The High Court in Nelson has turned down a US$3.4 million ($4.35 million) claim by Islamic investment firm Kuwait Finance House against a fellow investor in the failed Christchurch clothing maker Canterbury.
The Kuwaiti firm had asked the court to uphold a ruling in the Bahrain Chamber for Dispute Resolution against California-based David Teece to repay funds provided to the former apparel maker in 2008.
Associate Judge John Matthews, in a judgment published yesterday, turned down the bid for a summary judgment, saying the chamber wasn't a court, rather it was "a statutory alternative dispute resolution tribunal for certain specified claims".
"The chamber is run as an autonomous business unit under the governance of a board of trustees and the management of a chief executive, with a separate budget and public reporting obligation which is subject to audit, and there is a statutory provision for its representation before the Courts of Bahrain," the judge said.
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Kuwait Finance House invested $20 million in Canterbury in 2003 after expansion plans had put its cash flow under pressure, and the investment firm eventually became the clothing manufacturer's biggest shareholder, diluting Teece's stake.
The dispute arose from a 2008 deal where Kuwait Finance House agreed to provide funding of US$3 million to Canterbury, which was in financial strife at the time, and structured in a way that it didn't involve interest, so it was compliant with Islamic law, and wasn't a direct investment.
Teece would buy commodities from the investment firm, then on-sell them to Canterbury, which would sell them back to Kuwait Finance House.
Canterbury was put in receivership in mid-2009 without paying any cash to either Teece or Kuwait Finance House, and the investment firm then advised Teece it might seek to enforce the agreement against him.
In 2011, it filed a claim against Teece in the Bahrain chamber, which ruled against him in February 2012.
Because Judge Matthews ruled the chamber wasn't a court, he didn't have to decide if it had jurisdiction over the dispute, whether its ruling was natural justice, or if it should be enforced in NZ.