Gate Mena DMCC and Huobi Mena FZE Vs. Tabarak Investment Capital Limited and Christian Thurner 2020 DIFC TCD 001

Posted On - 9 February, 2023 • By - Prashant Kataria

The Dubai International Financial Centre Courts recently tackled a case concerning cryptocurrency and cryptocurrency exchanges, as Gate Mena DMCC and Huobi Mena FZE took on Tabarak Investment Capital Limited and Christian Thurner. The claimants in the case were seeking damages based on the present trading value of bitcoins, which skyrocketed from around USD 2.3 million during the proceedings to an impressive USD 16 million by the time of the trial. The pivotal question of whether cryptocurrencies should be considered tangible property was examined, as well as the regulatory boundaries surrounding cryptocurrencies – particularly in light of the recent establishment of the Virtual Assets Regulatory Authority in Dubai on August 25, 2022.

Facts

On February 3, 2020, a meeting (“3F Meeting”) took place at the offices of the First Defendant (“Tabarak”), a company authorized by the Dubai Financial Services Authority or DFSA to provide financial services such as advising on financial products and managing assets. The meeting aimed to conduct a pre-arranged transaction where Huobi would sell 300 Bitcoins(“BTC”) to Navarcon at a price based on wholesale prices from cryptocurrency exchanges – Kraken, JumpTrading, and Enigma Capital, plus Huobi’s commission. As the meeting began in Tabarak’s conference room, the attendees were introduced to Mr. Mohamed Ahmadi, the CEO, and creator of Tabarak. However, Mr. Ahmadi did not join the meeting.

The 7 people who attended the meeting were:

  1. Sultan Bin Kharsham Al Ali (the General Manager of Huobi).
  2. Mr. Shantu Saxena (the General Manager of Huobi MENA FZE (“Hmena”)).
  3. Mr. Sushant Kunjabihari Nahak (a trader working for both HMena and Huobi).
  4. Mr. Evgeniy Morozov (a Russian citizen, represented that he was acting for a group of investors that used Navarcon).
  5. Mr. Alekseij Socin (attended to assist Mr. Morozov.)
  6. Mr. Christian Thurner (Director of Investments at Tabarak.)
  7. Ms. Anastasia Zavyalova (Mr. Thurner’s assistant.)

Tabarak attracted Mr. Al Ali’s attention when he sought recommendations regarding a local Dubai bank for a cryptocurrency firm from a contact known as “Rudolf” in November 2019. Rudolf recommended Tabarak and introduced Mr. Thurner. Later, Rudolf informed Al Ali that Morozov, a Tabarak client, was interested in buying a large amount of BTC. A meeting was held at Dubai Mall, where Morozov expressed interest in buying 2,000 BTC from Huobi. However, payment was a concernsince Mr. Al Ali stated that the Huobi BTC sale would take place only when payment was received, whilst Mr. Morozov contended that payment would be made only after the buyer received the BTC.

The issue was resolved with Rudolf’s suggestion to use Tabarak as an intermediary, who would transfer coins after receiving payment, then transfer payment to Huobi’s account. A meeting took place at Tabarak’s office on Dec 16, 2019, between Al Ali, Thurner, and Zavyalova to explore similar transactions. Thurner outlined the process of digital asset handling in an email and discussed a digital wallet. Between 18th December 2020 to 13th January 2021, various meetings took place between Al Ali, Morozov, and Thurner, and eventually, a sale of 3,000 BTC was finalized. . On January 15, 2020, Mr. Thurner and Mr. Al Ali discussed the sale procedure with Navarcon and deemed them suitable.

Mr. Thurner reported that Navarcon would transfer funds to a linked UAE firm, which would then purchase BTC and transfer it to Navarcon’s account with Tabarak. On January 20, 2020, Mr. Al Ali signed the Account Opening Agreement but declined to sign the Addendum due to a disagreement over the commission rate with Tabarak.On January 22nd, 2020, Tabarak then hired Huobi to convert 2 BTC into fiat currency. Later, on January 30th, 2020, Mr. Morozov, Huobi, and Thurner agreed that Huobi would sell 200 BTC to Navarcon, which later increased to 300 BTC

At a conference, Morozov showed two new, sealed Trezor wallets that were set up to create a 12-word recovery seed for BTC security. Mr. Nahak deposited 300 BTC to the wallet after the agreement on price and the transfer was verified. The device was secured in a safe, but upon later viewing, Thurner found that 299.99 BTC had been transferred to another wallet. The police were called and all conference attendees were interrogated. The next day, they were released on bond after spending the night in detention.

Court Findings

Nature of the Contract developed during the 3F Meeting

The court found that the conversation between Mr. Ahmadi and Mr. Al Ali on February 3, 2020, which was attested to by Mr. Saxena, showed that Mr. Ahmadi was upset about Huobi’s failure to pay the Account Opening (“AO”) fee. However, Mr. Al Ali stated that the fee would be paid from the proceeds of the transaction, to which Mr. Ahmadi did not respond. The court concluded that Mr. Ahmadi’s lack of response did not lead to a waiver of the AO fee as a precondition to Huobi becoming a client of Tabarak. As a result, the agreement between Huobi and Tabarak never became a binding contract.

Tabarak is also estopped from claiming that the stipulated due diligence was not completed as they treated Huobi as a client. The court also concluded that the fees and commission due to Tabarak for their role in the transaction were agreed on February 3, 2020, before the 300 BTC was transferred to Mr. Morozov’s Trezor Wallet. The total fee was increased to 3.05% with Tabarak’s share being increased from 0.2% to 0.25%.

Bitcoin as a Property

The court acknowledged that Bitcoin is considered a form of property as stated in a previous ruling by Judge Bryan J in the case of AA vs. Unknown Persons.[1]The court held that the present case revolves around the alleged reliance by Huobi on the assurances made by Mr. Thurner, which led Huobi to accept the proposal of splitting the buyer’s wallet using the Mnemonic, and which ultimately resulted in Huobi transferring the 300 BTC to the Trezor Wallet before receiving the purchase money.

Duty of Care

The relationship between Tabarak and Mr. Thurner was not considered close enough to establish a duty of care regarding the handling of the Trezor Wallet. The claimants failed to prove that Tabarak and Mr. Thurner owed a duty of care regarding the “assurances” given. Tabarak and Mr. Thurner did not assume responsibility for such statements, and it was not reasonable for Huobi to trust them.

It was also not reasonable for Huobi to rely on these “assurances” and the court determined that it would not be just and reasonable for Tabarak to owe these alleged duties of care. Mr. Al Ali feared a risk but agreed to the proposed use of the wallet and transfer of 300 BTC, despite the lack of purchase money from Navarcon.

Conclusion

The court determined that Tabarak was not liable for negligence for the loss of 300 BTC and it was established that Tabarak did not misuse any confidential information and that their care of the BTC was reasonable. Furthermore, Tabarak was not found to be in breach of any legal obligations, including fiduciary duty, and was not in negligent breach of any regulatory laws. As a result, the claims against Tabarak were dismissed by the court.

[1][2019] EWHC 3556 (Comm) at [56] – [59].

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