Legal Dispute comes to London Trial

Email Hacking, corruption, conspiracy, whistle blowing websites are words not often associated with Islamic finance, but a case being heard at London’s High Court will shine a light into the dark corners of sukuk financing gone wrong in Saudi Arabia and Bahrain.

Dar Al Arkan Real Estate Development (DAAR) and Bahrain-based Bank Alkhair are suing four defendants accusing them of reputational damage reported the Financial Times. The allegations date from 2012 and became so severe that some market participants feared DAAR would have difficulties in repaying an outstanding $1 billion sukuk due in 2012, as its borrowing costs and sukuk yields rose.

Website: Dar Al Arkan Crisis

A website titled “Dar Al Arkan Crisis” and hosted at daralarkan-crisis.com alleged “regulatory breaches and corporate malpractice” by DAAR and Bank Alkhair, who are both chaired by Sheikh Yousef Al Shelash, with his brother Sheikh Abdullatif Al Shelash, being the managing director of DAAR.

DAAR and Bank Alkhair allege the reputational damage was instigated by its former CEO who was dismissed in 2010, Majid Al-Sayed Bader Hashim Al Refai who it is claimed hired US security firm Kroll to assist on the website. In a pre-trial hearing last year Kroll alleged the Sheikh Abdullatif was in contempt of court for having deleted documents after DAAR had undertaken to preserve computer hard drives containing “hacked emails”.

English Law Dominates Sukuk Contracts

Whilst the DAAR sukuk referred to in 2012 was governed by Saudi Arabia law and was a domestic issuance, this case is being heard in London because of the perceived fairness of English Law and is for reputational damage only.

The majority of international sukuk are governed by English law. London’s prominent law firms lead the way with the likes of Allen & Overy, and Clifford Chance advising on a number of high profile recent sukuk deal, most notably the recent Emirates Sukuk guaranteed by the UK government.