The DIFC Court of First Instance addressed whether an investment manager could be held liable for breach of fiduciary duty under the DIFC Law of Obligations, refusing to strike out a claim involving a disputed loss of USD 658,000.
What was the nature of the dispute between MARITA and MARKKU regarding the USD 658,000 loss?
The litigation centers on a commercial investment arrangement where the Claimants, MARIN and MARITA, alleged that the Defendant, MARKKU, acted as an investment manager for funds invested in "Grey Reach." The Claimants contended that MARITA advanced USD 30 million as a shareholder loan and that MARKKU, through its DIFC operations, assumed control over the day-to-day management of these funds. The core of the dispute involves allegations that MARKKU breached its fiduciary obligations, leading to a specific financial shortfall.
As detailed in the pleadings, the Claimants asserted that the Defendant’s role went beyond mere contractual performance, creating a relationship of trust and confidence. The Claimants sought damages for the alleged breach, specifically citing the financial impact of the Defendant's conduct.
It is averred that Markku DIFC, by reason of the wrongdoing as set out in Part V above, has breached its obligations as a fiduciary, resulting in a direct loss of USD 658,000 to MARITA.
The Defendant sought to strike out this portion of the claim, arguing that the relationship was purely commercial and did not meet the threshold for a fiduciary relationship under DIFC law. The court was tasked with determining if the claim was "reasonably arguable" to proceed to trial.
Which judge presided over the application to strike out the claim in [2019] DIFC CFI 042?
Justice Sir Richard Field presided over the Court of First Instance hearing. The judgment was delivered on 28 October 2020, following an earlier hearing held on 6 October 2020.
How did Mr Miut and the Claimants’ counsel characterize the fiduciary relationship in the context of the DIFC Law of Obligations?
Mr Miut, representing the Defendant, argued that the claim for breach of fiduciary duty was fundamentally flawed because the relationship between the parties was a standard commercial one. He contended that a fiduciary relationship requires the putative fiduciary to subordinate their own interests to those of the beneficiary, a requirement he argued was absent in the Investment Management Agreement (IMA). Relying on Snell on Equity, he submitted that it would be inappropriate to impose fiduciary duties on a commercial party in this context.
Conversely, the Claimants argued that the Defendant’s actions—specifically the handling of bank accounts and the appointment of directors as signatories—created a relationship of trust and confidence that satisfied the requirements of Article 158(1) of the DIFC Law of Obligations. They maintained that the Defendant, as a DFSA-regulated entity, was entrusted with the management of the investment in a manner that necessitated the protection of fiduciary duties.
What was the precise legal question regarding the scope of Article 158(1) of the DIFC Law of Obligations that the Court had to answer?
The Court was required to determine whether the pleaded facts, if proven, could establish a fiduciary relationship under Article 158(1) of the DIFC Law of Obligations, even if the relationship did not fall within the "settled categories" of fiduciary relationships (such as trustee-beneficiary or solicitor-client). The doctrinal issue was whether the statutory definition of a fiduciary in the DIFC—which focuses on an undertaking to act for or on behalf of another in circumstances of trust and confidence—could encompass a commercial investment manager who was not explicitly required by contract to subordinate their interests to the investor.
How did Justice Sir Richard Field apply the test for fiduciary duties to the facts of this case?
Justice Sir Richard Field rejected the Defendant's attempt to limit fiduciary duties to traditional categories. He emphasized that the court must look at the substance of the relationship and the specific undertakings made by the Defendant. The judge noted that the determination of a fiduciary relationship is fact-sensitive and not limited by rigid definitions.
In my judgment, it is reasonably arguable that the facts before the Court fall within Mason J’s dictum of in Hospital Products Ltd cited in paragraph 157 of the judgment of Leggatt LJ in Al Neyhayan.
The Court reasoned that because the Defendant had been entrusted with the operation of bank accounts and the management of the investment, it was at least arguable that they had undertaken to act for the Claimants in a way that created a relationship of trust and confidence. The judge concluded that the claim was not "bound to fail" and therefore should not be struck out.
While it is clear that fiduciary duties may exist outside such established categories, the task of determining when they do is not straightforward, as there is no generally accepted definition of a fiduciary.
Which specific sections of the DIFC Law of Obligations were central to the Court’s analysis of fiduciary duties?
The Court focused on Article 158(1), which defines a fiduciary as a person who undertakes to act for or on behalf of another in circumstances giving rise to a relationship of trust and confidence. Additionally, the Court considered Article 159(1), which mandates the duty of loyalty, and Schedule 3 (1) and (5), which outline the duties of good faith and the exercise of reasonable care, skill, and diligence. These provisions formed the statutory basis for the Claimants' assertion that the Defendant owed them fiduciary obligations.
How did the Court utilize the English authorities of Al Neyhayan, Mothew, and FHR European Ventures in its reasoning?
The Court relied on Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Neyhayan v Kent [2018] EWHC 333 (Comm) to acknowledge that while fiduciary duties are typically found in settled categories, they can arise in other circumstances. Justice Field used the dictum of Leggatt LJ in Al Neyhayan to navigate the lack of a universal definition for a fiduciary. The court also referenced Bristol and West Building Society v Mothew [1998] Ch 1 to reinforce the principle that a fiduciary is defined by the obligations they are subject to, rather than a pre-existing label. These cases were used to support the conclusion that the court must perform a granular analysis of the relationship rather than dismissing the claim based on the commercial nature of the contract.
What was the final disposition of the Defendant’s application to strike out the claim?
The Court refused the Defendant’s application to strike out the claim for breach of fiduciary duty. Justice Sir Richard Field held that the Claimants’ case was "reasonably arguable," meaning it met the threshold to proceed to trial.
For these reasons I refuse Markku (DIFC)’s application to strike out MARITA’s claim for breach of fiduciary duty.
The Court did not award costs in this specific judgment, as the decision was limited to the strike-out application. The litigation regarding the alleged breach of fiduciary duty and the resulting USD 658,000 loss was permitted to continue.
What are the wider implications for DIFC practitioners regarding the pleading of fiduciary duties in commercial disputes?
This decision clarifies that DIFC courts will not automatically strike out claims for breach of fiduciary duty simply because the relationship is commercial or falls outside traditional categories like trusts or partnerships. Practitioners must now anticipate that if they can plead specific facts—such as the handling of bank accounts, the exercise of discretion, or the placement of trust and confidence—the court will likely allow the claim to proceed to trial to examine the nature of the relationship. This increases the risk for investment managers and commercial entities in the DIFC, as they may be held to fiduciary standards based on their conduct rather than just the express terms of their contracts.
Where can I read the full judgment in Marin v Markku [2019] DIFC CFI 042?
The full judgment is available on the official DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/1-marin-2-marita-v-markku-2019-difc-cfi-042
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Neyhayan v Kent | [2018] EWHC 333 (Comm) | Used to define the scope of fiduciary duties outside settled categories. |
| Bristol and West Building Society v Mothew | [1998] Ch 1 | Used to explain that a fiduciary is defined by the obligations they are subject to. |
| FHR European Ventures LLP v Cedar Capital Partners LLC | [2014] UKSC 45 | Cited regarding the nature of fiduciary obligations. |
Legislation referenced:
- DIFC Law of Obligations Article 158(1)
- DIFC Law of Obligations Article 159(1)
- DIFC Law of Obligations Schedule 3(1)
- DIFC Law of Obligations Schedule 3(5)