This amended order by Justice Sir John Chadwick addresses the procedural boundaries of pleading statutory breaches under the Regulatory Law, specifically permitting the Claimants to introduce claims against the Second Defendant for unlicensed financial activities.
What specific claims did the Claimants seek to add against Bank Sarasin & Co Limited in CFI 026/2009?
The Claimants, Mr. Rafed Abdel Mohsen Bader Al Khorafi and others, sought to amend their pleadings to introduce a substantive claim against the Second Defendant, Bank Sarasin & Co Limited (Sarasin Switzerland). The core of this dispute involves allegations that the Second Defendant engaged in financial services within the DIFC without the requisite authorization from the Dubai Financial Services Authority (DFSA). The Claimants argued that these activities constituted a breach of the Financial Services Prohibition under the Law.
By seeking these amendments, the Claimants aimed to invoke Article 65(1) of the Law to recover funds paid under agreements they alleged were unenforceable due to the Second Defendant’s lack of a license. The dispute centers on whether the Second Defendant’s actions—specifically dealing in investments, arranging credit, and providing financial advice—fell within the scope of regulated activities under the DFSA rules. As noted in the court's order:
Save as provided in paragraphs 1 and 2 of this Order the Claimants' application for permission to amend or re-amend the Claim From and to further re-amend the Re-amended Particulars of Claim is refused.
Which judge presided over the application for permission to amend the pleadings in CFI 026/2009?
The application was determined on the papers by Justice Sir John Chadwick, sitting in the DIFC Court of First Instance. The order was issued on 23 April 2013, following an earlier order dated 15 April 2013, which required subsequent amendment.
What arguments did the Claimants advance regarding the Second Defendant’s compliance with the DFSA regulatory framework?
The Claimants contended that Sarasin Switzerland operated as an unauthorized person within the meaning of Article 42(3) of the Law. Their legal position was that the Second Defendant carried out financial services by way of business, contrary to Article 41 of the Law. Specifically, the Claimants argued that the Second Defendant’s activities—including the provision of investment advice and the arrangement of credit facilities—constituted "dealing in investments" and "arranging credit" as defined under the DFSA’s General Module (GEN).
The Claimants asserted that because these services were provided without a license, the resulting agreements were unenforceable. Consequently, they sought to amend their Statement of Claim to include a prayer for relief under Article 65(1), which allows for the recovery of money paid and compensation for losses sustained as a direct result of payments made under agreements entered into in breach of the Financial Services Prohibition.
What was the precise doctrinal issue regarding the amendment of the Claim Form and Particulars of Claim?
The court had to determine whether the proposed amendments met the threshold for permission under RDC 18.2(2). The doctrinal issue was not whether the Claimants would ultimately succeed on the merits of their statutory claim, but whether the proposed amendments were sufficiently pleaded to allow the court to adjudicate the alleged breach of the Financial Services Prohibition. The court had to balance the Claimants' right to refine their case against the procedural fairness owed to the Defendants, ensuring that the new allegations were clearly defined and linked to the relevant statutory provisions of the Law.
How did Justice Sir John Chadwick apply the test for permitting amendments to the pleadings?
Justice Sir John Chadwick’s reasoning focused on the specificity of the allegations regarding the breach of the Financial Services Prohibition. By granting permission to add paragraphs 138A through 138D, the court allowed the Claimants to formalize the assertion that Sarasin Switzerland was not an authorized person and that its transactions with the Claimants were conducted in breach of Article 41. The judge permitted the inclusion of the claim for recovery under Article 65(1), provided the Claimants adhered to the strict procedural timeline.
However, the court exercised its discretion to limit the scope of the amendments, refusing permission for any additions not explicitly provided for in the order. The judge’s approach ensured that the litigation remained focused on the specific statutory violations alleged. As stated in the order:
The costs of and incidental to making the amendments to the Claim Form and the Re-Re-Amended Particulars of Claim shall be paid by the Claimants in any event.
Which specific sections of the DIFC Law were central to the Claimants' application?
The application relied heavily on the regulatory framework governing financial services in the DIFC. Specifically, the Claimants invoked:
- Article 41: The Financial Services Prohibition, which mandates that no person shall carry on a financial service in the DIFC unless authorized by the DFSA.
- Article 42(3): Defining the status of an "authorized person."
- Article 65(1): Providing the mechanism for recovery of money paid and compensation where an agreement is entered into in breach of the Financial Services Prohibition.
How did the court address the costs associated with the amendments?
The court’s order regarding costs was designed to compensate the Defendants for the procedural burden caused by the Claimants' late-stage amendments. The order stipulated that the Claimants bear the costs of the application and any costs incurred by the Second Defendant in amending its Defence to address the new allegations. As specified in the order:
The Claimants shall pay to the Defendants the costs of this application and the costs of and incidental to amendments to the Second Defendant's Defence which are consequential to the amendments (if any) to the amended (or re-amended) Claim From and the Re-Re Amended Particulars of Claim.
What was the final disposition of the Claimants' application for permission to amend?
The application was granted in part. The Claimants received permission to amend the Claim Form to include the claim for breach of the Law and to add a specific prayer for relief under Article 65(1). They were also permitted to add detailed paragraphs to their Re-Amended Statement of Claim outlining the alleged unlicensed activities of Sarasin Switzerland. All other requests for amendment were refused. The Claimants were ordered to file and serve their re-re-amended documents by 4:00 PM on 18 April 2013, and the Second Defendant was granted 14 days thereafter to file an amended Defence.
What are the wider implications for practitioners regarding statutory claims in the DIFC?
This order highlights the court's willingness to allow the introduction of statutory claims for unlicensed financial services, provided they are pleaded with sufficient detail regarding the specific DFSA rules allegedly breached (e.g., GEN rules 2.7, 2.9, 2.11, and 2.14). Practitioners should anticipate that the DIFC Court will require a clear nexus between the alleged conduct and the specific prohibitions in the Law. Furthermore, the court’s strict approach to costs—ordering the Claimants to pay costs "in any event"—serves as a warning that procedural amendments late in the litigation process will carry significant financial consequences for the applicant.
Where can I read the full judgment in MR RAFED ABDEL MOHSEN BADER AL KHORAFI v BANK SARASIN-ALPEN [2013] DIFC CFI 026?
The full text of the Amended Order can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0262009-amended-order-justice-sir-john-chadwick or via the CDN link: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/court-first-instance/DIFC_CFI-026-2009_20130423.txt.
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| AL KHORAFI v BANK SARASIN-ALPEN | [2011] DIFC CA 026 | Contextual history of the proceedings |
Legislation referenced:
- Law Article 41
- Law Article 42(3)
- Law Article 65
- Law Article 65(1)
- RDC Rule 18.2(2)
- DFSA GEN Rule 2.2
- DFSA GEN Rule 2.7
- DFSA GEN Rule 2.9
- DFSA GEN Rule 2.11
- DFSA GEN Rule 2.14