This order addresses the final mechanics of calculating interest on losses and the allocation of legal costs following the long-running banking litigation between the Claimants and the Bank Sarasin entities.
What specific interest rate methodology did the Claimants and Defendants dispute in the quantum determination of CFI-026-2009?
The dispute centered on identifying the appropriate benchmark for interest on the Claimants' losses, as previously ordered by the Court in November 2015. The Claimants sought a rate derived from unauthorized overdrafts, while the Defendants proposed a significantly lower rate of 1.291% per annum, or alternatively, a rate based on 75% above the US Federal Reserve base rate. The Court found neither proposal acceptable, opting instead for the rate charged by the Second Defendant to commercial customers in good standing.
The Court’s rejection of the parties' extreme positions was definitive. Regarding the Defendants' arguments, the Court noted:
It follows that the Court rejects the Defendants’ contention that the applicable rate of interest for the purposes of paragraph 4 of the November 2015 Order is 1.291% per annum. 15. For completeness, the Court rejects the contention that the applicable rate of interest for the purposes of paragraph 4 of the November 2015 Order is 75% per annum above the US Federal Reserve base rate from time to time.
This determination ensures that the interest calculation reflects the actual commercial relationship between the bank and its clients, rather than punitive or artificially suppressed figures. The full judgment is available here.
Which judge presided over the 16 January 2017 order in the DIFC Court of First Instance?
Justice Sir John Chadwick presided over this matter in the Court of First Instance. This order follows a complex procedural history, including earlier significant rulings such as the AL KHORAFI v BANK SARASIN-ALPEN [2011] DIFC CFI 026 — Jurisdictional dismissal of foreign banking entity (31 March 2011) and the RAFED ABDEL MOHSEN BADER AL KHORAFI v BANK SARASIN-ALPEN [2010] DIFC CFI 026 — Partial strike out and security for costs order (03 August 2010).
What were the opposing legal arguments regarding the allocation of costs for the Quantum Determination?
The Claimants, represented by Hamdan Al Shamsi Lawyers and Legal Consultants, argued that they were the successful parties in the Quantum Determination and should be awarded costs accordingly. They specifically sought to avoid the Defendants' attempts to minimize their liability by challenging the scope of the costs. Conversely, Clifford Chance, acting for the Defendants, argued for a more limited recovery, attempting to isolate specific applications—such as those from 16 December 2014—from the general costs award.
The Court addressed the Claimants' position on the Defendants' attempts to limit the scope of the recovery:
In reaching that conclusion the Court rejects the submission that the Claimants are attempting to “piggy back onto the Court’s previous award of indemnity costs against the First Defendant”.
The Court ultimately sided with the Claimants on the general principle of success, while carving out specific applications for separate assessment.
What was the precise legal question regarding the First Defendant’s pre-litigation misconduct and its impact on the indemnity costs award?
The Court had to determine whether the established finding of pre-litigation misconduct by the First Defendant, Bank Sarasin-Alpen (ME) Limited, necessitated an award of costs on an indemnity basis for the Quantum Determination. The Court had previously determined that the First Defendant had deliberately breached the regulatory regime governing financial services in the DIFC.
The Court framed the inquiry as follows:
In relation to the First Defendant the Court must ask itself whether that finding of pre-litigation misconduct, made at an earlier stage in this litigation, should lead to an award of costs on an indemnity basis at this stage also.
This required the Court to weigh the gravity of the initial regulatory breach against the specific costs incurred during the quantum phase of the proceedings.
How did Justice Sir John Chadwick apply the test for indemnity costs in light of the First Defendant’s prior conduct?
Justice Sir John Chadwick applied the principle that the Court must mark its disapproval of conduct that deviates from the regulatory regime. Having previously found that the First Defendant acted in breach of the DIFC financial services regulations, the Court concluded that this conduct justified an indemnity basis for costs.
The reasoning for this decision was explicitly stated:
In my judgment of 21 August 2014, I found that the First Defendant, Bank Sarasin-Alpen (ME) Limited, had deliberately decided to act in breach of the regulatory regime applicable to those institutions providing financial services in the DIFC. That, in my view, is conduct in relation to which this Court ought to mark its disapproval by making an order for costs on an indemnity basis.”
This approach ensures that the cost consequences of the litigation are proportional to the severity of the party's underlying regulatory failures.
Which RDC rules and specific statutes were cited by the Court to govern the assessment of costs and interest?
The Court relied heavily on the Rules of the DIFC Courts (RDC) to manage the mechanics of the costs award. Specifically, RDC 38.1 was applied to govern the payment of interest on costs, ensuring that the receiving party is compensated for the time value of money from the date of payment to their legal representatives. Additionally, RDC 38.13 was invoked regarding the Claimants' application for an interim payment on account of costs.
The Court noted the permissive nature of the rules regarding interim payments:
The Rule is permissive: where the Court has ordered a party to pay costs it may order an amount to be paid on account before the costs are assessed.
These rules provided the procedural framework for the Court to manage the transition from the substantive quantum determination to the final assessment of legal expenses.
How did the Court utilize previous case law to resolve the dispute over the Quantum Determination?
The Court utilized the precedent of Payment into Court [CFI 036/2014] to inform its approach to the assessment of costs and the handling of payments into court. By referencing this authority, the Court maintained consistency in how it treats the allocation of costs when parties have made strategic applications or payments during the course of the litigation. The Court also relied on its own previous orders in the Al Khorafi case family, specifically the November 2015 Order, to define the scope of the interest rate inquiry.
What was the final disposition regarding the interest rate certificate and the liability for costs?
The Court ordered the Second Defendant to file a certificate within 28 days specifying the interest rates charged for regulated overdrafts between 8 October 2008 and 2 December 2014. Regarding costs, the Court ordered that the First Defendant pay the Claimants' costs of the Quantum Determination on an indemnity basis, while the Second Defendant is liable on a standard basis, subject to specific exclusions.
The Court’s summary of the success of the Claimants was clear:
The Court accepts the Claimants’ submission that they were the successful parties in the Quantum Determination; and is satisfied that, in all the circumstances of this case, there is no reason to depart from the general rule that the Defendants should pay the Claimants’ costs (other than those relating to the costs of the Defendants’ application of 16 December 2014).
The order also established that the Claimants and Defendants must bear the costs of the 16 December 2014 applications on a joint and several basis, to be assessed if not agreed.
What are the wider implications of this order for banking litigation in the DIFC?
This order serves as a critical precedent for how interest rates are determined in banking disputes where the contract rate is ambiguous or contested. By mandating the disclosure of "regulated overdraft" rates for customers in good standing, the Court has provided a clear evidentiary path for future litigants to quantify losses. Furthermore, the ruling reinforces that pre-litigation regulatory misconduct will continue to influence the Court’s exercise of its discretion regarding indemnity costs, signaling to financial institutions that regulatory compliance is a factor that extends into the courtroom.
Where can I read the full judgment in RAFED ABDEL MOHSEN BADER AL KHORAFI v BANK SARASIN-ALPEN [2017] DIFC CFI 026?
The full judgment can be accessed via the DIFC Courts website here or via the CDN link here.
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| Payment into Court | CFI 036/2014 | Procedural guidance on costs assessment |
Legislation referenced:
- Rules of the DIFC Courts (RDC) 38.1
- Rules of the DIFC Courts (RDC) 38.13