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17 April 2024

'Investor to bear penalty for early fund liquidation'

By Mohammed Al Sadafy

The task of a portfolio investment manager is to pick the right stocks and bonds at the right time to earn the maximum possible return for the investment fund he is managing, according to a new legal principle established by the Dubai Court of Cassation.

The court also said the investment manager should ensure that the fund has a diversified portfolio of stocks and bonds and must try to avoid investing in risky shares.

The court explained further that the fund manager’s primary responsibility is to the company that established the fund and not to the investor.

The court also said that if there is a dispute between a client and an investment fund, the trial court is competent to judge which party is at fault.

These legal principles were established by the court while considering an appeal made by an investor against a bank operating in UAE, requesting cancellation of the contract between them and refunding of $152,000 by the bank.

The investor claimed in his lawsuit that he had signed with the bank a contract to invest the amount in stocks and bonds for seven years. He claimed that the bank had not given him periodic statements or enabled him to access the bank’s web site to check on his investment.

The Court of First Instance dismissed the case but the investor appealed the sentence. The Court of Appeal also rejected the case. The investor then appealed the ruling before the Court of Cassation which issued the above-mentioned principles.

The investor accused the bank of breaching the contract by failing to protect the amount invested and to ensure a return of 50 per cent. He also said the bank had appointed a new investment manager, indicating that the former manager had failed.

But the court rejected the investor’s contention, ruling that the contract says the bank will not be liable for any loss of investment opportunity except in the case of willful neglect.

The court added that the investor should bear the penalty if he seeks early liquidation of the investment.

The court said it was clear from the documents of the case that the bank did not breach its obligations and that the bank had replied to the letter of the investor requesting dissolution of the investment. It had sent him a fax stating the market price of his investment and seeking his consent in writing to sell but the investor had refused on the ground that the price mentioned by the bank is less than the market price.

The court added that the investor had failed to prove his claim of a loss sustained or loss of a better investment opportunity as the reason for seeking dissolution of the investment.