Dubai to Finally Address Long-Delayed $600 Million Abraaj Case Involving KPMG Lower Gulf

11 Sep, 2023

Dubai to Finally Address Long-Delayed $600 Million Abraaj Case Involving KPMG Lower Gulf

The courts within Dubai's financial hub have finally decided to address a long-pending $600 million claim filed against KPMG Lower Gulf by the administrators overseeing the collapsed private equity firm, Abraaj. This legal case has remained in a state of uncertainty since March 2021 when Abraaj initially sought $600 million in damages, alleging lapses in KPMG's audit work conducted by its UAE-based division.

In April 2021, KPMG counterclaimed against Abraaj in Dubai's onshore courts, leading to both sets of proceedings being referred to the Joint Judicial Committee (JJC). The JJC serves as a legal entity responsible for resolving jurisdictional disputes between the local Arabic-language courts and the English-language courts of the Dubai International Financial Centre (DIFC).

In January 2022, both parties agreed to a suspension of proceedings within the DIFC. However, despite the passage of time, the JJC has yet to issue a ruling on the KPMG case, with its last decision dating back to March 2021.

During an online hearing, Justice Wayne Martin of the DIFC courts recently lifted the stay on proceedings before the DIFC courts, despite objections from KPMG's legal team. Justice Martin emphasized the court's authority to exercise its jurisdiction, especially considering the significant delay in the JJC's ruling, stating that it was strongly in the interest of justice to do so.

KPMG has indicated that it intends to appeal this decision, characterizing it as a "procedural step" that does not address the merits of the claim made by the administrators.

KPMG stated, "We will continue to vigorously defend against any claims related to the Abraaj matter, as responsibility for its failure rests with Abraaj's board and management, who committed significant fraud and deliberately misled auditors and investors."

Abraaj's founder, Arif Naqvi, who is currently contesting extradition proceedings to the United States, has consistently denied any wrongdoing, as have most former managers and board members. However, two former senior executives have pleaded guilty to fraud charges brought by the US Department of Justice.

This DIFC ruling could potentially expose KPMG to additional legal challenges stemming from its work with Abraaj. The collapse of Abraaj in 2018, burdened with $1 billion in debts, followed allegations from investors that the firm had mismanaged their funds. Former employees claim they are yet to receive their full dues. In the past year, the DIFC regulator provisionally fined KPMG and a former partner $2 million for failing to adhere to international audit standards in their examinations of Abraaj's Dubai-based holding company. Another Dubai case initiated by an Abraaj fund against KPMG initially ruled that the prominent accountancy firm was liable for damages amounting to $231 million. However, this decision was later overturned by the supreme court and remanded to the appeal court for reconsideration.

KPMG, in response to this development, expressed its welcome for the decision but refrained from further comment. Some executives at KPMG and other firms have privately cautioned that substantial potential fines linked to their audit work for major regional enterprises facing financial difficulties could undermine their capacity to perform audit functions in the future. Auditors are currently grappling with various cases in other jurisdictions involving questionable accounting practices linked to other corporate collapses.