A Delaware court dismissed an appeal from Kuwait-based investor National Industries Group’s (NIG) to lift an injunction preventing Carlyle from being summoned in Kuwaiti courts.
NIG sought to reclaim $25 million it lost in a 2006 Carlyle real estate fund that collapsed in 2008, claiming that Carlyle did not have the correct licensing to market in Kuwait.
Carlyle won its case by pointing to a provision in its contract with NIG that stipulated its rights would be determined by Delaware law.
NIG agreed these rights by signing a subscription agreement with a “forum selection clause”. NIG argued the clause, and entire subscription agreement, was void due to Carlyle having not obtained the proper marketing requirements in Kuwait.
The court held that NIG cannot escape a valid “forum selection clause” by arguing that the underlying contract was invalid. NIG must have shown that the forum clause itself was invalid.
NIG were unable to respond to a request for comment at the time of press. Carlyle declined to comment on the case.
Carlyle's case highlights the need for private equity fund managers to be aware of marketing rules recently made more strict in the Middle East.
Traditionally managers promoting funds in the region – with the exception of Saudi Arabia – could fly in, meet with clients, sign subscription agreements, and fly out a few days later without worrying too much about local securities laws, often relying on “reverse solicitation” or “passive marketing” practices, without regulator interference.
But now regulators in the Middle East are taking a longer look at the marketing practices of private equity funds. GPs wanting to market in Kuwait should obtain a licence from the Kuwait Capital Markets Authority (KCMA), which can only be offered through a KCMA licensed local promoter, advise legal sources.