Del. SC hears Kuwaiti investment contract case

By Jessica M. Karmasek | May 2, 2013

WILMINGTON, Del. (Legal Newsline) -- The Delaware Supreme Court on Wednesday heard a Kuwaiti firm's appeal of a lower court ruling denying it the protection of Kuwaiti law over an investment contract that was negotiated and signed in the country and marketed to foreign investors.

In the disputed ruling, Chancellor Leo Strine refused in October to allow National Industries Group, a prominent Kuwaiti holding company, to pursue a Kuwaiti lawsuit alleging fraud and deceit against units of the Carlyle Group, one of the world's largest private equity firms.

The lawsuit stems from Carlyle's sale of shares in a supposedly safe fixed-income fund that collapsed in 2008, wiping out NIG's $25 million investment.

NIG alleges that not only did Carlyle's salespeople allegedly misrepresent the safety of the underlying investments and the "conservative parameters" for managing the fund, but they also allegedly failed to disclose that Carlyle lacked the necessary license to legally offer the investments in Kuwait.

Under Kuwaiti law, selling securities without a license nullifies a transaction.

Carlyle is fighting to avoid Kuwaiti jurisdiction for fear of having to return NIG's investment.

NIG argues that Strine improperly upheld terms of the investment contract requiring that any disputes be heard in the court.

NIG contends that such contract language is impermissible as a matter of Delaware legislative authority and Delaware common law.

The judge also improperly disregarded Kuwaiti law by not giving due deference to the opinions of a Kuwaiti legal expert who testified in Delaware, NIG argues.

"The case will either demonstrate that foreign contracts are legitimate and subject to the sovereign laws of nations or that a U.S. firm -- in this case, the private-equity giant Carlyle Group -- can simply change jurisdictions when it violates the terms of the foreign contract," NIG said in a statement ahead of this week's hearing.

"The end result will have a significant and potentially chilling impact on the willingness of international entities to invest with U.S. firms."

The state's high court agreed to hear the case Wednesday, en banc.

The court, because of the state's growing number of corporations, is considered a respected source of corporate law decisions.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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