The DIFC Court of First Instance has awarded USD 4,199,519.22 to Alawwal Capital JSC, finding Rasmala Investment Bank Limited liable for losses sustained in a Shariah-compliant trade finance fund, while clarifying the boundaries of "Fund Manager" status under DIFC regulatory law.
What were the specific financial stakes and the nature of the dispute between Alawwal Capital JSC and Rasmala Investment Bank Limited in CFI 038/2023?
The dispute centered on losses incurred by Alawwal Capital JSC, a Saudi Arabian investment firm, following its participation in the Rasmala Trade Finance Fund, a Cayman Islands-based mutual company. Alawwal invested over USD 10 million between March and December 2019, but following the suspension of redemptions in March 2020, the claimant sought damages for misrepresentation, breach of fiduciary duty, and negligence. The claimant initially sought approximately USD 7.6 million in damages, representing net losses and alleged opportunity costs.
The court ultimately found the defendant liable for a portion of these losses, accounting for the complex interplay of dividends and redemptions already received. As stated in the judgment:
The Claimant has succeeded in establishing liability on the part of the Defendant for the losses it has suffered, amounting to USD 4,199,519.22, taking into account the investments made, redemptions received, and dividends paid.
The litigation highlights the risks inherent in Shariah-compliant trade finance structures when marketing materials and risk-mitigation disclosures fail to align with the operational reality of the underlying assets.
Which judge presided over the proceedings in Alawwal Capital JSC v Rasmala Investment Bank Limited [2023] DIFC CFI 038?
The matter was heard in the DIFC Court of First Instance by H.E. Justice Roger Stewart KC. The trial took place in person over several days in March 2025, following a pre-trial review conducted by the same judge earlier that year.
Justice Roger Stewart KC AND UPON hearing counsel for the Claimant and counsel for the Defendant at the in-person Trial on 10 to 18 March 2025 before H.E.
What were the primary legal arguments advanced by Alawwal Capital JSC and Rasmala Investment Bank Limited regarding the management of the Fund?
The claimant, represented by Stuart Adair, argued that the Fund lacked any real existence independent of Rasmala Investment Bank Limited (RIBL). Alawwal contended that RIBL exercised such pervasive control that it should be held to the standards of a "Fund Manager" under the DIFC Collective Investments Law (CI Law), regardless of the formal corporate structure. The claimant sought to pierce the veil of the Fund’s Cayman Islands incorporation to hold the DIFC-regulated RIBL directly accountable for the mismanagement of the underlying trade finance assets.
Conversely, RIBL, represented by Yash Bheeroo and Ravi Jackson, maintained that it operated within the bounds of its regulatory permissions and that the Fund was managed by its own board of directors. RIBL argued that the losses were not the result of any breach of duty or misrepresentation on its part, but were instead an unfortunate consequence of the global Covid-19 pandemic, which disrupted the trade finance markets. The defendant emphasized that the claimant was a sophisticated investor that had entered into the relevant agreements with full knowledge of the risks involved.
Did the DIFC Court find that Rasmala Investment Bank Limited acted as the 'Fund Manager' under Article 20(4) of the DIFC Collective Investments Law?
The court was tasked with determining whether RIBL’s operational influence over the Fund was sufficient to trigger the statutory duties of a "Fund Manager" as defined under the CI Law. This was a critical jurisdictional and doctrinal question, as the classification would dictate the scope of the regulatory duties owed to the claimant.
The court examined whether RIBL had effectively supplanted the role of the Fund's directors. Despite the claimant’s arguments regarding the lack of independent existence of the Fund, the court found that the evidence did not support the contention that RIBL had assumed the formal role of the Fund Manager.
How did Justice Roger Stewart KC apply the test for 'Fund Manager' status and evaluate the causation of losses in this case?
Justice Stewart KC conducted a rigorous analysis of the relationship between the Fund and RIBL, looking past the marketing materials to the actual governance structure. The court determined that while RIBL was heavily involved, it did not cross the threshold into the statutory definition of a Fund Manager.
I do not consider that Alawwal has established any respects in which RIBL supplanted the Directors. It follows that RIBL is not the Fund Manager of the Fund for the purposes of the CI Law.
Regarding the causation of losses, the court rejected the defendant's attempt to blame the Covid-19 pandemic for the fund's collapse. The judge noted that the pandemic was merely a "convenient excuse" for deeper, pre-existing issues related to the failure to employ adequate risk-mitigation measures. The court emphasized the importance of examining the documentary evidence regarding the setting up and operation of the Fund:
It is accordingly appropriate to identify what the documents show as to the setting up and operation of the Fund before identifying the matters relied on by the Claimant in support of its case.
Which specific provisions of the DIFC Collective Investments Law and English case law were central to the court’s decision?
The court’s reasoning was anchored in the DIFC Collective Investments Law (CI Law), specifically Article 11, which defines the requirements for a collective investment scheme, and Article 20(4), which addresses the duties and definition of a Fund Manager. The court also considered Article 14(1) regarding the definition of an "External Fund."
In evaluating the evidence and the reliability of witness testimony regarding the marketing and representations made to the claimant, the court relied on the principles set out in Gestmin SGPSA v Credit Suisse Ltd [2013] EWHC 3650 (Comm). This English authority was utilized to guide the court’s approach to the fallibility of human memory in commercial litigation, particularly when assessing oral representations made years prior to the trial.
How did the court utilize the precedent of Gestmin SGPSA v Credit Suisse Ltd in the context of the alleged misrepresentations?
The court applied the Gestmin doctrine to weigh the reliability of the parties' recollections of oral representations against the contemporaneous documentary evidence. By prioritizing the documents over the subjective memories of the witnesses, the court was able to isolate the specific instances where RIBL’s marketing materials failed to accurately reflect the risk profile of the trade finance investments. This approach allowed the court to filter out the "noise" of the litigation and focus on the objective contractual and pre-contractual communications that formed the basis of the claimant's successful misrepresentation claim.
What was the final disposition of the claim, and what orders were made regarding monetary relief and interest?
The court found in favor of the claimant, Alawwal Capital JSC, establishing liability for the losses suffered. The court ordered the defendant to pay USD 4,199,519.22. The judgment also stipulated that the claimant is entitled to interest on this amount. The parties were directed to agree on the final figures and costs, with the court reserving the right to intervene should the parties fail to reach an agreement by the specified deadline of 20 June 2025.
What are the wider implications of this judgment for practitioners dealing with trade finance funds in the DIFC?
This case serves as a warning to DIFC-regulated entities that act as service providers to offshore funds. While the court may not classify a service provider as a "Fund Manager" under the CI Law, this does not insulate the entity from liability for misrepresentation or negligence in the performance of its duties. Practitioners must ensure that marketing materials and risk disclosures are not only compliant with the letter of the law but also accurately reflect the operational reality of the fund. Furthermore, the rejection of the "Covid-19 defense" suggests that the DIFC Courts will look critically at attempts to attribute systemic investment failures to external market shocks when internal risk-mitigation failures are evident.
Where can I read the full judgment in Alawwal Capital JSC v Rasmala Investment Bank Limited [2023] DIFC CFI 038?
The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/alawwal-capital-jsc-v-rasmala-investment-bank-limited-2023-difc-cfi-038
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| Gestmin SGPSA v Credit Suisse Ltd | [2013] EWHC 3650 (Comm) | Assessing the reliability of witness memory vs. documents |
Legislation referenced:
- DIFC Collective Investments Law Article 11
- DIFC Collective Investments Law Article 13
- DIFC Collective Investments Law Article 14(1)
- DIFC Collective Investments Law Article 20(4)
- DIFC Collective Investments Law Article 52