Rasmala Trade Finance Fund has lost its bid to force Trafigura to return US$21.6mn that was “mistakenly” paid to the trading giant due to what the judge described as fraud by an Indian coal trading company.
The fund, managed by Dubai’s Rasmala Investment Bank, filed the claim in 2021, alleging that Trafigura was complicit in a fraud carried out in 2017 and 2018 by Farlin Energy & Commodities, a client of Rasmala Trade Finance Fund.
The fund believed it was paying Trafigura to finance Farlin’s coal purchases, but Trafigura used the money to pay down separate debts owed to it by Farlin, according to a June 23 judgment from London’s High Court.
Farlin, which was not a party to the case, provided Trafigura with documents in which Rasmala purportedly gave permission for Trafigura to use the funds to settle the unrelated debts.
But the fund did not know the documents existed and its signature on them had been “forged”, the judgment says.
Rasmala largely abandoned the fraud allegation against Trafigura at a High Court trial earlier this year – except in relation to one employee – but maintained that the trader had been “unjustly enriched” by the payments and that Trafigura should return the money.
However, Judge Eason Rajah rejected Rasmala’s arguments, finding that Trafigura was ultimately worse off after receiving the fund’s payments, because they caused the trader to continue doing business with Farlin. Trafigura ultimately recorded its own loss of up to US$7.5mn when Farlin collapsed.
“In the circumstances of this case, it would be inequitable to require Trafigura to make any repayment” to the fund, Justice Rajah ruled.
Rasmala pursued a case of dishonesty against Harsh Jasani, the trader at Trafigura who dealt with Farlin. But the judge found that the claim against Jasani was “hopeless” and “cynical” and that “he appears to have been singled out” because he was the only main Trafigura employee involved not to give evidence at the trial.
The judge declined to draw an “adverse inference” from Jasani’s refusal to give evidence.
Justice Rajah wrote that by the time of the trial, he had seen no evidence “that anyone on the Rasmala side genuinely believed that Mr Jasani and Trafigura were dishonestly turning a blind eye to the fraud perpetrated against Rasmala”.
A Trafigura spokesperson tells GTR the company is “pleased with the court’s decision”. A spokesperson for Rasmala declined to comment while the fund’s liquidator did not respond to a request for comment.
Rasmala Trade Finance Fund went into liquidation in the Cayman Islands earlier this year, after Dubai Islamic Bank – whose customers were major investors in the fund – filed a winding-up petition.
‘Bogus’ trades
Rasmala signed a one-year US$20mn murabaha facility with Farlin in mid-2017, under which the fund would finance Farlin’s purchases of coal from Trafigura.
When Farlin sold the coal, Rasmala was to receive payment directly from the buyers, as well as title to the coal. As security, it also had a promissory note from Farlin, personal and corporate guarantees, and a credit insurance policy.
Farlin’s trading relationship with Trafigura had been ongoing since 2015, but the judgment says that by mid-2017, “Farlin was struggling to remain within the US$10mn-US$11mn credit limit which Trafigura had set for it and was late in making payments”.
Rasmala made the first of five payments to Trafigura in August 2017, taking the trader’s treasury staff by surprise.
Trafigura entered discussions with Farlin, and then drafted a tripartite agreement allowing Trafigura to use the funds it received from Rasmala partly to “offset old outstanding [sums]” owed by Farlin.
Farlin initially “pushed back” on the agreement, with one representative writing in an email that Rasmala “will never sign any tripartite agreement allowing offset of this money again[st] existing liability”.
But Farlin later proposed a new agreement that allowed Trafigura to use the funds to pay other outstanding sums owed by Farlin, and which stipulated that Trafigura only communicate with Farlin, and not directly with Rasmala. This arrangement governed all future payments made by Rasmala.
However, the judge found that Rasmala’s signature on the agreements was forged, and the firm only learned of their existence after the payments had already been made.
Rasmala argued in court that Farlin’s initial objection to the agreement, followed by a sudden change of heart and procurement of documents bearing Rasmala’s signature, should have been suspicious to Trafigura. But the judge found they were not “red flags”.
The arrangement meant that Farlin’s exposure fell back into Trafigura’s acceptable credit limits, and the two continued to trade, signing 15 contracts with an invoice value of US$60mn between September 2017 and May 2018.
Internal emails from Trafigura’s treasury team for each of the five payments all included reference to a contract number, which Rasmala argued at trial meant that Trafigura would have, or should have, known that the payments made by Rasmala were related to specified trades.
But Trafigura’s witnesses said they would not have paid attention to those parts of the emails as they were only interested in confirming that the funds had been received. The judge accepted the evidence.
After the fifth payment, Trafigura and Farlin’s relationship slowed down as Farlin had reached its credit limit again. Farlin “eventually stopped trading” with around US$15mn still owed to Trafigura, according to the judgment. But the trader was able to make recoveries and insurance claims that cut that outstanding amount by roughly half.
In 2019, Rasmala was “tipped off” by a Farlin employee “that a fraud had been perpetrated”.
Trafigura later confirmed to Rasmala that the Farlin coal trades the fund thought it was financing “were bogus”.
Rasmala’s dealings with Farlin are also at the centre of a trial held in Dubai earlier this year in a case brought by a Saudi investment firm, which alleges the fund failed to disclose the existence of the defaults by Farlin and other borrowers. The fund denies the allegations.
In 2019, Maltese lender Fimbank won a US$20.3mn default judgment against Farlin after the trader “failed to appear or engage in the proceedings”, court records show.
