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The courts of Dubai’s financial centre have decided to hear a long-delayed $600mn claim against KPMG Lower Gulf made by the administrators of collapsed private equity firm Abraaj.
The case has been stuck in legal limbo since March 2021, when Abraaj first claimed $600mn in damages for alleged lapses in audit work by KPMG’s UAE-based business.
In April 2021, KPMG brought a competing claim against Abraaj in Dubai’s onshore courts. The two sets of proceedings were referred to the Joint Judicial Committee, a legal body that adjudicates on jurisdiction between the local, Arabic-language courts and the common-law, English-language courts of the Dubai International Financial Centre.
Both parties then agreed a stay on DIFC proceedings in January 2022. But the JJC, which has yet to provide its ruling on the KPMG case, has not published a decision since March 2021.
In an online hearing, the DIFC courts’ Justice Wayne Martin last week lifted the stay on the proceedings before the DIFC courts, despite objections from KPMG’s legal team.
“This court can exercise its jurisdiction and, given the inordinate delay [in the JJC ruling], it is very strongly in the interest of justice for this court to do so,” he said.
KPMG, which will appeal against the decision, described it as a “procedural step” that “did not address the merits of the claimant’s suit”.
“We will continue to robustly defend any claim related to the Abraaj matter,” KPMG said. “Responsibility for its failure lies with Abraaj’s board and management who committed significant fraud and deliberately misled the auditors and investors.”
Abraaj founder Arif Naqvi, who is contesting extradition proceedings to the US, has denied any wrongdoing, as have most former managers and board members. Two former senior executives have pleaded guilty to fraud charges brought by the US Department of Justice.
The DIFC ruling could open KPMG up to further legal problems stemming from its work for Abraaj, which collapsed with $1bn in debts in 2018 after investors accused the firm of mishandling their money. Former members of staff say they have yet to receive their full dues.
The DIFC’s regulator last year provisionally fined KPMG and a former partner $2mn for failing to follow international standards in its audits of Abraaj’s Dubai-based holding company.
Another Dubai case brought by an Abraaj fund against KPMG ruled that the big four accountancy firm was liable for damages of $231mn. That ruling was overturned by the supreme court and sent back to the appeal court for a rehearing. KPMG said it welcomed the decision, declining to comment further.
Executives at KPMG and other firms have privately warned that large potential fines relating to audit work for big regional businesses that run into trouble could undermine their ability to carry out audit functions in the future.
Auditors face a number of cases in other jurisdictions over questionable accounting involved in other corporate collapses.
Additional reporting by Michael O’Dwyer