Dubai loan dispute gets UK hearing

Roger Pearson reports on the court battle between the Al Fayeds and the Government of Dubai

The Dubai government looks set to face accusations, in a pending High Court breach of contract action, of using a loan as a tool for political pressure against Mohammed Al Fayed and his brothers.

The dispute is over a $7 million (u4.5 million) loan to a shipping company and the Commercial Court has paved the way for it to be heard here rather than in the Middle East.

Mr Justice Potter has rejected a bid by the National Bank of Fujairah, which is part owned by the Dubai government, to have the dispute decided by the courts of Dubai or Fujairah.

Instead, he upheld an earlier High Court ruling giving Al Fayed owned International Marine Services (IMS) leave to issue a High Court writ here against the bank and serve it out of the jurisdiction in Fujairah.

IMS was one of a group of companies engaged in ship chartering and other services for the onshore and offshore oil production industry in the Middle East and South East Asia. It is incorporated in Panama but is a wholly owned subsidiary of the Dubai Trade and Trust Company.

For the five years up to July 1993 the IMS had a good relationship with the bank through its branch in Dubai and was granted substantial loans which had been repaid.

In 1993 it required capital to finance the purchase of utility vessels and on 5 July, 1993, with wholly owned subsidiary Gray Marine Services SA, entered into the $7 million loan agreement with the bank.

On 7 July the bank advised IMS's Swiss bankers that the money was to be transferred. But the payment advice was cancelled before the sum was transferred.

The bank is said to have cited concern over trade licence registration as its reason for withholding the loan. Despite a subsequent letter from the Economic Department of the Dubai Government, which appeared to indicate the licence was in order, the bank continued to withhold the loan and IMS is treating failure to advance the money as a repudiatory breach of contract.

Mr Justice Potter said at the recent hearing that IMS claimed the bank's stance was due to "political pressure" from the Dubai government.

It was alleged that a wholly owned subsidiary of IMS had recently refused a Government request to terminate, without compensation, a long term agreement under which they managed the Dubai International Trade and Exhibition Centre. Arbitration proceedings in which $65 million (u41.8 million) were being claimed in respect of this had been launched in April 1993 against the Ruler of Dubai and it was claimed that from June 1993 there had been a reversal of the previous willingness of the Dubai Government and its trading companies to enter into new business with IMS.

The Dubai Government is also said to have refused, without explanation, to renew passports of members of the Al Fayed family owning IMS's parent company.