, that there was a negligible risk that we would not benefit from substantial capital appreciation and that the coupons paid on the investments would allow us to pay the interest payments on the ABK loans, I told them to go ahead on the investments. Had these assurances not been given and the previous statements not been made, I would not have told them to go ahead. I also assumed, given that I was dealing with what I believed to be a reputable financial institution, that all regulatory obligations on the part of the bank had been met.

67. I also mentioned to them that I had been approached by ABK about borrowing further money from ABK to invest further with the Defendants. In response Rohit said that he could make my mother and I more money by ‘leveraging’ the portfolio. This was not a term that I had previously come across, but in the way that Rohit explained it, it was simply a way of increasing the amount invested. He said that this was just an entry in their books and that there was no risk and simply offered further benefits to the original set of investments that I had agreed to. He said that it was possible to leverage up to four times but he would recommend leveraging two times. The result, he said, was that we had a further US$ 100 million to invest and that would make us more money. He said that the costs of the leveraging would be half the cost of the money that we had borrowed from ABK and would be completely covered by the coupon on the portfolio. He said this was effectively a way of earning more money than I was going to earn on investments funded by ABK. At no stage did either Rohit or Sharad warn me of any risks associated with this leveraging. He had already told me that there was no prospect of me losing money on these investments and he gave me to understand that this would still be the case even with the leveraging. He said nothing at all to correct this impression. Rohit also gave me the impression that this was a special deal that he was only offering to me. Whilst I had no experience of these types of dealings in the past, I had heard of some very wealthy people in Kuwait being offered very substantial amounts of money by banks without security, and there was nothing about what Rohit and Sharad were saying that caused me concern.

68. Rohit said they were not amateurs at this and that this was the right way to go. As I explained earlier, although I liked Sharad, Rohit is very persuasive and compelling. In the way that he explained it, it seemed to me like the most obvious thing to do and that it would be silly if I did not proceed with this strategy. I trusted Rohit completely and was happy to follow his recommendation. I was also happy to follow his recommendation as Sharad was repeating a lot of what Rohit was saying. I therefore agreed to the leveraging and told them to go ahead on the investments.

69. I agreed to this on the basis of what they had told me and because I believed from what they had told me that there was no prospect of losing money. As with the original investments, I told them to go ahead because of their previous statements (which I understood from them continued to apply to the proposed new investments) that we would never lose money, that there was a negligible risk that we would not benefit from substantial capital appreciation and that the coupons paid on the investments would allow us to pay the interest payments on the AK loans. Had these statements not been made, I would not have told them to go ahead. As with the original investments, I assumed, given that I was dealing with what I believed to be a reputable financial institution, that all regulatory obligations on the part of the bank had been met.

70. At the meeting, Rohit also said that given the amount invested, Bank Sarasin could also provide me with upfront cash if I wanted it. Rohit knew that I was trying to pursue my real estate project with RAFCO and so I could use the money. I was interested in this and Rohit said they could provide around US$35 million. He said there would be no costs now for that money and that it would come out of the profits at the end. Since I was very keen on progressing my real estate project, I said to Rohit that I wanted to go ahead with this as well.

71. I recall there was some discussion at this meeting about monitoring the investments. Rohit had told me that a number of his clients had made so much money on these investments that they had sold them early and taken the profits before the structure expired. He said that monitoring the investment would be a good job for Alaa [Taha] to do and I should send him to them for training to the bank in Switzerland.”

193. Mr Nour was also at the meeting in London on 22 June 2007. At paragraphs 29 to 34 of his witness statement he confirmed Mr Al Khorafi’s evidence as to what had taken place. In particular, he confirmed (i) that Mr Taha was not at the meeting (paragraph 29), (ii) that “the things that had been said at the first meeting in Kuwait were repeated” (paragraph 30), (iii) that Mr Walia suggested that Mr Al Khorafi leverage his investments (paragraph 31) and (iv) that Mr Walia had said that leverage gave rise to no risk, but a benefit, and that “the costs of leveraging would be half the cost of the money that had been borrowed from ABK and would be completely covered by the coupon on the portfolio (paragraph 32). At paragraph 33 of his witness statement Mr Nour said this:

“33. Based on these discussions with Rohit and Sharad and the previous discussion, I believed that the returns on the investment put together by Bank Sarasin would be sufficient to cover interest to ABK, to provide a surplus and to repay the ABK loan in full. I also believed that it was likely that Mr Rafed and Mrs Al Hamad would make money on their investments. We were not aware that there was a risk that further money, in the form of collateral or margin (which were not concepts that I was familiar with at the time) would have to be put into the structure in order to keep the investments going. Mr Rafed was looking to pursue his real estate project with RAFCO and so he would not have wanted to purchase an investment that might require the investment of future funds in order to keep it going.”

In the course of cross-examination at the trial (transcript, 21 May 2013, page 80, line 22 to page 83, line 1) it was put to Mr Nour (ibid, page 82, lines 19 to 25) that “the idea of leveraging was not something that was suggested by Mr Walia at all”; but that, rather, the position was the other way round, in that “It was Mr Rafed Al Khorafi who wanted to leverage his investments and wanted to borrow as much money as he could”. Mr Nour did not accept that that was the position: he confirmed his evidence that leveraging had been suggested by Mr Walia; and not by Mr Al Khorafi. Save on that issue, Mr Nour’s evidence as to what had been said at the meeting on 22 June 2007 was not challenged in cross-examination.

194. Mr Taha confirmed, at paragraph 62 of his witness statement dated 4 April 2013, that he had not attended the meeting in London on 22 June 2007. His evidence on that issue was not challenged in the course of cross examination.
195. Mr Walia’s written evidence in respect of the meeting on 22 June 2007 is found at paragraphs 117 to 123. At paragraph 117 he asserted that Mr Taha was at that meeting. He went on to say that his recollection was that the meeting was “pretty much a recap meeting”. He said this:

“117. …Mr Al Khorafi said that he and Mr Taha had decided to invest in the REIT products as he was involved in real estate and was proposing to establish a real estate company. Neither I nor Mr Kerry made any recommendation as to which products should be purchased nor did we recommend any investment strategy at this meeting.”

At paragraphs 119 to 123 of his witness statement Mr Walia said this:

“119. Neither I nor Mr Kerry stated at the 22 June 2007 meeting that Mr Al Khorafi and Mrs Al Hamad would ‘never lose money’ and that the risks of their investments not increasing substantially in value was negligible. Rather, we reiterated that 100% capital guaranteed products meant that the initial capital of the investment would be preserved if the note was held to maturity the only risk being issuer risk.

120. Mr Al Khorafi expressed an interest in expanding and diversifying his portfolio using borrowed funds. The concept of further leveraging the portfolio was first raised by Mr Al Khorafi at the 22 June 2007 meeting, and was his own strategy.

121. When Mr Al Khorafi raised the possibility of leveraging the portfolio, there was discussion of the risks involved in leveraging: the discussion was focused on the risk of margin calls being made when someone leverages a portfolio of investments because of a drop in the value of the underlying investments. In any event, it would be highly likely and very reasonable to assume that in both Mr Al Khorafi and Mr Taha’s case they would understand that when you leverage you have a risk of margin calls and that the level of margin calls could be high with the amount of money under consideration, particularly given that they approached Sarasin-Alpen with borrowed money to invest.

122. Mr Al Khorafi said that he was interested in leveraging up to 6 or 7 times, however, I explained to Mr Al Khorafi that generally it was not prudent to leverage by more than a multiple of 2. Neither I nor Mr Kerry stated at this meeting that the interest payments on the proposed loan would be paid by income payments on the investment products purchased with the leveraging, although we did discuss generally that the capital guaranteed products could be structured in the same way as the REIT products but with different underlyings.

123. Also at this meeting Mr Al Khorafi requested a loan in the sum of USD 35 million for business reasons which I believe related to the floatation of his real estate company. I said we would speak to Sarasin Switzerland’s credit department to check how much could be released under the portfolio and would revert to him. Neither I nor Mr Kerry agreed nor could agree that the loan could be advanced since Sarasin-Alpen does not provide credit. Any potential USD 35 million facility would have to be the subject of an application for credit to Sarasin Switzerland in the usual way.”
196. Mr Al Khorafi was cross-examined on his evidence in relation to the meeting in London on 22 June 2007 (transcript, 20 May 2013, page 67, line 8 to page 77, line 13). In answer to the question whether he had borrowed money in connection with the second tranche of investments, he said this (ibid, page 68, lines 12 to 20):

“After Mr Cherian from the Al Ahli Bank of Kuwait approaches me and had a meeting with me, and offered to lend me some money, more money, I called Mr Rohit [Walia] and told him that the Ahli Bank of Kuwait approached me and offered to lend me more money.
Then Mr Rohit told me, ‘forget about them. We will give you – from the Bank Sarasin, we will give you money with less risks on that money and with guaranteed investments.’”
Mr Al Khorafi rejected (ibid, page 69, line 9) the suggestion put to him by Mr Brindle QC that “The question of borrowing money was something which you said to him you wanted to do, not something which he suggested to you”. His response was that:

“I have never asked Mr Rohit to lend me any money.”
He rejected, also, Mr Brindle’s suggestion that Mr Walia had given an accurate account in paragraph 119 of his witness statement. His response (ibid, page 70, lines 14 and 15) was this:

“Actually what is stated in paragraph 119 is the complete opposite of what was said in that meeting.”
And, when it was put to him (ibid, page 72, line 6 to page 74, line 13) that Mr Walia’s statements in paragraphs 120 to 122 of his witness statement were accurate, he disagreed.

197. Mr Walia’s evidence as to what had occurred at the meeting in London on 22 June 2007 was the subject of cross-examination (transcript, 26 May 2013, page 29, line 21 to page 44, line 18). He accepted (ibid, page 21, line 25) that he could not remember whether Mr Taha had attended that meeting; but he refused to accept that his statement, at paragraph 117 of his witness statement (that Mr Taha was at the meeting) was incorrect (ibid, page 31, lines 7 to 9; page 32, line 22 to page 33, lines 6 to 8). The question whether Mr Taha was, or was not, at that meeting may be of little or no importance in the context of the issues which I have to decide; but Mr Walia’s refusal to accept that there was no basis upon which he could support the statement in paragraph 117 of his witness statement – notwithstanding the unequivocal (and unchallenged) evidence of Mr Al Khorafi, Mr Nour and Mr Taha on that point and his own evidence, under cross-examination, that he could not remember – is a further illustration of his unreliability as a witness of truth.

198. Mr Walia went on, in the course of his cross-examination – to assert that the possibility of leveraging was “completely Mr Al Khorafi’s idea (ibid, page 34, line 20; page 44, lines 15 to 18); to assert that he had not told Mr Al Khorafi, at the meeting on 22 June 2007, that the finance and interest costs of leveraging would be met in full by the income from the leveraged investments (ibid, page 35, lines 16 to 22); to assert that it was reasonable to assume (without the need for explanation or warning) that Mr Al Khorafi would understand that leveraging gave rise to a risk of margin calls (ibid, page 39, line 22 to page 42, line 3); and to assert that the risk of margin calls in the present case “was flagged up very clearly to the clients” (ibid, page 44, lines 2 to 9).

199. I accept the evidence of Mr Al Khorafi and Mr Nour as to what was said at the meeting in London on 22 June 2007. Where Mr Walia’s evidence is inconsistent with that of Mr Al Khorafi and Mr Nour (and, in relation to the question whether Mr Taha was present at that meeting, with the evidence of Mr Taha) I do not accept Mr Walia’s evidence.

The meeting on 11 July 2007

200. As I have said, it is common ground that Mr Al Khorafi, Mr Taha, Mr Nour, Mr Walia and Mr Kerry met in London on 11 July 2007. Mr Al Khorafi’s evidence as to that meeting is found at paragraphs 77 to 79 of his fourth witness statement:

“77. On 11 July 2007 I attended a meeting with the bank in London. Present at that meeting were Rohit [Walia], Sharad [Kerry], Alaa [Taha]. Mohammed [Nour] and myself. From recollection the meeting took place at the bank’s offices in London near St Paul’s, although I understand that the location of this meeting is disputed by the Defendants. From recollection this was a brief meeting and the purpose was to sign documents. It is very possible that the confirmation of investment documents for the investments purchased on 28 June 2007 were signed at this meeting because I recall that this meeting was presented as the meeting at which the deal was formally done.

78. At the meeting we had a further brief discussion on the leveraging and it was agreed that my mother’s account would be leveraged by US$100 million and that the funds would be invested in further structured products, as recommended by Rohit and Sharad. Mr Walia and Mr Kerry again stated that the capital protected products they would recommend paid ‘coupons’ which would always meets the interest payment due on the ABK loan, and the interest due on the leveraging, and provide them with additional income as well as repay the ABK loan and Bank Sarasin loans in full upon maturity. There was no discussion as to the risks of leveraging or the impact on the portfolio and the coupon payments in the event that the value of the underlying investments fell.

79. I cannot recall precisely when Rohit suggested the particular products which made up this second round of investments by my mother. I expressed no interest in the particular market and was happy to go with Rohit’s recommendation. I understand that the investments were made in financial services, energy, and special materials. The first two categories are, I think, self-explanatory, but I have no idea what the third category relates to.”

201. Mr Nour gave evidence in the same terms. At paragraph 37 of his witness statement he said this:

“37. On 11 July 2007, we had a further meeting with the bank at their offices by St Paul’s in London. Present at the meeting were Mr Rafed [Al Khorafi], Alaa [Taha], Mr Walia and Mr Kerry. I recall that the reason that we attended Bank Sarasin’s offices was to sign documents but there was also discussion about the leveraging and the investments. In particular, Mr Rafed agreed with Mr Walia that his mother’s account would be leveraged by US$100 million and that the funds would be invested in further structured products, as recommended by the bank. Mr Walia and Mr Kerry again stated that the capital protected products they would recommend paid ‘coupons’ which would allow Mr Rafed’s mother to pay the interest due on the ABK loan, and the interest due on the leveraging, and provide them with additional income as well as repay the ABK loan and Bank Sarasin loans in full upon maturity. There was no discussion as to the risks of leveraging or the impact on the portfolio and the coupon payments in the event that the value of the underlying investments fell.”

It was suggested to Mr Nour by Mr Brindle QC in the course of his cross-examination (transcript, 21 May 2013, page 83, line 2 to page 84, line 4) that the proposal to leverage Mr Al Hamad’s account by US$100 million had come from Mr Al Khorafi, rather than from Mr Walia. Mr Nour rejected that suggestion. He also rejected the suggestion that it had been Mr Al Khorafi who said he wanted to leverage “something like six times”. He said that neither he nor Mr Al Khorafi “knew anything about leveraging or the meaning of leveraging before the meeting with Mr Rohit”. And he rejected the suggestion that there had been a discussion about the risks of leveraging.

202. Mr Taha’s evidence was to much the same effect. At paragraphs 74 to 76 of his witness statement he said this:

“74. On 11 July 2007 I also attended a meeting in London. Present at the meeting were Mr Walia, Mr Kerry, Mr Al Khorafi, Mr Nour and myself. I did not participate in the discussions at the meeting, which took place between Mr Walia and Mr Al Khorafi. At the meeting it was said that Mrs Al Hamad’s account would be leveraged by US$ 100 million and that the funds would be invested in further structured products, as recommended by Mr Walia. There was no discussion as to the risks of leveraging or the impact on the portfolio and the coupon payments in the event that the value of the underlying investments fell. Furthermore, there was no discussion in relation to Mr Al Khorafi’s or Mrs Al Hamad’s liability to make margin payments in the event that the value of the investments fell below a specified level.

75. At the meeting, Mr Walia and Mr Kerry repeated that the coupon would always meet the interest payment to ABK and that the capital at the end of the investment would repay the ABK loan.

76. Nothing was said to me by Mr Walia or Mr Kerry about the risks of these investments or the leveraging.”
It was put to Mr Taha by Mr Brindle QC in cross-examination (transcript, 22 May 2013, page 93, line 4 to page 94, line 15) that his evidence was not an accurate record of what had taken place at the meeting on 11 July 2007; and that a true and accurate record was to be found in paragraph 137 of Mr Walia’s witness statement (set out below). Mr Taha’s response was that that paragraph was “completely contrary to what has been mentioned in that meeting”.
203. Mr Walia’s account of the meeting on 11 July 2007 is set out at paragraphs 137 to 139 of his witness statement dated 4 April 2013:

“136. On 11 July 2007 I attended a meeting in London with Mr Al Khorafi, Mr Taha, Mr Nour and Mr Kerry. The meeting took place at a hotel in London (again I believe located in the West End) and was approximately 30 minutes long.

137. At this meeting, Mr Taha confirmed that Mrs Al Hamad would take an advance of USD 100 million in her name which would be used to purchase capital guaranteed structured products. Mr Taha said that he wanted to diversify the investment products (i.e. they should not all be REITs) but that they should be the same type of capital guaranteed products as those purchased by Mr Al Khorafi and his mother in June 2007 and with the same structure. Mr Al Khorafi then stated that he wanted to increase the level of borrowing in line with his statement at the meeting on 22 June 2007 in London when he indicated that he wanted to leverage 6 or 7 times. In response I said that he should not leverage more than 2 times and that excess leverage ‘was no good’. The risks of excessive leveraging and margin calls, which I believe were well known to Mr Taha and Mr Al Khorafi, were explained again at the meeting.

138. Neither I nor Mr Kerry recommended to Mr Al Khorafi and his advisors at this meeting that they should leverage Mrs Al Hamad’s portfolio nor would it have been agreed that Sarasin-Alpen DIFC would recommend the particular capital guaranteed products into which further funds would be invested. As I explained above it was Mr Al Khorafi who first raised the issue of further leverage to make additional investments. Also neither I nor Mr Kerry stated that we would recommend capital protected products that would pay coupons to allow Mr Al Khorafi and his mother to pay the interest due on the ABK loan, the interest on the USD 100 million facility and provide additional income as well as pay the ABK loan and credit facility in full on maturity. I believe that at all times Mr Al Khorafi and Mr Taha understood that their strategy of using 100% borrowed money to fund the purchase of the investments had inherent risks because it required an increase in capital value to fund the cost of borrowing. Also, Mr Taha devised the structure of the products in a way so as to provide coupon payments from the capital during the life of the Note, which meant that the capital would obviously decrease as and when coupon payments were made.

139. The second tranche of capital guaranteed product purchased by Mrs Al Hamad using a USD 100 million facility were again selected by Mr Taha.”

204. In the course of his cross-examination, Mr Brindle QC took Mr Al Khorafi to paragraphs 137 and 138 of Mr Walia’s witness statement (transcript, 20 May 2013, page 79, line 4 to page 81, line 17). It was put to Mr Al Khorafi that he had said, at the meeting on 11 July 2007, that he wanted to increase the level of borrowing. His response (ibid, page 81, lines 3 to 5) was:

“I did not want to increase the level of borrowing, but I actually followed the suggestions and the proposals of Mr Rohit.”
It was put to him that Mr Walia had said that he should not leverage more than two times, and that excess leverage was no good. He replied (ibid, lines 9 to 13):

“The first part of your statement is incorrect, but the second part where Mr Rohit told me I do not advise you to take more than two times leverage, that’s correct. But the first part, that I requested him to leverage six to seven times, this is incorrect.”

He denied (ibid, lines 14 to 17) that Mr Walia had explained at the meeting the risks of excessive leveraging and margin calls.

205. Mr Walia was cross-examined on his evidence as to the meeting on 11 July 2007 (transcript, 26 May 2013, page 108, line 22 to page 111, line 21). He insisted that the meeting had taken place at a hotel (ibid, page 109, line 7 to page 110, line 11). He denied that he had told Mr Al Khorafi that the cost of leveraging would be covered by what was received from the investment products (ibid, page 110, lines 20 to 24); asserting that “They [Mr Al Khorafi and Mr Taha] had done the calculations themselves”. He denied that he had told Mr Al Khorafi that income would be generated by the leveraging on top of the financing costs (ibid, page 111, lines 6 to 17); asserting that “this particular client knew everything himself”. But he accepted that he had not warned Mr Al Khorafi of the risks associated with leveraging (ibid, lines 18 to 21).

206. I accept the evidence of Mr Khorafi, Mr Nour and Mr Taha both as to where the meeting on 11 July 2007 was held; and as to what was said at the meeting. Where Mr Walia’s evidence is inconsistent with that of Mr Khorafi, Mr Nour and Mr Taha, I do not accept Mr Walia’s evidence. The telephone call on 15 August 2007.

207. As I have said earlier in this judgment, by mid-August 2007, there was already a collateral shortfall on Mrs Al Hamad’s account. On 14 August 2007 Mr Kerry sent an internal email to Mr Zeuggin (at Bank Sarasin) in these terms:
“I have set up a conference call between the financial advisor & Client’s son (Rafed Al Khorafi) for tomorrow afternoon. We will review the portfolio in the current market conditions & also discuss the margin call. Mrs Amra [Al Hamad] continues to be on vacation in the South of France.”

208. Mr Walia’s evidence, at paragraph 163 of his witness statement, was that Mr Kerry telephoned Mr Taha (but not Mr Al Khorafi) on 15 August 2013. He said this (so far as material):

“163. Due to Mr Al Khorafi’s leveraging strategy as at 15 August 2007 a collateral shortfall existed on Mrs Al Hamad’s account. The position on the accounts was brought to the attention of Mr Taha in a telephone call on 15 August 2007 with Mr Kerry. This call was foreshadowed by Mr Kerry in his email dated 14 August to Benjamin Zeuggin of Sarasin Switzerland’s Credit Department…”
In the course of cross-examination (transcript, 26 May 2013, page 168, lines 7 to 23) Mr Walia asserted that there was a formal margin call in August 2007. He said this:
“We called the client and said, ‘your account is short by $10 million. You need to send in the money.’

There was a telephone call. I don’t exactly recollect when it was, but there was a telephone call where both Kerry would have informed Alaa [Taha] and I myself called Mr Al Khorafi.”

209. Neither Mr Taha nor Mr Al Khorafi accepted that there was a conference call (or any call) from Mr Kerry on 15 August 2007. Mr Taha said this, at paragraph 86 of his witness statement:

“86. I understand that the First Defendant’s internal documents suggest that I had a call with Mr Kerry and Mr Al Khorafi about a margin call. I was not involved in any such call and there was no suggestion at the time that there was any margin call on the account.”That evidence was not challenged in cross-examination (transcript, 22 May 2013, page 94, line 16 to page 103, line 6).

210. At paragraphs 88 and 89 of his fourth witness statement Mr Al Khorafi referred to a telephone call from Mr Walia:
“88. In around mid-August 2007, Rohit [Walia] called me on the telephone. It was usual for him to call me from time to time. I was in my car in London at the time with Mohammed [Nour] and was using a handsfree headset. Rohit asked me whether I had used all of the US$35 million that the bank had advanced to me in the previous month. He asked whether I was willing to invest a further US$10 million. He said it would make him look good in front of the bank if I was continuing to invest money. In particular, it would enhance his position before senior management in Switzerland. He also said it would be good generally for my relationship with the bank and would show that I was a special client. He said that, in the future, this would also mean that those at the bank would look on the relationship favourably and would put him in a stronger position with the bank when dealing with my interests. For example, if I wanted to borrow more money in the future, this would mean that senior management would look on me favourably. Since I had not used all of the US$35 million, I was happy to put some of that money back into Bank Sarasin. I told Rohit that I would do so. At that stage I was unaware of any problems with the account and thought that Rohit and Bank Sarasin were fantastic. I was happy to do what I could for Rohit since, on a personal level, I liked him very much, and I appreciated what he had already done for me. In particular, I believed that he had already offered me investment products which they only offered to select clients. I also thought it was a good idea to maintain and enhance my relationship with the bank. I do not recall Sharad [Kerry] being on that call. If he was, he was simply listening in as I don’t think he said anything and Rohit did not mention that he was participating.

89 I understand that the Defendants now allege that the purpose of this call was to discuss a collateral shortfall on the account and call for margin. I did not know what margin was until the bank made margin calls in September 2008 so I dispute that there was any mention of a collateral shortfall or margin at this point. I did not know until this dispute arose that the bank was comparing the value of the investments to the value of the loans. I also understand that the bank’s documents indicate that they were trying to get hold of my mother but were unable to get hold of her because she was in the South of France and so they had the call with me. That cannot be correct. The bank had my mother’s contact details and I was not aware of any effort to contact her. Further, my mother was not in the South of France then. My mother does not holiday in the South of France. I understand that she has only been once and that was about 10 years before.”
That evidence was not challenged in cross-examination (transcript, 20 May 2013, page 85, line 23 to page 86, line 21).

211. Mr Nour, who was in the car with Mr Al Khorafi at the time of this telephone call stated, at paragraph 42 of his witness statement, that he overheard part of the conversation and that Mr Al Khorafi told him about it afterwards. He said this:

“42. Mr Walia asked me (sic) whether Mr Rafed had used all of the US$35 million that the bank had advanced to him in the previous month. He asked whether he was willing to invest a further US$10 million with Bank Sarasin back into Bank Sarasin. Mr Walia said that it make Mr Walia and Mr Rafed look good in front of the bank if Mr Rafed was continuing to invest money. Mr Rafed told me that he had US$10 million and he was happy to invest it with Bank Sarasin. Mr Rafed did not mention to me that there was a collateral shortfall or margin call on the account. If he had, I would have asked what they were. I am also sure that I would have remembered if he had said that he needed to pay more money to keep the investments going.”That evidence was not challenged in cross-examination (transcript, 21 May 2013, page 84, line 24 to page 87, line 2).

212. On the basis of that evidence I am satisfied (i) that there was no conference call between Mr Kerry, Mr Taha and Mr Al Khorafi on 15 August 2007, (ii) that Mr Kerry called neither Mt Taha nor Mr Al Khorafi individually, (iii) that Mr Walia called Mr Al Khorafi, (iv) that there was no mention of collateral shortfall or the need for a margin payment in the course of that telephone conversation and (v) that Mr Al Khorafi made the payment of US$10 million to Bank Sarasin on 31 August 2007 for the reasons which he gave in his witness statement.
The completion of the AGBC signed by Mrs Al Rifai

213. Mrs Al Rifai accepted that she had signed the AGBC bearing her name at about the time (in early 2008) when the February 2008 SaraFloor Notes were purchased in her name. At paragraph 19 of her first witness statement she stated:

“19. In relation to the AGBCs, whilst I do not recall reading this document, I doubt that the handwritten information written in it had been inserted at the point that I signed it and the box consenting to be treated as a client had been ticked…I do not have a copy of the documents in the form that they were returned to Bank Sarasin, however to the best of my recollection I signed the AGBCs before the handwritten comments had been added. I understand that, in relation to my husband and his mother, the handwritten information on their copies of the AGBCs was inserted later and I expect that that was probably the case with the documents signed by me as well. I would not have signed the document if I had seen the handwritten information contained in the Defendants’ version of that document, or if someone had explained to me the consequences of being treated as a client.”

A copy of the AGBC which Mrs Al Rifai signed, as it was when returned to Sarasin-Alpen, was produced from Mr Khorafi’s files in the course of this litigation. Although Mrs Al Rifai may not have seen that copy document at the time when she made her witness statement, her evidence (“to the best of my recollection”) that she signed before the handwritten comments had been added is consistent with it. The copy document bears her signature, her name and the Place/Date; but is otherwise uncompleted. In particular, none of the boxes under paragraph 1 of Annex 1 have been ticked and no answers have been given to the questions in Annex 1A. Her evidence, in that respect, was not challenged in cross-examination (transcript, 22 May 2013, page 24, line 4 to page 37, line 2).

214. In his witness statement Mr Walia referred (at paragraph 176) to a meeting with Mr Taha and Mr Nour on 14 January 2008 at Mr Al Khorafi’s offices in Kuwait at which he and Mr Kerry were present. He stated that, at that meeting, “The purchase of additional investments by Mr Al Khorafi’s wife, Mrs Al Rifai, was also raised as well as her becoming a ‘Client’ of Sarasin-Alpen DIFC”. He stated (at paragraph 178) that Mrs Al Rifai had signed an AGBC on 17 January 2008; and he produced, as a true copy of the document which she signed, the completed AGBC produced from Sarasin-Alpen’s files. He went on, at paragraphs 180 and 181 of his first witness statement, to state:

“180 I understand that the AGBCs were returned signed by Mrs Al Rifai to Sarasin-Alpen, however page 6 of Annex 1 and pages 9 and 10 of Annex 1A had not been completed. Although I do not know the precise date, I believe that Ms Shagufta Naz of Sarasin-Alpen DIFC ticked the box on page 6 of Annex 1 (which indicated that Mrs Al Rifai was a Client because she was an individual who met the criteria set out in COB 3.2.2(1)(a)) in January 2008 to record, the instructions and information communicated by Mr Taha to Mr Kerry on behalf of Mrs Al Rifai. I believe that Mr Kerry provided Ms Naz with the relevant information in order to complete page 6 of Annex 1.

181. I also believe that Annex 1A of Mrs Al Rifai’s AGBCs was completed by Ms Naz on 17 January 2008 in the presence of Mr Kerry and records the instructions of and information communicated by Mr Taha on behalf of Mrs Al Rifai during a meeting in Kuwait on 14 January 2008 attended by me, Mr Kerry, Mr Nour and Mr Taha.”
It can be seen from these paragraphs of Mr Walia’s first witness statement that (again) he was not able to say of his own knowledge who (at Sarasin-Alpen or otherwise) had made the entries in Annex 1 and Annex 1A which now appear on the document produced from Sarasin-Alpen’s files. Ms Naz was not called to give evidence as to whether she had any part – and, if so, what part – in the completion of Mrs Al Rifai’s AGBC. The suggestion that the box on page 6 of the documents (in Annex 1) had been ticked by Ms Naz (prefaced by the words “I believe”) must be treated as speculation by Mr Walia. So, also, must the suggestion that Annex 1A was completed by Ms Naz on 17 January 2008 (whether in the presence of Mr Kerry or otherwise).

215. I have already referred to Mr Walia’s inability to distinguish between what he knew of his own knowledge, what he had been told by others and what, in his own mind, he believed to have occurred. That inability was, again, evident when he was cross-examined as to the circumstances in which the entries on pages 6, 9 and 10 of Mrs Al Rifai’s AGBC were made (transcript, 26 May 2013, page 200, line 7 to page 204, line 24). A further indication of the unreliability of Mr Walia’s evidence was his answer, in the course of cross-examination (ibid, page 202, line 24) – “That’s correct”- to the question – “Its right to say you are not aware of this information [in Annex 1A of Ms Al Rifai’s AGBC] being provided at any meeting you attended?”. When it was pointed out to him that that answer contradicted the evidence which he had given in paragraph 181 of his first witness statement (ibid, lines 8-11), his response was that: “If I have said it in my witness statement, it is correct”. I am satisfied that I can place no reliance on Mr Walia’s evidence as to the circumstances in which the box under paragraph 1 of Annex 1 of Mrs Al Rifai’s AGBC was ticked; or as to the circumstances in which the entries in Annex 1A of the AGBC were made.

216. Mr Taha’s evidence in relation to the signing and completion of Mrs Al Rifai’s AGBC was contained in paragraph 93 of his witness statement:

“93. I now understand that various account opening documents were signed by Mrs Al Rifai in mid January 2008. I was not involved in the signature of these documents and I expect they were sent directly to Mrs Al Rifai for signature. I understand that one of the documents that was signed was Sarasin Dubai’s own Additional General Business Conditions…I have been shown the Defendant’s copy of this document which, like the same document relating to Mr Al Khorafi and Mrs Al Hamad, contains various manuscript comments. However I understand that these comments were probably not on the document that Mrs Al Rifai signed. I did not give Bank Sarasin the information contained in the manuscript comments in the Defendant’s copy of the document. I do not know where they obtained this information but as I understand the position, the statements about Mrs Al Rifai’s experience and wealth are significant exaggerations. Further, the suggestion that I was Mrs Al Rifai’s Chief Financial Adviser is completely wrong as I never acted in that role for anyone, including Mrs Al Rifai. Further, as explained previously, I have never met Mrs Al Rifai.”
That evidence was not challenged in cross examination (transcript, 22 May 2013, page 42, line 7 to page 121, line 16). In particular, it was not put to Mr Taha that, as Mr Walia had suggested at paragraph 181 of his first witness statement (set out above), he, acting on behalf of Mrs Al Rifai or otherwise, had provided the information subsequently recorded in Annex 1A of her AGBC at a meeting in Kuwait on 14 January 2008.

217. Mr Nour was said (by Mr Walia) to have been present at the meeting on 14 January 2008 at Mr Al Khorafi’s offices in Kuwait; but he did not refer to that meeting in his witness statement and he was not asked questions about that meeting in the course of his oral evidence (transcript, 21 May 2013, page 73, line 12 to page 107, line 16).

218. In those circumstances, Mr Walia’s statement (at paragraph 181 of his first witness statement) that Annex 1A of Mrs Al Rifai’s AGBC records the instructions of and information communicated by Mr Taha on behalf of Mrs Al Rifai during a meeting in Kuwait on 14 January 2008 finds no support in the evidence of Mr Nour or Mr Taha. Mr Walia contradicted his own statement in the course of his cross-examination. I am satisfied that I can place no reliance on his evidence as to what information (if any) as to Mrs Al Rifai’s financial circumstances and experience was provided to Sarasin-Alpen at the meeting on 14 January 2008. I reject the suggestion that Annex 1A of her AGBC records information which had been provided by her or on her behalf.

219. I turn, now, to address the claims made against the Defendants in these proceedings. As developed in argument, those claims fall under five heads: (i) regulatory claims against Sarasin-Alpen, (ii) contractual and breach of duty claims against Sarasin-Alpen, (iii) regulatory claims against Bank Sarasin, (iv) contractual and breach of duty claims against Bank Sarasin and (v) misrepresentation claims against Sarasin-Alpen and Bank Sarasin.

The regulatory claims against Sarasin-Alpen

220. It is common ground in the present case:

(1) that it was part of Sarasin-Alpen’s business (in certain cases) to carry out activities which constituted “Financial Services”, within the descriptions “Arranging Credit or Deals in Investments”, “Advising on Financial Products or Credit” and/or “Arranging Custody”, for the purposes of the DFSA Rules;

(2) that, in carrying on such business, Sarasin-Alpen required a licence from the DFSA under Article 41(1) and 42(3) of the Law; and

(3) that Sarasin-Alpen had such a licence.

221. The Claimants’ case against Sarasin-Alpen under this head is founded, primarily at least, on two regulatory complaints against Sarasin-Alpen. It is said:

(1) that, before accepting the Claimants as “Clients” (within the meaning of the DFSA rules), Sarasin-Alpen was required to investigate whether they (and each of them) met the relevant criteria under those rules; and that, in breach of that regulatory obligation, Sarasin-Alpen failed to carry out any or any sufficient investigation in order to satisfy itself that those criteria were met;

(2) that, in advising the Claimants on investments or making recommendations, Sarasin-Alpen was obliged to ensure that the products recommended were suitable for them; and that, in breach of that regulatory obligation, Sarasin-Alpen failed to advise that the Notes were unsuitable for the Claimants.
It is said that had Sarasin-Alpen not been in breach of its obligations in either of those respects, the Claimants would not have made the investments in the Notes which they did make.

222. The Claimants advance their claims to compensation under this head on the basis of Article 94 of the Regulatory Law. In order to succeed they must establish:

(1) that Sarasin-Alpen committed a breach of “duty, requirement, prohibition, obligation or responsibility imposed under the…Rules”;

(2) that such breach was committed “intentionally, recklessly or negligently”;

(3) that the loss or damage in respect of which compensation is claimed was “caused…as a result of such conduct”; and

(4) that liability is not excluded under the Law, the Rules or “other legislation administered by the DFSA”.

223. I should add that it is said, further, that – in taking instructions from the Claimants and passing those instructions on to Bank Sarasin – Sarasin-Alpen was dealing in investments as agent within the meaning of GEN Rule 2.8. Sarasin-Alpen did not have the regulatory permission which permitted it to carry out those activities. This allegation (in so far as it is open to the Claimants to pursue it in the circumstances that it appears to have been abandoned at paragraph 10.1 of their Response to Sarasin-Alpen’s Revised Request of Further Information dated 24 May 2012) is more conveniently addressed in the context of the allegations against Bank Sarasin in respect of what are said to be its unauthorised and unlawful dealing in investments in and out of the DIFC.

(1) Did Sarasin-Alpen commit a breach of duty or obligation imposed under the DFSA Rules

224. As I have explained, the Claimants rely (i) on Sarasin-Alpen’s alleged failure to carry out any or any sufficient investigation in order to satisfy itself that the criteria under COB Rule 3.2.2 were met in respect of any (and if so which) of the Claimants and (ii) on Sarasin-Alpen’s failure to ensure, when (as alleged) advising them (or one or more of them) on Financial Products or Credit, recommending to them (or to one or more of them) a transaction or transactions and/or executing for them (or for one or more of them) a transaction or transactions, that that advice or recommendation was not suitable for him or her having regard to his or her investment objectives or risk tolerance or any other requirements or relevant facts about him or her which Sarasin-Alpen was or ought reasonably have been aware. In the following paragraphs I consider these alleged breaches of the DFSA Rules.

(i) Failure to carry out any or any sufficient investigation in order to satisfy itself that the criteria under COB Rule 3.2.2 were met in respect of any (and if so which) of the Claimants.

225. I have already set out the provisions of COB Rule 3.2.1 as they were at the time when Sarasin-Alpen accepted Mr Al Khorafi and Mrs Al Hamad as Clients. COB Rules 3.2.2 to 3.2.6 were in these terms:

“3.2.2 (1) A Client is a Person who the Authorised Firm has determined, prior to the establishment of a relationship, is:

(a) an individual who:

(i) has at least $1 million in liquid assets and has provided the Authorised Firm with written confirmation of this fact;

(ii) appears to the Authorised Firm, after analysis, to have sufficient financial experience and understanding to participate in financial markets; and

(iii) has consented in writing to being treated as a Client.
. . .
(2) Any Person who does not meet the criteria in (1) is a Retail Customer.

3.2.3 For the purpose of Rule 3.2.2(a)(i) (sic), liquid assets are cash or assets which can be readily converted into cash, including but not limited to marketable securities, government bonds, treasury bills and notes that mature within 90 days.

3.2.4 For the purpose of Rule 3.2.2(a)(ii) and (b)(ii) (sic) an Authorised Firm must ensure that the analysis includes consideration of each of the following matters:

(a) the individual’s knowledge and understanding of the relevant financial markets, types of investment and of the risks involved either generally or in relation to the proposed transaction;

(b) the length of time the individual has been active in relevant financial markets, the frequency of dealings and the extent to which the individual has relied on financial advice from financial institutions;

(c) the size and nature of transactions that have been undertaken for the individual in relevant financial markets;

(d) the individual’s relevant qualifications relating to financial markets;

(e) the composition and size of the individual’s existing financial investment portfolio; and

(f) any other matters which the Authorised Firm considers relevant.

3.2.5 (1) An Authorised Firm must have systems and controls in place to verify, prior to undertaking Investment Business . . . for a Person, that the Person is a Client.

(2) These systems and controls must include carrying out appropriate checks.

(3) If the Person is an individual these systems and controls must also include obtaining sufficient information to conduct the analysis under Rule 3.2.4.

3.2.6 (1) An Authorised Firm must keep records of the verification process undertaken for each Client including any documents which evidence the Client’s status.

(2) If the Client in (1) is an individual the records must include the analysis undertaken, the reasons for the Authorised Firm concluding that the individual merits classification as a Client and the Client’s written consent to being treated as a Client.

(3) These records must be kept for at least six years from the date on which the business relationship has ended. If the date on which the business relationship ended remains unclear it may be taken to have ended on the date of the completion of the last transaction.”

226. Part 1 of the Conduct of Business (COB) Module of the Rulebook was relaxed on 1 October 2007 to provide (amongst other things) that the financial experience test did not apply to individuals who were merely receiving generic advice or a referral to an Authorised Firm or to an entity authorised or licensed and supervised by a Financial Services Regulator. From 1 October 2007 – that is to say, at the time when Sarasin-Alpen accepted Mrs Al Rifai as a Client – COB Rule 3.2.2 was in these terms:

“3.2.2 (1) Subject to (2) a Client is a Person who the Authorised Firm has determined, prior to the establishment of a relationship, is:
(a) an individual who:
(i) has at least $1 million in liquid assets and has provided the Authorised Firm with written confirmation of this fact;
(ii) appears to the Authorised Firm, after analysis, to have sufficient financial experience and understanding to participate in financial markets; and
(iii) has consented in writing to being treated as a Client;

(2) (a) For the purposes only of giving advice of the kind specified in (b)(i) or the making of arrangements of the kind specified in (b)(ii), a Client is a Person who appears to the Authorised Firm on reasonable grounds to be:
(i) an individual who has at least $1 million in liquid assets; or
(ii) an Undertaking
(b) For the purposes of (a):
(i) the advice is limited to generic advice as defined under GEN Rule 2.11.1 (3); or
(ii) the arrangements as defined under GEN Rule 2.9.1 are limited to the making of a referral to an Authorised Firm or to an entity authorised or licensed and supervised by a Financial Services Regulator.
(3) Any Person who does not meet the criteria in (1) or (2) is a Retail Customer.”

227. Generic advice was defined under GEN Rule 2.11.1(3) – at the relevant time – to mean:

“2.11.1(3)…any communication…that:

(a) Contains information about a particular financial product or Credit Facility;

(b) could reasonably be regarded as being intended to influence a Person when making a decision relating to a decision relating to any financial product or Credit Facility to which the communication relates; and

(c) does not contain any advice on the merits of that particular Person entering into a transaction to buy, sell, hold, subscribe for or underwrite those financial products or enter into a particular Credit Facility, whether as principal or agent.”

228. COB Rule 3.2.5 required that Sarasin-Alpen have systems and controls in place to verify, prior to undertaking Investment Business on behalf of Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai respectively, that each met the criteria for acceptance as a Client: that is to say – subject to the question whether the only activity carried on by Sarasin-Alpen in relation to Mrs Al Rifai was the giving of generic advice (which is in dispute) – whether each, respectively, had US$1 million in liquid assets, appeared after analysis to have sufficient financial experience and understanding to participate in financial markets and had consented in writing to being treated as a Client. COB 3.2.6 required that Sarasin-Alpen keep records of the verification process; including any documents which evidence the Client’s status, particulars of the analysis undertaken, the reasons why that Firm determined that the individual qualified as a Client and his or her consent to being treated as a Client.

229. As I have explained, prospective clients were required to complete the AGBCs before being taken on as Clients. Annex 1 to the AGBCs contained declarations, undertakings and authorisations to be given by the Client. Paragraph 1 of Annex 1 was intended to contain a declaration that the prospective client met the definition of Client in the COB Rules and the reasons why that was said to be the case: the prospective client was asked to “tick the appropriate box signifying the criteria for qualification”. The first of the “boxes” which the prospective client could tick would (if ticked) provide confirmation, from the prospective client, that he or she met the criteria in COB Rule 3.2.2(1)(a): it would (if ticked) provide confirmation (from the prospective client) that the prospective client had at least US$1 million in liquid assets, had sufficient financial experience and understanding to participate in financial markets and consented to be treated as a Client.

230. In the present case, Sarasin-Alpen sought to rely on declarations by Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai, in the AGBCs which each respectively signed, that they met the definition of Client in the COB Rules: in particular, it sought to rely on confirmations by Mr Al Khorafi, Mrs Al Hamad or Mrs Al Rifai respectively that each did so because he or she met the criteria in COB Rule 3.2.2(1)(a). The copies of the AGBCs produced by Sarasin-Alpen from its files in the course of this litigation each show a tick in the first of the boxes under paragraph 1 of Annex 1.

231. As I have also explained, the purpose of Annex 1A to the AGBCs, as stated in its introductory paragraph, was to require a prospective client (being an individual) to provide answers to questions directed to establishing the extent of his or her financial experience and understanding of financial markets in a wholesale jurisdiction, such as the DIFC. The questions reflected the matters to which the Authorised Firm was required (by COB Rule 3.2.4) to give consideration in carrying out an analysis for the purpose of COB Rule 3.2.2(1)(a)(ii): the answers would (if the questionKerrye were completed) provide a basis for the Authorised Firm’s determination whether the prospective client could be accepted as a Client for the purposes of the COB Rules.

232. In the present case, Sarasin-Alpen sought to rely on Annex 1A questionKerryes which, as appeared from the copies of the AGBCs produced from its files in the course of this litigation, had been completed by Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai. The answers which appear in those documents are set out in the following table. The answers have been written in manuscript and in the first person; so that, at first sight, it appears from the documents on Sarasin-Alpen’s files that the answers were given at the time that the documents were signed by Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai, as the case might be.

  Question

 

Answer attributed to Mr Al Khorafi in the completed AGBC Answer attributed to Mrs Al Hamad in the completed AGBC Answer attributed to Mrs Al Rifai in the completed AGBC
1. State the details of your knowledge and understanding of the relevant financial markets, types of investment and of the risks involved, either generally or in relation to any proposed transaction that you consider entering into with BSA or any other member of the Sarasin Group, or through the intermediation of BSA] or any other member of the Sarasin Group: Investing into financial markets since my grandfather’s days. Have a CFO to manage inv. My family has been investing for over 40 years into international markets Investing into financial matters since 10 years. Having a CFO to manage investment
2. Confirm the length of time you have been active in the relevant financial markets, the frequency of your dealings and the extent to which you have relied on financial advice from financial institutions in this regard: Very long time 15-20 yrs. Have a CFO to monitor inv. None, my CFO assists me in managing the portfolio 10 yrs. Have a CFO to manage investment
3. Give an indication of the size and nature of transactions that have been undertaken for you in the relevant financial markets: $>200 million in stocks, bonds, currencies etc $ > 200 mil into stocks and shares $ > 200 million in stocks, bonds, currencies etc
4. State your relevant qualifications relating to the relevant financial markets: Have studied commerce in US. I have a qualified CEO to manage inv. None, my son (Rafed) + CFO are qualified to manage inv[estments] for me Have studied commerce in US. I have a qualified CFO to manage investment
5. Give an indication of the composition and size of your existing financial investment portfolio: $ > 200 mil > 200 mil $ > 200 million
6. Is there anything else you may consider relevant in our assessment of your financial experience and your understanding of financial markets in a wholesale jurisdiction?

233. As I have explained, at the time when Sarasin-Alpen accepted Mr Al Khorafi and Mrs Al Hamad as Clients in June 2007, COB Rule 3.2.2(1)(a) defined a Client, being an individual, as a person who the Authorised Firm had determined, prior to the establishment of a relationship, had at least $1 million in liquid assets, had provided the Authorised Firm with written confirmation of that fact, appeared to the Authorised Firm, after analysis, to have sufficient financial experience and understanding to participate in financial markets and had consented in writing to being treated as a Client. A person who did not meet those criteria was a Retail Customer. COB Rule 3.2.1(1) required that an Authorised Firm must ensure that it did not conduct Investment Business with or for a Retail Customer.

234. On the evidence before the Court Sarasin-Alpen cannot rely on paragraph 1 of Annex 1 or on Annex 1A of the AGBCs signed by Mr Al Khorafi and Mrs Al Hamad on or about 6 June 2007 in order to establish that it determined, before accepting Mr Al Khorafi or Mrs Al Hamad as a Client, that the criteria set out in COB Rule 3.2.2(1)(a) had been met. The AGBCs signed by Mr Al Khorafi and Mrs Al Hamad – in the form in which those documents were returned to Sarasin-Alpen – contained no confirmation that either Mr Al Khorafi or Mrs Al Hamad had at least US$1 million in liquid assets; and contained no information upon the basis of which it could be determined that either of them had sufficient financial experience and understanding to participate in financial markets. The AGBCs contained no such confirmation or information (i) because neither Mr Al Khorafi nor Mrs Al Hamad ticked the first (or any) of the boxes under paragraph 1 of Annex 1 and (ii) because neither Mr Al Khorafi nor Mrs Al Hamad answered the questions posed in Annex 1A.

235. Nor, on the evidence before the Court, can Sarasin-Alpen rely on paragraph 1 of Annex 1 or on Annex 1A of the AGBC signed by Mrs Al Rifai on or about 17 January 2008 in order to establish that it determined, before accepting Mrs Al Rifai as a Clients, that the criteria set out in COB Rule 3.2.2(1)(a) had been met. As in the case of Mr Al Khorafi and Mrs Al Hamad, the AGBC signed by Mrs Al Rifai – in the form in which those documents were returned to Sarasin-Alpen – contained no confirmation that she had at least US$1 million in liquid assets; contained no information upon the basis of which it could be determined that she had sufficient financial experience and understanding to participate in financial markets; and contained no consent by her to being treated as a Client. As in the case of Mr Al Khorafi and Mrs Al Hamad, the AGBC contained no such confirmation or information (i) because Mrs Al Rifai had not ticked the first of the boxes under paragraph 1 of Annex 1 and (ii) because Mrs Al Rifai had not answered the questions posed in Annex 1A.

236. As I have explained COB Rule 3.2.5 required that Sarasin-Alpen have systems and controls in place to verify, prior to undertaking Investment Business on behalf of Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai respectively, that each met the criteria for acceptance as a Client. Annex 1 and Annex 1A of the AGBCs were plainly intended to have an important role, as part of such systems and controls, in verifying that the relevant criteria were met. Further, as I have also explained, COB 3.2.6 required that Sarasin-Alpen keep records of the verification process; including any documents which evidenced the Client’s status, particulars of the analysis undertaken, the reasons why that Firm determined that the individual qualified as a Client and his or her consent to being treated as a Client. Again, Annex 1 and Annex 1A were plainly intended to be documents which could be relied upon as records which evidenced both the Client’s status and his or her consent to being treated as a Client. What, then, is the position where (as I have held) Sarasin-Alpen cannot rely on the first paragraph of Annex 1 or the answers of the questionKerrye in Annex 1A of the AGBCs signed by Mr Al Khorafi, Mrs Al Hamad and/or Mrs Al Rifai in order to establish that it determined, before accepting them (or any of them) as a Clients, that the criteria set out in COB Rule 3.2.2 (1) had been met?

237. It is submitted on behalf of the Claimants that, in the present case, Sarasin-Alpen has produced no records of the verification process (if any) undertaken in relation to the Claimants, or any of them. In particular, it is submitted that:

(1) Sarasin-Alpen has produced no records of any enquiry made as to the liquid assets of the Claimants (or any of them) at or before the time that each was accepted as a Client;

(2) Sarasin-Alpen has produced no written confirmation from any of the Claimants that he or she did have US$ 1 million at the time that he or she was accepted as a Client;

(3) Sarasin-Alpen has produced no records of any enquiry made as to the financial experience or understanding of the Claimants (or any of them) to participate in the financial markets;

(4) Sarasin-Alpen has produced no record of the consent of the Claimants (or any of them) to be treated as a “Client” for the purposes of the DFSA Rules.

238. Further, it is submitted on behalf of the Claimants that such records as Sarasin-Alpen has produced are unsatisfactory. In particular, it is submitted that:

(1) in each case the information in Annex 1A of the relevant AGBC – phrased in the first person so as to give the false impression that it had been given by the prospective client named in the AGBC – was incorrect;

(2) in so far as Sarasin-Alpen acted on the basis of assumptions by Mr Walia and Mr Kerry that the Al Khorafis were a well-known family in Kuwait and considered to be very wealthy, it was not entitled to do so;

(3) the Client Profiles produced by Sarasin-Alpen are back-dated; in that they contain a note from Mr Kerry which bears the date 31 May 2007 but which cannot, in fact, have been created before Mr Al Khorafi and Mrs Al Hamad were accepted as Clients in June 2007;

(4) the information contained in the Client Profiles is incorrect; in that it is there stated that the origin of the investment monies in June 2007 was “Dividend and Income from business inherited from family”, in circumstances where Sarasin-Alpen knew that the funds were to be lent by ABK.

239. Sarasin-Alpen contends (at paragraph 34.2 of the written opening submissions filed on its behalf) that it “acted fully in accordance with the COB provisions in categorising the Claimants as Clients”.

240. In relation to Mr Al Khorafi, it is said on behalf of Sarasin-Alpen that, before accepting him as a Client:

(1) Sarasin-Alpen had determined that Mr Al Khorafi was an individual who had at least $1m in liquid assets. It is said that Sarasin-Alpen had determined this by, inter alia:-

(a) Mr Al Khorafi’s signature on the AGBC on or around 6 June 2007; by which he confirmed that he was an individual who had at least US$ 1m in liquid assets;

(b) Mr Kerry’s meetings with Mr Taha and Mr Kerry and Mr Walia’s meetings with Mr Taha and Mr Al Khorafi in May and June 2007;

(c) carrying out checks; in that it is said that, Sarasin-Alpen spoke to Mr Al Khorafi’s bankers and carried out internet searches regarding Mr Al Khorafi and his businesses.

(2) Mr Al Khorafi had provided written confirmation of the fact that he had at least US$ 1m in liquid assets by signing the AGBC on or around 6 June 2007.

(3) Sarasin-Alpen was satisfied, after analysis, that Mr Al Khorafi had sufficient financial experience and understanding to participate in financial markets. It is said that:

(a) Mr Kerry and Mr Walia of Sarasin-Alpen were informed by Mr Taha and by Mr Al Khorafi (and it is recorded in Annex 1A of the AGBC) that Mr Al Khorafi had been investing in the financial markets since his late father’s days (i.e. for 15-20 years), that Mr Al Khorafi had a Chief Financial Officer (“CFO”) to manage/monitor his investments, that Mr Al Khorafi had over $200 million in shares, bonds and currencies in the relevant financial markets and that Mr Al Khorafi had studied commerce in the United States of America;

(b) Sarasin-Alpen was also informed by Mr Taha and/or Mr Al Khorafi that Mr Al Khorafi held property and assets with other banks (including a major account with Credit Suisse Dubai), which information Sarasin-Alpen recorded in its Client Profile for Mr Al Khorafi dated 13 June 2007;

(c) Sarasin-Alpen carried out checks; in that it spoke to Mr Al Khorafi’s bankers and carried out internet searches regarding Mr Al Khorafi and his businesses;

(d) it is irrelevant (even if correct) that Mr Al Khorafi had no previous experience of purchasing structured products (as he contends). COB rule 3.2.2 (1)(a)(ii) is worded in general terms and simply requires that Mr Al Khorafi appear to have sufficient financial experience and understanding to participate in financial markets in general; therefore experience of purchasing other financial products such as shares or bonds suffices.

(4) Mr Al Khorafi consented in writing to being treated as a Client; in that he signed an AGBC which contained the representation and warranty, in Annex 1, that he met the definition of “Client” as set out in the Conduct of Business Module of the DFSA Rulebook and gave his consent to being treated as a Client in a wholesale jurisdiction (such as the DIFC).
241. In relation to Mrs Al Hamad, it is said on behalf of Sarasin-Alpen that, before accepting her as a Client:

(1) Sarasin-Alpen had determined that Mrs Al Hamad was an individual who had at least $1m in liquid assets. Sarasin-Alpen had determined this by, inter alia:

(a) Mrs Al Hamad’s signature on the AGBC on or around 6 June 2007; by which she confirmed that she was an individual who had at least $1m in liquid assets;

(b) carrying out checks; in that it is said that Sarasin-Alpen spoke to Mrs Al Hamad’s bankers and carried out internet searches regarding the family businesses;

(2) Mrs Al Hamad had provided written confirmation of the fact that she had at least $1m in liquid assets by signing the AGBC on or around 6 June 2007.

(3) Sarasin-Alpen was satisfied, after analysis, that Mrs Al Hamad had sufficient financial experience and understanding to participate in financial markets. It is said that:

(a) Mr Kerry and Mr Walia were informed by Mr Taha and Mr Al Khorafi (and recorded in Annex 1A of the AGBC) that Mrs Al Hamad’s family had been investing for over 40 years into the international markets, that her CFO and Mr Al Khorafi assisted her in this regard and that she had an investment portfolio of stocks, bonds and currencies worth over $200 million including a substantial shareholding in the National Bank of Kuwait;

(b) Sarasin-Alpen was also informed by Mr Taha and/or by Mr Al Khorafi that Mrs Al Hamad was Managing Partner of all Khorafi businesses, which information it recorded in its client profile for Mrs Al Hamad dated 13 June 2007;

(c) Sarasin-Alpen was aware that Mrs Al Hamad was borrowing $50 million from ABK that was secured by her National Bank of Kuwait shareholding;

(d) Sarasin-Alpen carried out checks; for example, it spoke to Mrs Al Hamad’s bankers and carried out internet searches regarding the family businesses.

(4) That, prior to establishment of the relationship, Mrs Al Hamad consented in writing to being treated as a Client, by signing the AGBC.

242. It can be seen that, in advancing the submissions set out under sub-paragraphs (1)(a) and (2) in the previous two paragraphs, Sarasin-Alpen seeks to rely on the declarations in paragraph 1 of Annex 1 – and, perhaps, on the answer to question 5 in Annex 1A – of the AGBCs signed by Mr Al Khorafi and Mrs Al Hamad on or about 6 June 2007. Further, in advancing the submissions set out in sub-paragraphs (3)(a), Sarasin-Alpen seeks to rely (in part, at least) on answers given to questions in Annex 1A of those AGBCs. For the reasons which I have explained earlier in this judgment, I have held that it is not open to Sarasin-Alpen to rely on paragraph 1 of Annex 1 or on Annex 1A of the AGBCs signed by Mr Al Khorafi and/or Mrs Al Hamad. I reject the submission made on behalf of Sarasin-Alpen that the fact that (as I have held) neither Mr Al Khorafi nor Mrs Al Hamad ticked any of the boxes under paragraph 1 of Annex 1 is irrelevant. In particular, I do not accept the submission that “on any view he/she was declaring by Annex 1 that he was a Client by one of the definitions of Client contained in COB”. The true analysis is that, in the circumstances that the signatory ticked none of the boxes under paragraph 1 of Annex A, he or she cannot be taken to have made any declaration under that paragraph 1. The position is the same in so far as Sarasin-Alpen seeks to rely on the declaration in paragraph 1 of Annex 1 of the AGBCs in advancing the submission set out in sub-paragraph (4) of those previous paragraphs. But, as it seems to me, Sarasin-Alpen can rely on paragraph 7 of Annex 1 of the AGBCs for that purpose.

243. It is necessary, therefore, to consider whether Sarasin-Alpen can establish, on the basis of the other submissions advanced, that – before accepting Mr Al Khorafi and Mrs Al Hamad as Clients in June 2007 – it had determined that they (or either of them) (i) had at least US$1 million in liquid assets and (ii) had sufficient financial experience and understanding to participate in financial markets.

244. As I have said it was submitted on behalf of Sarasin-Alpen that, before accepting Mr Al Khorafi as a Client in June 2007, it had determined that he had at least US$1 million in liquid assets (i) in Mr Kerry’s meetings with Mr Taha and in Mr Kerry and Mr Walia’s meetings with Mr Taha and Mr Al Khorafi in May and June 2007 and (ii) in carrying out checks by speaking to Mr Al Khorafi’s bankers and making internet searches regarding Mr Al Khorafi and his businesses. In relation to Mrs Al Hamad, it is said only that Sarasin-Alpen spoke to her bankers and carried out internet searches regarding the family businesses. It was not submitted (save in reliance on paragraph 1 of Annex 1 of the AGBCs) that either Mr Al Khorafi or Mrs Al Hamad had provided Sarasin-Alpen with written confirmation of the fact that he or she had at least US1 million in liquid assets.

245. It was submitted on behalf of Sarasin-Alpen that, before accepting Mr Al Khorafi and Mrs Al Hamad as Clients in June 2007, it had determined that each of them had sufficient financial experience and understanding to participate in financial markets (i) on the basis of information given to Mr Kerry and Mr Walia by Mr Taha and Mr Al Khorafi and (ii) by carrying out checks. It was further submitted – at least in respect of Mr Al Khorafi – that it was irrelevant (even if correct) that he had no previous experience of purchasing structured products (as he contended). It was said to be enough – for the purposes of COB Rule 3.2.2 (1)(a)(ii) – that he had experience of purchasing other financial products, such as shares or bonds.

246. There was, as I have said, no evidence from Mr Kerry as to meetings which he had had with Mr Taha (or with Mr Al Khorafi) before Mr Khorafi was accepted as a Client. Mr Walia’s evidence as to those meetings is found, first, in paragraphs 47 and 48 (“First Introductory Meeting, April 2007, Kuwait”), 49 to 65 (“The Second Meeting 24 April 2007, Kuwait”) and 117 to 124 (“The Third Meeting: 22 June 2007, London”) of his witness statement.

247. Mr Walia was not present at the First Introductory Meeting. In relation to the Second Meeting, he said this (so far as material in the present context):

“49. Following the first meeting in Kuwait, a second meeting took place on 24 April 2007 at the offices of Mr Al Khorafi in Kuwait. I attended this meeting with Mr Kerry which was also attended by Mr Taha and Mr Abdullah Al Shatti, an employee of the Al Khorafi Group. The meeting was conducted over about an hour with Mr Al Khorafi joining the meeting for 20 minutes approximately 20 minutes after its commencement.

50. During the first part of the second meeting prior to Mr Al Khorafi joining us, Mr Taha provided Mr Kerry and me with background about Mr Al Khorafi, Mrs Al Hamad and the Al Khorafi Group. He told us that Mr Al Khorafi’s father was the founder of the Al Khorafi Group in the early 1960s and that the Al Khorafi family was one of the most successful families in the Gulf region with interests in real estate, technology and construction. He then went on to explain the background to the transaction – that ABK had agreed to advance substantial funds to Mr Al Khorafi and Mrs Al Hamad to be used specifically for investments in capital guaranteed products. It was clear to me from the first 20 minutes of the meeting that Mr Taha was responsible, in conjunction with ABK, for devising the overall investment strategy and the product’s requirements.

51. After the introduction by Mr Taha, we moved meeting rooms and met Mr Al Khorafi in his office…

52. Mr Al Khorafi then introduced Mr Taha as his and Mrs Al Hamad’s financial advisor who ‘managed our investments’. During this meeting I recall Mr Al Khorafi mentioning Mr Taha’s investment experience and understanding of financial products. Mr Al Khorafi said about Mr Taha ‘if Mr Taha had understood it, I have understood it – he is an expert’. I took this to mean that Mr Al Khorafi regarded Mr Taha as an expert on the financial products they were looking to purchase and that he was reliant on Mr Taha to advise him on the products. This was further affirmed when discussion turned to an investment product itself, Mr Al Khorafi would say: ‘Talk to Alaa [Mr Taha]’.

53. Mr Al Khorafi told me and Mr Kerry that the details of the financial products to be purchased would be determined by Mr Taha who would specify the structure and requirements of the financial products. I also recall that at this meeting Mr Al Khorafi said that ‘Taha will take care of everything’. I took this to mean that Mr Taha would dictate the product requirements and assume all communication on behalf of Mr Khorafi and Mrs Al Hamad in relation to the investments and assume an advisory role to Mr Al Khorafi and Mrs Al Hamad…

55. I asked Mr Al Khorafi and Mr Taha what they were already invested in. Mr Taha stated that Mr Al Khorafi and Mrs Al Hamad were invested in various types of financial products including shares, bonds, share funds and equities. Mr Al Khorafi and Mr Taha did not draw a distinction between Mr Al Khorafi’s and his mother’s investments, and the financial experience that such investments imply. This was not unusual – as I explained above the financial affairs of individual members of a family such as the Al Khorafi family were often considered and managed collectively and in such a case there is generally no distinction drawn between the personal accounts and assets of individual family members. Therefore Mr Al Khorafi and Mrs Al Hamad were viewed as part of one family relationship.

64. …It was also very clear to me that Mr Al Khorafi and his family members were experienced investors in financial markets based on their investments at the time and the information I obtained from Mr Al Khorafi and Mr Taha during our discussion in relation to their investments and the products they were looking to purchase. Moreover the Al Khorafi Group was a successful business empire run by Mr Al Khorafi and Mrs Al Hamad, advised and aided by specialist advisers such as Mr Taha.”
Mr Walia said little about the Third Meeting in his witness statement which is of relevance in the present context. He described it (at paragraph 117) as “pretty much a recap meeting”; and commented that “Mr Al Khorafi said that he and Mr Taha had decided to invest in the REIT products as he was involved in real estate and was proposing to establish a real estate company”.

248. It is, I think, reasonably clear from Mr Walia’s witness statement that – notwithstanding the submission in Sarasin-Alpen’s written opening submissions (to which I have referred) that, in determining whether Mr Al Khorafi and Mrs Al Hamad should be accepted as Clients, reliance was placed on information given to Mr Walia at a meeting in June 2007 – the decision to accept them had been taken before the Third Meeting on 22 June 2007. At paragraph 101 of his witness statement (before giving his account of the Third Meeting) Mr Walia had said this:
“101. It was apparent to me that Mr Al Khorafi and Mrs Al Hamad did qualify as Clients and satisfied the criteria set out in COB 3.2.2(1)(a):

(a) Mr Al Khorafi and his mother are members of one of the richest families in Kuwait, are founding shareholders of the National Bank of Kuwait with investments in shares, bonds, sharefunds and equities and had approached Sarasin-Alpen with USD 80 million for investment. Accordingly they were clearly individuals who each had at least $1 million in liquid assets satisfying criterion 3.2.2 (a)(i).

(b) After Mr Kerry’s and my analysis and consideration of the information and background obtained during the various meetings and telephone calls discussed below and which included, the matters in Annex 1A, Mr Al Khorafi and Mrs Al Hamad appeared to Sarasin-Alpen DIFC to have sufficient financial experience and understanding to participate in financial markets satisfying criterion 3.2.2(a)(ii).

(c) Mr Al Khorafi and Mrs Al Hamad each signed Sarasin-Alpen DIFC’s AGBCs, in which they consented to being treated as a Client in accordance with COB criteria 3.2.2(a)(iii).”

249. Mr Walia went on to say this (at paragraph 102 of his witness statement):

“102. More specifically, I formed the impression that Mr Al Khorafi and his mother were ‘Clients’ within the meaning of COB 3.2.2(1)(a) on the basis of facts, information and instructions from the following sources including:

(a) My introductory and subsequent telephone discussions with Mr Cherian in April 2007 . . . during which he introduced the Al Khorafi family. Mr Al Khorafi and Mrs Al Hamad provided background as to their business interests and their requirements for capital protected products which were to be funded by a loan from ABK;

(b) The information communicated to Mr Kerry by Mr Taha on behalf of Mr Al Khorafi and his mother during the first meeting in Kuwait and which Mr Kerry briefed me subsequently.

(c) The background and information communicated by Mr Taha on behalf of Mr Al Khorafi and Mrs Al Hamad to Mr Kerry and me during the second meeting in Kuwait on 24 April 2007 and possibly the meeting with Mr Kerry in Kuwait on 11 June 2007;

(d) The information communicated to Mr Kerry and me by Mr Al Khorafi during the meeting with him in Kuwait on 24 April 2007;

(e) Research conducted using publicly available information sources such as the website for the Al Khorafi Group of Companies (www.amkhorafi.com) and other news and press websites relating to Mr al Khorafi and Mrs Al Hamad; and

(f) The fact that Mr Taha was presented to Sarasin-Alpen DIFC by Mr Al Khorafi acting on his behalf and on behalf of Mrs Al Hamad as his financial advisor and investment manager which in and of itself suggested a high level of experience in financial markets.”

At paragraph 103 of his first witness statement Mr Walia identified the documents in which (he said) “the information and instructions received from the above sources was recorded”. Those documents were (i) a file note prepared by Mr Kerry dated 31 May 2007, (ii) Annex 1A of Mr Al Khorafi’s AGBC, (iii) Annex 1A of Mrs Al Hamad’s AGBC, (iv) a memorandum which he had prepared, dated 21 June 2007 and updated on 25 June 2007 – which (he said) contained extracts from the websites www.amkhrafi.com and www.gbm4ibm.com/Kuwait – (v) a “Sarasin Client Profile” of Mr Al Khorafi dated 13 June 2007 and signed by Mr Kerry, (vi) a “Sarasin Client and investment profile” of Mr Al Khorafi dated “on or around” 13 June 2007 and signed by Mr Kerry, (vii) a “Sarasin Client Profile” of Mrs Al Hamad dated 12 June 2007 and signed by Mr Kerry, and (viii) a “Sarasin Client and investment profile” of Mrs Al Hamad dated 12 June 2007 and signed by Mr Kerry. Leaving aside Annexes 1A to the AGBCs, each of those documents (other than the memorandum dated 21 June 2007 and updated on 25 June 2007) had been prepared, or signed off, by Mr Kerry. There is no document recording the information which Mr Walia states he was given by Mr Cheerian in the course of the “introductory and subsequent telephone discussions with Mr Cheerian in April 2007”; no document recording the “background and information” communicated to him (whether by Mr Taha or by Mr Al Khorafi) at the meeting on 24 April 2007; and no document (other than the memorandum dated 21 June 2007) identifying “the research conducted using publicly available information sources”.

250. The memorandum dated 21 June 2007 records the following information, so far as material:
“Mr Rafed Al Khorafi and Mrs Amra AlHamad are from Kuwait and belong to the Khorafi family, a prominent business name in Kuwait. Mr Rafed Al Khorafi is the son of Mrs Amrah Al Hamad and they have inherited their wealth from their father/husband who in turn had inherited it from his father. Al Khorafi is an established name in Kuwait since years and has various businesses in the country

The Al Khorafi family has also the founding shareholders of National Bank of Kuwait (AA rated)
They own large real estate both commercial and residential in the Middle East, Europe, Australia and America.
They also have a substantial shareholding in several businesses in the region. According to sources (Bankers) the group is worth over USD 3 billion.

Annual income of the business is not declared since all businesses are closely held together i.e. no public/private obligation to declare. However our banking sources in Kuwait tell us the annual income from their current business shall not be less than USD 30 million.

…”

251. On examination, therefore, it can be seen:

(1) that Mr Walia’s evidence, so far as contained in his witness statement, was that he was satisfied, before Sarasin-Alpen accepted Mr Al Khorafi and Mrs Al Hamad as Clients, that each of them had at least US$1 million in liquid assets because he understood (i) that they were members of one of the richest families in Kuwait, (ii) that they were founding shareholders of the National Bank of Kuwait, (iii) that they had investments in shares, bonds, sharefunds and equities and (iv) that they had approached Sarasin-Alpen with US$ 80 million for investment;

(2) that his understanding in relation to those matters was founded on (i) his introductory and subsequent telephone discussions with Mr Cheerian in April 2007 (of which there is no contemporary record), (ii) information provided to him by Mr Taha during the second meeting in Kuwait on 24 April 2007 (of which there is no contemporary record), (iii) information provided by Mr Al Khorafi during that meeting on 24 April 2007 (of which there is no contemporary record), (iv) research conducted using publicly available information sources (which he summarised in the memorandum dated 21 June 2007) and (v) information provided to him by Mr Kerry (who had no first-hand knowledge of the truth of that information and who did not, himself give evidence and, in relation to whose statements to Mr Walia, no hearsay notice was served);

(3) that Mr Walia’s evidence was that he was satisfied that Mr Al Khorafi and Mrs Al Hamad had sufficient financial experience and understanding to participate in financial markets because he and Mr Kerry had analysed and considered the information and background obtained during the various meetings and telephone calls to which he had referred;

(4) that the “various meetings and telephone calls” from which the “information and background” which, when “analysed and considered”, led Mr Walia to conclude that Mr Al Khorafi and Mrs Al Hamad had sufficient financial experience and understanding to participate in financial markets are those (and only those) described in sub-paragraph (2) above.

252. Mr Walia was cross-examined as to his discussions with Mr Cheerian in April 2007 (transcript, 23 May 2013, page 44, line 4 to page 45, line 16), as to his knowledge of the First Introductory Meeting (transcript, 23 May 2013, page 192, lines 7 to 25, page 198, line 4), as to the Second Meeting (transcript, 23 May 2013, page 61, line 22 to page 74, line 17, page 80, line 14 to page 81, line 5). His answers did not (in any material respect) add to, or subtract from, the evidence given in his witness statement.

253. In the course of his evidence Mr Walia agreed (transcript, 23 May 2013, page 205, lines 2 to 6) that COB Rule 3.2.4 required that Sarasin-Alpen conduct, in relation to Mrs Al Hamad individually, a sufficient analysis to satisfy itself that she had the necessary understanding and experience to participate in financial markets. His response was that “of course we did that”: he said that all the relevant questions were put to Mr Taha. The basis for that answer appears from the following sequence of questions and answers (transcript, 23 May 2013, page 205, line 17 to page 206, line 14):

“Q. When you told me ‘of course we did that’, you were in no position to say that at all, because you’re just presuming and, may I say, hoping that Mr Kerry would have done something, but you have no idea?
A. Correct.
Q. The same point goes to paragraph 3.2.4(b), in terms of establishing:
‘The length of time the individual has been active in relevant financial markets, the frequency of dealings and the extent to which the individual has relied on financial advice from financial institutions.’
That’s right?
A. I think the same response.
Q. The same for (c):
‘The size and nature of transactions that have been undertaken for the individual in relevant financial markets.’
And for (d) and for (e)?
A. Correct.”

254. In my view Mr Walia’s evidence provides no basis upon which it could be held that, before accepting Mr Al Khorafi and Mrs Al Hamad as Clients in June 2007, Sarasin-Alpen had taken steps necessary to determine that they (or either of them) (i) had at least US$1 million in liquid assets and (ii) had sufficient financial experience and understanding to participate in financial markets.

255. In relation to the acceptance of Mrs Al Rifai as a Client, it is said on behalf of Sarasin-Alpen (correctly) that, by 17 January 2008, the applicable provisions were those in the revised version of COB Rule 3. It is said that the only Investment Business carried out by Sarasin-Alpen for Mrs Al Rifai was (i) the provision of generic advice and (ii) the referral on to Bank Sarasin, which was an entity authorised or licensed and supervised a Financial Services Regulator (the Swiss Financial Market Supervisory Authority, formerly the Swiss Federal Banking Commission) for the purposes of the DFSA Rules. Accordingly, it is said, Mrs Al Rifai was properly classified as a Client under COB rule 3.2.2(2) – in its revised form – because she appeared to Sarasin-Alpen on reasonable grounds to be an individual who had at least $1 million in liquid assets. It is said that the following matters gave Sarasin-Alpen reasonable grounds for reaching that conclusion:

(1) Mrs Al Rifai’s signature on the AGBC, on or around 17 January 2008, by which she confirmed that she was an individual who had at least $1m in liquid assets;

(2) Sarasin-Alpen was informed by Mr Al Khorafi and/or by Mr Taha that Mrs Al Rifai had over $200 million in stocks, bonds, currencies etc (as recorded in Annex 1A to the AGBC);

(3) Sarasin-Alpen had carried out checks.

256. I have already held that Sarasin-Alpen cannot rely on paragraph 1 of Annex 1 or on Annex 1A of the AGBC signed by Mrs Al Rifai on or about 17 January 2008 in order to establish that it determined, before accepting Mrs Al Rifai as a Client, that the criteria set out in COB Rule 3.2.2(1)(a) had been met. If, as contended by Sarasin-Alpen, the relevant criteria (in the case of Mrs Al Rifai) were those in COB Rule 3.2.2(2) – in its revised form – rather than those in COB Rule 3.2.2(1) – I hold, for the same reasons, that Sarasin-Alpen cannot rely on paragraph 1 of Annex 1 or on Annex 1A of her AGBC in order to establish that it determined, before accepting Mrs Al Rifai as a Client, that the criteria set out in COB Rule 3.2.2(2) had been met. The AGBC signed by Mrs Al Rifai– in the form in which that document was returned to Sarasin-Alpen – contained no confirmation that she had at least US$1 million in liquid assets (and contained no other information from which it could be determined, in the absence of such confirmation, that she did have at least US$1 million in liquid assets) (i) because Mrs Al Rifai had not ticked the first of the boxes under paragraph 1 of Annex 1 and (ii) because Mrs Al Rifai had not answered the questions posed in Annex 1A.

257. It is necessary, therefore, (as in the case of Mr Al Khorafi and Mrs Al Hamad) to consider whether Sarasin-Alpen can establish, on the basis of the other submissions advanced, that – before accepting Mr Al Rifai as a Client in January 2008 – it had determined that she had at least US$1 million in liquid assets.

258. Mr Walia’s evidence in relation to this issue is found at paragraphs 175 to 177 and 182 of his witness statement dated 4 April 2013:

“175. In early 2008 I understood from Mr Kerry that Mr Al Khorafi was interested in investing funds in the name of his wife, Mrs Al Rifai. Mr Al Khorafi also wished to apply for more finance – in particular a loan of USD 10 million to be used in connection with the establishment of his real estate company.

176. In an email from Mr Nour to Mr Kerry dated 8 January 2008, Mr Nour refers to a meeting on 14 January ‘to discuss Mr Rafed’s plans to acquire or merge with a listed company in the region. He wants Rafco to acquire this company. Mr Kerry and I attended a meeting on 14 January 2008 at Mr Al Khorafi’s offices in Kuwait with Mr Taha and Mr Nour. At this meeting we discussed various business issues including Mr Al Khorafi’s business and expansion plans. The purchase of additional investments by Mr Al Khorafi’s wife, Mrs Al Rifai, was also raised at this meeting as well as her becoming a ‘Client’ of Sarasin-Alpen DIFC. Mr Al Khorafi said that he wanted to make these additional investments in his wife’s name…

177. Around 15 January 2008 ‘Client Investment Profile(s)’ and a ‘Client Profile’ were completed for Mrs Al Rifai I believe by Mr Kerry based on the information and instructions of Mr Taha;

(a) The Client and Investment Profile dated 15 January 2008…identifies Mrs Al Rifai as having estimated total assets of more than CHF 10,000,000 (USD 10.5 million) with an initial amount to be deposited of more than CHF 5,000,000 (USD 5.2 million).

(b) The ‘Client Profile’ dated 15 January 2008…identifies Mrs Al Rifai’s assets and income as comprising ‘Dividend and Income inherited from family/husband’ with an initial amount being transferred of USD 30 million.

(c) The Client and Investment Profile which is undated…identifies Mrs Al Rifai as having assets comprising property, assets with other banks, shareholdings and ‘other assets’ in asset classes which include bonds, equities, derivatives and foreign currencies.

182. It was apparent to me at the time that Mrs Al Rifai, Mr Al Khorafi’s wife, did qualify as a Client and satisfied the criteria set out in COB 3.2.2.(1)(a) for the reasons set out in paragraph 177 and more generally paragraphs 101, 102, 103(a) and 103(d)…”

259. In the course of his oral evidence under cross-examination Mr Walia was asked (transcript, 26 May 2013, page 191, lines 2 to 5, page 192, lines 4 to 8) what investigations into Mrs Al Rifai’s financial position or financial understanding had, to his own knowledge, been undertaken. His answer was that he had no personal knowledge of any such investigations. He stated (ibid, page 193, lines 1-18) that he did not know whether the client investment profile was completed by Mr Kerry. When it was put to him that there was no basis for Sarasin-Alpen to think that Mrs Al Rifai had assets of CHF 10 million, he answered: “That’s not right. This information would have come from Alaa [Mr Taha]. There is no information which the bank is dreaming up by itself”. But, he accepted (in answer to the next question) that he was not in a position to know whether the information had come from Mr Taha. When asked (ibid, page 196, lines 16-18) where “the suggestion [recorded in Annex 1A of Mrs Al Rifai’s AGBC] that she had more than $200 million in investments” had come from, he answered “I wouldn’t know”.

260. In my view Mr Walia’s evidence provides no basis upon which it could be held that, before accepting Mrs Al Rifai as a Client in January or February 2008, Sarasin-Alpen had taken steps necessary to determine that she had at least US$1 million in liquid assets. Nor, so far as relevant, had Sarasin-Alpen taken steps to determine that she had sufficient financial experience and understanding to participate in financial markets.

261. It follows from the findings that I have made that I accept the submission advanced on behalf of the Claimants that none of Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai could properly have been accepted by Sarasin-Alpen as Clients under the COB Rules. I reject the contention advanced on behalf of Sarasin-Alpen (at paragraph 34.2 of the written opening submissions filed on its behalf) that it “acted fully in accordance with the COB provisions in categorising the Claimants as Clients”. I conclude that Sarasin-Alpen failed to carry out any or any sufficient investigation in order to satisfy itself that the criteria under COB Rule 3.2.2 were met in respect of any of the Claimants.

262. Given that, as I have held, Sarasin-Alpen did not take the steps necessary (before accepting them as Clients) to determine whether the requirements in COB Rule 3.2.2(1) or 3.2.2(2) (whichever were applicable in the circumstances) were satisfied, each of Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai ought to have been treated as Retail Customers for the purposes of the COB Rules. It follows that Sarasin-Alpen was not permitted under the DFSA Rules to conduct Investment Business on their behalf (or on behalf of any of them).

263. It is submitted on behalf of Sarasin-Alpen that if (contrary to its primary contention) it took insufficient steps in relation to the categorisation of the Claimants (or any of them) as Clients – and thereby committed some procedural default in breach of the COB Rules – it is nevertheless clear that, had Sarasin-Alpen asked any further questions that it should have asked or carried out any further analysis that it should have carried out, then the Claimants would still have been categorised as Clients. I do not accept that submission.

264. Sarasin-Alpen is entitled to say that, had Mr Al Khorafi been asked, in June 2007, whether he did have US$1 million in liquid assets, it is probable that he would have answered in the affirmative: as he did when the question was put to him in cross-examination (transcript, 19 May 2013, page 119, lines 4 to 9). And it is entitled to say that, had Mrs Al Hamad been asked the same question in June 2007, it is probable that she, also, would have given an affirmative answer (transcript, 22 May 2013, page 4, lines 6 to 11).

265. But Sarasin-Alpen is not entitled to say that, had Mrs Al Rifai been asked in January 2008 whether she had US$1 million in liquid assets, she would have answered that she did. The evidence which she gave in her witness statement (at paragraph 9) did not support that conclusion; and neither did the answers which she gave to questions put to her in cross-examination (transcript, 22 May 2013, page 25, line 1 to page 34, line 24).

266. Further, Sarasin-Alpen is not entitled to say that either Mr Al Khorafi or Mrs Al Hamad (or, so far as material, Mrs Al Rifai) would have accepted, had they been asked at the relevant times, that they had experience or understanding of structured financial products.

267. Mr Al Khorafi’s evidence as to his investment experience is found at paragraphs 21 and 22 of his fourth witness statement:

“21. Prior to the investments that I purchased through the Defendants, I had little investment experience. I had inherited a number of shares from my father but I had not purchased any financial investments myself. It was not something I knew anything about or was particularly interested in. Instead I was happy to run and set up my own companies and to follow real estate opportunities and so had no particular interest in financial products. In addition, my experience of borrowing money was limited and the loans that I had taken out had been for real estate projects.

22. I understand that the Defendants now allege that, at the point when I first started dealing with them, I was a sophisticated investor with experience in a wide range of financial products and that I managed my wife’s and my mother’s financial investments along with Alaa Taha, who works for me. This is completely incorrect. As explained above, I had very little investment experience when I met the Defendants. Further, I do not advise either my mother or my wife on investment matters or manage their investments, and have not done so in the past. My mother has inherited wealth which is invested through NBK Suisse and Credit Suisse. As I understand the position, she has investment managers at those institutions to manage her affairs and advise her on investment matters. Similarly, my wife has assets given to her by her father which she invest through NBK Suisse and Credit Suisse. She also has investment managers at those institutions to manage her affairs and advise her on investment matters. The Bank Sarasin investments represented the first occasion on which I had been involved in an investment made by my wife.”

268. At paragraph 60 of his fourth witness statement Mr Al Khorafi stated that the information entered in Annex 1A of his AGCB was incorrect in the following respects:

“(a) I had not been investing in the financial markets since my father’s days. As explained above, my investment with Bank Sarasin was my first investment in the financial markets.

(b) I did not have a CFO to manage or monitor my investments. I had no investments and no CFO.

(c) I had not been active in the financial markets for 15 to 20 years. I was aged 40 when I invested with Bank Sarasin and I had not been involved in the financial markets at all before that.

(d) I had not carried out transactions of in excess of US$200 million in stocks, bonds and currencies in the past, or indeed any transactions at all.

(e) I had not studied commerce in the United States (or anywhere else).

(f) My financial investment portfolio at the time was not in excess of US$200 million. As stated in an email from Alaa [Mr Taha] to Rohit [Mr Walia] on 3 July 2007 (around 4 weeks after I signed the AGBCs), the total value of my financial investments (being solely investments in listed shares) was approximately US$160,000.”

269. Mrs Al Hamad stated, at paragraph 7 of her witness statement dated 4 April 2013, that her wealth had been inherited either from her parents and that side of her family or from her late husband: it was held in property, cash and shares: other than share related investments made through NBK Suisse and Credit Suisse, the shares that she held were inherited and “I have simply held these and earned dividends from them from time to time”. She went on to say this, at paragraphs 8 and 9 of her witness statement:

“8. I understand that the Defendants claim that my investments are managed by a qualified ‘Chief Financial Officer’. This is not a term which I am familiar with but I am told that it means a person who is experienced in finance and whose job it is manage financial matters. I do not have, and have never had, a Chief Financial Officer to manage my affairs. My financial affairs are not complicated. I have a number of shareholdings which I inherited from my family. I earn regular dividends on these shareholdings. These shareholdings include a valuable shareholding in the National Bank of Kuwait (‘NBK’). My parents and the Al Hamad family have long had an association with NBK and I therefore use NBK to manage my investments. NBK have managed my investments for the last 40 years. I currently have an investment account with NBK Suisse which is run on a discretionary basis. Their mandate has always been for low risk investments…

9. In addition, in late 2006, I opened an investment account with Credit Suisse at the suggestion of my son who thought I should try other banks. At the time I did not appreciate the difference between an advisory and discretionary relationship but I understand that the account was set up as an advisory account. I was happy to take Credit Suisse’s advice, as I had always done in relation to NBK Suisse, and given that I have no experience in such matters, I do not have any independent recollection of the investments that Credit Suisse made on that account. I would have left it up to them. On looking back at the account statements, I see that the majority of the investments were fiduciary deposits, which is I understand, like a bank deposit, and one investment in the Al-Burq fund which I understand is a sharia-compliant fund which invests in shares and operates in full compliance with Sharia law. I purchased all these investments on the recommendation of Credit Suisse and my understanding is that the Al-Burq fund did not borrow to make investments.”

270. At paragraphs 31 and 32 of her witness statement Mrs Al Hamad addressed the information recorded in Annex 1A of her AGBC. She said this:

“31. I have been told that the Defendants make a number of allegations about my financial sophistication and experience at the time that I purchased investments from Bank Sarasin, including that

(a) my family had investment experience in the financial markets over a period of 40 years;

(b) I had a Chief Financial Officer, Alaa Taha, who assisted me in managing my investment portfolio;

(c) I had by mid-2007 invested over US$200 million into shares and bonds;

(d) my son and my Chief Financial Officer were qualified to manage investment for me;

(e) my portfolio in June 2007 was worth over US$200 million;

(f) my risk tolerance was high;

(g) I was the managing partner of the Al Khorafi businesses in June 2007.

32. I can confirm that these allegations are not true and I respond as follows:

(a) I deny that my family had investment experience in the financial markets over a period of 40 years. The only active investor in my family was my late husband. His principal financial investments were in what I understand are called well-known Kuwaiti companies and were not in the international financial markets;

(b) As explained above I have never had a Chief Financial Officer. Further, the only persons who have ever acted as investment manager for me have been persons from NBK (historically), NBK Suisse and Credit Suisse; each in relation to the investment accounts mentioned above. I have never met Mr Taha and he has never acted as an adviser to me in any way, whether as Chief Financial Officer or investment adviser. I do not recall ever hearing his name until this dispute had arisen but I now understand that he works for my son;

(c) I am not experienced in financial matters, nor am I interested in taking on risk in order to boost my wealth or income. Prior to dealing with Bank Sarasin, my only investment experience was in shares. As explained above, I am not familiar with investments in bonds and to my knowledge have never invested in them. I have never invested in foreign currency. I have been asked to comment on my knowledge of derivatives. I have never heard of this term and having had the concept explained to me, I can confirm that these are matters which I know nothing about. My share investments at the point I was introduced to Bank Sarasin were approximately US$16 million with Credit Suisse and the same amount with NBK Suisse. The former was an advisory account and the latter was a discretionary account. As a result, I had no real knowledge of what equity investments had been carried out on those accounts. At the time, I also held some inherited shareholdings in well-known Kuwaiti companies. I dispute that I have ever had investments worth in excess of US$200 million.

(d) I did not believe, in 2007 that my son was qualified with Mr Taha to advise me on financial investments. My son is not experienced in investment matters. I understood that it was because my son was not experienced in such matters that he had approached Bank Sarasin for advice.

(e) I was not and never have been the partner of the Al Khorafi family businesses. I have always been a part owner of the businesses but never involved in their management. All of the companies have their own management structure and I am not involved. I am a housewife.

(f) Thanks to the wealth that I inherited, prior to my involvement with Bank Sarasin, I was in a very strong financial position with all my needs taken care of. I had no need to gamble what I already had in order to make more. I dispute that my risk tolerance was high.”

271. Mrs Al Rifai stated, at paragraph 8 of her witness statement, that her investment experience was limited to giving instructions in relation to two investment accounts: an account which she had with NBK Suisse and an account which she had with Credit Suisse in Dubai which was opened in 2003 or 2004. She said that those accounts were funded by money that she had been given by her father. She went on, at paragraphs 9 and 10 of that witness statement, to state:

“9. The NBK Suisse account was a discretionary account and the relationship manager was Sharif Barakat. I understand, having been shown the account statements, that in the years leading up to my investment with Bank Sarasin, the value of the NBK Suisse portfolio ranged from around US$200,000 to US$600,000 and it has been explained to me that it was made up of holdings in shares and investments called ‘equity mutual funds’ and ‘mutual bonds funds’. I understand in general terms what shares are but I am not familiar with ‘equity mutual funds’ and ‘mutual bonds funds’ and I do not know how they work. Mr Barakat made the investment decisions on this account; my instructions were simply that I wanted low risk and Sharia compliant investments. The Credit Suisse account was an advisory account and my relationship manager was Nabil Safa. My only instructions to Mr Safa were that any investments should be low risk and not be related to alcohol or gambling. Otherwise he was free to invest in what he thought was a good idea. If Mr Safa told me that an investment was low risk, I accepted his recommendation. From recollection the money in this account was invested in Dubai Harbours, on Mr Safa’s recommendation. I did not know about the detail of this investment at the time that it was made although I now understand that the account statements show that this was an investment of around US$400,000. I believe that this investment is the only substantial investment in the account and I continue to hold that investment.

10. I understand that the Defendants claim that my investments are managed by a qualified ‘Chief Financial Officer’. I do not have, and never have had, a Chief Financial Officer to manage my affairs. My affairs are not complicated and as explained above, NBK Suisse and Credit Suisse have always assisted me with investments.”

272. On the basis of that evidence it is said on behalf of the Claimants that Mr Al Khorafi, while a successful businessman, had no experience of dealing in complex structured investments of the type represented by the Notes. In particular, is denied that he had had significant experience in financial markets. It is said that Mrs Al Hamad and Mrs Al Rifai were inexperienced investors.

273. In response, it was submitted on behalf of Sarasin-Alpen that the Claimants have not been forthcoming with information about their financial experience. In testing their claim to be “ingénues”, it is said that the Court should have regard to the following matters:

(1) The Al Khorafi group’s website indicated, at the time, that the group specialised in portfolio management; that it had US$3 billion under management; that it operated in the local Kuwait Market and that it had ties with international banks. It was also said (on that website) that a company within the group (AMK Investment) provided Investment Consultancy for a wide range of business and individuals.

(2) Mr Al Khorafi did not explain his relationship with the Family Office Advisory at HSBC Private Bank. A number of payments were made to HSBC from the accounts with Bank Sarasin (notably US$35 million on 26 July 2007) and a representative of HSBC Private Bank attended the meeting in Nice on 22 August 2008.

(3) Mr Al Khorafi did not disclose what are said to be his very sophisticated financial dealings with a view to the floatation of his real estate business (at a value of nearly US$1 billion) on a capital market. In particular his dealings with Phoenician Funds which seem to indicate that he was himself involved in the creation of a real estate holding structure.

(4) In his fourth witness statement Mr Al Khorafi stated that he had never studied commerce, finance or any sort of business related course either at home or abroad; but in the Reply to Sarasin-Alpen’s Defence it was admitted that Mr Al Khorafi studied commerce in the USA;

(5) Mrs Al Hamad gave incomplete disclosure of portfolios with NBK Suisse including “financial products” as defined by the Claimants themselves worth at least approximately US$18.4 million as at 30 September 2006, and with Credit Suisse worth US$18.7 million in 2007 (although it is accepted that this may have been the result of a transfer) and US$2.7 million (this may be a balance after purchase of US$16 million of investment fund units). The statements of account disclose an actively managed account;

(6) In his fourth witness statement Mr Al Khorafi described his mother’s shareholding in the National Bank of Kuwait as “very substantial” although Mrs Al Hamad herself did not ascribe any value to it or even disclose how many shares she owned.

(7) Mrs Al Hamad also had a loan of US$14 million from Credit Suisse in March 2007, which she said had been used to purchase real estate in Lebanon;

(8) Mrs Al Rifai gave incomplete disclosure of her portfolios with Credit Suisse and NBK Suisse. As of 1 January 2006, she had more than US$1 million with NBK Suisse, part of which was transferred later to Credit Suisse and invested.

274. Further, it is said to be plain from the Claimants’ disclosure that they were as a matter of fact “Clients” within the meaning of COB Rule 3.2.2(1)(a). In particular, it is said, their disclosure shows that they each met the financial experience and understanding test. In relation to Mrs Al Hamad and Mrs Al Rifai, Sarasin-Alpen relied on the following matters, by way of examples:

(1) Mrs Al Hamad was classified as a Client by Credit Suisse DIFC only 6 months previously (in December 2006). Mrs Al Hamad purchased investment fund units through Credit Suisse which were held in her Credit Suisse account ;

(2) Mrs Al Hamad had an NBK Suisse diversified portfolio which included investments in bonds, equities and emerging market funds;

(3) Mrs Al Rifai had a Credit Suisse and NBK Suisse investment portfolio which included investments in shares, equity mutual funds and mutual bond funds.

275. Mr Al Khorafi was cross-examined about his financial experience (transcript, 19 May 2013, page 127, line 4 to page 129, line 11; 20 May 2013, page 30, line 18 to page 32, line 20): so, also, were Mrs Al Hamad (transcript, 22 May 2013, page 4, line 12 to page 12, line 23, page 16, line 11 to page 18, line 11) and Mrs Al Rifai (transcript, 22 May 2013, page 24, line 4 to page 30, line 20). It is, I think, sufficient to observe (i) that, in so far as the evidence which each had given in his or her witness statement was challenged, there was no departure from or qualification of that evidence and (ii) that, that in so far as the points raised by way of submission (to which I have referred in the two previous paragraphs of this judgment) were put to them, there was nothing in the answers which they gave which led me to disbelieve the evidence which they had given in their witness statements.

276. I accept the evidence of Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai as to their financial experience. As I have said, I reject the submission, advanced on behalf of Sarasin-Alpen, that, had it asked any further questions that it should have asked or carried out any further analysis that it should have carried out, then the Claimants would still have been categorised as Clients.

(ii) Advising the Claimants on Financial Products or Credit, recommending a transaction or transactions to the Claimants and/or executing a transaction or transactions for the Claimants where that advice or recommendation was not suitable for them having regard to their investment objectives or risk tolerance or any other requirements or relevant facts about them of which Sarasin-Alpen was or ought reasonably have been aware.

277. The Claimants contend in the alternative that, if (contrary to the submissions set out in the previous section of this judgment) they were “Clients” within the meaning of COB Rule 3.2.2, then Sarasin-Alpen breached COB Rule 6.2 in advising them (or one or more of them) on Financial Products or Credit, and/or in recommending a transaction or transactions to them (or one or more of them) and/or in executing a transaction or transactions for them (or one or more of them) where that advice, recommendation or transaction was not suitable for him or her having regard to his or her investment objectives or risk tolerance or any other requirements or relevant facts about him or her which Sarasin-Alpen was or ought reasonably have been aware.

278. Until 1 October 2007 COB rule 6.2.1 was in the following terms:

“6.2.1 (1) Subject to (2), an Authorised Firm may only:

(a) Advise a Client who is an individual on Financial Products or Credit

(b) recommend a Transaction to a Client who is an individual; or

(c) execute a Transaction for any Client on a discretionary basis …

where that advice, recommendation or Transaction is suitable for that Client having regard to:

(d) that Client’s investment objectives and risk tolerance; and

(e) any other requirements or relevant facts about that Client of which the Authorised Firm is, or ought reasonably be aware.

(2) An Authorised Firm may, subject to (3), limit the extent to which it will consider suitability when carrying on an activity specified in (1)(a), (b) or (c) if prior to carrying on such an activity:

(a) it has given a written warning to the Client in the form of a notice clearly stating either that the Authorised Firm will not consider suitability in regard to any of the activities specified in (1)(a), (b) or (c), or, that it will do so but only to the extent specified in the notice; and

(b) the Client has given his express consent, after a proper opportunity to consider the warning, by signing the notice.

(4) An Authorised Firm must ensure the facts it holds about a Client are accurate, complete and up to date.

Record Keeping

6.2.2 (1) An Authorised Firm must keep a record of each advice or recommendation made to an individual, and be able to demonstrate to the DFSA compliance with Rule 6.2.1.

(2) The records in (1) must be maintained for a minimum of six years.”

279. Advising on Financial Products or Credit constitutes a Financial Service for the purposes of the Law of 2004 because it is an activity specified in GEN Rule 2.2.2. In that context the activity is defined in GEN Rule 2.11.1(1):

“2.11.1(1) In Rule 2.2.2 Advising on financial products or credit means giving advice which:

(a) is given to a Person in his capacity as an investor or potential investor, or in his capacity as agent for an investor or a potential investor on the merits of his buying, selling, holding, subscribing for or underwriting a particular financial product (whether as principal or agent); or

(b) is given to a Person in his capacity as a borrower or potential borrower or as agent for a borrower or potential borrower on the merits of his entering into a particular Credit Facility ; or
(c) constitutes generic advice.”

Paragraph (c) of that definition was added by amendment in June 2006. As I have explained (earlier in this judgment) “generic advice” was defined in GEN Rule 2.11.1(3). In the present context it is sufficient to have in mind that “generic advice” is any communication that:

“(c) does not contain any advice on the merits of that particular Person entering into a transaction to buy, sell, hold, subscribe for or underwrite those financial products or enter into a particular Credit Facility, whether as principal or agent.”

280. COB Rule 6.2.1 was amended on 1 October 2007: thereafter (so far as material) paragraph (1)(a) of that Rule was in these terms:

“6.2.1 (1) Subject to (2), an Authorised Firm may only:
(a) give advice of the kind referred to in GEN Rule 2.11.1(1)(a) or (b) to a Client who is an individual
…”

281. It is submitted on behalf of Sarasin-Alpen that a claim based upon an alleged failure to consider suitability – in breach of COB Rule 6.2.1 – must fail. It is said that:

(1) on the proper construction of Rule 6.2.1(1), it did not apply where (as is said to be the position in the present case) an Authorised Firm was providing generic (as opposed to specific) advice; and

(2) in any event, Sarasin-Alpen had limited its obligation to consider suitability of investments by giving notice in accordance with COB Rule 6.2.1(2).
The scope of COB Rule 6.2.1

282. It is clear that, from 1 October 2007, COB Rule 6.2.1 applied only to specific advice and not to generic advice. It is less clear – and it is in dispute – whether that was also the position before October 2007: that is to say, whether the effect of the amendment to COB Rule 6.2.1 was (i) to alter the law as it was following the amendment to GEN Rule 2.11.1(1) in June 2006 or (ii) to clarify that the amendment to GEN Rule 2.11.1(1) had not had the unintended effect of bringing generic advice within the scope of COB Rule 6.2.1.

283. It is submitted on behalf of Sarasin-Alpen that the latter view is to be preferred. It is said that, on its true construction, COB Rule 6.2.1 never applied to generic advice; and that the purpose of the amendment in October 2007 was to make this clear. That submission is advanced on the ground that the definition of “Advising on financial products or credit” in GEN Rule 2.11.1(1) – when amended in June 2006 to include generic advice – was stated, in terms, to apply to the interpretation of GEN Rule 2.2.2; was not stated, in terms, to apply in the context of COB Rule 6.2.1; and could not have been intended to do so. It was said that it could not have been intended, in June 2006, to extend the scope of COB Rule 6.2.1(1) to include generic advice because generic advice was (of its nature) advice which would not take into account the Client’s investment objectives, risk tolerance and other requirements or relevant facts specific to the Client of which the Authorised Firm was, or ought reasonably to have been aware: taking account of those matters would, of itself, render the advice non-generic. So, it is said, the suitability requirement in COB Rule 6.2.1 could have had no application to the giving by an Authorised Firm of advice which was generic advice; and that position did not alter when the definition of the activity “Advising on Financial Products or Credit” was amended (in June 2006) so as to include the giving of generic advice. It is said that what seems to have happened is that the definition of “Advise on Financial Products or Credit” in GEN Rule 2.11.1 was amended in 2006 to add generic advice without the draftsman having given proper consideration to the effect, if any, that that amendment might have on the scope of COB Rule 6.2.1; and the inherent anomaly to which that amendment gave rise (in the context of COB Rule 6.2.1) was recognised and removed by the subsequent amendment to that Rule in October 2007.

284. In my view there is force in that submission. I hold that the suitability requirement in COB Rule 6.2.1(1) had no application (whether before or after 1 October 2007) to the giving of Advice on Financial Products or Credit in circumstances where that advice was non-specific: that is to say where the advice did not fall within paragraphs (a) or (b) of GEN Rule 2.11.1. Advice on Financial Products or Credit which did not include “any advice on the merits of that particular Person entering into a transaction to buy, sell, hold, subscribe for or underwrite those financial products or enter into a particular Credit Facility, whether as principal or agent” was not advice in relation to which COB Rule 6.2.1 (either in the form which was in force immediately before 1 October 2007 or in the form which was in force immediately after that date) imposed an obligation on the Authorised Firm to ensure that that advice was suitable for that Client having regard to that Client’s investment objectives and risk tolerance and any other requirements or relevant facts about that Client of which the Authorised Firm was, or ought reasonably to have been aware.

285. It is pertinent, however, to keep in mind that the suitability requirement in COB Rule 6.2.1(1) was not restricted to circumstances in which the Authorised Firm was advising on Financial Products or Credit: the requirement applied in circumstances where the firm recommended a Transaction to a Client who was an individual or where the firm executed a Transaction (for any Client) on a discretionary basis: paragraphs (b) and (c) Rule 6.2.1(1).

Whether (subject to limitation of the duty by notice under COB Rule 6.2.1(2)) Sarasin-Alpen was required to consider suitability in the present case?

286. In my view there is no doubt that, in relation to the purchase of the REIT Notes in June 2007, Sarasin-Alpen was carrying out activities which fell within both paragraphs (a) and (b) of COB Rule 6.2.1: that is to say (i) Sarasin-Alpen gave advice to Mr Al Khorafi (and, through him) to Mrs Al Hamad as to the suitability of the REIT Notes as a structured financial product for the purposes of the investment of the funds to be advanced by ABK and (ii) Sarasin-Alpen recommended that Mr Al Khorafi and Mrs Al Hamad entered into the transaction with Bank Sarasin under which those Notes were purchased. In reaching that view I have had regard to the circumstances which led to the purchase of the REIT Notes (set out earlier in this judgment) and, in particular, to the evidence as to what was said at the meetings on 24 April 2007 and 22 June 2007.

287. It is also my view that there is no doubt that, in relation to the purchase of the July 2007 SaraFloor Notes by Mrs Al Hamad, Sarasin-Alpen was carrying out activities which fell within both paragraphs (a) and (b) of COB Rule 6.2.1: that is to say (i) Sarasin-Alpen gave advice to Mrs Al Hamad (through Mr Al Khorafi) as to the suitability of the July 2007 SaraFloor Notes as a structured financial product for the purposes of a leveraged investment with funds to be advanced by Bank Sarasin, (ii) Sarasin-Alpen recommended (through Mr Al Khorafi) that Mrs Al Hamad entered into the transaction with Bank Sarasin under which those Notes were purchased and (iii), for the purposes of that transaction, Sarasin-Alpen advised as to the credit facilities available from Bank Sarasin to fund the purchase. In reaching that view I have had regard to the circumstances which led to the purchase of the July 2007 SaraFloor Notes (set out earlier in this judgment) and, in particular, to the evidence as to what was said at the meetings on 22 June 2007 and 11 July 2007.

288. I am also of the view that, in relation to the purchase of the February 2008 SaraFloor Notes by Mrs Al Rifai, Sarasin-Alpen was carrying out activities which fell within each of paragraphs (a), (b) and (c) of COB Rule 6.2.1: that is to say (i) Sarasin-Alpen gave advice to Mrs Al Rifai (through Mr Al Khorafi) as to the suitability of SaraFloor Notes as a structured financial product for the purposes of a leveraged investment with funds to be advanced to her by Bank Sarasin, (ii) Sarasin-Alpen recommended (through Mr Al Khorafi) that Mrs Al Rifai entered into the transaction with Bank Sarasin under which SaraFloor Notes were purchased, (iii), for the purposes of that transaction, Sarasin-Alpen advised as to the credit facilities available from Bank Sarasin to fund the purchase and (iv) Sarasin-Alpen executed that transaction on a discretionary basis, in that it was left to the discretion of Bank Sarasin to select the February 2008 SaraFloor Notes (rather than some other SaraFloor Notes). In reaching that view I have had regard to the circumstances which led to the purchase of the February 2008 SaraFloor Notes (set out earlier in this judgment). I reject the submission, advanced on behalf of Sarasin-Alpen that, in relation to the purchase of the February 2008 SaraFloor Notes, it was only giving generic advice.
Whether the duty to consider suitability was limited by notice under COB Rule 6.2.1(2)

289. Sarasin-Alpen relied, in support of its submission that the duty to consider suitability was limited by notice under COB Rule 6.2.2(1), on the terms of clause 2.6.1 of the AGBCs and on the passage (in terms which are substantially identical) which appears on page 8 of those documents (the final page in Annex 1) immediately above the Client’s signature:
“I hereby confirm that BSA [Sarasin-Alpen] is not required to consider the suitability of any particular investment when giving any advice or recommendation to, or accepting instructions or orders from, me in respect of such investment, unless in relation to a specific request for advice or recommendation, or other investment services, I have supplied to [Sarasin-Alpen] specific information on my situation or requirements for that investment and requested specifically that those be taken into account when [Sarasin-Alpen] is preparing such advice or recommendation or accepting instructions or orders”.
It is said, correctly in my view, that by his or her signature on that page Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai gave consent to the notice limiting the extent of Sarasin-Alpen’s obligation to consider suitability.

290. Reference was made, also, to clause 2.6.2 of the AGBCs:

“2.6.2 BSA may assist and advise the Client in its investment activities, upon request by the Client, by supplying the Client with research and other information including details of investment opportunities, markets, companies, prices, currencies etc, as well as making specific investment recommendations. Such advice shall be based on information and sources deemed reliable by BSA. The majority of general investment recommendations made by BSA are based on the Sarasin Groups and/or BSA’s investment policy and are aimed at a wide target group. Any investment recommendations or offers made in direct contact with individuals shall only take the Client’s specific situation into account if the Client has supplied such information to BSA when making the enquiry in accordance with sub-clause 2.6.1 above.”

291. It is submitted on behalf of the Claimants that there are two reasons why Sarasin-Alpen cannot rely, in the present case, on the notice in the AGBCs which seeks to limit the obligation to consider suitability. It is said that:

(1) the exclusion relied upon seeks only to limit Sarasin-Alpen’s obligation to give suitable advice in relation to investments, not in relation to credit; and that, in the present case, Sarasin-Alpen was advising on both investments and credit; and

(2) the Claimants did seek Sarasin-Alpen’s recommendations and did make Sarasin-Alpen aware of their requirements so that, on its terms, the exclusion was not engaged.

292. The second of those points is said to be obvious from the documentary evidence alone. Further, it is said, Sarasin-Alpen has accepted that the Claimants approached them seeking products in which to invest and that certain requirements were communicated to them. For example, it is accepted that:

“…the Claimants wanted a capital guaranteed product with a fixed return of 8% or 10% in order to service loan interest payments.”
The Claimants having approached Sarasin-Alpen on that basis, it is said that the purported exclusion in limitations of Annex 1 of the AGBCs could have no application; and the suitability requirement in COB 6.2.1(1) remained engaged.

293. In my view, there is substance in each of those points. I accept that Mr Al Khorafi, (on his own behalf and on behalf of Mrs Al Hamad) in relation to the purchase of the REIT Notes and (on behalf of Mrs Al Hamad) in relation to the purchase of the July 2007 SaraFloor Notes, made specific requests for advice or recommendation, or other investment services; and I accept that, in making those requests, he supplied to Sarasin-Alpen specific information on his and Mrs Al Hamad’s requirements for the proposed investments and requested specifically that those requirements be taken into account. In reaching that view I have had regard to the circumstances leading to the purchases of the REIT Notes and the July 2007 SaraFloor Notes; and, in particular, to what was said at the meetings on 24 April 2007, 22 June 2007 and 11 July 2007. I am satisfied that Mr Al Khorafi made it clear to Mr Walia (on behalf of Sarasin-Alpen) that he and his mother were seeking 100% capital protection (so that the ABK loans – and the loans from Bank Sarasin – could be repaid) and an income stream which would service the interest payments due in respect of the ABK loans (which had funded the purchase of the REIT Notes) and the further loans from Bank Sarasin (which funded the purchase of the July 2007 SaraFloor Notes).

294. I am satisfied that, in the context of both the purchase July 2007 SaraFloor Notes by Mrs Al Hamad and the purchase of the February 2008 SaraFloor Notes by Mr Al Rifai, Sarasin-Alpen gave advice in relation to credit – that is to say, advice as to how those purchases were to be funded – as well as advice in relation to the investments purchased.
Whether the advice, recommendation or transaction was or were suitable having regard to the Claimants investment objectives or risk tolerance or any other requirements or relevant facts of which Sarasin-Alpen was or ought reasonably have been aware.

295. I turn, therefore, to the question whether the advice or recommendation (on both investments and credit) given by Sarasin-Alpen and transactions executed by Sarasin-Alpen were suitable for the Claimants’ objectives. I approach that question on the basis of the finding that I have just made: that Mr Al Khorafi made it clear to Mr Walia (on behalf of Sarasin-Alpen) that he and his mother were seeking 100% capital protection (so that the loans could be repaid) and an income stream which would service the interest payments due in respect of the loans. Those were investment objectives, risk tolerance and requirements of which Sarasin-Alpen was, in fact, aware, at the time of the investment in the REIT Notes and the July 2007 SaraFloor Notes. Sarasin-Alpen was also aware, at the time of the investment by Mrs Al Rifai in the February 2008 SaraFloor Notes, (i) of the earlier investments by Mr Al Khorafi and Mrs Al Hamad (and, in particular, of the leveraged nature of the funding of the July 2007 SaraFloor Notes) and (ii) of the cross-collateralisation effected by the pledge into which she entered in January 2008.

296. The Claimants submit that, properly analysed, each tranche of investments was “grossly unsuitable” for the Claimants. In particular:

(1) In advance of the first tranche of investments, Mr Al Khorafi had explained that he and Mrs Al Hamad wanted products which (because they were to be funded by borrowings) they could be sure would enable those borrowings to be repaid. In the event, the first tranche of investments exposed Mr Al Khorafi and Mrs Al Hamad to a position in which, absent a very significant market improvement, there would be a substantial shortfall in the funds available to repay those borrowings. Indeed, it is said, the investments (which were sold to the Claimants at a price above the level that Bank Sarasin had acquired them in the market) were insufficient to repay the borrowings from the moment of purchase.

(2) The leveraged investments, purchased for Mrs Al Hamad in the second tranche, were even more unsuitable. The purchase of them was inconsistent with the original investment objectives. Further, the purchase of the leveraged investments, which involved the giving of security over the first tranche of investments (to secure the leveraging), itself gave rise to a breach of ABK’s contractual rights: in that ABK was entitled under the Irrevocable Payment Order, to require that all the income from the REIT Notes purchased by Mrs Al Hamad be remitted to ABK without deduction (thereby preventing Bank Sarasin from imposing any lien or mortgage over those investments). Further, the Claimants were exposed to the risk of margin calls, which (if not met) would lead to the sale of all the investments (that is to say, both the first tranche and the second tranche) before the guaranteed payment (which was said to provide capital protection) fell due on maturity. The effect would be that the Claimants would or might incur a substantial loss on the original investments; and would be exposed not only to losses on the investments but also to outstanding obligations in respect of the various loans.

(3) The third tranche of investments (purchased by Mrs Al Rifai) were used by Sarasin-Alpen and Bank Sarasin “to plug what was rapidly becoming a black hole” in respect of the first tranche and the second tranche – that is to say, in effect, as margin call – because the credit arrangements permitted Bank Sarasin to sell Mrs Al Rifai’s investments for the purpose of meeting the shortfalls on the other accounts. The third tranche of investments would never run their course to maturity, absent further payments of margin.

297. It is said on behalf of Sarasin-Alpen that, even if (which is denied) Sarasin-Alpen owed a duty to the Claimants (or any of them) to ensure suitability, the Notes were plainly suitable investments for the Claimants having regard to the Client’s investment objectives and risk tolerance and any other requirements or relevant facts about the Client of which Sarasin-Alpen knew or ought reasonably to have been aware. The Notes were capital guaranteed; and (as part of that capital guarantee) provided the coupon payments which the Claimants wanted before maturity. There was no income guarantee; but an income guarantee could not reasonably be expected in addition to the guaranteed return of capital.

298. Further, it is said, the Rules are concerned with substance not form: so if (as is said to be the case) the Notes were, in any event, suitable investments for the Claimants, failures in process (if any) do not give rise to a claim for damages. I accept that submission in relation to the suitability requirement under COB Rule 6.2.1 (1). The relevant question, under that Rule (in contrast to the requirement under COB Rule 3.2.2(1)(a) – classification as a Client), is whether the advice, recommendation or transaction is suitable for the Client having regard to that Client’s investment objectives or risk tolerance or any other requirements or relevant facts of which Authorised Firm was or ought reasonably have been aware; not whether the Authorised Firm took appropriate (or prescribed) steps to ensure that that requirement is met. So, in the present case it is irrelevant that (on the evidence) Sarasin-Alpen took no steps to ensure that the suitability requirement was met: it would be enough that the suitability requirement was, in fact, met.

299. In my view there is no doubt that the suitability requirement was not met either (i) in relation to the purchase of the REIT Notes by Mr Al Khorafi and Mrs Al Hamad in June 2007 or (ii) in relation to the purchase of the July 2007 SaraFloor Notes by Mrs Al Hamad or (iii) in relation to the purchase of the February 2008 SaraFloor Notes by Mrs Al Rifai. I reach that conclusion without relying on the expert report of Dr Thomas Walford (although his report supports the conclusion); and I am not persuaded by the expert report of Dr Desmond Fitzgerald that the conclusion is wrong.

300. Put shortly, the REIT Notes did not meet the requirements of Mr Al Khorafi and Mrs Al Hamad that the investments provide both (i) 100% capital protection (so that the ABK loans could be repaid) and (ii) an income stream which would service the interest payments due in respect of the ABK loans. Given that the income stream was to be provided by the coupon payments, there was no guarantee that the capital returned on maturity (together with any surplus remaining out of the coupon payments after servicing the interest due in respect of the ABK loan) would be equal to or in excess of 100% of the capital invested in the purchase. Whether or not the capital returned on maturity (together with any surplus remaining out of the coupon payments) would be equal to or in excess of 100% of the capital invested would depend on the performance of the underlying index; not on the “capital protection” afforded by the minimum redemption covenant. That was not consistent with the investment objectives of Mr Al Khorafi or Mrs Al Hamad. And it is no answer to suggest (as Dr Fitzgerald suggested in his expert report) that those investment objectives were not attainable in practice: even if that was a correct view. If the investment objectives were not attainable, then it was impossible for Sarasin-Alpen to advise that they were met by the investments which it recommended: the only course open to Sarasin-Alpen, consistently with the obligation imposed by COB Rule 6.2.1(1), was to advise that there were no investments capable of meeting the Client’s investment objectives.

301. Nor did the July 2007 SaraFloor Notes meet Mrs Al Hamad’s investment requirements of both (a) 100% capital protection (so that the Bank Sarasin (leverage) loans could be repaid) and (ii) an income stream which would service the interest payments due in respect of the Bank Sarasin loans. In addition to the matters described in the previous paragraph (mutatis mutandi) there were two other factors which made the investment in the July 2007 SaraFloor Notes unsuitable. First, the Irrevocable Payment Order in favour of ABK made it impossible (consistently with the obligations thereunder) to use the coupon payments in respect of those Notes to service the Bank Sarasin loan. Second, the potential for margin call (arising from the leveraging provided by the Bank Sarasin loan) posed the additional risk that the Notes would not be allowed to run to maturity.

302. That latter factor was present – and to a greater degree – in relation to the purchase of the February 2008 SaraFloor Notes by Mrs Al Rifai. Given that, by reason of the cross-collateralisation under the pledge into which Mrs Al Rifai was (to the knowledge of Sarasin-Alpen) required to enter as a condition of obtaining funding from Bank Sarasin, the Bank could have recourse to the February 2008 SaraFloor Notes to meet a margin call in respect of the July 2007 leveraging, there was, in practice, little chance that (unless margin calls were funded from elsewhere) her investment would run to maturity; and, if they did not, there was no capital protection at all.

303. For those reasons, I hold that Sarasin-Alpen failed to comply with its obligations under COB Rule 6.2.1(1). I have already held that Sarasin-Alpen failed to comply with its obligations under COB Rule 3.2.2.(1). My answer to the question: “Did Sarasin-Alpen commit a breach of duty or obligation imposed under the DFSA Rules” is “Yes”. I turn, therefore to the other matters which the Claimants need to establish in order to succeed in a claim to compensation under Article 94(2) of the Regulatory Law of 2004.

(2) Were those breaches committed “intentionally, recklessly or negligently”

304. It is said on behalf of Sarasin-Alpen that, even if (contrary to its submissions to the contrary) Sarasin-Alpen breached of any of the regulatory rules, such breach was not intentional, reckless or negligent. I do not accept that submission.

305. In my view, having regard to the circumstances in which the AGBCs were completed, Sarasin-Alpen’s failure to comply with the client classification provisions in COB Rule 3.2.2(1) is properly described as intentional. It is accepted on behalf of Sarasin-Alpen that, when it received the AGBCs back from the Claimants, those documents were incomplete: in that there were no entries under paragraph 1 of Annex 1 or in Annex 1A. The documents produced from Sarasin-Alpen’s files contain entries in both Annex 1 and Annex 1A; those entries are in manuscript and (in the case of the entries in Annex 1A) are in the first person. Sarasin-Alpen has adduced no evidence to explain how that came about. I find it impossible to avoid the conclusion that the entries were made by an employee of Sarasin-Alpen; and that the entries in Annex 1A were made in the first person with the intention of leading the uniformed reader of the documents on Sarasin-Alpen’s file to think that those entries had been made by the person (Mr Al Khorafi, Mrs Al Hamad or Mrs Al Rifai, as the case may be) whose name appeared on the first page of the document prior to the acceptance of that person as a Client. Sarasin-Alpen adduced no evidence (other than speculation on the part of Mr Walia) as to the source of the information which led to a tick being inserted in the first box under paragraph 1 of Annex 1 or to the answers recorded in Annex 1A of those documents. For the reasons which I have given earlier in this judgment, I am satisfied that that information which is reflected in those answers was incorrect. It was introduced into the documents, without regard to whether it was true or false, in order to make it appear that there had been material on which decisions whether or not to accept Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai as Clients could properly be made. That was done, in my view, with the intention that the Claimants should be accepted as Clients notwithstanding that the requirements of COB Rule 3.2.2 had not been complied with. It is, I think, impossible to avoid the conclusion that the failure to comply with the obligation under the Rule was intentional.

306. It is clear from the evidence given by Mr Walia (transcript, 23 May 2013, page 9, line 24 to page 10, line 11) that Sarasin-Alpen did not, itself, give any consideration to the question whether the Notes which the Claimants were advised to purchase were suitable, having regard to their investment objectives and attitude to risk. As Mr Walia explained, Sarasin-Alpen took the view that consideration of the suitability requirement was not part of its role. I have held that, in the light of the evidence which I have set out earlier in this judgment, Sarasin-Alpen was giving non-generic advice as to investments and credit, and was making recommendations. But, in the light of Mr Walia’s evidence, it was doing so recklessly; uncaring whether the advice or the recommendations were suitable for the Client.

307. My answer, therefore, to the question “Were the breaches of the DFSA Rules committed “intentionally, recklessly or negligently?” is “Yes”. The breaches of COB Rule 3.2.2 were committed intentionally; the breaches of COB Rule 6.2.1 (1) were committed recklessly.

(3) Was the loss or damage in respect of which compensation is claimed “caused as a result of such conduct”
308. It is said on behalf of the Claimants that, given Sarasin-Alpen’s failure to comply with its regulatory obligations, it was not permitted to take on the Claimants as Clients at all; and accordingly was not permitted to market any of Bank Sarasin’s products to the Claimants. In the circumstances, the Claimants should never have been sold the financial products which, by reason of Sarasin-Alpen’s failure to comply with the regulatory obligations imposed upon it under the Regulatory Law, they were sold.

309. It is said on behalf of Sarasin-Alpen that, if (contrary to its contentions) the Claimants are able to establish the other conditions leading to an order for compensation under Article 92(4) of the Regulatory Law, their claims to compensation must fail on the grounds that the loss or damage in respect of which compensation is claimed was not “caused as a result of such conduct”. In particular, it is said that:

(1) even if, which is denied, the Sarasin-Alpen did fail to explain something that it was obliged to explain, it is to be inferred that, in any event, the Claimants at all times fully understood how the Notes and the leverage worked:

(2) it was perfectly clear from the TermSheets how the Notes worked;

(3) the Claimants were sophisticated investors; and

(4) the Claimants had the benefit of the advice of Mr Taha who was, on the Claimants’ own case, an experienced Certified Public Accountant and Certified Valuation Analyst with many years of experience in acting for companies, mainly in corporate credit.

310. In those circumstances it is said to follow that it is to be inferred that, even if the Claimants had been differently informed or advised by Sarasin-Alpen, they would still have bought the same Notes on the same terms, whether or not the transactions were arranged through Sarasin-Alpen. It is said that the documentary evidence shows that Mr Al Khorafi certainly fully understood, by August 2007, how the products worked (even if, which is denied, he had not previously understood them). Yet the Claimants remained invested in the products, and Mr Al Khorafi made a new investment of $40 million thereafter (the Witch Hat Note) and Mrs Al Rifai made new investments totalling $10m thereafter. In particular, it is said:

(1) That the Claimants were sent regular account statements which showed that the Notes did not have a 100% capital guarantee on redemption in addition to guaranteed annual coupons of 8 or 10%, and further showed that the Notes were trading below their notional value. Yet the Claimants remained invested in the Notes; and continued to purchase new Notes. It follows that it is to be inferred that even if the Claimants had been differently informed or advised they would still have bought the same Notes on the same terms, whether or not arranged by Sarasin-Alpen.

(2) That, even if Sarasin-Alpen was not entitled to classify the Claimants (or any of them) as Clients and so was not entitled to deal with them, it is to be inferred that if Sarasin-Alpen had declined to deal with any Claimant, then:

(a) the same investment would instead have been made by the family but in the name of another Claimant whom Sarasin-Alpen could deal with; or

(b) the same or similar investment would have been made by that Claimant using a different financial services provider in a different jurisdiction.

(3) Therefore the Claimants would have been invested in the same or similar leveraged structured notes as at September and October 2008 as those they were in fact invested in and would have suffered the same losses. Therefore the alleged losses have not been caused by the alleged breaches of duty.

(4) The Claimants state, in their response to Bank Sarasin’s Revised Request for Further Information dated 31 May 2012, that “It was clear from the beginning that the Claimants were only interested in a relationship with Bank Sarasin, which held itself out as a successful Swiss private bank.” It is said to follow that the Claimants only wanted Sarasin-Alpen to introduce Bank Sarasin as the source of the structured financial products which they wished to purchase; and that nothing Sarasin-Alpen might have said or done would have changed the Claimants’ investment strategy.

(5) The Claimants had committed to a strategy of purchasing structured financial products with monies lent by ABK. Therefore, it is to be inferred that, even if differently advised, they would have purchased the Notes or other similar Notes. All that Sarasin-Alpen did was to arrange for deals in investments to occur by introducing Mr Al Khorafi to Bank Sarasin and/or provide generic advice. Those arrangements/advice did not cause any loss. What caused loss was the subsequent fate of the investments in the light of market conditions, the making of margin calls and the failure to pay them. None of this flows from any breach by Sarasin-Alpen.

311. It is further submitted that the Claimants’ failure to pay the margin calls on their account was in any event so unreasonable and irrational as to break the chain of causation. Reliance is placed on the decision, in the High Court of England and Wales, in Al Sulaiman v Credit Suisse and Plurimi [2013] EWHC 400 (Comm) at paragraphs [203[ to [207] and [210] to [211]. It is said that, notwithstanding the Claimants’ pleaded case that they were “both unable and unwilling” to pay the margin calls issued by Bank Sarasin, the Claimants were multi-millioKerryes who could easily have met the margin calls, either by depositing cash (if necessary by selling securities or other assets which they held elsewhere and which could be liquidated), or alternatively by transferring securities they already held (such as shares) to Bank Sarasin as collateral. It is pointed out that the email from Mr Kerry dated 29 September 2008 (attaching the margin calls from Bank Sarasin) made clear that the margin calls could be met by transferring securities.

312. It can be seen that Sarasin-Alpen’s contention that the loss or damage in respect of which compensation is claimed was not “caused as a result of” its breaches of COB Rules 3.2.2(1) and 6.2.1(1) are founded on two propositions: (i) that, even if those breaches had not occurred, the Claimants would have bought the same or similar Notes and (ii) that the cause of loss was not the purchase of the Notes, but the Claimants “unreasonable and irrational” failure to pay the margin calls. I reject those propositions.

313. First, I have held that the Claimants’ investment objectives were to obtain 100% capital protection – so that they could be sure of being in a position to pay off the borrowing by means of which the investments were funded – and to obtain an income stream out of which the interest payments on that borrowing could be serviced. For reasons which I have explained those twin objectives could not be met by the Notes, or by any comparable structured financial product which treated the coupon payments as made on account of the return of 100% of the capital invested. Unless the Claimants were ready and willing to change their investment objectives, the Notes were not suitable investments for borrowed money. There was no evidence to support the proposition that, if they had understood that, they would have invested in the Notes or in a comparable structured financial product.

314. Second, there was no evidence to support the proposition that Mr Al Khorafi (a fortiori, Mrs Al Hamad or Mrs Al Rifai) were in a position to meet the margin calls, when made, within the time set by Bank Sarasin. It is pertinent to keep in mind (i) that the margin calls were made against Mrs Al Hamad and Mrs Al Rifai (there was no margin call against Mr Al Khorafi) and (ii) that the Notes (including the REIT Notes held by Mr Al Khorafi) were closed out on 8 October 2008 on 24 hours’ notice (the time for payment of the margin calls specified in Bank Sarasin’s letter of 29 September 2008 having been truncated by the subsequent letter of 7 October 2008). There was no material to support the proposition that Mrs Al Hamad or Mrs Al Rifai could have found the monies needed to meet the margin calls made against them (US$5,077,977 and US$3,423,353 respectively) within the 24 hours that they were given to do so.

315. I am satisfied that the loss or damage in respect of which compensation is claimed was caused as a result of Sarasin-Alpen’s failure to comply with its obligations under COB Rules 3.2.2.(1) and 6.2.1(1). I accept the submission made on behalf of the Claimants that, but for Sarasin-Alpen’s breaches of those regulatory obligations, the Claimants would not have made the investments in the Notes that they did; and I am not persuaded that the causal link between the breaches of the regulatory obligations and the loss suffered by the Claimants on failing to meet the margin calls was broken by the Claimants’ own conduct. In reaching that conclusion, I have in mind that the possibility that the Claimants would be unable to meet margin calls was a factor which leads to the conclusion that the Notes were an unsuitable investment for them: it was a risk against which they needed to be protected.

(4) Was the liability to pay compensation in respect of loss or damage caused by Sarasin-Alpen’s failure to comply with its regulatory obligations excluded under the Law, the Rules or “other legislation administered by the DFSA”.

316. Article 94(2) of the Law of 2004 (which I have set out earlier in this judgment) enables a person to sue for a breach of the COB Rules; and to seek compensation in respect of loss or damage caused by the failure of an Authorised Firm to comply with its regulatory obligations unless liability to pay compensation is excluded under the Law, the Rules or “other legislation administered by the DFSA”. Sarasin-Alpen has advanced no argument to support a finding that, if it were otherwise appropriate to make an order for the payment of compensation under Article 94(2) of the Law, there is some provision of the Law, the Rules or other legislation administered which excludes such liability.

317. Nevertheless, it is submitted on behalf of Sarasin-Alpen that the COB Rules are concerned with substance not form. In particular, it is said that, under the law of the United Kingdom, breaches of the Financial Services and Markets Act 2000 and the Rule Books promulgated pursuant to it (that is to say, the COB and COBS rules; which contain the equivalent regulatory system in England and Wales) do not sound in damages if, despite a procedural breach, there was no substantive breach (for example, because the advice was ultimately suitable, or because the information recorded, albeit not collected with due care, was in fact correct). Reliance is placed upon the decision of Mr Justice Teare in Zeid v Credit Suisse [2011] EWHC 2422 (Comm); and, in particular, upon the observations of that judge at para [99] of his judgment (approved by the Court of Appeal at [2012] EWCA Civ 583, [21]):

“99. CSUK’s approach to obtaining and recording information about Mr Zeid therefore appears to have lacked the rigour and care which COB and COBS required. But, although detailed submissions were made about that approach and, in particular, as to the manner in which CSUK and its predecessor had classified Mr Zeid, those submissions did not, in my judgment, ultimately assist the Claimants’ case on suitability…Mr Zaki could and should have made more enquiries as to Mr Zeid’s net worth but no evidence was adduced to suggest that Mr Zeid could not bear the financial risks to which he was exposed by trading in CDIs. The important point, it seems to me, is whether the recommendations made by Mr Zaki were suitable for Mr Zeid. If they were not suitable then it adds nothing to enquire whether Mr Zaki’s approach to obtaining and recording information and classifying the Claimants lacked the required rigour and care. If they were suitable, then again it cannot matter whether his approach to obtaining and recording information and classification was adequate or not. Of course, if the recommendations were not suitable for Mr Zeid the extent to which Mr Zaki failed to exercise the required degree of rigour and care in obtaining information about Mr Zeid may, depending upon the reasons why the recommendations were unsuitable, be relevant when assessing whether Mr Zaki, and hence CSUK, took reasonable steps to ensure that the recommendations were suitable. In that sense regulatory failures in the information gathering exercise may evidence a breach of the duty to take reasonable steps to ensure that the recommendations were suitable but they do not, it seems to me, assist in showing that the recommendations were not suitable…”
It is submitted that the same approach applies to breaches of the regulatory provisions applicable in the DIFC; and that no claim for damages will lie if, despite a procedural breach, there was no substantive breach.

318. I have accepted, earlier in this judgment, that – if the Claimants were properly accepted as Clients of Sarasin-Alpen and the advice and recommendations were, in fact suitable having regard to their investment objectives – then it would not be right to make an order under Article 94(2) for the payment of compensation in respect of the losses which they suffered as a result of their investment in the Notes. But COB Rule 3.2.2(1,) as it seems to me, is intended to protect the inexperienced investor from his or her own lack of understanding of the risks associated with sophisticated structured financial products; and the suitability requirement in COB Rule 6.2.1(1) is intended to ensure that he or she is not sold products which are not suitable having regard to his or her investment objectives. For the reasons which I have given, I am satisfied that, in the present case, Sarasin-Alpen intended that the Claimants should be denied the protection which COB Rule 3.2.2(1) was intended to provide and was indifferent (or reckless) as to the suitability of the investments which it advised them to purchase.

319. Further, it is submitted on behalf of Sarasin-Alpen that, even if (contrary to its other submissions) an award of damages is in principle available in this case, the Court has a discretion as to whether to make any such award. Mr Brindle QC placed reliance on the word “may” in Article 94(2) of the Law of 2004. It is submitted that, in the circumstances of the present case, the Court should decline to exercise its discretion to make an award of damages. It is said that, if (contrary to Sarasin-Alpen’s contentions) there was a breach of a regulatory rule, the Court should make no order for the payment of damages to the Claimants (or any of them) under Article 94(2) because:

(1) any breach was so immaterial as to not warrant an award of damages; and/or

(2) if and to the extent that any breach is found in the manner in which Sarasin-Alpen categorised Mr Al Khorafi and/or Mrs Al Hamad as Clients and/or of the suitability and/or client agreement requirements (i.e. COB rules 3, 6 or 8) prior to the amendments to the COB Rules on 1 October 2007, it is relevant to the exercise of the Court’s discretion that such rules were amended on 1 October 2007.
In support of the second of those contentions, it is said that the DFSA began consulting on such rule changes on 3 July 2007 when it issued Consultation Paper No 48. To the extent that the Court finds a breach prior to 1 October 2007 which would not have been a breach if the conduct had occurred after 1 October 2007, it is submitted that in light of the DFSA’s regulatory approach (namely that the detailed analysis and verification requirements for establishing whether a person was a Client, the suitability requirements and the client agreement requirements were not necessary, practical or cost efficient where an Authorised Firm was only providing generic advice and/or a referral) an award of damages for any such breaches should not be awarded.

320. I do not accept those submissions. For the reasons which I have already given, I do not regard the breaches by Sarasin-Alpen of its regulatory obligations as of little or no materiality. It seems to me that to condone Sarasin-Alpen’s conduct in relation to COB Rules 3.2.2(1) and 6.2.1(1) – or to treat that conduct as no more than a minor infringement of the regulatory code – would bring the regulation of financial services through the DFSA into disrepute. Further, again for reasons already given, I do not accept that this is a case in which Sarasin-Alpen was providing non-specific or generic advice or recommendations. In my view, the regulatory obligations to which Sarasin-Alpen was subject were not altered (in relation to the obligations in breach) by the changes made with effect from 1 October 2007.

Conclusion

321. I am satisfied that it is appropriate, pursuant to the power conferred on the Court by Article 94(2) of the Law, to make orders against Sarasin-Alpen for the payment of compensation to the Claimants in the present case.

The contractual and breach of duty claims against Sarasin-Alpen

322. Under this head the Claimants claim damages suffered by reason of advice said to have been given by Sarasin-Alpen in respect of the investment structure that was devised for them by Sarasin-Alpen and Bank Sarasin.

323. As I have explained earlier in this judgment, the General Contravention Provision contained in Article 85(1) of the Regulatory Law provides that a person who does an act or thing that the person is prohibited from doing by or under the Law or the DFSA Rules, or does not do an act or thing that the person is required to do under the Law or the Rules, commits a contravention of the Law or the Rules. COB Rule 3.2.1(1) provides that an Authorised Firm must ensure that it does not conduct Investment Business with or for a Retail Customer: COB Rule 3.2.1(2) provides that an Authorised Firm must only conduct Investment Business with a person who is a Client. I have held, for the reasons that I have already explained, that none of Mr Al Khorafi, Mrs Al Hamad or Mrs Al Rifai were Clients within the DFSA Rules: they were Retail Customers.

324. On their face the AGBCs signed by Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai were contracts between those persons and Sarasin-Alpen (as an Authorised Firm) “to ensure compliance with the applicable legislation and rules of the DIFC” (as appears in the introductory paragraphs of those documents). Each was said to comprise “a client agreement for the purposes of the Conduct of Business Module of the DFSA Rulebook”. They contained the terms upon which Sarasin-Alpen undertook to conduct Investment Business for each of the Claimants (individually) as a Client. They did not – and could not lawfully – contain the terms upon which Sarasin-Alpen would conduct Investment Business for Mr Al Khorafi, Mrs Al Hamad or Mrs Al Rifai as a Retail Customer. To do so would be to infringe the General Contravention Provision.

325. It is pointed out on behalf of Sarasin-Alpen, correctly, that clause 1.1 of the AGBC contains an acknowledgement that “The Client has completed the Client Declarations, Undertakings & Authorization set out in Annex 1”. Given that Paragraph 1 of Annex 1 contains a representation and warranty that the prospective client meets the definition of “Client” as set out in the Conduct of Business Module of the DFSA Rulebook, it is (I think) submitted that the signed AGBC constitutes an estoppel which prevents the Claimant from asserting the contrary. In that context reliance is placed on decisions of the Court of Appeal of England and Wales in Springwell Navigation Corporation v JP Morgan Chase Bank [2010] EWCA Civ 221 at paras [143] and [178] and Titan Steel Wheels v Royal Bank of Scotland [2012] 1 CLC 191 at paras 87-91. In the former case it was said (at paragraph [143]) that:

“If A and B enter into a contract then, unless there is some principle of law or statute to the contrary, they are entitled to agree what they like. Unless Lowe v Lombank is authority to the contrary, there is no legal principle that states that parties cannot agree to assume that a certain state of affairs is the case at the time the contract is concluded or has been so in the past, even if that is not the case, so that the contract is made upon the basis that the present or past facts are as stated and agreed by the parties. It is, after all, common in marine insurance contracts for an assured to “warrant” that a certain state of affairs has existed in the past and is still existing at the time the insurance contract is concluded or will continue, eg. that the nationality of a ship was and is British; or that a ship was and is “in Class” with her Classification Society. The shipowner may know that those things are not the case; the insurer may have his suspicions that they are not the case. The parties agree that for the purposes of the insurance contract, the facts as “warranted” by the assured are as he has stated them to be. A “conclusive evidence” clause in a sale contract, viz. that a report on eg. the amount or condition of a commodity sold under a contract between A and B shall be “conclusive evidence” of the matters stated in the report is to the same effect. The parties are agreeing that the statements in the report shall be the case for the purposes of the contract of sale and the parties cannot go behind that agreement.”

If it is, indeed, submitted that the Claimants (or any of them) are estopped from asserting that they are not “Clients” by reason of the AGBCs which they signed, I reject that submission. In my view the Regulatory Law and the Rules do not permit parties to contract out of the protective provisions in the COB Rules. A party who is, on a proper analysis of the facts, a Retail Customer – because he or she does not, in fact, satisfy the conditions in sub-paragraphs (i) and (ii) of COB Rule 3.2.2(1)(a) – cannot agree to be treated as a Client. Given the requirement in sub-paragraph (iii) of that Rule, to hold otherwise would render the provisions in sub-paragraphs (i) and (ii) of that Rule – and the requirements in COB Rule 3.2.4 – otiose.

326. It follows, in my view, that it is a necessary consequence of my finding that each of Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai were Retail Customers – and not Clients – within the COB Rules that the AGBCs were of no contractual effect. As I have said they did not – and could not lawfully – contain the terms upon which Sarasin-Alpen would conduct Investment Business for Mr Al Khorafi, Mrs Al Hamad or Mrs Al Rifai as a Retail Customer.
327. If that is the correct view, then (i) the Claimants cannot rely on the AGBCs as providing a basis for contractual claims in respect of breach of duty – their remedy lies under Article 94(2) of the Regulatory Law – and (ii) Sarasin-Alpen cannot rely on the provisions in clause 2.6.5 of the AGBCs to exclude liability for breach of non-contractual claims.

Contractual claims

328. For the reasons that I have just explained, I address the contractual claims against Sarasin-Alpen on the basis that I have been wrong to hold that each of Mr Al Khorafi, Mrs Al Hamad and Mrs Al Rifai were Retail Customers and were not Clients. In my view, the contractual claims can only arise on that basis.
329. The investment services that Sarasin-Alpen had agreed to provide under the terms of the AGBCs included (at Clause 2.2.1):

“2.2.1 Advice and recommendation on Investments or arrangements involving investments in instruments or credit including, without limitation, shares, stocks, bonds, notes, derivative contracts or other similar property;”

330. The Claimants submit that Article 17 of the Implied Terms in Contracts and Unfair Terms Law (DIFC Law No 6 of 2005) required that, in relation to the services to be provided under the AGBCs, there was an implied term that Sarasin-Alpen would “carry out the service with reasonable skill and care”. They submit, also, that there was an implied term that Sarasin-Alpen would comply with its regulatory obligations: including, in this context, the obligations as to suitability under COB Rule 6.2.1(1) on suitability. Accordingly, they contend that Sarasin-Alpen’s failure to give suitable advice (in the circumstances set out in the previous section of this judgment) constituted a breach of contract as well as a breach of the regulatory duty imposed by legislation. In that context, reliance is placed on Articles 57 and 61 of the Contract Law (DIFC Law No 6 of 2004).

331. It is accepted on behalf of Sarasin-Alpen that, under Article 17 of the Implied Terms in Contracts and Unfair Terms Law, a term is to be implied in a contract for the supply of a service that the supplier will carry out the service with reasonable care and skill unless excluded by or inconsistent with the terms of the contract; and that any exclusion must be reasonable (Article 37). It is said that the Claimants have not defined the services to which they are referring. I am not persuaded that there is any substance in that point. In my view Article 17 of the Implied Terms in Contracts and Unfair Terms Law requires that the provision of advice and recommendation on investments or arrangements under clause 2.2.1 of the AGBCs be carried out with reasonable skill and care.

332. It is submitted on behalf of Sarasin-Alpen that no term should be implied as to compliance with regulatory obligations. It is said that, if and in so far as there has been a breach of regulatory requirements, there is a cause of action for breach of statutory duty under Article 94(2) of the Regulatory Law. There is no need for the implication of a contractual term: it cannot be said that the contract would be unworkable without such term (Redmayne Bentley Stockbrokers v Martin Charles Isaac and others [2010] EWHC 1504 (Comm) at para [94], and Article 57 of the Contract Law). Further, given that Article 94(2) of the Regulatory Law imposes liability for damages only where a breach of the DFSA Rules has been negligent, reckless or intentional, it would be inconsistent to introduce by implication a term which had the effect of imposing (as a matter of contract) liability without fault in the event of Sarasin-Alpen’s failure to comply with all of its regulatory obligations. Further, it is said to be clear from clause 2.6.6 of the AGBCs that no obligations were accepted by Sarasin-Alpen beyond the obligations set out in those documents.

333. In my view there is force in those submissions. I do not accept that it is to be implied, as a contractual term of the AGBCs that Sarasin-Alpen would comply with its regulatory obligations: including the suitability requirement under COB Rule 6.2.1(1). But, as I have said, I do accept that failure to exercise reasonable skill and care in the provision of advice and recommendation on investments or arrangements (including advice as to suitability) will constitute a breach of contract as well as a breach of the regulatory duty imposed by legislation.

334. It is said that the advice given by Sarasin-Alpen to the Claimants fell below the requisite standard in that: (i) the structure recommended was “far too risky and aggressive”; (ii) Sarasin-Alpen failed to give any or sufficient warnings to the Claimants as to the level of risks involved in the investments; (iii) Sarasin-Alpen failed to give any or sufficient warnings to the Claimants as to the level of risks involved in the leveraging; rather, it advised the Claimants to purchase leveraged investments; (iv) Sarasin-Alpen failed to advise of the risks of margin calls; (v) Sarasin-Alpen failed to advise the Claimants as to the consequences of the documents into which they were entering; and (vi) Sarasin-Alpen did not explain to the Claimants that the products offered to them would be exclusively provided by Bank Sarasin.

335. Sarasin-Alpen challenges the contention that, in providing the services which it did provide under the AGBCs, it fell below the standard of care required by the contract. It is said that, at all times Sarasin-Alpen acted with reasonable care and in compliance with its regulatory obligations.

336. Before turning to consider that issue, it is convenient to address two threshold defences to the contractual claims upon which Sarasin-Alpen relies:

(1) Sarasin-Alpen denies that it gave any advice to the Claimants; other than “generic advice about financial products and the availability of certain types of investments”; and

(2) Sarasin-Alpen relies on the terms of clause 2.6.5 of the AGBCs which, it is said, excludes any liability for negligent advice.

The role of Mr Taha

337. In advancing the first of those defences Sarasin-Alpen contends that Mr Taha was the Claimants’ Chief Financial Officer (“CFO”) and investment adviser and that, given Mr Taha’s role, it (Sarasin-Alpen) was never asked to advise the Claimants. Sarasin-Alpen asserts (i) that its instructions were that “Mr Taha would detail to Messrs Walia and Kerry what products he had in mind and all the details of the investments would be determined by Mr Taha who would identify and choose the structure of the financial products”; (ii) that “Mr Taha devised the product structure himself”; and (iii) that the products were “structured by the Financial Engineering Department of Bank Sarasin on the basis of criteria formulated by Mr Taha”.

338. In response to that point, the Claimants submit that the contention that Sarasin-Alpen gave no advice is unreal; and that Sarasin-Alpen’s position as to Mr Taha’s role is wrong and illogical. It is said that, even on its own case – and certainly from the documents – it is readily apparent that Sarasin-Alpen was providing extensive and specific advice and recommendations to the Claimants. Examples include the following:

(1) Sarasin-Alpen admits that it provided the Claimants “with a suite of investment products based on the Claimants’ preferences from which the Claimants together with their financial adviser could choose their preferred investments and investment strategy”.

(2) The act of collecting together various investments and presenting them to a client constitutes advice. Mr Kerry sent information to Mr Taha by email setting out the different investment structures available; for example, his email setting out the two possible methodologies for paying the coupon.

(3) Mr Walia gave advice on leveraging: for example that “it was not prudent to leverage by more than a multiple of 2”.
339. Further, it is said on behalf of the Claimants that Sarasin-Alpen’s contention that Mr Taha was the Claimants’ sole investment adviser – and that Sarasin-Alpen had no role as an adviser – is “fanciful and makes no sense at all”. The Claimants submit:

(1) That if, as Sarasin-Alpen and Bank Sarasin assert, Mr Taha and Mr Al Khorafi were financially sophisticated and designed the investments themselves, there was no reason why they would purchase financial instruments through Sarasin-Alpen (which received a fee of over US$3 million for its role in the transaction) rather than going direct to the market.

(2) That, if Mr Taha was sophisticated in financial matters, it world have been unnecessary for Sarasin-Alpen to provide, as it claims it did, “generic advice about financial products and the availability of certain types of investments”. Mr Taha would already have been aware of such matters.

(3) That the focus of Sarasin-Alpen’s “pitch” to Mr Al Khorafi was that it was achieving “stellar returns” for its clients: this was the “showcasing” that Sarasin-Alpen accepts that it did before Mr Taha and Mr Al Khorafi allegedly indicated their interest in real estate products. In that context, it would be illogical for Mr Al Khorafi to insist that Mr Taha would design the investments and ignore the products in relation to which Sarasin-Alpen was claiming to enjoy success in relation to its other clients.

340. In addition, it is said on behalf of the Claimants to be clear, on the facts, that Mr Taha had no prior investment experience. Mr Taha’s employment and educational history shows that he had never worked in an “investments” business; and that he had no qualifications to do so. His experience was in corporate lending: it was for that experience that he was hired by Mr Al Khorafi. And, it is said, it must have been clear to Sarasin-Alpen that Mr Taha had no investment experience, in that:

(1) Mr Kerry had repeated discussions with Mr Taha about sending him on a derivatives course;

(2) The Claimants (in particular, Mr Al Khorafi) were making regular withdrawals from their accounts (even after the alleged margin call in August 2007) which showed (on the Defendants’ version of events) that the Claimants had no understanding of collateral and margin arrangements;

(3) Mr Taha’s email of 11 July 2007, which purported to set out the anticipated returns on Mrs Al Hamad’s investment (depending on the manner that the coupon was paid) was wrong to the extent of some US$10 million (equivalent to about 20% of the original investment). Sarasin-Alpen must have appreciated that, if Mr Taha was financially sophisticated, he would not have made this mistake.

341. I am satisfied, on the evidence which I have set out earlier in this judgment, that there is no foundation in fact for the contention that Sarasin-Alpen gave no advice to the Claimants other than “generic advice about financial products and the availability of certain types of investments”. I am satisfied, also, that Sarasin-Alpen was not told by Mr Al Khorafi (either on his own behalf or on behalf of Mrs Al Hamad or Mrs Al Rifai) that its advice was neither sought nor required: or that the Claimants were content to rely on advice from Mr Taha as to the investments which they proposed to make. I reject the first of the threshold defences.
Clause 2.6.5 of the AGBCs

342. The clause is set out earlier in this judgment; but it is convenient to set it out again:

“2.6.5 The Client acknowledges and agrees that, to the extent permitted by law and the DFSA Rules, neither BSA nor any other member of the Sarasin Group shall be responsible for any loss or damage suffered by the Client as a result of: (a) any advice or recommendation given under these Additional General Business Conditions (including, without limitation, any adverse tax consequences); or (b) the receipt and passing on of any instructions or orders in respect of any investment (including without limitation losses arising from delays, losses, errors, mutilation, duplication or similar occurrences in the transmission or transportation of instructions or orders).”
It is submitted on behalf of Sarasin-Alpen (in paragraph 58 of its written closing submissions) that this clause provides “a complete answer to all of the non-regulatory claims”.

343. In response to that submission, it is said on behalf of the Claimants that Clause 2.6.5 of the AGBCs does not assist Sarasin-Alpen. In particular, it is said (at paragraph 9 of the Claimants’ written submissions): (i) that, on one construction, the clause excludes nothing at all, since it does not say that it overrides legal obligations which would otherwise exist; but that, on an alternative construction, it is very wide indeed and covers all types of possible claims; (ii) that, on the wider construction, the clause makes no reference to negligence; and so on the basis of observations in the High Court of England and Wales in Gillespie Brothers & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400, 419-420, it must be construed in a manner which does not cover negligence; and (iii) that, if (on a true construction) the clause did cover negligence, then it would go to the heart of the duties owed under this advisory contract and would be wholly unreasonable and so contrary to Articles 37 and 38 of the Implied Terms in Contracts and Unfair Terms Law (DIFC Law No 6 of 2005).

344. Sarasin-Alpen contends that there is no basis for a restrictive, or contra proferentem, construction. The clause, it is said, is plainly intended to cover loss or damage suffered by reason of advice or recommendations given in breach of contract; which must include advice or recommendations given or made without due care, or negligently. Further, it is said that the clause is eminently reasonable in the light of the other clauses which form the basis of the contract between the parties.

345. Clause 2.6.5 of the AGBCs is to be construed in the context that it is a term of a client agreement which is intended to serve the purposes of the COB Module of the DFSA Rulebook. As I have explained, earlier in this judgment, COB Rule 6.2.1(1)(a) provides that an Authorised Firm may only advise a Client who is an individual on Financial Products or Credit, recommend a Transaction to a Client who is an individual or execute a Transaction for a Client on a discretionary basis where that advice, recommendation or transaction is suitable for that Client having regard to that Client’s investment objectives and risk tolerance and any other requirements or relevant facts about that Client of which the Authorised Firm is, or ought reasonably to be aware. The obligation to consider suitability may be limited by giving a written notice stating that the Authorised Firm will not consider suitability either at all or to the extent specified in the notice: a limitation to which the Client must give express consent. In the present case the notice was given in the AGBCs themselves. Clause 2.6.1 provides that Sarasin-Alpen is not required to consider the suitability of any particular investment for the Client when giving advice or making recommendations unless the Client has supplied specific information on his or her situation or requirements for that investment and requested specifically that those be taken into account. The effect is that Clause 2.6.1, read with COB Rule 6.2.2, enabled Sarasin-Alpen to limit the duty to consider suitability in the context of giving advice or making recommendations pursuant to its contractual obligation under Clause 2.2.1 of the AGBCs. It would be bizarre to construe Clause 6.2.5 of the AGBCs as relieving Sarasin-Alpen of liability, generally, for breach of that contractual obligation (the performance of which must, in my view, require consideration of suitability) in circumstances where that has not been done by a notice given under Clause 6.2.1.

346. Accordingly, I hold that Clause 6.2.5 of the AGBCs provides no assistance to Sarasin-Alpen in a case where the breach of contractual duty alleged is a failure to consider suitability (whether or not the breach is negligent). Either the duty to consider suitability has been limited by the notice given in Clause 6.2.1 (in which case, Clause 6.2.5 is not needed in that context) or it has not, been: in which case, an attempt to limit the duty by Clause 6.2.5 is inconsistent with the provisions in COB Rule 6.2.2. and so excluded from the scope of Clause 6.2.5 by the words (in that clause) “(to the extent permitted by law and the DFSA Rules”.

347. For those reasons, I reject the second of the threshold defences.
Has the breach of contractual duty been established

348. I turn, therefore, to the question whether a breach of contractual duty has been established. In support of their contentions under this head (as under the previous head), the parties relied on the evidence of expert witnesses. The Claimants relied on the report of Dr Thomas Walford: Sarasin-Alpen relied on the report of Dr Desmond Fitzgerald. It is important to keep in mind that the proper role of the expert witnesses, under this head, was to assist the Court in identifying the risks to which the Claimants were exposed in purchasing the investments which they did – and, in particular, the risks inherent in purchasing those investments with funds borrowed from ABK and Bank Sarasin (in the latter case, by way of leveraging) – and the extent to which an Authorised Firm in the position of Sarasin-Alpen, exercising reasonable skill and care, could have been expected to draw those risks to the attention of the Claimants and advise upon them. It is not the proper role of an expert to decide the question “were the investments suitable: that is for the Court.
349. It was common ground between Dr Walford and Dr Fitzgerald that :

(1) The payment of coupons on the products did not depend on the positive performance of the underlying indices.

(2) The final Termsheets accurately described the characteristics of the investment products purchased by the Claimants and that the warnings on the Termsheets and Factsheets were in a form normally used at the time (depending on the jurisdiction).
In other respects there was little on which they agreed. In particular, they differed in principle as to the proper approach to suitability; and they differed as to the nature of the risk to which a retail client should be exposed.

350. Dr Walford approached the question of suitability by reference to the particular circumstances of the investors, viewed objectively. Dr Fitzgerald approached the question on a more subjective basis: in his view suitability was a matter for the investor to determine. As he put it:
“It is obviously up to the individual investor to decide whether an investment financed by borrowing with a maximum downside limited to the interest cost, a breakeven value of [x], and an unlimited upside thereafter, is a suitable investment for him or her”.
The Claimants criticise Dr Fitzgerald’s approach as “absurd and heretical”. It is said that that approach “turns on its head all notions of suitability that are commonly understood in the regulated sphere of sales of investment products to consumers under the various conduct of business rules”. If Dr Fitzgerald’s approach were correct, it is said, the suitability requirement would add nothing “since it would be a matter for the investor (not the financial institution) whether or not the investment was suitable for him”. The Claimants submit that Dr Fitzgerald’s analysis is plainly wrong: in that it ignores the language of Rule 6.2.1 (which, it is said, Dr Fitzgerald does not mention in his report) and it ignores standard industry practice. In my view there is much force in the Claimants’ criticism of Dr Fitzgerald’s approach.

351. In addition to the difference in principle in the approach of the experts, they disagreed as to the nature of the risk to which a private client should be exposed. It was acknowledged on behalf of the Claimants that Dr Fitzgerald “has a completely different perspective” to that of Dr Walford. It is suggested, on their behalf, that the views as to exposure to risk which he expressed can only be explained by the fact that his experience was as a trader. It was pointed out that he accepted in the course of his evidence (transcript, 28 May 2013, page 145, lines 7 to 12 and 18 to 22) that he had never, in his professional career, had occasion to give advice to a retail client, or to give advice in the context of a suitability requirement. Given that lack of relevant experience, it was, perhaps, unsurprising that I obtained little assistance from Dr Fitzgerald’s evidence in relation to the extent to which an Authorised Firm in the position of Sarasin-Alpen, exercising reasonable skill and care, could have been expected to draw those risks to the attention of the Claimants and advise upon them.

352. The risks which Dr Walford identified were these:

(1) A risk that the regular coupon on the investments would not be sufficient to meet the interest payments on loans which ABK had made to Mr Al Khorafi and Mrs Al Hamad.

(2) A risk that the investments might not produce sufficient return to meet the financing costs associated with the leveraging provided by Bank Sarasin and the interest payable on the ABK loans. In particular, it is said that there was a risk that, if interest payments on leveraging were missed, then this could result in an early liquidation of the totality of the investments in which case there would be no capital guarantee and the Claimants would face a potential capital loss on their investments.

(3) A risk that a fall in value of the leveraged investments would trigger a margin call requiring the immediate payment of substantial collateral. A failure to pay margin call would result in early liquidation of the totality of the investments, exposing the Claimants to a capital shortfall with regard to their ability to repay the ABK lending and/or the Sarasin lending.

(4) A risk that, in the circumstances that the coupons were guaranteed and the capital value was only partially guaranteed, the structured products would not meet their target.

(5) A risk that, absent very significant capital growth over the course of the investments, there would be insufficient funds at the end of the period to pay out the Claimants in full; and so a risk of capital loss.

(6) A risk that the treatment by Bank Sarasin of the accounts as being within one single family relationship would lead to losses on one account spreading to other accounts.

353. Dr Walford’s view was that those risks were far from obvious and needed to be identified and explained by an adviser acting with reasonable skill and care. He explained that it would have been necessary to achieve very advantageous returns from the market in order to meet the financing costs alone. He concluded that the structure devised was “doomed to failure” and was likely to lead to losses even in normal market conditions: in that there was a serious risk that the structure would require further substantial margin payments before maturity. In his view, margin was likely to be called from a very early stage.

354. It is said on behalf of the Claimants that Dr Walford is correct to conclude that the Claimants were not given sufficient warnings as to the level of risk involved in the investments, a sufficient explanation of the level of risk involved in leveraging their position in order to make the investments and the consequences of doing so in event of a fall in the investments, a sufficient explanation of the risk of margin calls being made and the consequences of such calls, or an adequate explanation of the nature and effect of the documents which they signed in relation to the investments.

355. I accept those submissions. I am satisfied that provision of advice and recommendation on investments or arrangements under clause 2.2.1 of the AGBCs was not carried out with reasonable skill and care. I find that the Claimants have established a breach of contractual duty under that clause.
Clause 2.1 of the AGBCs

356. In addition to their claims in relation to the advice received from Sarasin-Alpen, the Claimants also claim against Sarasin-Alpen for breach of Clause 2.1 of the AGBCs. That clause provides that :

“2.1 In the absence of a reciprocal agreement to the contrary: [Sarasin-Alpen] will not accept instructions and orders from the Client to undertake investments on behalf of Client as an intermediary between the Client and other members of the Sarasin Group and will not arrange for execution of such instructions or orders by passing such instructions and orders to other members of the Sarasin Group for execution”.
It is said that, notwithstanding that prohibition, Sarasin-Alpen did, in fact, take general instructions from the Claimants; and then communicated specific trading instructions to Bank Sarasin. As a result, it is said, the Claimants are left in the position that their dealings were with Bank Sarasin, which claims (i) that it was not in an advisory relationship with the Claimants, (ii) that any relationship which it did have with the Claimants is governed by Swiss law and (iii) that it was entitled to deal with the Claimants through Sarasin-Alpen although it was not authorised to do so under the Law. In the circumstances that there was no reciprocal agreement, if Sarasin-Alpen had complied with its contracts with the Claimants, no deals would have been executed with Bank Sarasin.

357. On behalf of Sarasin-Alpen it is said that at no time did it accept instructions and orders from the Claimants to act as intermediary; although it is accepted that it did occasionally act as a post box between the Claimants and Bank Sarasin, it is said that that was not a breach of contract. It is said that it is accepted by the Claimants that Sarasin-Alpen was not “Dealing in Investments as Principal or as Agent”. Further, even if it had been, this could have caused no loss to the Claimant; as, if Sarasin-Alpen did act as intermediary when it should have declined, it is to be inferred that (if Sarasin-Alpen had declined to act as intermediary) the Claimants would simply have made their orders directly with Bank Sarasin (as in fact they did).

358. I am satisfied that Sarasin-Alpen did, in fact, take general instructions from the Claimants; and then communicated specific trading instructions to Bank Sarasin. For Sarasin-Alpen to contend that “it did occasionally act as a post box between the Claimants and Bank Sarasin” is to ignore, or misrepresent, the evidence. It is plain that Mr Walia and Mr Kerry, with other employees of Sarasin-Alpen, were the principal – if not the only – channel of communication between the Claimants and Bank Sarasin. But I am not satisfied that Sarasin-Alpen was “acting as an intermediary” between the Claimants and Bank Sarasin. For reasons which I shall explain, later in this judgment, I take the view that, on a true analysis, Bank Sarasin was treating employees of Sarasin-Alpen (in particular, Mr Kerry) as its own relationship manager for the purpose of conducting its business with the Claimants.

359. It follows that I reject the claim that there was a breach by Sarasin-Alpen of its obligations under Clause 2.1 of the AGBCs
Negligence claims

360. The Claimants allege, in the alternative, that Sarasin-Alpen owed them a duty of care in tort pursuant to Articles 18 and/or 20 of the Law of Obligations (DIFC Law No 5 of 2005) which it breached. Alternatively, they allege that Mr Walia and/or Mr Kerry owed them such a duty and that Sarasin-Alpen as their employer is vicariously liable for their conduct pursuant to Article 15(1) of the Law of Obligations.
The law applicable to non-contractual claims

361. It is submitted on behalf of Sarasin-Alpen that the non-contractual claims fall to be determined in accordance with Kuwaiti law. It is common ground between the parties that pursuant to Article 8(2)(d) of the Law on the Application of Civil and Commercial Laws (DIFC Law No 3 of 2004), the applicable law to the non-contractual claims is the law of the jurisdiction most closely related to the facts of and the persons concerned in this matter. It is submitted that Kuwait is the jurisdiction most closely related to the facts of and the persons concerned in this matter. In particular, it is said: (i) that the Claimants’ domicile and nationality is Kuwaiti and laws relating to their capacity and authority are governed by Kuwaiti law, (ii) that the initial meeting was held in Kuwait and the alleged advice was received in Kuwait, (iii) that ABK, whose loans and alleged requirements are said to be relevant to the Claimants’ investment requirements, are in Kuwait, (iv) that the Claimants made the investment decisions in issue, signed all contractual documentation and undertook the ABK loan in Kuwait, (v) the Claimants have never been in the DIFC. Further, it is said that the doctrine of renvoi is specifically excluded by Article 7(2) of the Law Relating to the Application of DIFC Laws (Amended and Restated) No 10 of 2005. But, in that context, it should be noted that under Kuwaiti private international law as set out in Article 61/1 and 67 of Law Number 5 for the year 1961 on Regulation of Legal Relationships with a foreign element, Kuwaiti law would govern the non-contractual claims as the law of the state on whose territory the alleged acts took place (see paragraphs 27-30 of the expert report on Kuwaiti law of Abdul Hameed Al-Sarraf).

362. In so far as the Claimants rely on the advice given or recommendations made to them by Sarasin-Alpen as the basis for a claim in negligence, it seems to me that Sarasin-Alpen’s contention that the Law of Kuwait is the applicable law in relation to that claim is correct. The advice was given, and the recommendations were made, to the Claimants in Kuwait. In relation to that claim Kuwait is the jurisdiction most closely related to the facts of and the persons concerned.

The provisions of the applicable law

363. Sarasin-Alpen contends that, under the law of Kuwait it is not open to a party to bring concurrent claims for breach of contract and negligence. It relies for that proposition on the expert report on Kuwaiti law of Abdul Hameed Al-Sarraf (at paragraph 42). That evidence is not contradicted; and I accept it. In any event, it is said that, in order to bring a negligence claim under the Law of Kuwait, a claimant must establish a duty of care; and, further, that a contracting party cannot bring a claim in negligence for matters or acts relating to the contract unless there has been fraud or gross negligence by the defendant (paragraphs 52 to 54 and 67 of the expert report on Kuwaiti law of Abdul Hameed Al-Sarraf). Fraud or gross negligence on the part of Sarasin-Alpen, in giving advice or making recommendations (as distinct from making false representations) have not been alleged in this case.

364. If I am wrong in my view as to the applicable law in relation to the non-contractual claims, the Claimants are entitled to rely on the DIFC Law of Obligations. The relevant provisions of that law are in these terms (so far as relevant):

“15. Vicarious liability
(1) An employer is jointly liable with his employee in respect of liability of the employee under this Law arising in the course of his service.

18. Duty of care
(1) Subject to Articles 18(2) and (3), a defendant owes a duty of care to a claimant where:
(a) it is reasonably foreseeable that the defendant’s acts or omissions could cause loss to the claimant;
(b) the relationship between the defendant and the claimant is sufficiently proximate for a duty of care to exist; and
(c) it is fair, just and reasonable in the circumstances that the defendant should owe the claimant a duty of care.
20. Economic loss
(1) Where a claimant has suffered only pure economic loss as a result of the defendant’s conduct, the defendant only owes a duty of care to the claimant if:
(a) the requirements of Article 17 are met;
(b) the defendant assumes a responsibility to the claimant;
(c) the claimant relies on the defendant; and
(d) it is reasonable for the claimant to rely on the defendant.
(2) For the purposes of this Article 20, where a person makes a statement, he assumes a responsibility to persons to whom the statement is made or becomes available (such persons being “recipients”) if:
(a) he knows or ought to know that the statement will be communicated to the recipient, either specifically or as a member of an ascertainable class and that it is likely to be acted on by the recipient for the purpose for which the statement was made; and
(b) he intends, or the recipient reasonably believes that he intended, for the recipient so to act.”

365. Sarasin-Alpen denies that any duty of care was owed under the provisions of Article 18 of the Law of Obligations. It is said to be plain from the terms of the contract and other documents that Sarasin-Alpen did not owe any duty to advise the Claimants on the suitability of the products (in the absence of a specific request for such advice). The imposition of a more extensive duty of care (whether on Sarasin-Alpen or on Mr Walia and/or Mr Kerry) would contradict the terms of the contract between the parties; and, accordingly, there is a contractual estoppel preventing the Claimants from pursuing any contention that any such duty was owed. Reliance is placed, by analogy, on the decisions in IFE Fund SA v Goldman Sachs [2007] EWCA Civ 811, [28]; Springwell v JP Morgan [2010] EWCA Civ 1221; Bank Leumi v Wachner [2011] 1 CLC 454; Titan Steel Wheels v Royal Bank of Scotland [2012] CLC 191). Further and in any event, Mr Walia and/or Mr Kerry at all times acted on behalf of Sarasin-Alpen and did not assume any personal duty of care (see Williams v Natural Life Health Foods [1998] 1 W.L.R. 830). Therefore, the requirements of Articles 18 and/or 20 are not met. In particular, it is said:
(1) It is not fair, just and reasonable in the circumstances that the Sarasin-Alpen or Mr Walia and/or Mr Kerry should owe the Claimants a duty of care;
(2) None of the Sarasin-Alpen Mr Walia and/or Mr Kerry ever assumed a responsibility to the Claimants in tort;
(3) It was not reasonable for the Claimants to rely on Sarasin-Alpen, Mr Walia and/or Mr Kerry; and/or
(4) None of Sarasin-Alpen, Mr Walia and/or Mr Kerry intended the Claimants to rely on them.
Further and in any event, Sarasin-Alpen at all times acted with reasonable care within the meaning of Article 21.

366. I accept the submission that the imposition of a non-contractual duty of care under Article 18 of the DIFC Law of Obligations (if, contrary to my view, that were the applicable law) would be inconsistent with the terms of the contract between the parties. In my view the claim based on negligence adds nothing to the regulatory or contractual claims in this case. I am satisfied that the negligence claim should be dismissed.
Conclusion
367. I hold that the applicable law in relation to the non-contractual claims against Sarasin-Alpen is the Law of Kuwait. I hold, further, that – for the reasons which I have given – the non-contractual claims are not made out under that law. If I am wrong in my view as to the applicable law, then I am not persuaded that the Claimants can establish the non-contractual claims under DIFC Law.

Regulatory claims against Bank Sarasin
368. It is common ground between the parties that Bank Sarasin was not authorised by the DFSA at the time that it dealt with the Claimants (and has never been authorised). In the circumstances, Bank Sarasin was prohibited by the Financial Services Prohibition in Article 41 of the Regulatory Law from carrying on “a Financial Service in or from the DIFC”.

369. As I have explained, Article 41(2) of the Regulatory Law provides that the DFSA shall make Rules prescribing the activities which constitute a Financial Service. Those Rules are found in the General Module (“GEN”) of the DFSA Rulebook. They include: Dealing in Investments as Principal (GEN Rule 2.2.2(d)); Arranging Credit or Deals in investments (GEN Rule 2.2.2.(f)): Advising on Financial Products or Credit (GEN Rule 2.2.2(h));.and Arranging Custody (GEN Rule 2.2.2(k)).

370. Where a person makes an agreement in the course of carrying on a Financial Service in breach of the Financial Services Prohibition, that person is not entitled to enforce the agreement against the other party or parties (each a “relevant party”): Article 65(1) of the Regulatory Law. Further, a relevant party to such an agreement is entitled to apply to the Court under Article 65(2) to recover, inter alia, “any money paid or property transferred to him under the agreement” and “compensation reflecting any loss sustained by the relevant party as a direct result of such payment or transfer”. The prohibition and the right to apply for compensation in the event of breach of the prohibition), under the Regulatory Law are similar to the equivalent provisions in section 19 and sections 26 and 27 of the Financial Services and Markets Act 2000 on the United Kingdom legislation.

371. The act of entering the agreement itself does not need to be a Financial Service in order for Article 65 to apply. It is sufficient that the agreement was entered in the course of carrying on a Financial Service. In this respect, also, the position under the Regulatory Law is similar to that under the law in the United Kingdom. Further, in common with the law of the United Kingdom, there is no requirement, in order for Article 65 to be invoked, that the Financial Service is carried on exclusively within the jurisdiction; performance of any part of a Financial Service “in the DIFC” or “from the DIFC” is caught. In the circumstances, a person carrying on a Financial Service through a DIFC office (whether a branch or a subsidiary or otherwise) or personnel in the DIFC is caught by the regulatory regime. This accords with common sense since it means that any person dealing with a person in the DIFC or operating from the DIFC who is providing a financial service, is protected by the regulatory regime.

372. In the present case, the Claimants allege that, in its dealings with the Claimants, Bank Sarasin was carrying on “a Financial Service”; and that the agreements under which the Claimants acquired the investments (and the associated leveraging) were entered into in the course of the “Financial Service” so carried on by Bank Sarasin and in breach of the Financial Services Prohibition. In particular, it is said that Bank Sarasin carried out the following activities in relation to the Claimants, which both individually and collectively involved carrying on a “Financial Service”:

(1) Bank Sarasin opened accounts for the Claimants. These were opened with the express purpose of the Claimants purchasing investments structured by Bank Sarasin.
(2) Bank Sarasin arranged structured investments for the Claimants which, purportedly, were based on the requirements provided by the Claimants.
(3) Bank Sarasin marketed investments and leveraging and credit facilities to the Claimants.
(4) Bank Sarasin took investment instructions from the Claimants for the purchase of the investments.
(5) Bank Sarasin arranged for the purchased investments to be held in custody for the Claimants.
(6) Bank Sarasin provided credit facilities to the Claimants in order to enable the Claimants to acquire further investments.
(7) Bank Sarasin set up security arrangements under which the Claimants’ investments held in custody were used as security for the credit facilities.
The Claimants contend that these activities (and other more detailed steps taken by Bank Sarasin which are listed below) fall within the following regulated Financial Service activities: (i) Dealing in Investments as Principal (sub-paragraphs (1) to (4) above); (ii) Arranging Credit or Deals in Investments (sub-paragraphs (1) to (7) above); (iii) Advising on Financial Products or Credit (sub-paragraphs (2) to (4) and (6) above); and (iv) Arranging Custody (sub-paragraphs (5) and (7) above).

373. Further, it is said that those activities were carried on, at least in part, in or from the DIFC. That, it is said, was the conclusion reached by the Court of Appeal when it concluded that, as a matter of principle, it had jurisdiction over the contractual dispute between the Claimants and Bank Sarasin. The Court said this:
“Each of the component contracts was a part of the overall investment transaction and each such component was at least partly, if not wholly, ‘concluded’ in the DIFC”.

It is said that that conclusion is binding on Bank Sarasin; and that the point is res judicata in this Court. It is said, also, that that conclusion accords with the facts as they have emerged in this trial: all of the pre-contractual contacts (and all but one of the post-contractual contacts) between the Claimants and Bank Sarasin was through Mr Walia, Mr Kerry, Ms Naz, Mr Malpani and other persons who were based in the DIFC and operated out of Sarasin-Alpen’s office in the DIFC. It is said to be clear from the evidence that those individuals saw it as their function to sell Bank Sarasin’s products out of (in the sense of “from”) the DIFC; and that, in relation to the Claimants, that is what they did. Bank Sarasin had no direct contact with the Claimants save through individuals based in the DIFC. Further, there is no suggestion from the Defendants that Sarasin-Alpen was acting on its own account as principal in relation to the Claimants; and, in any event, Sarasin-Alpen’s own licence would not have permitted it to do so.

374. The Claimants allege that, by entering into the transactions with the Claimants in connection with the purchase and funding of the Notes, Bank Sarasin was in breach of the Financial Services Prohibition in carrying out Financial Service activities in and from the DIFC. As I have said the activities said to have been carried on in or from the DIFC were: Dealing in Investments as Principal; Arranging Credit or Deals in Investments; Advising on Financial Products and Credit; and Arranging Custody. It is said and that Bank Sarasin were thereby carrying on Financial Service activities by way of business within the meaning of GEN Rule 2.2.

375. In those circumstances the Claimants seek compensation pursuant to Article 65(2) of the Regulatory Law.
Dealing in Investments as Principal

274. GEN Rule 2.7 provides that, for the purposes of GEN Rule 2.2.2, “Dealing in Investments as Principal” means buying, selling, subscribing for or underwriting any Investment as principal”. The Claimants contend that the Investments were sold to them by Bank Sarasin. Bank Sarasin denies that it sold investments to the Claimants. It points out that each of the structured financial products purchased by the Claimants had a third party issuer (which was usually an offshore vehicle which was part of the Sarasin group). It is said on behalf of the Claimants that that is no answer to the question whether Bank Sarasin dealt in the investments within the meaning of GEN Rule 2.7.
275. It is said that the following facts point to the conclusion that the Claimants purchased investments from Bank Sarasin as principal and not as agent:

(1) It was accepted by Mr Walia that the Claimants purchased the Investments from Bank Sarasin. He stated in his witness statement (at paragraph 130) that “The documents signed by each of Mr Al Khorafi and Mrs Al Hamad authorized the purchase of the RAK 30M REIT and the AAH 50M REIT products from Sarasin Switzerland”. He recognised that the fact that the underlying investments had been issued by a (related) third party was irrelevant: it was Bank Sarasin that was selling the REIT Notes.

(2) The instructions that the Claimants gave (in the Confirmations of Investment) for the purchase of the Notes were addressed to Bank Sarasin (albeit on Sarasin-Alpen’s letterhead and through Sarasin-Alpen’s office in the DIFC); they were not addressed to a third party issuer. Indeed, there is no suggestion that the Claimants knew the identity of the issuer at the point when the investment instructions were given; or that the issuers had any contact with the Claimants. In some cases, the issuers were not identified until many months after the deal had been done.

(3) Bank Sarasin has produced no evidence to suggest that it was acting as agent for the third party issuers or that it was authorised by those issuers to do so or that the issuers knew the identity of the Claimants (as would be expected if, as Bank Sarasin now seeks to contend, the sale and purchase contracts were not between the Claimants and Bank Sarasin).

(4) The fact that Bank Sarasin was taking a “turn” on the deals (represented by the difference between the price that it paid to the issuer and the price at which it booked the purchase to the Claimants) is another indication that it was acting as principal and not as agent. It is said that the evidence clearly shows that Bank Sarasin was acquiring the structured products at a discount to nominal value (around 98%, at least in relation to the first tranche of investments) and selling these to the Claimants at nominal value. Bank Sarasin was both buying and selling the Notes. That, it is said, is the hallmark of a principal to principal transaction. No significance is to be attached to the statement on the contract note that Bank Sarasin was “purchasing on your behalf”: Bank Sarasin did not, in fact, purchase the Notes at the price stated on the contract note: it purchased the Notes at a price equal to 98% of the price stated on the contract note. Bank Sarasin treated itself as purchasing the Notes as principal and not as agent: it made no disclosure to the Claimants of any commission taken as agent on the purchase.

376. Further, it is said, even if Bank Sarasin were acting as agent for the issuers in taking instructions from the Claimants, it would, nevertheless be carrying on an activity – “Dealing in Investments as Agent” – which constituted a Financial Service for the purposes of the Financial Service Prohibition (GEN Rules 2.2.2(e) and 2.8): so the point takes it nowhere. In the circumstances it is said that, on any view, Bank Sarasin was Dealing in Investments within the meaning of the GEN Rules.

377. In response to the allegation that it was Dealing in Investments as Principal within the meaning of GEN Rule 2.7, Bank Sarasin submits that “This could only mean that Bank Sarasin was dealing in investments through the agency of Sarasin-Alpen”. It is pointed out, correctly, that the Claimants have expressly disclaimed any allegation that the Sarasin-Alpen was Dealing in Investments as Agent within the meaning of GEN Rule 2.8.1. In those circumstances, it is said that it is not open to the Claimants to make the allegation that they do under this head.

378. In my view there is no substance in that point. Properly understood, the Claimants’ allegation, under this head, is that Bank Sarasin, itself, was Dealing in Investments as Principal in and from the DIFC; not that it was doing so through the agency of Sarasin-Alpen. I address the question whether, on the facts, Bank Sarasin was, itself, carrying on the regulated activity in and from the DIFC in a later part of this section. Subject to that question, I am satisfied that Bank Sarasin was Dealing in Investments as Principal.
Arranging Credit or Deals in Investments

379. GEN Rule 2.9 defines “Arranging Credit or Deals in Investments” to mean (a) making arrangements with a view to another Person whether as principal or agent buying, selling subscribing for or underwriting an investment; or (b) making arrangements for another Person, whether as principal or agent, to borrow money by way of a credit facility”. “Arrangements” include “arrangements which do not bring about the facility” and “making invitations or, engaging in any other conduct with a view to influencing another Person to enter into an investment transaction or credit facility”. “Invitations” mean “any communications that directly or indirectly invite a Person to enter into [an investment transaction or credit facility]”; and “other conduct” means “any conduct, though not amounting to an invitation, that can be viewed as a step in the chain that directly or indirectly leads a Person to enter in to [an investment transaction or credit facility]”. Communications which contain “generic advice” are within this definition. Further, whilst promotional material that does not contain any information about any particular financial product (for example, flyers containing general information about any financial service provider) is not regarded as generic advice, the distribution of such material can still amount to “arranging credit or deals in investments”.

380. It is said on behalf of the Claimants that Bank Sarasin’s activities included both arranging credit and arranging deals in investments. In particular:

(1) Bank Sarasin circulated various marketing material, including the Termsheets (and the Factsheets prepared by Mr Kerry) which invited the Claimants to enter into investments with Bank Sarasin.

(2) Bank Sarasin sent out the account opening forms (through Sarasin-Alpen). It was always the intention from the outset that, if the Claimants opened accounts with Bank Sarasin, it would be for the purpose of making investments.

(3) Bank Sarasin’s proposals included leveraging and these were, properly analysed, an invitation to enter into a credit facility with Bank Sarasin; an invitation which the Claimants in due course took up.
Each of those steps, it is said, fell within the scope of “invitations” or “other conduct”.

381. It is accepted on behalf of Bank Sarasin that it did carry out the activities alleged to constitute Arranging Credit or Deals in Investments within the meaning of GEN Rule 2.9; but it is said that it did so from Switzerland and not “in and from” the DIFC. That, also, is a question which I address in a later part of this section.
Advising on Financial Products and Credit

382. As I have explained, earlier in this judgment, GEN Rule 2.11.1(1) defines “Advising on Financial Products and Credit, for the purposes of GEN Rule 2.2.2, to mean “giving advice which: (a) is given to a Person in his capacity as an investor or potential investor, or in his capacity as agent for an investor or a potential investor on the merits of his buying, selling, holding, subscribing for or underwriting a particular financial product (whether as principal or agent); or (b) is given to a Person in his capacity as a borrower or potential borrower or as agent for a borrower or potential borrower on the merits of his entering into a particular Credit Facility; or (c) constitutes generic advice”. “Advice” for the purposes of (a) and (b) in that definition includes “a statement, opinion or report: (a) where the intention is to influence a Person, in making a decision, to select a particular financial product or an interest in a particular financial product or to enter into a particular Credit Facility; or (b) which could reasonably be regarded as being intended to have such an influence”. “Generic advice” means any communication, that: “(a) contains information about a particular financial product or Credit Facility; and (b) could reasonably be regarded as being intended to influence a Person when making a decision relating to any financial product or Credit Facility to which the communication relates, although the communication does not contain any advice on the merits of that Particular person entering into a transaction to buy, sell, hold, subscribe for or underwrite those financial products or enter into a particular Credit Facility, whether as principal or agent”.

383. Bank Sarasin produced a number of marketing presentations for the Claimants. These were distributed to the Claimants through Mr Kerry, Mr Walia and others at Sarasin-Alpen in the DIFC. Further, Bank Sarasin structured investments for the Claimants (which constituted giving advice) based on instructions taken in the DIFC.

384. It is said on behalf of Bank Sarasin that it gave no advice in or from the DIFC. I address that question in a later part of this section. Subject to that question, I am satisfied that Bank Sarasin was Advising on Financial Products and Credit within the meaning of GEN Rule 2.11.
Arranging Custody

385. GEN Rule 2.14, read with GEN Rule 2.13.1, defines “Arranging Custody” to mean “arranging for one or more Persons to safeguard Investments belonging to another Person and the administration of those Investments”. It is said by the Claimants that this activity, also, was carried out by Bank Sarasin (at least, in part) from the DIFC. The security arrangements between Bank Sarasin and ABK were arranged, with Bank Sarasin’s concurrence, by Mr Walia and Mr Kerry from the DIFC: as appears from Mr Morf’s instruction to Mr Kerry to “run [the irrevocable payment order] by the bankers to check whether they agree with the wording”. In addition, the pledge agreements were dispatched from the DIFC and apparently returned to the DIFC.

386. As in the case of “Arranging Credit or Deals in Investments”, it is accepted that Bank Sarasin did carry on the activity of “Arranging Custody” within the meaning of GEN Rule 2.14; but it is said that it did so in Switzerland and not “in and from” the DIFC. That, also, is a question which I address in the next part of this section.

“In or from the DIFC”

387. It is said on behalf of the Claimants that each of the activities which I have held (in so far as not accepted) to constitute the provision of a Financial Service was, at least in part, carried on in or from the DIFC. It is said that, in substance, the relationship between Bank Sarasin and the Claimants was a banker/client relationship which was handled exclusively out of (in the sense of “from”) the DIFC. Whether or not this was intended to be Bank Sarasin’s business model by design, it was the way that the relationship operated in relation to the Claimants. The Claimants point to many instances which, they say, are evidence of the relationship operating out of the DIFC: these are set out in Schedule 3 to the Claimants’ written closing submissions.

388. In particular, in relation to the activity “Dealing in Investments as Principal”, within the meaning of GEN Rule 2.7, it is said that the following matters lead to the conclusion that Bank Sarasin was, itself, carrying on that activity in or from the DIFC:

(1) The oral discussions in relation to the purchase of the Notes took place between Mr Al Khorafi and Sarasin-Alpen employees based in and operating out of the DIFC.

(2) The instructions to purchase the investments were communicated to Bank Sarasin through Sarasin-Alpen employees based in and operating from the DIFC: in that the instructions forwarded by Sarasin-Alpen to Bank Sarasin. were confirmed in a written document (a Confirmation of Investment) on the letterhead of Sarasin-Alpen; the Confirmation forms were prepared and sent out from Sarasin-Alpen’s offices in the DIFC; and those forms were returned to Sarasin-Alpen’s offices in the DIFC.

(3) All of the Bank Sarasin account statements which confirmed the transactions were dispatched from the DIFC.

389. In relation to the activity “Arranging Credit or Deals in Investments” within the meaning of GEN Rule 2.9, it is said that the following matters lead to the conclusion that Bank Sarasin was, itself, carrying on that activity in or from the DIFC:

(1) The Bank Sarasin account opening forms were sent to the Claimants from the DIFC by Ms Naz, an Executive Manager of Sarasin-Alpen who was based in the DIFC. The covering letter stated that if there were any further questions (in relation to account opening), Mr Kerry should be contacted on his Dubai mobile number. No contact details were provided for Bank Sarasin. The letter concluded: “We are looking forward in providing you with all required banking and investment services”. This can only have been a reference to the services to be provided by Bank Sarasin once the accounts were opened: Sarasin-Alpen did not have the infrastructure to provide banking and investment services (and was not licensed to do so). The letter was stamped with Sarasin-Alpen’s name and the words: “Regulated by the DFSA” which gave the impression to the reader that the “banking and investment services” mentioned in the letter would be regulated by the DFSA. This gave the misleading impression (contrary to GEN Rule 4) that Sarasin-Alpen, as provider of the bank accounts and investment service, was regulated by the DFSA; when in fact it was Bank Sarasin that was the provider of the bank accounts and investment services and Bank Sarasin was not authorised by the DFSA.

(2) On 29 April 2007, the first investment proposal was sent to the Claimants by email from Mr Kerry (at his email address in the DIFC). The subject of the email was “Proposed real estate Khorafi.doc”; and the email explained that it attached “the investment proposal for ‘Real Estate Investment Trust Basket’ capital protected noted with income payments”. Mr Kerry wrote in his email “please feel free to call me for any additional information or clarification”; and provided his Dubai mobile number for that purpose. No contact details were provided for Bank Sarasin. Attached to the email was an “Indicative Factsheet” for a real estate investment which identified Bank Sarasin as the “lead manager”. The introduction to the Factsheet provided various reasons why real estate investments were attractive and stated: “Therefore, we offer a product with the underlying of three Indices covering Japan and two European Real Estate indices”. The statement “we offer” can only have been a reference to Bank Sarasin: this was an investment offered by Bank Sarasin, Sarasin-Alpen had no capacity to sell these investments, and was not licensed by the DFSA to do so. The Factsheet concluded by setting out various illustrations showing anticipated returns; including an illustration showing the returns if the investments were leveraged. Given that Sarasin-Alpen did not offer any banking facilities, the reference to leveraging can only have been a reference to leveraging by Bank Sarasin.

(3) On 3 May 2007, Mr Leuenberger, who was employed by Bank Sarasin in Switzerland, sent an email to Mr Kerry (at his DIFC address) referring to the investments that Bank Sarasin was structuring for Mr Al Khorafi and Mrs Al Hamad. Mr Leuenberger asked Mr Kerry questions about the client’s requirements: “will the client be trading these products at the same time (contingent) or are the trades independent from each other”. Mr Leuenberger also asked for feedback on the 6 month real-estate structure which he had previously quoted for (this appears to have been a reference to the proposal of 29 April 2007 (to which reference is made at sub-paragraph (2) above). In both instances, Mr Leuenberger relied on Mr Kerry to obtain answers to these questions from the Claimants.

(4) On 4 May 2007, Mr Kerry sent an email from his DIFC address to Mr Zeuggin at Bank Sarasin in Switzerland. The email is the first occasion (as disclosed) in which Mr Kerry recorded some details about the clients and the nature of their interest. It is clear from that email that Mr Kerry was seeking to organise the Claimants’ investments with Bank Sarasin, and did not regard his role as confined to acting for Sarasin-Alpen or within the scope of Sarasin-Alpen’s limited licensed functions: for example, it was stated that “the clients bankers are willing to release these funds to sarasin on the condition we provide them a Pledge prefer AAA bank & all coupons/final redemption should be transferred into Kuwait” and “They are happy with sarasin pledge”, “Our [financial engineering] team continues to liaise with rabo for the product”. When Mr Kerry referred to “sarasin”, “we” and “our” in that email, he can only have been referring to Bank Sarasin: the financial engineering team was at Bank Sarasin: Sarasin-Alpen had no such team.

(5) On 5 May 2007, Mr Kerry sent an email from his DIFC email address to Mr Taha under the subject line: “Investments”. Attached to the email was a process flow document, a sample of Bank Sarasin’s pledge document, Bank Sarasin’s termsheets and detailed investment proposals for the investments. The email concluded “Please call me for any additional clarification/information”; and gave Mr Kerry’s Dubai mobile number for that purpose. The process flow document set out various stages leading up to the completion of the investments; and contained a number of references to steps to be taken by “Sarasin”: in particular, it provided for the following steps (involving Bank Sarasin) to take place: “(i) Sarasin presents AAA/Aaa rated Rabobank investment product; (ii) Client to confirm investment product trade with Sarasin; (iii) Sarasin trades product on 3 week forward; (iv) Sarasin to confirm pledge to Client & ABK; (v) Sarasin to transfer interest semi-annually to Client’s ABK account; (vi) Sarasin to transfer principal on maturity into Client’s ABK account”. Given the context (which involved structuring the investment and executing the trade), these references can only have been to steps that it was anticipated that Bank Sarasin would carry out (since, as explained, Sarasin-Alpen did not have the infrastructure to perform those functions).

(6) In so far as those steps involved communications between Bank Sarasin and the Claimants, those communications were passed through Mr Walia and Mr Kerry and other Sarasin-Alpen personnel, all of whom were based in and operated from the DIFC.

(7) Attached to the email sent on 5 May 2007 were Indicative Termsheets for structured products on Bank Sarasin letterhead. The Termsheets contained a preamble which gave a short description (or “sales pitch”) in relation to the investments and a graph which purported to show the anticipated payout (albeit that it did not include any projection where the return was less than zero). Also attached to the email were Indicative Factsheets which (as in the case of the 29 April 2007 factsheets) were on Sarasin-Alpen letterhead but listed Bank Sarasin as lead manager. In the preamble to the factsheets, which sought to market the investments, the reference to “we offer” can only have been a reference to Bank Sarasin.

(8) On 9 May 2007, Mr Kerry sent an email to Mr Nour to which was attached a proposed draft guarantee. Mr Kerry explained in his email that he had discussed the product details with Mr Taha on the previous day; and that “Our product management is working on the products actively today since US markets were closed yesterday”. The reference to “Our product management” can only have been a reference to Bank Sarasin.

(9) On 15 May 2007, Mr Kerry sent an email to Mr Cheerian of ABK attaching a draft guarantee for Mr Cheerian’s consideration. Mr Kerry explained that there would be some changes to the draft (in particular, that it would be amended so that it was issued by “our parent bank – i.e. Rabobank”). The email said: “Our lawyers are currently working on the format. I’m expecting a response/final before end of day today”. The references to “our” again can only have been a reference to Bank Sarasin.

(10) As and when the Termsheets were updated, they were sent to Mr Kerry for distribution on to the Claimants, rather than sent to the Claimants directly. Further, requests for updates of the pricing were made by Mr Malpani who was based in the DIFC rather than by employees of Bank Sarasin in Switzerland.

(11) On 19 May 2007, Mr Kerry sent an email to various employees of Bank Sarasin in Switzerland under the subject line: “Bank Sarasin Bank Guarantee”. He summarised the proposal to sell US$80 million of structured products to a “new client in Kuwait” and set out the terms of the proposed bank guarantee. Under the heading of “Credit Progress”, Mr Kerry said “We have first spoke[n] to Peter Attiger [of Bank Sarasin] during his visit to our office. He was principally fine with the idea however required credit committee approval. We have also successful bounced this proposal to our Chairman (Fidelis Gotz)”. In the circumstances, it appears that initial discussions about credit being granted to the Claimants took place between Mr Kerry and Mr Attiger of Bank Sarasin during Mr Attiger’s visit to Sarasin-Alpen’s offices in the DIFC. Sarasin-Alpen was also involved in the decision whether to grant credit: Mr Gotz, to whom Mr Kerry referred in his email, was the chairman of Sarasin-Alpen. Mr Kerry’s email set out a timeline for various steps that needed to take place in the lead up to completion. These involved steps by both Sarasin-Alpen and Bank Sarasin. It was clear from the conclusion to the email that Mr Kerry was coordinating each and every step from the DIFC. He gave his Dubai mobile as his contact number.

(12) At around this time, Mr Kerry also started chasing for the return of the Bank Sarasin account opening forms. In an email on 19 May 2007, he chased again saying that if there was any difficulty with the forms “please contact . .. Rohit Walia on [his Dubai mobile number]”.

(13) The account application forms were completed in June 2007. The forms state that they were “processed” in the DIFC. The forms identified Mr Kerry as the person processing the application.

(14) On Bank Sarasin’s case (although it is disputed by the Claimants), Bank Sarasin sent out the Special Risks in Securities Trading document, along with the account opening forms (which were sent out from the DIFC).

(15) The Confirmation of Investment forms for the investments were dispatched from Mr Kerry’s email address in the DIFC and returned to the DIFC.

(16) On 5 February 2008, Mr Kerry sent Mr Taha and Mr Nour an Investment Strategy paper from Bank Sarasin (which he referred to as “our” investment strategy paper). Again, the reference to “our” was a reference to Bank Sarasin.

390. The Claimants also rely on the following matters:

(1) All the account statements were sent out by Sarasin-Alpen from the DIFC.
(2) The money laundering checks for the opening of the accounts were carried out in the DIFC;
(3) The security arrangements between Bank Sarasin and ABK were arranged by Mr Walia and Mr Kerry from the DIFC;
(4) The Claimants were sent by Sarasin-Alpen, in the DIFC, advice from Bank Sarasin’s subsidiaries on market performance and investment strategy;
(5) Queries from ABK about the Claimants investments with Bank Sarasin were dealt with Mr Kerry and Mr Walia in the DIFC;
(6) When a banking reference was required by Mr Al Khorafi from Bank Sarasin, Mr Kerry procured it from the DIFC.

391. It is said on behalf of Bank Sarasin that “the vast majority of the acts now particularised are acts of Sarasin-Alpen (or bizarrely, acts of the Claimants)”; and that, save for some acts of Bank Sarasin which unequivocally occurred in Switzerland, no act is said to be performed by Bank Sarasin in or from the DIFC. Further, it is said that – even where the agent is a subsidiary of the principal/parent – the agent will not be regarded as carrying on the principal’s business but rather its own business where (as here) there is not a complete identity of the parties. Reliance is placed on the decision of the Court of Appeal of England and Wales in Adams v Cape Industries Plc [1990] Ch. 433, 545-7. The relevant question, it was said, was whether the subsidiary carried on its own business. On the facts in that case, the Court of Appeal found that the subsidiary did so: it had its own premises, from time to time it conducted activities on its own account, it earned its own profits and had its own debtors and creditors and its return to the parent company was by way of dividend. It was found to be a separate business notwithstanding that it acted as a channel of communication with customers of the parent, it had a coordinating role, it held itself out as part of the parent’s organisation and referred to the parent as its London office and it in turn was referred to as the Chicago office. In the present case, it is said, Sarasin-Alpen was clearly a separate business from Bank Sarasin, which was only a 60% shareholder. It was Sarasin-Alpen which carried on business in or from the DIFC in its own right under its own licence; and not Bank Sarasin.

392. In that context, reliance is placed on the decision of the High Court of England and Wales in FSA v Bayshore Nominees Ltd [2009] EWHC 285 [13], in which it was held that the act of advising cannot be completed until the investor has received it; therefore, that either the activity of advising is being carried on both at the location of the adviser and the investor or that it is being carried on exclusively at the location of the investor. In either case in the circumstance of the present case, it is said, there is no suggestion that Bank Sarasin ever gave Advice to the Claimants. There is no evidence that Sarasin-Alpen gave Advice on behalf of Bank Sarasin. Even if the Claimants could overcome that absence of evidence and even if the Claimants were able to overcome the separate business issue, the Claimants never received any Advice in the DIFC and there is no evidence that any particular piece of advice was given from the DIFC.

393. In my view it is beyond argument that other employees of Sarasin-Alpen (in particular, Mr Kerry), made no distinction in their dealings with the Claimants and Mr Taha between the business of Sarasin-Alpen and the business of Bank Sarasin. The evidence that they saw themselves as dealing with the Claimants in the conduct of the business of Bank Sarasin is overwhelming. Stephan Wernli, who was employed by Bank Sarasin as “Department Head of Legal and Compliance Clients Switzerland”, accepted in the course of cross-examination (transcript, 27 May 2013, page 201, lines 10 to 13) that “on any view, Bank Sarasin was dealing with the clients from Dubai through individuals in the Sarasin-Alpen Office”; and (ibid, page 218, line 21 to page 219, line 10) that there were “many, many documents . . . showing Mr Kerry or other Sarasin Individuals emailing people within Bank Sarasin plainly regarding themselves as part of the Bank Sarasin team”. He accepted that the reality was that “Mr Kerry was leading this proposed deal on behalf of the sellers of the product, Bank Sarasin, and indeed the people who were going to provide an element of credit, also Bank Sarasin”.

394. More pertinently, perhaps, that is how the position was seen at the time from within Bank Sarasin. Mr Leuenberger accepted (transcript, 27 May 2013, page 131, line 23 to page 140, line 18) that Bank Sarasin dealt with its clients through a “Client Relationship Manager”; and that that individual could be either an employee of Bank Sarasin or an employee of Sarasin-Alpen. He accepted (ibid, page 140, lines 13 to 18) that there was no difference in practice between a case where the relationship manager was an employee of Sarasin-Alpen and a case where the relationship manager was an employee of Bank Sarasin. In the present case Bank Sarasin saw Mr Kerry as the Client Relationship Manager. The clearest example of that, perhaps, is in the letter from credit department, signed by the vice-president and managing director of Bank Sarasin, by which the margin call was made. The evidence of Mr Wernli (ibid, page 200, lines 2 to 16) shows that he, at least, recognised that for Bank Sarasin to treat Mr Kerry as its own Client Relationship Manager for the purpose of its dealing with the Claimants, was inconsistent with its case that it was not carrying on Financial Service activities in and from the DIFC.
395. I hold that, whatever may have been the intentions of those responsible for setting up the joint venture through Sarasin-Alpen, the evidence before the Court leads to the conclusion that, in practice, Bank Sarasin dealt with the Claimants through Mr Kerry as its own Client Relationship Manager. It was immaterial that Mr Kerry was employed by Sarasin-Alpen; his role, vis a vis Bank Sarasin, was indistinguishable from what it would have been if he had been employed by Bank Sarasin. That conclusion, as it seems to me, makes it impossible for Bank Sarasin to maintain that, in its dealing with the Claimants, it was not carrying on activities which constituted a Financial Service in or from the DIFC; and impossible for it to maintain that it was not doing so in breach of the Financial Service Prohibition.
Article 65(5) of the Regulatory Law

396. As I have said, Article 65(1) of the Regulatory Law provides that, subject to Article 65(5), a person who makes an agreement in the course of carrying on a Financial Service in breach of the Financial Services Prohibition shall not be entitled to enforce such agreement against any party (a “relevant party”) to the agreement. Article 65(2) provides that (subject to any agreement that may otherwise be reached between the parties), a relevant party may apply to the Court to recover (a) any money paid or property transferred by him under the agreement and (b) compensation reflecting any loss sustained by the relevant party as a direct result of such payment or transfer. Article 65(5) provides that, if the Court is satisfied that the person carrying on the Financial Service reasonably believed that he was not in breach of the Financial Services Prohibition by entering into an agreement which falls within Article 65(1), and that it is fair and just in the circumstances to make such an order, it may make an order that that the agreement be enforced between the parties to such extent and under such terms and conditions as the Court sees fit; or that money paid under the agreement be retained or dealt with in accordance with the agreement or in such manner as the Court deems fit. Article 65(5) does not, in terms, provide that, if the Court is satisfied that the person carrying on the Financial Service reasonably believed that he was not in breach of the Financial Services Prohibition by entering into an agreement which falls within Article 65(1), and that it is fair and just in the circumstances to decline to make an order for compensation reflecting any loss sustained by the relevant party, it may do so. But, in my view, it is reasonably clear that the legislator intended that it should be open to the Court to make no order for compensation in those circumstances.

397. It is submitted on behalf of Bank Sarasin that it did believe that it was not in breach of the Financial Services Prohibition by entering into any agreement with the Claimants; and that such belief was reasonable in that it was based on legal advice regarding the regulatory regime in the DIFC and the structure of its joint venture with Alpen Capital Corporation. In those circumstances, it is said that it would be fair and just to order that money paid under the agreement be retained.

398. In support of those submissions, Bank Sarasin relied on the second witness statement of Mr Wernli, dated 14 May 2013. He had referred to legal advice obtained in the setting up of the joint venture with Sarasin-Alpen; but he went on to say that he (or Bank Sarasin) had chosen not to waive privilege in respect of that advice. When it was put to him in the course of cross-examination (transcript, 27 May 2013, page 228, line 22 to page 229, line 1) that, if he was unwilling or unable to disclose the legal advice which Bank Sarasin had received, the Court would be invited to ignore his evidence as to the content of that advice, he did not resile from the position that the advice would not be disclosed.

399. In those circumstances, given that Bank Sarasin has chosen to take the position (as it was entitled to do) that it will withhold from the Court knowledge as to what legal advice it received regarding the regulatory regime in the DIFC and the structure of its joint venture with Alpen Capital Corporation – and, whether it followed that advice, either in the structure adopted or in the practical implementation of its relationship with Sarasin-Alpen – I hold that it is impossible to be satisfied that Bank Sarasin’s professed belief that it was not in breach of the Financial Services Prohibition by carrying on the activities which it did, in the way that it did, was reasonable; or that it would be fair and just in the circumstances to decline to make an order under Article 65(2)(b) for compensation reflecting loss sustained by the Claimants as a result of that breach.
The relief sought

400. As I have explained, Article 65(2)(b) of the Regulatory Law enables the Court to order that a person may recover “compensation reflecting any loss sustained by the relevant party as a direct result of [the] payment or transfer [of any money paid or property transferred by him under the agreement with the party in breach of the Financial Services Prohibition”. The Claimants claim to be put back in the position they would have been in if they had not purchased investments from Bank Sarasin. It is said to be clear from the evidence that there was a sufficient causal link between the original loan monies advanced by ABK, the investments purchased by the Claimants, the leveraging provided by Bank Sarasin, and the losses suffered by the Claimants when their investments were closed out by Bank Sarasin to satisfy the requirement that the losses were “sustained . . . as a direct result of the payments made by the Claimants to Bank Sarasin”. In particular, it is said (i) that the monies paid by the Claimants to Bank Sarasin were paid pursuant to the agreements entered between the Claimants and Bank Sarasin for the acquisition of the Notes and the associated leveraging and (ii) that, if Mr Al Khorafi and Mrs Al Hamad had not been persuaded by Bank Sarasin to purchase the REIT Notes they would not have borrowed monies from ABK.

401. In those circumstances, it is said that a compensation order will achieve the result which justice requires. The Claimants contend that the order should cover their principal losses on the investments with Bank Sarasin, the bank charges and interest imposed by Bank Sarasin on those investments and the leveraging, and the bank charges and interest imposed by ABK on the initial lending.

402. Alternatively, the Claimants seek recovery of the monies paid to Bank Sarasin under the agreements. The Claimants will give credit for the monies that were returned by Bank Sarasin and used to reduce the Claimants’ indebtedness to ABK; and so only seek to recover their net loss from entering the transactions (including the leveraging with Bank Sarasin).

Conclusion

403. I am satisfied that Bank Sarasin dealt with the Claimants in breach of the Financial Service Prohibition; and that the Court should make an order for compensation pursuant to Article 65(2)(b) of the Regulatory Law.

Contractual and breach of duty claims against Bank Sarasin

404. This category of claims is founded on Bank Sarasin’s alleged failure to advise the Claimants in relation to the material risks of the investment structure into which they entered. The parties agree that this relationship was governed by Swiss Law. In that context, the Claimants rely on the evidence of Swiss law contained in the report of Dr Thomas Werlen; Bank Sarasin relies on the evidence contained in the report of Professor Peter Nobel.
The contractual claims

405. The Claimants contend that Bank Sarasin was in breach of contract in that:

(1) There arose as matter of Swiss law a Financial Advisory Contract between the parties; and
(2) Bank Sarasin was in breach of its contractual duties under Swiss law in that:
(a) It intentionally and/or negligently failed to give any or any sufficient advice to the Claimants;
(b) It intentionally and/or negligently failed to identify and/or give any or any sufficient disclosure and/or warning of the risks involved in the investments;
(c) It intentionally and/or negligently failed to ascertain (or ascertain with sufficient clarity) the financial experience and understanding of the Claimants and/or the suitability of the investments for them;
(d) It failed to give any or any sufficient recognition to the fact that the investments were being made by the Claimants using proceeds from the ABK loan and/or leveraged funds advanced by Bank Sarasin;
In the premises, it is said, Bank Sarasin is liable to indemnify the Claimants in full for their losses pursuant to Article 97 of the Swiss Code of Obligations.

406. It is said (under this head) that, in dealing with the Claimants, Sarasin-Alpen and/or Mr Walia and Mr Kerry acted as agents for Bank Sarasin; and that, under Article 32 of the Code, their acts and omissions – and, in particular, misrepresentations made by employees of Sarasin-Alpen and the failure to take reasonable care to prevent harm to the Claimants – are to be imputed to the Bank.

Swiss Law

407. It is common ground between the experts that, under Swiss law, Bank Sarasin’s obligations (if any) in respect of advice to be given to the Claimants arose under statute, specifically:

(1) Under Article 398 II of the Code of Obligations, a financial institution is under an obligation to execute transactions for its client loyally (faithfully) and diligently (carefully). These duties include a duty to inform the investor and to warn the investor as appropriate.

(2) Under Article 11 of the Swiss Stock Exchange and Securities Act (SESTA) a securities dealer is obliged to draw its client’s attention to the risks involved in particular categories of transaction, taking into account the client’s business experience and professional knowledge. Under Art 5 of the Federal Act on Collective Investment Schemes (CISA), a simplified prospectus is required in relation to certain transactions and this prospectus must contain certain information.
Breach of these obligations is said to give rise to contractual liability, and a right to damages.

408. There is substantial agreement between the Swiss experts: in particular, they agree (i) that the duty of disclosure is higher where the transaction is inherently risky, such as where it is funded not only using the client’s own assets but also funds borrowed from the investment adviser; and (ii) that individuals who were employed by Sarasin-Alpen could, in certain special circumstances, be found to be acting on behalf of Bank Sarasin. They disagree on the following issues:

(1) What were the prospectus requirements under Swiss Law. Professor Nobel disputes Dr Werlen’s view that Bank Sarasin was obliged to send the Claimants a simplified prospectus. Dr Werlen disagrees with Professor Nobel’s position that the Termsheet produced by Bank Sarasin satisfies the prospectus requirements.

(2) Whether the obligation imposed by Article 11 of SESTA applies only in “execution only” transactions. Professor Nobel’s view is that it only applies in that context: Dr Werlen’s view is that it sets a minimum standard and that contractual provisions that are aimed at reducing an investor’s rights beyond the minimum level of protection are not enforceable.

(3) Whether, if Bank Sarasin can establish that it provided the Claimants with the Special Risks Document, it complied with its duty of disclosure under Article 11.

If Dr Werlen is correct in his views on these issues, the Claimants contend that Bank Sarasin’s duty to advise under Swiss law did not differ materially from the duty under DIFC law: it was a duty to exercise reasonable skill and care. In that context, the Claimants rely, in support of their claim against Bank Sarasin under this head, on the defects in advice already advanced in respect of the advice given by Sarasin-Alpen.

409. I have found much assistance in the Joint Memorandum on Swiss Law prepared by Dr Werlen and Professor Nobel. In that Joint Memorandum they address, first, the issue of agency and imputation under Article 32 of the Code of Obligations:

(1) The experts explain that it is necessary to differentiate between express agency and apparent authority. They note that, in the present case, there was an express agency under the Intra Group Delegation Agreement dated 18 April 2005. But they point out that that express agency was limited to a specific purpose: that Sarasin-Alpen would act as Bank Sarasin’s agent for the purpose of conducting due diligence under the Swiss Banks’ Code of Conduct with regard to the Exercise of Due Diligence.

(2) They agree that there can be apparent authority when the principal neither gave his consent to the delegation of authority nor was aware that another person was acting as his representative; but in circumstances where he should have been aware and could have prevented the other person from acting as his representative. The third party is entitled to rely on the existence of authority in good faith. Whether the third party is acting in good faith is a question of fact.

(3) There are questions of fact in the present case as to what acts (“assurances”) were undertaken by the Sarasin-Alpen after the conclusion of the contracts between the Claimants and Bank Sarasin; and whether they were part of the “performance” of the contract or mere ministrative acts;

(4) If there is an agency, Swiss law recognizes the imputation of the agent’s knowledge to the principal. In the present case this may be relevant to the relationships between Mr Taha and the Claimants and to the relationships between Mr Walia and Mr Kerry and Bank Sarasin.

410. The experts then address, in their Joint Memorandum, the liability for auxiliary persons under Article 101 of the Code of Obligations (although, it is said that this is not a pleaded claim):

(1) Article 101 addresses the situation where a person who has entered into a contract with a third party delegates execution of his duties to another person. It provides that, as a rule, the person delegating is liable for the actions of the person to whom the duty is delegated;

(2) Dr Werlen is of the view that the actions of the employee of one legal entity could be imputed to another legal entity under special circumstances. It is a question of fact as to the extent that they are performing such services for another legal entity.

411. The experts turn, then, to the primary claim: that a Financial Advisory Contract arose under Articles 394 et seq of the Code. They agree that:

(1) A Financial Advisory Contract can be concluded without the need for formal requirements.

(2) By Article 398, paragraph 2, a Financial Advisory Contract must be executed diligently and faithfully.

(3) The duty of diligent and faithful execution may encompass a duty to inform and disclose risks. A possible duty to warn is also based on the general duty of diligence.

(4) The extent of the duty to inform, in the context of a Financial Advisory Contract, depends, inter alia, on the business experience of the client and of his advisors.

(5) If a client has some business experience, he is usually precluded from claiming that he has no understanding at all of financial matters.

(6) It may be (following a decision of the Swiss Federal Court) that higher duties to inform exist in principle when the investor is not only speculating with his own assets but also with funds borrowed from a bank. This is because the investor is at risk not only of losing money on the investment but also of having to find other monies to cover his short position and repay the loan principal in the event that losses on the investment ensue. But this is open to question: in that the Swiss Federal Court has also held that if a bank loan, which was used for speculation, was secured with a pledge of securities, then the speculation cannot be considered as more risky than if the client had speculated with his own money. Dr Werlen pointed out that, in that case, the securities pledged were different from the investments made; and he expressed the view that the present case may be distinguished if the only security pledged was the investments purchased and if the investments were leveraged multiple times such that the Bank was under-collateralised.

(7) The extent of a bank’s duty of care under Article 398, paragraph 2, depends on many factors, including but not limited to:

(a) the level of contact between the client and the bank; and

(b) whether the client and the bank intended to create an ongoing relationship so that the client can expect in good faith to be advised and warned (without the bank being asked to do so); whether there was an ongoing business relationship in the present case is a question of fact;(c) The extent of the duty to inform in the context of a Financial Advisory Contract also depends on the type of investment.
They agree, also, that under Swiss law an intentionally and deliberately signed document cannot be revoked even if a party has not read it. The issue whether and to what extent this principle applies in the present case to the Claimants, given the written confirmations that they provided in relation to various matters, is a question for the Court to decide.

412. The contentions advanced on the basis of the evidence as to Swiss Law may be summarised as follows:

(1) Bank Sarasin submits that it was careful, for regulatory reasons, to put in place a legal structure under which Sarasin-Alpen was only its agent for the limited purpose of due diligence. Bank Sarasin and Sarasin-Alpen were distinct legal entities. Sarasin-Alpen’s name indicated that it was not a division of Bank Sarasin; but a joint venture company with a third party. The Claimants were always aware that their banking relationship was with the Swiss bank and never claimed that they were unaware that all decisions were made in Switzerland. It is accepted that there is no allegation with regard to any specific matter (particularly in relation to the allegations of fraudulent misrepresentation and negligence) that Bank Sarasin was aware of any such matter and could have prevented it. It was at all times clear to the Claimants that Messrs Kerry and Walia were employees of Sarasin-Alpen and they never held themselves out as performing services for Bank Sarasin. In the circumstances it is submitted that the agency claims against Bank Sarasin must fail as a matter of Swiss law.

(2) Bank Sarasin denies that a Financial Advisory Contract arose on the facts because:

(a) there was no ongoing long term business relationship in the sense that the Claimants put themselves in hands of the Bank; rather, it is said, there was series of individual transactions initiated by the Claimants and dictated by their own agenda; and

(b) there was no special relationship of particular confidence; rather, it is said, the Claimants were experienced and sophisticated investors with access to professional advice.

(3) Bank Sarasin submits that the Claimants are bound by their signature of, inter alia, Bank Sarasin’s application for opening current and custody accounts, the various Confirmations of Investment and Sarasin-Alpen’s AGBCs.

413. For the reasons set out in the previous section of this judgment I am satisfied that Mr Kerry did hold himself to the Claimants as performing services for Bank Sarasin; and that Bank Sarasin acquiesced in and endorsed his conduct in that respect. On the evidence before the Court, I hold that a Financial Advisory Contract between Bank Sarasin and each of the Claimants did arise under Swiss Law in the present case. But, as it seems to me, the Claimants have suffered no damage by reason of the breach of that contract (if any) in the circumstances that the Court can award compensation for under Article 65(2)(b) of the Regulatory law.

The Negligence Claims

414. The Claimants make allegations of negligence against Bank Sarasin. It is said that Sarasin-Alpen and/or Mr Walia and/or Mr Kerry owed a duty of care to the Claimants under Articles 18 and/or 20 of the DIFC Law of Obligations. It is alleged that Bank Sarasin is vicariously liable for the conduct of Sarasin-Alpen and/or Mr Walia and/or Mr Kerry. In particular it is said:

(1) That, through the statements and assurances of Mr Walia and/or Mr Kerry, Bank Sarasin assumed responsibility towards the Claimants in respect of their investments with or through the Sarasin group;

(2) That Bank Sarasin knew (through Mr Walia and/or Mr Kerry) that the Claimants would probably act on statements made by its employees and agents for the purpose of inducing them to enter into the investments; that Bank Sarasin intended the Claimants so to act; and/or the Claimants believed that Bank Sarasin intended them so to act;

(3) That there was a duty of care to the Claimants under Articles 18 and/or 20 of the Law of Obligations or that Sarasin-Alpen and/or Mr Walia and/or Mr Kerry owed such a duty and Bank Sarasin is vicariously liable;

(4) That Bank Sarasin failed to take reasonable care to ensure that the statements of Sarasin-Alpen and/or Mr Walia and/or Mr Kerry were correct and/or to take reasonable care to avoid causing the Claimants’ loss. In the premises Bank Sarasin is primarily or vicariously liable under Articles 10, 15, 17, 18 and/or 20 of the Law of Obligations.

415. It is submitted on behalf of Bank Sarasin, by way of response, that in so far as the negligence claim is based on vicarious liability, it fails for the same reasons as the claim in negligence against Sarasin-Alpen must fail.

416. In addition, the Claimants allege against Bank Sarasin a claim based on primary liability under Articles 18 and/or 20 of the Law of Obligations. Bank Sarasin’s response is that any relationship between it and the Claimants was governed exclusively by Swiss law. Nevertheless, it is said that, even if the DIFC Law of Obligations were applicable, the primary claim is bound to fail. As I have explained, earlier in this judgment, Article 18(1) of the Law of Obligations provides that a defendant owes a duty of care to a claimant where (i) it is reasonably foreseeable that the defendant’s acts or omissions could cause loss to the claimant, (ii) the relationship between the defendant and the claimant is sufficiently proximate for a duty of care to exist; and (iii) it is fair, just and reasonable in the circumstances that the defendant should owe the claimant a duty of care. It is said on behalf of Bank Sarasin that:

(1) The acts or omissions complained of are not those of Bank Sarasin, they were acts of independent persons employed by a separate legal entity. It cannot therefore be said that it was reasonably foreseeable that Bank Sarasin’s acts or omissions were likely to cause harm to the Claimants. The function of Bank Sarasin was to create structured products and extend credit. There is no allegation that Bank Sarasin performed those actions negligently;

(2) As to “proximity” and the tripartite test – these are very much facets of the same question. Reliance is placed on the observations of Lord Bridge Harwich in the course of his judgment in the United Kingdom House of Lords in Caparo Industries plc v Dickman [1990] 2 AC 605, at 617-618:

“What emerges is that, in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of ‘proximity’ or ‘neighbourhood’ and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other. But it is implicit in the passages referred to that the concepts of proximity and fairness embodied in these additional ingredients are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope. Whilst recognising, of course, the importance of the underlying general principles common to the whole field of negligence, I think the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes.”

(3) It cannot be fair, just or reasonable to impose liability on a party for statements of opinion made by persons over whom it has no control and in circumstances of which it has no knowledge. It is not alleged that Bank Sarasin authorised Mr Walia or Mr Kerry to make the alleged statements on its behalf; instead it is alleged that Bank Sarasin failed to take care to ensure that their statements were correct and (somewhat vaguely) to exercise reasonable care to avoid causing loss to the Claimants. How it was expected that Bank Sarasin should have done this is not explained;

(4) The problems with the allegations are exemplified by the Claimants’ reference to Article 20 which provides that where a person makes a statement, he assumes a responsibility to persons to whom the statement is made or becomes available (such persons being “recipients”) if (i) he knows or ought to know that the statement will be communicated to the recipient, either specifically or as a member of an ascertainable class and that it is likely to be acted on by the recipient for the purpose for which the statement was made; and (ii) he intends, or the recipient reasonably believes that he intended, for the recipient so to act. In the present case it is not even alleged that Bank Sarasin knew or ought to have known that Mr Walia and/or Mr Kerry would make the statements alleged or that Bank Sarasin intended or even that the Claimants reasonably believed that Bank Sarasin intended the Claimants to act on the statements.

Conclusion

417. I am not persuaded that the Claimants have established non-contractual claims against Bank Sarasin in negligence. For the reasons set out in the previous section of this judgment, I am not satisfied that the Claimants have sustained loss or damage by reason of the failure of Bank Sarasin to give the advice which it is alleged should have been given: in that the Court has power, in any event, to award compensation for breach of the Financial Services Prohibition.

Misrepresentation claims against Sarasin-Alpen and Bank Sarasin

418. The Claimants’ case on misrepresentation – in so far as not already addressed earlier in this judgment – can be stated shortly. It is said that a series of incorrect statements were made by Mr Walia and Mr Kerry in the pre-transaction meetings with Mr Al Khorafi. Those statements were material to the decision to invest and were relied on. The statements relied upon are these:

(1) That Mr Kerry stated at the meeting on 29 April 2007 (sic) that Mr Al Khorafi and Mrs Al Hamad would never lose money on capital protected investments made with the Defendants. The statement was repeated on 22 June 2007 and thereafter The representations (“the Capital Protection Statements”). were untrue (as were accompanying express or implied representations that Mr Walia and/or Mr Kerry had reasonable grounds for making the Capital Protection Statements) as the Claimants did lose money on the capital protected investments and were not able to service the interest payments on the ABK loan and/or pay the ABK loan back in full on maturity. The representations were made fraudulently. The Capital Protection Statements and accompanying representations continued to operate and induced Mrs Al Rifai to make her investments.

(2) That Mr Kerry stated at the meeting on 29 April 2007 that there was negligible risk that Mr Al Khorafi and Mrs Al Hamad would not benefit from substantial capital appreciation on the capital protected investments made with the Defendants. The statement was repeated on 22 June 2007 and thereafter. The representations (“the Capital Appreciation Statements”) were false and made fraudulently.

(3) That Mr Kerry stated at the meeting on 29 April 2007 that the products paid coupon out of income earned on the products that would allow the Claimants to pay the interest payments required on the ABK loans and would provide them with the additional income they sought. This was repeated at least on 22 June 2007 and 11 July 2007. The representations (“the Coupon Statements”) were false and made fraudulently. In particular the investment recommended paid no interest from income but only from capital. The “coupon” was not sufficient to allow the Claimants to pay the interest required on the ABK loans, service the leveraging applied to their portfolio and provide additional income. The “coupon” was simply an anticipated payment of the Claimants’ capital on maturity dependent entirely on positive performance of the underlying indices.

(4) That Mr Kerry stated at the meeting on 29 April 2007 that the products would allow the Claimants to pay back the ABK loan in full on maturity. This was repeated at least on 22 June 2007 and 11 July 2007. The term sheets contained statements expressly or impliedly to the same effect. The representations (“the ABK loan Repayment Statements”) were false and made fraudulently. The structure was dependent on upward movement of all underlying indices.

(5) That Sarasin-Alpen expressly or impliedly represented that it had complied and would comply with all regulatory obligations in respect of the Claimants’ proposed instructions (“the Compliance Statements”).

19. Save that I take the view that the Capital Protection Statements, the Capital Appreciation Statements, the Coupon Statements and the ABK loan Repayment Statements were made at the meeting in Kuwait on 24 April 2007 (rather than at a meeting on 29 April 2007) – and that those statements were made by Mr Walia as well as (or instead of) by Mr Kerry – I am satisfied, on the basis of the evidence which I have set out earlier in this judgment, that those statements were made, as alleged. I am not satisfied that the evidence supports the contention that the Compliance Statements were made in express terms. In so far as it is said that the alleged representations as to compliance with regulatory rules and proper consideration of the Claimants’ investment requirements, are to be implied, the Defendants contend that there is no basis to imply any such representations. I accept that submission. Nor am I satisfied that the evidence supports a conclusion that the statements were made fraudulently. That allegation was not put to Mr Walia; and I cannot hold, on the material before the Court, that Mr Kerry did not have an honest belief (however unfounded that belief may have been) that the statements which he made were true.

420. The Claimants assert that such alleged misrepresentations are actionable under Articles 10, 29, 30 and/or 31 of the DIFC Law of Obligations 2005. The Defendants do not accept that DIFC Law is the applicable law in relation to the misrepresentation claims.

421. Sarasin-Alpen contends that the applicable law in relation to the misrepresentation claims against it is the Law of Kuwait; on the ground that Kuwait is the jurisdiction which is most closely related to the facts of, and the persons concerned in, the cause or matter. Reliance is placed on Article 8 of the DIFC Law on the Application of Civil and Commercial Laws (DIFC Law No 3 of 2004).

422. It is submitted that the Law of Kuwait does not recognise concepts of negligent or innocent misrepresentation: in particular, it is said that the Law of Kuwait does not recognise a claim for damages for misrepresentation, other than fraudulent misrepresentation (paragraphs 34-39 of the expert report on Kuwaiti law of Abdul Hameed Al-Sarraf for Sarasin-Alpen). Further, it is submitted that, under the Law of Kuwait, it is not open to a party to bring concurrent claims for breach of contract and misrepresentation (paragraph 42 of that expert report).

423. Bank Sarasin contends that, in relation to the misrepresentation claims made against it, the applicable law is Swiss Law. It submits that:

(1) The Court of Appeal has already held, in the present case, that “the scope of the Jurisdiction Clause [in the agreements signed by the Claimants] is all embracing and extends to all disputes between the Claimants and Bank Sarasin and is not confined to disputes in relation to the particular contract in which the clause appears”. The jurisdiction clause contained an express choice of Swiss law and provided that the place of performance of all obligations shall be Switzerland. Thus both contractual and non-contractual claims must be made under Swiss law and not DIFC law. It is said that the position would be same under Article 8(2) of the Law on the Application Civil & Commercial Laws in the DIFC.

(2) In the present case the parties expressly chose Swiss law and in any event Switzerland is the jurisdiction most closely related to the facts of and the persons concerned in the matter since the banking relationship was there and Bank Sarasin is domiciled there. Bank Sarasin has no presence in the DIFC and has not carried on any activity in the DIFC.

424. The Claimants’ position is that the applicable law in relation to the misrepresentation claims is DIFC law. It is said that the Claimants were dealing with a DIFC entity: the contracts with Sarasin-Alpen were governed by DIFC law; and their relationship with the Defendants was managed out of Sarasin-Alpen’s offices in the DIFC.

425. The Defendants’ response is that, if (which is denied) the statements were made and if (contrary to their contentions) the applicable law is DIFC Law, none of the statements supports a claim for misrepresentation under the DIFC Law of Obligations. It is said on behalf of Sarasin-Alpen that:

(1) To the extent that the Claimants’ claim is based on Article 29 of the Law of Obligations, it is misconceived. The Article applies only where a misrepresentation is made “in order to induce, and does induce, a person to enter into a contract”. It is said that this requires it to be shown that the representee has entered into a contract after a misrepresentation was made to him by another party to the contract. In circumstances in which (as in the present case), the contracts said to have been induced were contracts with Bank Sarasin or (perhaps) with ABK or other third parties, Article 29 has no application. Reliance is placed on observations in the High Court of England and Wales in Foxtons Ltd v O’Reardon [2011] EWHC 2946 (QB) at [44]; addressing the analogous provisions of English Law contained in the Misrepresentation Act 1967.

(2) In any event – save for the alleged statements that Sarasin-Alpen had complied with all applicable regulatory obligations in respect of the Claimants’ proposed transactions and that Sarasin-Alpen had concluded that the investments and/or leveraging were suitable – none of the alleged statements can properly be regarded as a statement of fact. The statements are statements of opinion and/or predictions as to the future and/or estimations. Such statements provide no basis for a claim under Article 29(2) of the DIFC Law of Obligations. Reliance is placed on the decision of the Court of Appeal of England and Wales in Springwell Navigation v JP Morgan Chase [2010] EWCA Civ 1221 and the decision of the High Court in Cassa di Risparmio v Barclays Bank [2011] EWHC 484 (Comm)). Article 29(3) of the Law of Obligations has no application; that article applies only where a statement of opinion is accompanied by a statement of fact (for example, a statement of fact that the representor actually holds the opinion stated and/or has reasonable grounds for the opinion). There was no such accompanying statement of fact in this case.

(3) In any event, the Claimants are estopped by contract and/or representation from contending that they did not understand the true nature of the Notes. It is said that the risks were set out clearly in the Termsheets which were sent to Mr Al Khorafi and/or to Mr Taha; and that it is to be inferred that Mr Al Khorafi and Mr Taha read the Termsheets and understood the products. If so, any alleged misrepresentations did not induce them to enter into the Notes.

(4) In the alternative, if (which is not accepted), Mr Al Khorafi and/or Mr Taha did not read and/or understand the Termsheets, the necessary conclusion is that the Claimants entered into the products not by reason of anything Sarasin-Alpen had said, but as a result of their own assumptions about the Notes. Reliance is placed on the decision of the Court of Appeal of England and Wales in Peekay Intermark v ANZ Banking Group [2006] EWCA Civ 386, [43]-[52] and [66 – [70].

(5) In any event, the Claimants were not misled because they and Mr Taha were capable of evaluating and safeguarding their own position and did in fact do so. Reliance is placed on the decision in Bankers Trust International Plc v PT Dharmala [1996] CLC 518).

(6) Further and in any event, if, any representations were made they were true; or alternatively were reasonably believed to be true. It is submitted that, on its true construction, Article 29(7) of the Law of Obligations provides a defence if a representation was not negligent.

426. It is said on behalf of Bank Sarasin that, if (contrary to its submissions on the applicable law) it is open to the Claimants to make allegations under DIFC law, the case as pleaded is bound to fail. In particular, it is said that:

(1) Reliance on Articles 15(4) and/or 15(2) of the Law of Obligations is misplaced. Reliance on Article 15(2) must be rejected because that Article concerns “a relationship of service” (i.e. some form of contract). Notwithstanding that Article 15(3) says one looks at the substance rather the form, the analogy is drawn with “a contract of service” and reference is made to “the course of his service” which reflects back to Article 15(1) which refers to the “course of his service” in relation to an employee. Article 15(2) is clearly addressed to the liability of someone who is analogous to an employee, i.e. a self-employed contract worker. It cannot be argued that Sarasin-Alpen and/or Mr Walia and/or Mr Kerry were in substance the servants of Bank Sarasin.

(2) Article 15(4) provides that “A principal is jointly liable with his agent in respect of liability of the agent under this Law arising in the course of the agency, provided that the act or omission of the agent which gives rise to such liability is within the authority of the agent.” Whether or not Sarasin-Alpen and/or Mr Walia and/or Mr Kerry were Bank Sarasin’s agents – and the scope of their authority – must be matters of Swiss law. For reasons already advanced Sarasin-Alpen cannot be so regarded. But, even if Sarasin-Alpen and/or Mr Walia and/or Mr Kerry were Bank Sarasin’s agents the Claimants would have to show what their authority was and that the matters alleged fell within it. The Claimants have made no attempt to do this.

(3) The reference to Article 10 of the Law of Obligations is not understood. Article 10 relates to the “but for” test of causation, it is hard to see how it can be relied on to make Bank Sarasin primarily or vicariously liable for Sarasin-Alpen’s alleged fraudulent misrepresentations.

(4) The reference to Article 29, without more, is unhelpful. If it is assumed that the allegation against Bank Sarasin is that Bank Sarasin made a representation though the agency of Sarasin-Alpen, the matters alleged to have been stated by Sarasin-Alpen cannot amount representations under Article 29(2) because they were self-evidently expressions of opinion not statements of fact.

(5) As the statements alleged cannot amount to representations within the meaning of the Law of Obligations, reference to Articles 30 and 31 is irrelevant.

Conclusion

427. I am not satisfied that the Claimants have established the misrepresentation claims which they advance, either against Sarasin-Alpen or against Bank Sarasin. I take the view that the applicable law in relation to the claims against Sarasin-Alpen is the Law of Kuwait; and I am not persuaded that, in the absence of fraud, those claims are actionable under that Law. If and in so far as the applicable law in relation to the claims against Bank Sarasin is that of Switzerland, there is no evidence before the Court upon which I can hold that that Law differs (and, if so, in what respects) from the Law of the DIFC I hold that the statements relied upon, being statements of opinion rather than statements of fact, give rise to no cause of action under the DIFC Law of Obligations.

Quantum

428. The losses in respect of which the Claimants seek compensation can be divided into the following categories:

(1) Losses on the sale of the Claimants’ investments with Bank Sarasin (these are agreed as to amount).
(2) Other fees and interest charged by Bank Sarasin (these are not yet agreed).
(3) Other fees and interest charged by ABK up to 14 December 2009 (these are not yet agreed).
The ABK losses are only calculated up to 14 December 2009 as the Claimants only have account statements for ABK up to this point. However, the ABK indebtedness has not been wholly repaid and interest continues to accrue in respect of that liability. The Claimants also seek interest on their losses pursuant to Articles 18 and/or 32 of the Law of Damages and Remedies 2005, and/or Article 65 and/or 94 of the Law of 2004.

429. It is only these categories (together with interest on those losses) which the Claimants seek to recover. The Claimants assert that their quantum calculation is in substance the same irrespective of which claim they succeed on: on the grounds that their case is that if the Defendants had complied with their regulatory obligations, or had given them proper advice, or had acted in accordance with their contractual obligations, or had not made false representations, the Claimants would not have proceeded with any of the investments and would not have taken the lending from ABK or the leverage from Bank Sarasin.

430. Bank Sarasin contends that any damages should be assessed in accordance with Swiss law and the Claimants should have pleaded (but have failed to) plead a claim under Swiss law. The relevant principles are set out in the Fourth Expert Report of Professor Nobel. I reject this contention that Swiss Law is of relevance in relation to the quantification of compensation under the DIFC Regulatory Law.

Conclusions

431. It is said on behalf of the Defendants that this is yet another case arising out the Global Financial Crisis in 2007 to 2008 where investors are seeking to recover from their bankers the losses they suffered by reason of the dramatic falls in the values of their assets on the markets. In the present case the financial structure was based on historic performance and had markets performed as they had done before 2007 there would have been no problem – the collateral would have remained adequate and capital growth would have satisfied the cost of borrowing. It is said that Mr Al Khorafi was well aware of this; that he was not satisfied with the very successful business that his father had left him and wanted to leverage his assets to fund his grandiose plans to participate in global markets and to have his own company listed on a leading international stock exchange; and that, to this end he went about raising as much money as he could (including borrowing on the strength of his mother’s and his wife’s assets) in order to acquire assets to show to lenders and investors. It is said that he overreached himself and his schemes fell apart when markets crashed; and that he has no-one to blame but himself.

432. I do not take that view. I am satisfied that the present is a clear case of mis-selling unsuitable investments to an unsophisticated investor, and to his equally unsophisticated wife and mother. That was carried out by employees of Sarasin-Alpen – motivated, at least in the case of Mr Walia, by a personal interest in the fees that would be generated by the exercise – and without regard to the protection that the Regulatory Law was intended to afford Retail Customers (as these Claimants were). Bank Sarasin adopted a business model which led it to breach the Financial Services Prohibition. It appears to have been content to allow the mis-selling to take place; in that it failed to exercise any adequate supervision over those whom it held out as its own Client Relationship Managers.

433. In the circumstances I think it appropriate to order that both Bank Sarasin and Sarasin-Alpen pay compensation to the Claimants in respect of the losses which they have sustained. The order against Bank Sarasin is made under Article 65(2)(b) of the Regulatory Law; that against Sarasin-Alpen is made under Article 94(2) of that Law.

Issued by:
Mark Beer
Registrar
Date of Issue: 21 August 2014
At: 10am

X

Privacy Policy

The Dispute Resolution Authority and all its affiliates are committed to preserve the confidentiality, integrity and availability of client data and personal information.

Dispute Resolution Authority and all its affiliates employees, vendors, contract workers, shall follow Information Security Management System in all the processes and technology.

  1. DRA's Top Management is committed to secure information of all our interested parties.
  2. Information security controls the policies, processes, and measures that are implemented by DRA in order to mitigate risks to an acceptable level, and to maximize opportunities in order to achieve its information security objectives.
  3. DRA and all its affiliates shall adopt a systematic approach to risk assessment and risk treatment.
  4. DRA is committed to provide information security awareness among team members and evaluate the competency of all its employees.
  5. DRA and all its affiliates shall protect personal information held by them in all its form.
  6. DRA and all its affiliates shall comply with all regulatory, legal and contractual requirements.
  7. DRA and all its affiliates shall provide a comprehensive Business Continuity Plan encompassing the locations within the scope of the ISMS.
  8. Information shall be made available to authorised persons as and when required.
  9. DRA’s Top Management is committed towards continual improvement in information security in all our processes through regular review of our information security management system.