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

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

January 20, 2015

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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:      12 January 2015

Counsel:     Mr Richard Hill QC instructed by Hamdan Al Shamsi Lawyers and Legal Consultants 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:  13 January 2015

 


 

 RULING OF THE DEPUTY CHIEF JUSTICE SIR JOHN CHADWICK MADE ON 13 JANUARY 2015


Transcribed from the oral judgment delivered on 13 January 2015, revised and approved by the Judge.

SIR JOHN CHADWICK, DEPUTY CHIEF JUSTICE:

1. These proceedings came before me for trial in May and July 2013. I handed down a lengthy written judgment on 21 August 2014. At paragraphs 428 and 429 of that judgment I said this (so far as material):

“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 . . .”

And I went on, at paragraph 433, to say this:

“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.”

2. At the end of October 2014, the matter came back to me so that I could settle the terms of the order to be made following that judgment. The order which I made on 28 October 2014 contained the following provisions (so far as material):

(1)    It was held at paragraphs 1 and 2 that the First Defendant was in breach of the Financial Services Prohibition within the meaning of Article 41 of the Regulatory Law and in breach of Conduct of Business Model Rule 6.2.1 and liable to pay compensation under Article 94(2) of the Regulatory Law.

(2)    It was held in paragraph 4 that the Second Defendant was in breach of the Financial Services Prohibition and liable to pay compensation under Article 65(2)(b) of the Regulatory Law.

(3)    The amount of the liability of each of the First and Second Defendants was stated in paragraphs 3 and 5 of the Order, respectively, to comprise (a) in respect of the losses on the sale of the Claimants’ investments with the Second Defendant, sums amounting to USD 10,445,049 with interest thereon and (b) “further amounts to be assessed in respect of (i) other fees and interest charged by the Second Defendant and (ii) losses arising out of the Claimants’ relationship with Al Ahli Bank Kuwait (“ABK”).”

(4)    Paragraph 7 of the Order was in these terms:

“All other claims for interest and damages including the quantification of the interest referred to in paragraphs 3(a)(i)-(iii) and 5(a)(i)-(iii) above and the quantification of the categories of damage referred to in paragraphs 3(b) and 5(b) above shall, together with any other claims (including in particular claims (if any) under Article 40(2) of the Law of Damages and Remedies (Law No. 7 of 2005)), be adjourned to be determined at a one day hearing to be held on the first available date after 29 January 2015 (‘the Quantum Determination’).”

(5)    Paragraphs 8, 9 and 10 contained directions for the filing and service of evidence in advance of the Quantum Determination. They were in these terms:

“8. The Claimants shall file and serve on the Defendants any evidence in support of their claims on quantum for the Quantum Determination ordered under paragraph 7 above by no later than 4pm on 20 November 2014. Subject to further order of the Court (for which the Claimants may apply in writing with a draft of the further evidence on which they seek to rely), such evidence shall be limited to evidence of events which have occurred since 10 July 2013 (being the last day of the trial in these proceedings).

9. The Defendants shall file and serve evidence in answer to the Claimants evidence served in accordance with paragraph 8 above by no later than 4pm on 11 December 2014.

10. The Claimants may file and serve evidence in reply (if any) to the Defendants’ evidence served in accordance with paragraph 8 above by no later than 4pm on 11 December 2014.”

3. The reasons which led me to make an Order in the terms that I did are set out in the Schedule of Reasons which is appended to and forms part of that Order. I need refer in the present context only to paragraph 9 in that Schedule of Reasons:

“9. The second matter which requires explanation is the restriction on further evidence that I have included under paragraph 8 of my order. There is force in the Defendants’ submission that this is not a case in which the Court was asked to order, or did order, a split trial. The evidence on which the Claimants are entitled to rely for the purpose of assessing the quantum of their claims is the evidence that was before the Court at the trial; subject to the possibility that the quantification of those claims may be affected by reason of post-trial events. It is for that reason that I think it right to restrict the evidence which the Claimants may adduce in support of their contentions on the Quantum Determination to post-trial matters, but I leave open the possibility that there may be some further matters which justice requires the Court to consider; and, if there is, the Claimants may apply in writing to rely on evidence of those matters. But such application is to be made in advance of the Quantum Determination; and, in order to determine such application (if any), the Court will require to see, in draft at least, the further evidence on which the Claimants seek to rely.”

 4. Pursuant to the direction contained in paragraph 8 of the Order of 28 October 2014, the Claimants filed evidence on 20 November 2014. That evidence comprised:

(1)    a first witness statement (“HAS 1”) Hamdan Al-Shamsi, the principal of the firm of Lawyers and Legal Consultants which bears his name and which now represents the Claimants in these proceedings; and

(2)    the fourth witness statement (“RAK 4”) of Rafed Al-Khorafi, the first-named Claimant.

5. On the same day, 20 November 2014, pursuant to the leave granted by paragraph 8 of the Order of 28 October 2014, the Claimants filed Application Notice CFI-026-2009/21 seeking an Order that they be granted permission to adduce the second Witness Statement of Hamdan Al-Shamsi dated 20 November 2014. That application was supported by a Witness Statement of Gayle Hanlon, her fourth witness statement, dated 20 November 2014, and a document described as the second Witness Statement (“HAS 2”) of Hamdan Al-Shamsi, also dated 20 November 2014. That witness statement – which, as indicated in paragraph 8 of the Order of 28 October 2014, was to be filed as a draft – contained the evidence in relation to which the Claimants accepted they needed permission if it were to be adduced at the Quantum Determination. Application CFI-026-2009/21 of 20 November 2014, seeking permission to adduce that evidence is now before the Court for hearing and determination.

6. On 16 December 2014, the Defendants filed Application Notice CFI-026-2009/23 seeking an order in the following terms:

“1. The purported quantum evidence adduced by the Claimants and served on 20 November 2014 be excluded such that the Claimants may not rely on any of the purported evidence or the matters contained therein in support of their claims in the Quantum Determination pursuant to the Order of Deputy Chief Justice Sir John Chadwick issued on 30 October 2014.

…”

The application also sought, unnecessarily, an order that “the Claimants’ application to rely on the second witness statement of Hamdan Al-Shamsi dated 20 November 2014…be dismissed.”

7. In support of their application CFI-026-2009/23 of 16 December 2014, the Defendants relied on the Witness Statement (“RCJ 3”) of Rita Catherine Jaballah dated 15 December 2014 (her Third Witness Statement) and the documents described as “Expert Reports” (sic) of KPMG dated 15 December 2014. The application CFI-026-2009/23 of 16 December 2014 to exclude all evidence filed by the Claimants on 20 November 2014 is the second of the applications now before the Court for hearing and determination.

8. RCJ 3 is stated to be made for 3 purposes:

“(a) In opposition to the Claimants’ application of 20 November 2014 to adduce the second witness statement of Mr Al-Shamsi…;

(b)   In support of the Defendants’ application…dated 15 December 2014 to exclude all of the purported quantum evidence served by the Claimants on 20 November 2014;

(c)   To adduce the first and second reports of KPMG.”

The Claimants responded to that witness statement by filing further evidence on 7 January 2015. That evidence comprised: (i) the Fifth Witness Statement (“RAK 5”) of Mr Al-Khorafi; (ii) the Fifth Witness Statement of Ms Hanlon; and (iii) the Sixth Witness Statement (“RAK 6”) of Mr Al-Khorafi.

9. With that introduction, I turn to address, first, the Claimants’ application CFI-026-2009/21 for permission to adduce the evidence set out in HAS 2.

10. HAS 2 comprises 13 paragraphs. The first 6 paragraphs are formal or narrative; they are not controversial or probative, but I should refer to paragraph 2 which is in these terms:

“I believe that the facts stated in this witness statement are true and save where the contrary is indicated, they are based on my personal knowledge. Where matters stated in this witness statement are not derived from my own knowledge, they are derived from my review of the documents exhibited hereto or from other sources which I identify. Where the matters I set out below are not within my own knowledge, I believe the same to be true.”

Paragraphs 7, 8 and 9 of HAS 2 are grouped under the head “Losses Relating to Interest and Charges Imposed by ABK”. Paragraph 7 adds nothing to the statement at paragraph 7 of HAS 1; which refers to the final order of the Kuwait Ministry of Justice on 12 October 2014. That is a post-trial event and evidence of that event, so far as relevant, can be adduced without permission under paragraph 8 of the order of 28 October 2014. Paragraphs 8 and 9 of HAS 2 contain the breakdown of the figure in the Kuwait Ministry of Justice’s order (US$6,377,957) as between interest up to the date of trial (US$4,785,303) and interest post-trial US$1,592,654. They add nothing to paragraphs 9 and 10 of HAS 1.

11. Paragraphs 10-13 of HAS 2 are grouped under the head “Losses Relating to Interest and Charges Imposed by CBK”. Those paragraphs add nothing to the statement in paragraph 13 in HAS 1: indeed, all that those paragraphs do is split into 3 paragraphs what had previously been contained in 1 paragraph of HAS 1. But they relate to pre-trial events – that is to say, the refinancing on 23 September 2010 of part of the First and Second Claimants’ loan accounts with ABK by a new loan in the amount of KWD10.8 million from CBK. If the Claimants wish to adduce evidence of refinancing of part of the ABK loans prior to trial then, as it seems to me, they do need permission to do so for reasons explained in my Order of 28 October 2014.

12. Paragraph 3(b)(ii) and 5(b)(ii) of my Order of 28 October 2014 provided that the amount of the Defendants’ liability to the Claimants should include “losses arising out of the Claimants’ relationship with ABK”. That went beyond the statement of losses in respect of which compensation was claimed as set out at paragraph 428 of my judgment of 21 August 2014. It did so because the Court became aware at the hearing to settle the order in October 2014 that losses arising from the ABK loans might not be limited to fees and interest charged by ABK itself.

13. The first question, therefore, in this context is whether interest charged by CBK on the KWD10.8 million loan said to have been borrowed by the First and Second Claimants in order to refinance partial repayment of the ABK debt is properly to be considered as “losses arising out of the Claimants’ relationship with ABK” for the purposes of paragraphs 3(b)(ii) and 5(b)(ii) of my Order of 28 October 2014. In my view, the answer to that question is “Yes”. If the Claimants can establish by evidence that they needed to refinance the ABK debt or part of that debt in September 2010 and that borrowing from CBK was a reasonable method of funding that need, then (as it seems to me) that cost of borrowing from CBK can properly be said to be a loss arising out of their relationship with ABK.

14. The further question, then, is whether the Claimants should be permitted to adduce evidence of circumstances in which they did need to refinance the ABK debt in September 2010 and in which borrowing from CBK was a reasonable method of funding that need; given that, as the Defendants emphasize, such evidence could have been adduced at trial. In my view, the answer to that question also is “Yes”. The provision in paragraph 8 of my Order of 28 October 2014 under which the Claimants make the application for permission to adduce the evidence of pre-trial events was included for the reason mentioned in paragraph 9 of the Schedule of Reasons contained in that order; that is to say, to meet the possibility that there might be further matters which justice required the Court to consider. The effect of denying the Claimants the opportunity to advance their claims to interest on the CBK loans in relation to both pre-trial and post-trial interest would be that they would be limited to claims for interest on the ABK loans in circumstances where the amount of that interest was less than it would have been if the refinancing by means of funds borrowed from CBK had not taken place. If a claim to interest on monies borrowed by the Claimants to fund the investments which, as I have held in my judgment of 21 August 2014, would not have been made but for the Defendants’  breaches of the DFSA regulatory regime is a claim which, in principle, it is open to the Claimants to advance, then it is unjust that the Defendants should have the benefit of the refinancing of part of the ABK loan  – in the sense of a reduced claim to interest accruing on that debt – without suffering the burden of a claim to interest on the borrowing from CBK which gave rise to that benefit.

15. For those reasons, I will make the order sought by the Claimants in their application CFI-026-2009/21 of 20 November 2014. They may rely on the evidence, such as it is, set out in HAS 2. But I attach conditions to that order:

(1)  Mr Al-Shamsi must identify (in the form of a supplemental witness statement) the source of the information on which he relied in making statements which he does make in paragraphs 7 and 10-13 of HAS 2 and the corresponding statements in paragraphs 7-13 of HAS 1. Despite the promise in HAS 2 that he would do so in that witness statement, he omitted to do so. That omission needs to be repaired.

(2)  Mr Al-Shamsi must set out, in terms, the information which he received from that source.

(3)  The Claimants must ensure that the source of the information is available to give evidence and to be cross-examined on that evidence, if the Defendants so require.

(4)  The Claimants must provide to the Defendants’ legal representatives, in so far as they have not already done so, copies of the documents on which they rely in support of those statements.

If, as appears probable, the source of Mr Al-Shamsi’s information – at least in relation to paragraphs 10-13 of HAS 2 – is Mr Al-Khorafi, condition (3) should give rise to no difficulty. Mr Al-Khorafi already addresses these matters in RAK 5 and RAK 6; see paragraphs 11 and 12 of RAK 5 and paragraphs 6-10 of RAK 6.

16. I turn now to address the Defendants’ application CFI-026-2009/23 of 16 December 2014, which seeks an order that all the purported quantum evidence served on 20 November 2014 be excluded; so that the Claimants may not rely on any of that evidence in support of their claims in the Quantum Determination. As I have said, the evidence to which that application relates is that contained in HAS 1 and in RAK4. The evidence in HAS 2 does not add to that in HAS 1.

17. HAS 1 comprises 18 paragraphs. Paragraphs 1, 2 are introductory. Paragraph 3 contains a summary. It is in these terms:

“3. This witness statement relates to the losses that the Claimants suffered, in particular the additional losses that were realised and fully understood after the trial date of 11 July 2013 (“the Trial”). I have been assisted in calculating the losses by Grant Thornton UAE, a member firm within Grant Thornton International Ltd (“GT”) who have also provided a report a copy of which is respectfully submitted hereto. This witness statement will attempt to address the following matters:

a. The actual losses that the Claimants were exposed to as a result of the breaches by the Defendants;

b. The losses that the Claimants sustained after the date of the Trial; and

c. Any losses before the Trial which were only understood or realised or have appeared or materialised after the trial.

d. I do not deal in this witness statement with the Claimants’ claim for additional damages under Article 40(2) of the Law of Damages and Remedies, which will be dealt with in written and oral submission on the basis of the Judgment and evidence already filed.”

18. Paragraphs 4-6 of HAS 1 are in a section headed “Other Fees and Interest Charged by Bank Sarasin”. They contain submissions, not evidence. Paragraphs 7-10 are in a section headed “Other Fees and Interest Charged by ABK up to December 2009”. They contain clarification of the claims advanced under this head but again they are not evidence.

19. Paragraph 11 is in these terms, under the general head “Other Losses Sustained by the Claimants”

“There are three areas of loss claimed. These are:

  1. Losses relating to Mr Al-Khorafi’s property development in Kuwait;
  2. Losses relating to the interest charged by CBK;
  3. Interest foregone on losses already suffered.”

Paragraphs 12, 13 and 14 describe those three heads of claim in more detail. In particular, paragraph 12 refers to the Fourth Witness Statement of Mr Al-Khorafi without adding anything to the evidential value of the material in that statement and paragraph 13, to which I have already referred in addressing the Claimants’ application, refers to the claim for interest charged by CBK. Paragraphs 15-18 of HAS 1 are in a section headed “Losses Sustained by the Claimants”. It refers to a document described as “the GT Report” to which reference had already been made in paragraph 3 of HAS 1 – and which I have set out earlier in this judgment – and provides a summary of its contents. HAS 1 does not, as it seems to me, add to the GT Report and the GT Report is not an exhibit to that witness statement. It is said to be “respectfully submitted hereto”.

20. In my view, there is little, if anything, of evidential value in HAS 1: other than in paragraph 13 for what that is worth. In particular, I am not persuaded that the Claimants need HAS 1 in order to rely as part of the presentation of their claims at the Quantum Determination on the material on the GT Report; if, indeed, they still do rely on that report, which may have been overtaken by subsequent reports which have been obtained both from Grant Thornton and Griffin and Co. But I am not persuaded that I should exclude reliance upon that witness statement; if only because it provides a convenient summary of the case that, as at 20 November 2014, the Claimants intended to advance at the Quantum Determination. I accept, of course, that that may or may not be the same as the case that the Claimants actually choose to advance at the hearing of the Quantum Determination.

21. The purpose of RAK 4, also dated 20 November 2014, is described in paragraph 4 of that document:

“4 This witness statement relates to the sale of a plot of land which was sold by a company which I wholly own beneficially and in title own the vast majority of the shares. The sale was in June 2014 under Court Order of the Kuwaiti Courts.  The sale in June 2014 was below market value and caused the company loss and as a result a diminution in the value of my shareholding. As is explained in further detail below, that sale, and the resulting diminution in the value of my shareholding was caused by the Defendants’ mis-selling of investments.”

22. Paragraphs 5-20 of RAK 4, under the general heading “Detailed Background Leading up to the June 2014 Loss” describes a history of events from 2002 relating to the purchase by Mr Al-Khorafi and his subsequent transfer to a special purpose vehicle (RAFCO International Real Estate Co), of which Mr Al-Khorafi claims to be 100% beneficial owner, of a plot of land in Kuwait for development. It is said that, on 1 November 2007, RAFCO, Mr Al-Khorafi and ABK entered into a loan agreement under which ABK agreed to provide funds amounting to KWD11,600,000 to enable the construction of a commercial building (“the Tower”) on the plot. Mr Al Khorafi was joined in that agreement as guarantor of the loan. Put shortly, it is said that when interest payments on the loan to RAFCO became due in July 2008, Mr Al-Khorafi was under financial pressure in relation to his and his mother’s loans from ABK made in connection with the investments which they made with the Second Defendant and that he could not meet the interest payments on the RAFCO loan. RAFCO itself had not commenced trading and had no income to service its loan. In November 2009, ABK applied to the Kuwaiti Courts for an order for sale of the land. That Order was made on 10 January 2013, before the trial, and the land was sold in June 2014, after the trial. Mr Al-Khorafi as guarantor was ordered to pay the shortfall remaining outstanding on the RAFCO loan after application of the proceeds of sale of the land.

23. In those circumstances, the question for determination on this application is whether Mr Al-Khorafi’s claim to losses which he suffered by reason of the forced sale under the order of the Kuwaiti Court of the plot on which the Tower was to be built is within the scope of paragraphs 3(b)(ii) and 5(b)(ii) of the Order of 28 October 2014. That is to say, whether those losses are “losses arising out of the Claimants’ relationship with ABK”.

24. In my view, the answer to that question is “No”. In the context in which the Order of 28 October 2014 was made, including in particular the categories of loss which the Claimants had sought to recover as described in paragraph 428 of my judgment of 21 August 2014, the “Claimants’ relationship with ABK” is properly to be understood as the relationship between ABK and the Claimants – in particular the First and Second Claimants – as borrowers from ABK in relation to the funding of their purchase of investments from the Second Defendant. The description “Claimants’ relationship with ABK” cannot, in my view, be understood to include the relationship between Mr Al-Khorafi as guarantor of the RAFCO loan and ABK as lender to RAFCO under the agreement of 1 November 2007; nor to include the relationship between Mr Al-Khorafi as beneficial owner of RAFCO as borrower under that agreement and owner of the plot charged to secure that borrowing and ABK as lender.

25. In those circumstances, RAK 4 contains no evidence relevant to the claims which are to be quantified at the Quantum Determination. For that reason I exclude reliance on RAK 4 at the hearing of the Quantum Determination.

26. I invite the parties’ legal representatives to prepare draft orders to reflect my determination of their respective applications; and to submit those draft orders, together with such representations, if any, as they think fit as to any further directions which it would be sensible and convenient to include in those orders, for consideration and approval. My provisional view, subject to any further representations that may be made to me in writing, is that the costs of both applications should be reserved for further consideration after the outcome of the quantum determination is known.

27. I should mention, for convenience, that there is a third application before the Court for determination. That is an application made by the Defendants by Application Notice CFI-026-2009/25 issued on 8 January 2015 for an order that the Quantum Determination currently listed for hearing on 16 February 2015 be moved to 19 February 2015 or to an alternative date when all the parties’ senior Counsel are available. I understand that, since the issue of that application, leading Counsel for all parties have been able to inform the Court that they would be available for a hearing of the Quantum Determination on Monday 2 March 2015 with the possibility, if necessary, of an extension of that hearing into Tuesday 3 March 2015. The Court can accommodate a hearing on those dates. In those circumstances, I will make an order on that third application, by consent, that the hearing of the Quantum Determination fixed for 16 February 2015 be vacated and that the Quantum Determination be relisted for hearing on Monday 2 March 2015 with the possibility of an extension over to 3 March if necessary. The costs of that application are reserved for further consideration after the outcome of the Quantum Determination is known.

 

Issued by:
Mark Beer
Registrar
Date of Issue: 20 January 2015
At: 3pm

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