LARMAG HOLDING B.V. v FIRST ABU DHABI BANK [2019] DIFC CFI 054 — Fraudulent misappropriation of corporate bonds (30 August 2021)

This judgment addresses a complex multi-party fraud claim involving the misappropriation of EUR 70 million in corporate bonds, focusing on the intersection of DIFC substantive law and the rejection of common law procedural doctrines in tort litigation.

What was the specific nature of the dispute between Larmag Holding B.V. and Mr Abdulla Saeed Bakheet Obaid Aljaberi regarding the Reditum SA bonds?

The lawsuit centered on the alleged fraudulent inducement of Larmag Holding B.V. to transfer EUR 70 million in Reditum SA corporate bonds into an account held by the Third Defendant, Mr Abdulla Saeed Bakheet Obaid Aljaberi, at FAB Securities LLC. Larmag contended that it was misled by forged documents—purportedly from Noor Bank—which falsely confirmed a EUR 20 million pre-payment for the bonds. Furthermore, Larmag alleged that it was tricked into allowing a coupon payment of EUR 2,187,500 to be diverted to Mr Aljaberi’s account based on false promises of repayment.

The stakes involved the recovery of the misappropriated assets and damages for the deceitful conduct. While Larmag sought to hold multiple parties liable, including FAB and FAB Securities LLC, the primary contest emerged against Mr Aljaberi, who claimed he was unaware of Larmag and believed the bonds were transferred to him by a third party, John Varoujan, to settle an unrelated investment dispute. As noted in the court’s findings:

In my judgment, Mr Caldwell’s report provides sufficient evidence of the market value of the Claimed Bonds at the date they were wrongly appropriated (3 July 2018) for the Court to adopt his valuation of EUR 57,711,500.

The court ultimately had to determine the extent of liability for the misappropriation and the appropriate valuation of the bonds at the time of the wrongful transfer. Source: DIFC Courts

Which judge presided over the Larmag Holding B.V. v First Abu Dhabi Bank trial in the DIFC Court of First Instance?

Justice Sir Richard Field presided over the trial of the action. The judgment was delivered on 30 August 2021 within the DIFC Court of First Instance.

What legal arguments did Mr Black QC and Mr Thompson QC advance regarding the application of the English double actionability rule?

Mr Black QC, representing the Claimant, Larmag, argued that if UAE law were determined to be the governing law for the tortious acts, the court should apply the English common law "double actionability" rule. This would have allowed Larmag to sue in the DIFC on the equivalent English cause of action for wrongs committed outside the jurisdiction, provided they were actionable under both the lex loci delicti (UAE law) and the lex fori (DIFC law).

Conversely, the defense challenged the applicability of this procedural workaround. The respondents argued that the DIFC’s statutory framework for choice of law was exhaustive and that the court should not import common law rules that circumvent the legislative intent of the DIFC’s governing statutes. The dispute highlighted a fundamental disagreement over whether the DIFC courts should function as a conduit for English procedural doctrines when the underlying substantive law is derived from the UAE.

Did the court find that Article 40(2) of the DIFC Damages and Remedies Law allows for punitive or exemplary damages in this fraud claim?

The court was required to determine whether Article 40(2) of the DIFC Damages and Remedies Law is a procedural or substantive provision, and whether it permits the award of non-compensatory, exemplary, or punitive damages. The doctrinal issue was whether the claimant could rely on this provision to seek damages beyond the actual loss suffered, specifically in the context of a deceitful misappropriation claim.

How did Justice Sir Richard Field apply the reasoning from Harding v Wealands to the claimant's request for multiple damages?

Justice Sir Richard Field rejected the claimant's attempt to invoke Article 40(2) for punitive damages, reasoning that the provision is substantive rather than procedural. He held that because the underlying causes of action were predicated on compensatory harm, the request for exemplary damages was incompatible with the nature of the claim.

Adopting the reasoning of Lord Hoffmann in Harding v Wealands, in my judgment, if the UAE causes of action relied on by Larmag for its damages claims are all predicated on the claimant having suffered harm which can be compensated in damages, Larmag’s claim under Article 40 (2) must fail.

The judge further clarified that Article 40(2) could not be used to bridge the gap between compensatory damages and punitive awards, as the statute was not intended to provide such a remedy in this context.

Adopting this approach, I find that Article 40 (2) is not a procedural provision but is of a substantive nature and it is not sufficiently analogous to Article 293 to be available to Larmag because, as I have held, the damages Article 40 (2) provides for are not compensatory but are exemplary or punitive.

Which specific statutes and precedents were applied to resolve the choice of law and damages issues?

The court relied heavily on Article 8 of DIFC Law No. 3 (2004), which dictates the choice of law rules within the DIFC. Regarding the claim for damages, the court examined Article 40(2) of the DIFC Damages and Remedies Law and Article 293 of the UAE Civil Code. The court also cited Derry v Peak in relation to the pleading of fraudulent misrepresentation and Harding v Wealands [2007] UKHL 32 to interpret the nature of damages and the limits of procedural rules in tort claims.

How did the court utilize the precedent of Harding v Wealands in the context of the Larmag dispute?

The court utilized Harding v Wealands to distinguish between substantive and procedural laws. By adopting Lord Hoffmann’s reasoning, Justice Sir Richard Field determined that the characterization of a damages claim is a matter of substance. This was critical in preventing the claimant from using the "double actionability" rule as a vehicle to import English punitive damages concepts into a claim governed by UAE law. The court effectively used this precedent to reinforce the principle that the DIFC Court will not allow procedural characterizations to override the substantive limitations of the applicable governing law.

What was the final disposition of the court regarding the misappropriated bonds and the request for multiple damages?

The court found in favor of the claimant regarding the liability for the misappropriation of the bonds, valuing the loss at EUR 57,711,500 based on expert evidence. However, the court explicitly rejected the claim for multiple or punitive damages under Article 40(2).

Accordingly, for the reasons given in paragraphs 217 – 219, I find that Larmag cannot pursue its claim for multiple damages under Article 40 (2) of the DIFC Remedies Law.

The court also clarified the limits of restitution, noting that the claimant could not seek both damages and a return of the bonds if it would result in double recovery.

If the Claimant receives the damages awarded below in respect of the deceitful misappropriation of all the EUR 70 million Claimed Bonds, it will not be entitled to a payment in lieu of actual restitution of any of those bonds because this would be double recovery for the same wrongful act.

How does this judgment impact future litigation regarding choice of law and punitive damages in the DIFC?

This judgment serves as a definitive warning to practitioners that the DIFC Courts will strictly adhere to statutory choice of law rules and will not permit the use of common law procedural doctrines to bypass the substantive law of the jurisdiction. Litigants must anticipate that claims for punitive or exemplary damages will be scrutinized under the specific substantive provisions of DIFC law, and arguments attempting to characterize such claims as "procedural" to invoke foreign rules will likely be rejected.

Where can I read the full judgment in Larmag Holding B.V. v First Abu Dhabi Bank [2019] DIFC CFI 054?

The full judgment is available on the official DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/larmag-holding-bv-v-1-first-abu-dhabi-bank-pjsc-2-fab-securities-llc-3-mr-abdulla-saeed-bakheet-obaid-aljaberi-4-mr-ali-mohamed-1

Cases referred to in this judgment

Legislation referenced

• DIFC Law No. 3 (2004) Article 8
• DIFC Law of Contract (2004) Article 40
• DIFC Damages and Remedies Law Article 40 (2)
• UAE Civil Code Article 293