What was the nature of the Merab Credit Claim in CFI 029/2018 and why was the SAR 1,718,750 amount in dispute?
The lawsuit involves a commercial dispute between The Industrial Group Ltd (the Claimant) and its former employee, Abdelazim El Shikh El Fadil Hamid (the Defendant). The Claimant sought to hold the Defendant liable for an alleged unauthorized "one-off" grant of credit to a customer named Merab Establishment for Trading. The Claimant contended that this credit authorization, which occurred on 2 September 2015, resulted in a financial loss of SAR 1,718,750 when goods were supplied by the Claimant’s subsidiary, SAAF Technologies Limited (STL).
The dispute centers on the Defendant’s alleged breach of his employment contract or a breach of the implied duty to exercise reasonable care in his capacity as a senior official. The Claimant argued that the Defendant’s actions led to the loss of the aforementioned sum. However, the court found the initial pleading of this claim to be procedurally flawed. As noted in the court's reasoning:
The pleading of the Merab Credit Claim inserted into the POC on 17 March 2020 is unacceptable for the following reasons.
The core of the conflict lies in the Claimant’s attempt to link the Defendant’s past authorization to the specific loss of SAR 1,718,750, a link the court found insufficiently articulated in the initial Points of Claim (POC).
Which judge presided over the 26 March 2020 Application in the DIFC Court of First Instance?
The application was heard and determined by Justice Sir Richard Field in the DIFC Court of First Instance. The resulting order, which addressed the strike-out application and the procedural requirements for the substitute claim, was issued on 27 May 2020.
What were the primary arguments advanced by The Industrial Group and Abdelazim El Shikh El Fadil Hamid regarding the Merab Credit Claim?
The Defendant moved to strike out the Merab Credit Claim, arguing that the pleading was procedurally deficient and failed to meet the standards required by the Rules of the DIFC Courts (RDC). Specifically, the Defendant highlighted that the claim was not raised until February 2019—ten months after his dismissal—despite the underlying events occurring in 2015. Furthermore, the Defendant argued that the approval of the transaction fell under specific internal credit policies rather than the ones alleged by the Claimant.
The Claimant, in its Reply dated 9 April 2020, attempted to defend the inclusion of the Merab Credit Claim within the existing POC. The Claimant maintained that the allegations were sufficient to establish a breach of duty. However, the court found that the Claimant’s approach—which involved burying the claim within particulars of other transactions and relying on annexed documents—violated the fundamental principles of clear, concise pleading. While the court rejected the Defendant’s argument that the legal duty was not pleaded, it agreed that the factual basis and the causal link to the loss were inadequately presented.
What was the precise doctrinal issue the court had to resolve regarding the sufficiency of the Merab Credit Claim?
The court had to determine whether the Claimant’s pleading of the Merab Credit Claim complied with the requirements for a "free-standing" pleading under RDC 17.17. The doctrinal issue was whether a party is permitted to incorporate complex claims into existing particulars of claim by reference to annexed reports or documents, or whether such a practice subverts the purpose of pleadings. The court also had to address the threshold for causation: whether the Claimant had sufficiently pleaded how the alleged "one-off" credit grant directly caused the loss of SAR 1,718,750, particularly given that the debt was owed to a subsidiary (STL) and that subsequent payments had been made by the customer.
How did Justice Sir Richard Field apply the test for acceptable pleadings to the Merab Credit Claim?
Justice Sir Richard Field applied a strict standard for pleadings, emphasizing that they must be self-contained and clear. He identified three specific failures: the claim was not free-standing, it was impossible to decipher due to its integration into existing paragraphs, and it failed to explain the causal link between the breach and the loss. Despite these failures, the judge exercised his discretion to allow the Claimant a final opportunity to rectify the pleading rather than permanently barring the claim.
Despite the deficiencies identified in paragraphs (2), (3) and (4) above, I do not think the Claimant should here and now be shut out from pursuing the Merab Credit Claim.
Instead, I am persuaded that the Claimant should be given one last chance to produce an acceptable pleading that addresses the identified deficiencies.
The judge reasoned that the Claimant must draft a substitute claim that is entirely separate from the POC, avoiding the annexation of contractual documents unless the case is truly exceptional.
Which specific RDC rules and legal principles did the court apply to the strike-out application?
The court primarily relied on RDC 17.17, which governs the requirements for statements of case. Justice Sir Richard Field emphasized that the purpose of pleadings is to set out a party’s case in a free-standing document in clear, concise language. He noted that the practice of annexing documents to pleadings is generally discouraged and should be reserved only for exceptional cases involving a vast number of terms and conditions. The court also referenced its previous Order and Reasons issued on 3 March 2020, noting that the Claimant had failed to adhere to the procedural directions set out therein.
How did the court treat the Defendant’s additional arguments regarding the timing and nature of the Merab transaction?
The court addressed the Defendant’s arguments regarding the delay in bringing the claim and the specific credit policy clauses involved. Regarding the timing, the Defendant noted:
(a) The Merab claim was not raised until February 2019, 10 months after the Defendant was dismissed, yet it is based on events occurring in 2015.
Regarding the customer relationship, the Defendant argued:
(c) The Defendant was one of several senior officials of the Claimant who approved the sale of product to Merab, a long-standing customer of the Claimant’s subsidiary and the biggest single customer of the Claimant at the time.
Justice Sir Richard Field rejected these arguments as grounds for striking out the claim at this stage. He held that these issues involved questions of fact that could only be resolved at trial, rather than through a procedural strike-out application.
What was the final disposition of the 26 March 2020 Application and the orders regarding costs?
The court granted the application to strike out the Merab Credit Claim as it was currently pleaded. However, it granted the Claimant liberty to serve a new, free-standing, compliant substitute claim within 14 days. The court also provided a mechanism for the Defendant to restore the strike-out application if the new pleading remained deficient. Regarding costs, the court ordered:
The Claimant will pay the costs of: (i) the 26 March 2020 Application; and (ii) the Defendant’s costs incurred in pleading to the substituted claim if that claim is not struck out on a restoration of the 26 March 2020 Application.
Additionally, the court clarified the potential for future action:
If the Claimant exercises the liberty granted in (2) above to serve a substitute Merab Credit Claim and there are good arguable grounds for striking out the said claim, the Defendant shall have liberty to restore the 26 March 2020 Application.
What are the wider implications of this ruling for DIFC practitioners regarding the drafting of pleadings?
This order serves as a stern reminder that the DIFC Courts maintain a low tolerance for "lazy" or "messy" pleadings. Practitioners must ensure that every cause of action is articulated in a free-standing document that does not rely on the reader to cross-reference annexed reports or affidavits. The ruling reinforces that the court expects clarity and precision, particularly regarding the causal link between an alleged breach and the specific financial loss claimed. Litigants should anticipate that failure to adhere to these standards will result in strike-out orders, potentially coupled with adverse costs, even if the court grants leave to amend as a matter of last resort.
Where can I read the full judgment in The Industrial Group Ltd v Abdelazim El Shikh El Fadil Hamid [2020] DIFC CFI 029?
The full judgment can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0292018-industrial-group-ltd-v-abdelazim-el-shikh-el-fadil-hamid-5
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| The Industrial Group Ltd v Abdelazim El Shikh El Fadil Hamid | CFI 029/2018 | Order and Reasons issued on 3 March 2020 |
Legislation referenced:
- RDC 17.17 (Requirements for Statements of Case)