Virtually Everything | Series 2, Episode 1 | Bitcoin as Property: Unpacking DIFC Courts' Landmark Crypto Case

In the first episode of series 2 of Virtually Everything, hosts Lucy Nash and Vyasna Mahadevey welcome listeners back with a detailed exploration of a pivotal DIFC Courts case in the virtual asset sector. The case in focus is Gate MENA DMCC, and Huobi MENA FZE, against Tabarak Investment Capital Limited and Christian Thurner, a case that was introduced in series 1 and has since progressed to an appeal.

In this episode, Lucy and Vyasna are joined by William Prasifka, a barrister in Clyde & Co’s dispute resolution team in Dubai, who has expertise in litigation before the DIFC and ADGM courts. Will joins the discussion to provide a comprehensive analysis of the DIFC Courts' first crypto-related case, which has captured significant attention within the legal community.

Will begins by recapping the facts of the case. Huobi, a cryptocurrency trading company based in the DIFC, was approached by two individuals, referred to in the judgment as "the Russians," who wished to purchase 300 Bitcoin, valued at approximately $17.5 million. Due to mutual distrust between Huobi and the Russians, an intermediary, Tabarak, was chosen to facilitate the transaction. The agreement stipulated that Huobi would transfer the Bitcoin to Tabarak, who would then release it to the Russians upon receiving payment. However, the Russians proposed an alternative arrangement involving a Trezor wallet, which ultimately led to the unauthorised transfer of the Bitcoin to the Russians without payment to Huobi. As a result, Huobi lost the Bitcoin and initiated legal proceedings against Tabarak and Christian Thurner, the director of investments at Tabarak.

Will explains the key legal issues that were brought before the DIFC Court of Appeal. Huobi challenged the initial court ruling, arguing that several causes of action had been wrongly dismissed, including breach of contract, negligence, breach of confidence, and breach of fiduciary duty. The appeal also raised concerns about procedural unfairness during the initial trial, particularly the significant delay in delivering the judgment and the disparity in cross-examination time between the parties.

Lucy then clarifies the role of the DIFC Court of Appeal, emphasising its position as the highest court within the DIFC, with the authority to overturn decisions from the Court of First Instance if they are found to be wrong or unjust.

One of the most significant aspects of the Court of Appeal’s decision was its confirmation that Bitcoin is considered property under DIFC law. Will delves into the implications of this classification, noting that while Bitcoin is intangible and cannot be physically possessed, it is capable of being controlled and is non-fungible, making it distinct from other forms of intangible assets like passwords or access codes. This recognition of Bitcoin as a "third class of property" is groundbreaking, as it allows for specific legal actions and remedies that were previously unavailable, such as bailment and property damage claims.

The recognition of Bitcoin as property has wide-ranging implications for the legal treatment of digital assets. Will discusses how this classification impacts causes of action and the measure of damages, particularly in distinguishing between property damage and pure economic loss. The judgment also raises important questions about the appropriate date for assessing damages in cryptocurrency disputes, a topic that has seen recent legal developments in jurisdictions such as the UK.

The Court of Appeal’s decision was a partial dismissal of Huobi’s appeal but directed a new trial to determine whether a collateral contract was formed when the parties agreed to use the Trezor wallet instead of Tabarak’s wallet. This new trial, to be held before the DIFC Court of First Instance, will explore critical issues, including the potential remedies available to Huobi if they succeed in their claim.

The episode ends with a discussion on the broader significance of this case, particularly in the context of the DIFC’s newly established Digital Economy Court, which is poised to handle disputes involving emerging technologies. The retrial will provide an opportunity to address unresolved questions, such as the valuation of digital assets at different points in time and the application of the new DIFC Courts' digital assets law.

Stay tuned for the rest of series 2 where our hosts will provide more insightful discussions on AI, jurisdictional comparisons, and tracing virtual assets. 

This podcast forms part of the Virtually Everything podcast series. To find out more about the topics discussed in the series, please visit our dedicated Digital Assets and Blockchain page.