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High Court turns down Kuwait Finance House claim over Canterbury funding

The High Court in Nelson has turned down a US$3.4 million claim by Islamic investment firm Kuwait Finance House against a fellow investor in the failed Christchurch clothing manufacturer Canterbury.

The Kuwaiti firm asked the court to uphold a ruling in the Bahrain Chamber for Dispute Resolution against Berkeley, California-based David Teece to repay funds provided to the former apparel maker in 2008. Associate Judge John Matthews 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," according to a written judgment published today.

"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.

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 Teese's stake.

The dispute arose from a 2008 transaction 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.

Under the arrangement, Teece would buy commodities from the investment firm, then on-sell them to Canterbury, which would then sell them back to Kuwait Finance House.

Canterbury was placed into receivership in mid-2009 without paying any cash to either Teese or Kuwait Finance House, and the investment firm then advised Teece it might seek to enforce the agreement against him.

In 2011, the Kuwaiti firm filed a claim against Teese in the Bahrain chamber, which ruled against him in February 2012.

The judge said that although Teece acknowledged he received some documents in Arabic and the decision of the chamber that he was served, there wasn't any evidence he was formally served with the proceeding, and he didn't participate in the process before the chamber.

Teese accepted the Bahrain chamber decision was for a definite sum of money and was a final and conclusive determination, but claimed it wasn't a court and didn't have jurisdiction over the dispute.

Because the New Zealand judge determined the chamber wasn't a court, he didn't have to decide whether it had jurisdiction over the dispute, whether its decision met the principles of natural justice, or whether it should be enforced in New Zealand.