Sao Paulo Development sues Nakheel

The company that bought Sao Paulo on Nakheel's The World islands is suing the developer over an allegedly scrapped consolidation agreement.

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The developer that bought the Sao Paulo island in Dubai's The World project is suing Nakheel for allegedly backing out of a deal to transfer its payments into another development.

Sao Paulo Development says in a Dubai World Tribunal claim that it made Dh17.45 million (US$4.7m) in payments to Nakheel, the master developer behind The World, a man-made archipelago off the Dubai coastline representing the globe. The island development was put on hold in the wake of Dubai's property-market downturn, and Sao Paulo says it agreed early last year to transfer its investment to plots in other Nakheel projects.

Nakheel allegedly backed out of that deal, however, even after Sao Paulo put up an additional Dh3.57m of "fresh cash" to ensure it went forward.

Reza Bijani, who has brokered hundreds of such consolidations, had helped arrange for the payments to be transferred into plots in Nakheel's Jumeirah Village project that were originally reserved by Diamond Developers, a local company that is also a plaintiff in the suit. Some of the money was also to be put towards a Palm Jumeirah property.

But the claim says the consolidation was cancelled after a shake-up of Nakheel's board of directors in March last year, when Ali Lootah was appointed its chairman. As the company shifted its oversight and direction, the complaint claims, the plaintiffs were not informed. "Nakheel as of a policy were re-examining consolidations of properties relating to The World," Sao Paulo says.

Instead, it alleges, Nakheel maintained a "deliberate silence" after the management changes, which misled Sao Paulo into believing there "was nothing wrong" with the consolidation.

The suit seeks a declaration that the consolidation agreement is binding and an order directing Nakheel to issue completion certificates on the Jumeirah Village plots that Sao Paulo wants.

Sao Paulo and Diamond Developers, a property company based in Dubai, are also seeking interest, court costs and damages in the Tribunal, a special court set up to hear claims against Dubai World and its subsidiaries, which include Nakheel.

Because the consolidation failed to go through, Diamond claims it has "been unable to issue completion certificates or secure payment of final instalments from purchasers of over 253 property units. The direct financial exposure of Diamond is approximately Dh45m due in payments obligated to contractors and other third parties".

The claim follows a recent ruling in another consolidation case that also involved Diamond. In that action, Diamond won an initial Tribunal decision forcing Nakheel to honour a consolidation agreement. But the Tribunal on Sunday made a further judgment saying Nakheel could charge about Dh600,000 of delay penalties on Diamond's Jumeirah Village properties despite the agreement.

Fares Saeed, the chief executive of Diamond, said he expected completion certificates to be issued within a week. Construction is complete on the properties in Jumeirah Village that were the subject of the dispute, he said.

Nakheel declined to comment and Sao Paulo could not be reached for comment.