Gate Mena DMCC (Formerly Known as Huobi OTC DMCC) (2) Huobi Mena FZE v (1) Tabarak Investment Capital Limited (2) Christian Thurner [2024] DIFC CA 002 (13 June 2024)

Claim No. CA 002/2023

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

IN THE COURT OF APPEAL
BEFORE CHIEF JUSTICE TUN ZAKI AZMI, H.E. JUSTICE SHAMLAN AL SAWALEHI AND JUSTICE MICHAEL BLACK KC

BETWEEN

(1) GATE MENA DMCC (FORMERLY KNOWN AS HUOBI OTC DMCC)
(2) HUOBI MENA FZE

Claimants/Appellants

and

(1) TABARAK INVESTMENT CAPITAL LIMITED
(2) CHRISTIAN THURNER

Defendants/Respondents

Hearing :	15 – 17 January 2024
Counsel :	Andrew Spink KC and Justina Stewart instructed by Charles Russell Speechlys LLP for the Appellants Richard Hill KC and Bushra Ahmed instructed by KBH Ltd for the First Respondent Salah Mattoo and Brian Kotick instructed by M.B. Kemp (ME) LLP for the Second Respondent
Judgment :	13 June 2024

Hearing :

15 – 17 January 2024

Counsel :

Andrew Spink KC and Justina Stewart instructed by Charles Russell Speechlys LLP for the Appellants

Richard Hill KC and Bushra Ahmed instructed by KBH Ltd for the First Respondent

Salah Mattoo and Brian Kotick instructed by M.B. Kemp (ME) LLP for the Second Respondent

Judgment :

13 June 2024

JUDGMENT

ORDER

UPON hearing Counsel for the Appellants, Counsel for the First Respondent and Counsel for the Second Respondent on 15 – 17 January 2024

AND UPON reading the submissions and evidence filed and recorded on the Court file

IT IS HEREBY ORDERED THAT:

1. So far as the First Respondent is concerned the appeal is allowed in part and a retrial is ordered under Ground No. 3 as set out at paragraphs 183 and 184 of this Judgment.

2. Pursuant to RDC 58.31, Claim No. TCD-001-2020 shall be remitted to the Digital Economy Court and a Case Management Conference be fixed by the Registry in due course.

3. So far as the Second Respondent is concerned the appeal is dismissed.

4. The parties shall file written submissions on costs within 7 days of the date of this Judgment.

Issued by:
Delvin Sumo
Assistant Registrar
Date of issue: 13 June 2024
At: 8am

JUSTICE MICHAEL BLACK KC

INTRODUCTION

1. This is an appeal against the judgment of Justice Sir Richard Field (“the Judge”) sitting in the Technology and Construction Division given after a trial that was heard in November and December 2021 followed by closing submissions in March 2022.

2. In the memorable opening words of his judgment inQuoine Pte Ltd v B2C2 Ltd¹, the Chief Justice of Singapore, Sundaresh Menon said that“The world of cryptocurrency trading is not for the faint-hearted”. That was not a case of deliberate fraud but throughout the common law world courts and regulators have been grappling with the problems created by fraudsters exploiting the emerging technologies associated with trading crypto-assets using a legal toolbox developed in an analogue age.

3. 3. The present case is no exception. The Judge was faced with the familiar dilemma of deciding which of two innocent (as he found) parties should bear losses consequent on a fraud the perpetrators of which have disappeared. This case also illustrates that Satoshi Nakomoto’s²ambition to create“a system for electronic transactions without relying on trust”³may still have some way to go.

4. The trial of this matter took place between November 2021 and March 2022. This Court has enjoyed the considerable advantage over the Judge that in the intervening period there have been a number of decisions arising out of interlocutory hearings and legal research and academic writings that have greatly clarified several of the issues he had to address.

5. Nor have matters stood still. Since this appeal was argued, by an Enactment Notice dated 1 March 2024, the DIFC broughtThe Digital Assets Law, DIFC Law No.2 of 2024⁴into force on 8 March 2024. The new Law further develops the understanding of the legal principles applicable to digital assets, but the Court must apply the law as it stood in 2022, albeit perhaps with an eye on the horizon.

6. Counsel informed us that this is the first decision of a common law appellate court to address these issues after a full trial. There have been many important decisions in several jurisdictions in interlocutory matters. I am aware that each decision in this emerging area of law attracts international interest. I feel it would therefore be helpful to the reader who is not familiar with the DIFC Courts if I were to provide some general background information relevant to the issues under consideration. I also recognise that consequently this judgment has taken somewhat longer to prepare than would normally be the case, especially in the context of an appeal where one of the complaints is that the first instance judge took too long in delivering his judgment.

7. After I have briefly described the jurisdiction of the DIFC Courts, this judgment will be structured as follows:

(1) A brief and uncontentious introduction to the facts;

(2) An explanation of the technologies involved;

(3) An examination of the associated legal issues;

(4) The decision below;

(5) The principles applicable to appeals on fact;

(6) The grounds of appeal; and

(7) Overall conclusion.

THE DIFC COURTS

8. By an amendment to Article 121 of the Constitution of the United Arab Emirates andFederal Law No.8 of 2004: Regarding The Financial Free Zones in the United Arab Emirates (the Financial Free Zone Law), gazetted 27 March 2004⁵, it became possible to establish Financial Free Zones (“FFZ”) in the UAE. An FFZ is exempted from all Federal civil and commercial laws within the UAE.

9. The Dubai International Financial Centre was established immediately thereafter in 2004. There are two FFZ with their own courts, the DIFC and the Abu Dhabi Global Market, established 11 years later in October 2015. Both are common law jurisdictions albeit taking different approaches. Students of the history of this region will know that this is not without precedent, founded in 1875 the“Mixed Courts”of Egypt applied laws inspired by the French Civil Code and English common law through a bench that included European and American judges⁶.

10. A recent decision of our sister court, the ADGM Court of Appeal, AC Network Holding Ltd and Others v Polymath Ekar SPV1 and Others[2023] ADGMCA 0002">⁷, highlighted the differences. In the ADGM English common law applies and judges of the ADGM are bound to follow English precedent. In the DIFC, as the ADGM Court of Appeal observed, common law rules in various areas have been codified. Pertinent to the present case, the law of contract is codified in the Contract Law No.6 of 2004 (as amended at March 2024)⁸and the law of tort in the Law of Obligations No.5 of 2005 (as amended at March 2024)⁹.

11. They contrasted the two approaches by reference to the decision of Justice Michael Hwang SC (as he then was) inForsyth Partners Global Distributors Limited, Forsyth Partners Group Holdings Limited and Forsyth Partners (Middle East) Limited¹⁰in which he said that there is no natural presumption that UAE law or English law was intended to apply in the DIFC.

12. The position was recently clarified by this court inThe Industrial Group Limited v Abdelazim El Shikh El Fadil Hamid¹¹which held that, although the DIFC Courts are common law courts and DIFC law is to be interpreted and developed incrementally, in accordance with the methodology of the common law, the basis of the DIFC Courts’ jurisdiction is statutory[2017] DIFC ARB 003, at [12] and [18]">¹². Reference must therefore be made to that statutory framework to ascertain the scope for proper judicial interpretation and development of DIFC law and to avoid straying into impermissible judicial legislation. That said, where DIFC (statutory) law identifies principles which come from other jurisdictions, it is legitimate to look to those jurisdictions to determine the content of the principles in question and their appropriate, incremental, development.

13. Thus, the DIFC Courts are not obliged to follow another legal system but rather are able to call upon any relevant common law principles and international jurisprudence from any jurisdiction that will assist them in the interpretation of DIFC legislation which itself has been drafted both to embody international standards and to meet the particular needs of those doing business and investing in this region.

THE FACTS: A BRIEF SUMMARY

14. The First Claimant and First Appellant, Gate MENA DMCC was formerly and at all material times known as Huobi OTC DMCC (“Huobi DMCC”). Huobi DMCC is an entity licensed by the Dubai Multi Commodities Centre. Its business is “Over the Counter” (“OTC”) trading in cryptocurrencies, that is to say, the sale and purchase of cryptocurrencies for fiat currencies such as the US dollar or UAE Dirham.

15. The Second Claimant and Second Appellant, Huobi MENA FZE (“Huobi MENA”) is based in Dubai. Huobi MENA focuses on the Middle East, Africa and Turkey, trading Bitcoin (“BTC") and other cryptocurrencies on international markets including on a ‘cryptocurrency-for-cryptocurrency’ basis. Until 23 September 2021 Huobi MENA was the majority shareholder in Huobi DMCC.

16. Huobi MENA is part of Huobi Global. Huobi Global is a company registered in the Seychelles but operating out of China. It is a world leading digital asset financial services provider across 130 countries with average total trading volumes per year exceeding US$1.2 trillion.

17. On 23 September 2021, Huobi DMCC and Huobi MENA entered into an agreement for the assignment from Huobi DMCC to Huobi MENA of the benefit of Huobi DMCC’s claim in these proceedings.

18. Sultan Bin Kharsham Al Ali (“Mr Al Ali”) was at all material times the General Manager of Huobi DMCC and Chairman of the Board of Directors and Co-Founder together with Mohit Daver of Huobi MENA.

19. Shantnu Saxena (“Mr Saxena”) was the General Manager of Huobi MENA and worked on strategy, management and marketing on behalf of Huobi DMCC. Sushant Kunjabihari Nahak (“Mr Nahak”) was a trader working for both Huobi entities.

20. Save where the context requires the Appellants will be referred to as“Huobi”.

21. The First Defendant and First Respondent, Tabarak Investment Capital Limited (“Tabarak”), is a company registered in the DIFC. It is authorised by the DFSA to provide various financial services. Its Commercial Licence describes its activities as Advising on Financial Products, Arranging Credit and Advising on Credit, Arranging Custody, Arranging Deals in Investments and Managing Assets. The Judge described it as a “small merchant bank”. Its founder and CEO is Mohamed Ahmadi (“Mr Ahmadi”).

22. The Second Defendant and Second Respondent, Christian Thurner (“Mr Thurner”) was employed by Tabarak as Director of Investments. His assistant was Ms Anastasia Zavyalova (“Ms Zayvalova”).

23. Persons calling themselves Evgeniy Morozov (“Mr Morozov”) and his associate Aleksij Socin (“Mr Socin”) purported to be interested in purchasing BTC on behalf of a group of investors acting through a company called Navarcon s.r.o (“Navarcon”) registered in the Slovak Republic. Messrs Morozov and Socin are often referred to in the evidence and in submissions as“the Russians”.

24. A meeting took place on 3 February 2020 (referred to by the Judge as the “3F Meeting”) the purpose of which was the sale by Huobi of 300 BTC to Navarcon. Neither side trusted each other and so they arranged for Tabarak to play (as the Judge termed it)“an intermediary role”. What that role entailed, how it is to be characterized and the obligations imposed or assumed by Tabarak as a result were the subject of considerable dispute at the trial and remain matters for resolution on this appeal. The parties however agree that the Judge’s finding at paragraph 60 of his judgment accurately summarises, at least, some of the functions it was initially agreed Tabarak would undertake in relation to the sale:

“I find on the evidence that it was orally agreed between Mr Al Ali acting for Huobi and Mr Thurner acting for Tabarak that, in respect of a sale of 300 BTC by Huobi to Navarcon planned to take place at Tabarak’s offices on 3 February 2020: (i) Tabarak would provide its existing wallet to receive the 300 BTC from Huobi once the price per coin had been agreed; (ii) Tabarak would only transfer the BTC to Navarcon once the purchase money had been paid by Navarcon into an account maintained by Tabarak in Dubai; (iii) if the purchase money was received into Tabarak’s account, Tabarak would transfer the BTC to Navarcon and transfer the net proceeds from the recipient account to an account nominated by Huobi; (iv) if the purchase money was not received, Tabarak would transfer the BTC back to Huobi; and (v) in consideration of the foregoing, Huobi would pay Tabarak a fee and/or a commission.”

25. I will have to examine what is meant by a “wallet” but for immediate purposes in the instant case it was contemplated that it was to be a piece of physical hardware. At the meeting Mr Morozov insisted on a change of plan, namely that instead of using Tabarak’s wallet, an apparently new, unused and security-sealed wallet produced by him would be used.

26. In the event it appears most likely that Messrs Morozov and/or Socin fraudulently exploited certain functionality in the set-up process of the hardware wallet (which neither Huobi nor Tabarak understood) to circumvent the security arrangements and gain access to the BTC before making payment. The BTC were thus lost to Huobi and Tabarak.

27. Huobi commenced proceedings initially against Tabarak and then joined Mr Thurner. By its Re-Amended Particulars of Claim, it claimed that Tabarak was in breach of the following duties to:

(1) Propose a mechanism for the transaction;

(2) Not to hand over the BTC before payment was received;

(3) To act with reasonable care and skill, in arranging and supervising the Transaction, in proposing the Deal Structures and in giving advice pursuant to an implied term of the Agreement between the parties;

(4) To act as aforesaid under Article 18 of the Law of Obligations;

(5) Exercise due care skill and diligence in advising Huobi and in assisting with the Transaction pursuant to a fiduciary duty under Article 158 of the Law of Obligations;

(6) Take such care of the BTC as was reasonable in the circumstances pursuant to a duty under Article 71 of the Law of Obligations;

(7) Not to use the BTC except as permitted by Huobi pursuant to Article 72 of the Law of Obligations;

(8) Not to disclose the seed phrase, in whole or in part, to the Buyer before receiving payment from the Buyer and to take reasonable care not to do so pursuant to Articles 37 and 155 of the Law of Obligations; and

(9) (pursuant to the DFSA Rule Book) –

(a) arrange proper protection for the BTC under GEN 4.2.9, Principle 9,

(b) provide its services as set out above with due skill, care and diligence under GEN 4.2.2, Principle 2,

(c) have adequate systems and controls to ensure, as far as was reasonably practical, that it complied with legislation applicable in the DIFC, requiring it not to disclose confidential information under GEN 4.2.3, Principle 3,

(d) communicate information to Huobi in a way which was clear, fair and not misleading under GEN 4.2.6, Principle 6.

28. The parties’ cases developed and expanded during the course of their submissions both before and after trial. The Judge diligently chronicled each iteration and then provided his answers on a series of topics:

(1) Was there a binding and enforceable contract between Huobi and Tabarak that applied to the events that occurred at the 3F Meeting? He found that the agreement he found concluded between Huobi and Tabarak did not incept due to the non-satisfaction of a condition precedent (the payment by Huobi of an Account Opening Fee). He also found that Tabarak was not under an obligation to advise as to the efficacy of the proposed modalities for the 3F Meeting;

(2) What enforceable legal duties did Tabarak owe Huobi in respect of the events occurring during the 3F Meeting? He found that the relevant provisions were Articles 17-18 and 21 of the Law of Obligations but no duties arose because there was not sufficient proximity nor would it be just and reasonable to hold that Tabarak should owe the alleged duties of care;

(3) Breach of Confidence under Article 37 of the Law of Obligations – he found that Tabarak did not“misuse”the alleged confidential information;

(4) Breach under Article 71 of the Law of Obligations(“a bailee must take such care of the property bailed as is reasonable”)- Tabarak’s care of the BTC was “reasonable”;

(5) Breach of Fiduciary Duty under Article 158 (1) of the Law of Obligations - Tabarak was not in breach of the standard set out in Sch 3, para 5 of the Law of Obligations;

(6) Claim for damages for breach of Regulatory Obligations - Tabarak was not in negligent breach of GEN 4.2.2; GEN 4.2.3; or GEN 4.2.6 and therefore is not liable in damages under Article 194 of the Regulatory Law.

29. Huobi’s claim was therefore dismissed and Huobi appeals with permission, in part from the Judge and in part from this Court, on the grounds that the Judge was wrong to find that:

(1) The Defendants were not liable for breach of confidence under Article 37 of the Law of Obligations;

(2) There was no binding contract between Huobi and Tabarak because Tabarak did not waive the condition precedent;

(3) There was no binding contract between Huobi and Tabarak because he misdirected himself as to the significance of Tabarak’s role in implementing the modalities of the transaction;

(4) At no stage did Mr Thurner become an active advocate in favour of use of the“Trezor Wallet”;

(5) Mr Thurner was not under a duty to advise on the modalities that Huobi and Mr Morozov had agreed on and that Tabarak’s role did not require it to take responsibility for ensuring that a suitable process was deployed to enable the purpose of the transaction to be achieved;

(6) There was not sufficient proximity nor would it be just and reasonable to that Tabarak should owe the alleged duties of care in order to impose a duty of care under Article 18 of the Law of Obligations. He was also wrong not to impose a duty under Article 20 (which concerns pure economic loss); and

(7) Tabarak was not liable for breach of fiduciary duty.

30. There was also a procedural ground of appeal: Huobi claimed that the decision of the Judge significantly to restrict the time given to the Claimants’ counsel to cross-examine Mr Thurner (1 hr 50 mins) while allowing Tabarak’s Counsel almost five times that (8 hr 54 mins) to cross-examine Mr Al Ali involved a serious procedural irregularity which caused the decision to be unjust.

THE TECHNOLOGIES INVOLVED

Bitcoin

31. The Judge had the benefit of evidence from three experts, and while he considered that Mr McDougal (Huobi’s expert) exceeded his brief in some respects (a finding which is challenged) as did Mr Thurner’s expert, Mr Popa, he derived help from the Joint Memorandum they signed together with Tabarak’s expert, Mr Sibenik, on 21 November 2021 (“the Joint Memorandum”).

32. The Joint Memorandum seeks to answer the question “What is Bitcoin”:

“The Bitcoin network provides participants the ability to directly transfer value across the internet. The unit of account within the Bitcoin network is referred to as a ‘bitcoin’ and identified through the exchange tickers “BTC” and/or “XBT”.

Unlike traditional financial services, the Bitcoin network does not require participants to interact with intermediary services to store or transfer bitcoin, although it is common for users of Bitcoin to utilize services that facilitate trade and provide secure custody.

The Bitcoin network is a protocol (set of rules) followed by all participants to ensure legitimacy of network state, including.

the issuance of new bitcoin to the network,
the current amount of bitcoin held by each participant,
the specific details of transaction that take place, and
the specific order in which transactions took place.

The current state of the Bitcoin blockchain, including assets immediately available to users and a full history of all transactions prior, can be maintained and reviewed by any and all participants of the network. This database of transactions does not reference specific individuals or organizations but instead uses an "address" to represent accounts.”

Wallet

33. The experts then went on to describe a Bitcoin Wallet:

“The word "wallet" is used to describe a few different things in bitcoin.

For the purposes of this report, we will be using the word “wallet” to describe an auxiliary device or medium that holds or stores private keys needed to access or spend Bitcoin balances that have been allocated to addresses that are part of the wallet. This auxiliary device or medium could include a physical Trezor wallet or could include a software client on a computer or phone or could simply be a piece of paper.

A common misconception about bitcoin is that bitcoin wallets contain bitcoin. In fact, the wallet contains only keys. The "coins" are recorded in the blockchain on the Bitcoin network. Users control the coins on the network by signing transactions with the keys in their wallets. In a sense, a bitcoin wallet is a keychain.”

Addresses and Private Keys

34. The Joint Memorandum explained that Bitcoin assets are assigned to a data construct commonly referred to as“address(es)”:

“A Bitcoin address is a publicly visible character sequence which has a cryptographic relationship to a secret (also known as a “private key”) or set of secrets.

Participants of the Bitcoin network can create a virtually unlimited number of addresses.

A “wallet” is a collection of one (“1”) or more of these addresses.”

35. Addresses are also sometimes referred to as“public keys”in contra-distinction to“private keys”.

36. The secrecy of the private key is of course paramount. Any person who has access to both the address of Bitcoin and the associated private key is able to deal with the Bitcoin.

37. As already noted, in the present case the parties were proposing to use a hardware wallet (sometimes called a“cold wallet”; as opposed to a“hot wallet”which exists only as software). Cold wallets are meant to be more secure than hot wallets because the private key is stored within the device and is therefore off-line and not vulnerable to hacking.

38. The type of wallet in the present case was a Trezor Model T (“the Trezor Wallet”). The Trezor Wallet looks like a remote key fob with a touchscreen. During set up and transactions it is necessary that the Trezor Wallet is connected via a USB cable to a laptop running the necessary Trezor software.

“Seed Phrase” or “Mnemonic”

39. During set up, the Trezor software first installs the device firmware. The user is then prompted to create a new wallet or recover a wallet from a backup. If the former option is chosen, the next step is to create a backup of the new wallet. The backup of a Trezor Wallet is via a“Seed Phrase”or“Mnemonic”. The Seed Phase comprises 12 random human-readable words. The words are shown on the screen of the device and the user is told to write them down.

40. If a Trezor Wallet is lost or destroyed the Seed Phrase can be used to recover the wallet and its contents on any compatible device.

41. The next step is that the user is prompted to set a PIN. The final step prompts the user to choose the crypto currencies to be used with the wallet and once that is done setup is complete and the wallet is ready for use. When used a Trezor Wallet will generate a new address to which cryptocurrency may be“sent”.

42. I use the word“sent”because it is used colloquially and so used in the evidence and in the judgment. In fact, as the experts explained, the BTC is not sent anywhere, it remains as a data object recorded on the Bitcoin blockchain, both the address and private key merely allow the control and transfer of rights in the cryptocurrency.

43. A cold wallet, such as the Trezor Wallet is only one way of exercising those rights, said to be a secure way of storing both the address and associated private key. Anyone who knows both can control the asset and transfer the rights to the same. When using a self-custodial cold wallet it appears to be well-known that access to both can be gained using the disaster recovery function offered by use of the Seed Phrase. The experts emphasised that it is of fundamental importance to maintain the security of the Seed Phrase:

“The focus of securing bitcoin is management of the secrets required to authorize the movement of value on the Bitcoin network. This includes how these secrets are created, the distribution of additional copies for disaster recovery, the management of access to these keys through employment management processes, and the definition and adherence of protocols within an organization for accessing and using these sensitive secrets.

Security of the seed phrase to a wallet, including both the generation of the seed phrase, storage of the seed phrase, and parties who have access to the seed phrase, and the risk of any other parties somehow obtaining access to the seed phrase is the most fundamental and important aspect worth considering when it comes to holding Bitcoin in self-custodial wallets. This is because it would easily allow any other party to abscond with the BTC by knowing nothing more than the seed phrase to the wallet.”

THE LEGAL ISSUES

44. There has been an exponential growth in the understanding of the legal issues arising out of the trading in digital assets in the short time since judgment was handed down in this case in October 2022. Much of the credit must go the masterful analysis in the report of the Law Commission of England and Wales“Digital Assets: Final Report”published 27 June 2023 (“the Law Commission Report”) which has received much deserved judicial praise. I too have found it of enormous assistance. Unsurprisingly it was cited extensively in argument before us. Notwithstanding, as I will demonstrate, I detect some inconsistency and confusion in those submissions which have a direct bearing on the outcome of this case.

Bitcoin as Property

45. At paragraph 97 of his judgment the Judge held:

“I accept the Claimants’ contention that Bitcoin are property as was held in a carefully reasoned judgment by Bryan J sitting in the London Commercial Court inAA v Unknown Persons[2019] EWHC 3556 (Comm) at [56] – [59].”

46. He did not, nor was he invited to, in the more than 500 pages of written closing submissions (about the length of which he made justifiable complaint), consider the ramifications of the finding that BTC are property in the depth we are asked to consider the issue.

47. Huobi’s case in closing at the trial was:

(1) BTC are a form of property;

(2) Loss of BTC is thereforenotpure economic loss but damage to property for the purposes of a claim in tort;

(3) Tabarak was bailee of the BTC“(BTC here adopted as a shorthand for the private key corresponding to the Wallet)”;

(4) It is“uncontroversial”that crypto assets are a form of property. The DIFC Courts shouldnotadopt the reasoning of the English Court of Appeal inYour Response v Datateam[2014] EWCA Civ 281">¹³that intangible property could not be possessed; and

(5) Tabarak was in breach of bailment under Article 71 of the Law of Obligations by failing to take reasonable care of the BTC and permitting the BTC to be misappropriated from the Wallet.

48. Tabarak’s case in closing at the trial was that:

(1) Loss of BTCwaspure economic loss; and

(2) Huobi incorrectly assumed that the BTC was stored on the Wallet. Huobi’s property, the BTC was recorded on the blockchain. The Wallet was a chattel that did not belong to Huobi, and was handed back to its owner, Mr Morozov. Only Mr Morozov could assert a claim in bailment and only in respect of the physical Wallet.

49. On this appeal, relying on the Law Commission Report, Huobi submits in its skeleton argument dated 5 December 2022 that the most suitable concept equivalent to possession of tangible objects when considering data objects is that of control. In their written responses the Respondents disputed that Tabarak had sufficient control over the BTC to constitute Tabarak their custodian.

50. In oral argument the parties’ positions changed. Mr Spink KC for Huobi accepted that Tabarakcould nothold the BTC as bailee because BTC is not tangible property and bailment only applies to tangible property which is clear under English law and would be the position under DIFC law. He also submitted, based on the extra-judicial writings of Lord Sales¹⁴, (“Pure economic loss in the law of tort: the history and theory of assumption of responsibility”¹⁵) that if property is lost due to the negligence of a person to whom it is entrusted, that is pure economic loss. I am however not at all sure that Lord Sales went quite that far.

51. On the other hand, Mr Hill KC for Tabarak in exchanges with the Court seemed to accept that not onlywasTabarak the bailee of the Trezor Wallet, but because the Wallet gave control over the BTC, Tabarakwasalso bailee of the BTC:

“JUSTICE MICHAEL BLACK: How would you characterise - and you may wish to think about this over lunch, given the time - but you say that Tabarak was to hold for both the buyer and the seller the bitcoin, so in what capacity would you characterise that function?

MR HILL: Certainly it is a bailee, subject to questions of whether you can have a bailment of bitcoin.

JUSTICE MICHAEL BLACK: If you cannot bail bitcoin - and the authorities look fairly strong on that - but on the basis that perhaps control is the touchstone when one is dealing with it, in that sense.

MR HILL: Yes, I would have said Tabarak was a bailee, a simple bailee.

JUSTICE MICHAEL BLACK: Again, this is obviously an area which is very important to the outcome of this case and it is something you may wish to reflect on, yes.

CHIEF JUSTICE TUN ZAKI AZMI: He is a bailee for that wallet. For physically the wallet, he is bailee, but what is behind the wallet is another matter.

MR HILL: That may be the answer. It is a bailee of the wallet, and as it happens, the wallet gives access to bitcoin on the blockchain.”

52. The parties thus appear to have exchanged places to some extent: Huobi is no longer claiming that Tabarak was bailee of the BTC, Tabarak seems to accept that they might have been; Huobi now accepts that a claim for loss of BTC in tort is for pure economic loss, Mr Thurner doubts this. All of these issues turn upon a consideration of the nature of BTC as property, and while they initially arose during the trial in the context of Huobi’s tortious claims against Tabarak, they also assumed importance before us in the context of the claim that Tabarak acted as custodian of the BTC or as an escrow agent.

53. InAA v Persons Unknownthe claimant was an insurance company that had paid a ransom in Bitcoin on behalf of one of its insured customers to secure the reinstatement of the insured's systems, which had been hacked and disabled. It issued proceedings against the first and second defendants, who had made the ransom demand, and the third and fourth defendants, who operated the exchange on which the Bitcoins were being held. By an application the claimant sought, among other relief, a proprietary injunction in respect of the Bitcoin held at the account of the fourth defendant. Mr Justice Bryan held:

“… inColonial Bank v Whinney(1885) 30 Ch D 261 Fry LJ said: “All personal things are either in possession or action. The law knows no tertium quid between the two.”

56. On that analysis Bitcoins and other crypto currencies could not be classified as a form of property, which would prevent them being the subject of a proprietary injunction or a freezing injunction. This exact issue has recently in November 2019 been the subject of detailed consideration by the UK Jurisdictional Task Force (“UKJT”) which has published a legal statement on crypto assets and smart contracts, (“the Legal Statement”)…

57. It follows that the Legal Statement is not in fact a statement of the law. Nevertheless, in my judgment, it is relevant to consider the analysis in that Legal statement as to the proprietary status of crypto currencies because it is a detailed and careful consideration and, as I shall come on to, I consider that that analysis as to the proprietary status of crypto currencies is compelling and for the reasons identified therein should be adopted by this court.

58. The difficulty identified in treating crypto currencies in property, as I say, starts from the premise that the English law of property recognises no forms of property other than choses in possession and choses in action. As I have already identified, crypto currencies do not sit neatly within either category. However, on a more detailed analysis I consider that it is fallacious to proceed on the basis that the English law of property recognises no forms of property other than choses in possession and choses in action. The reasons for this are set out between paras 71 to 84 in the Legal Statement.

“71. TheColonial Bankcase concerned a dispute about shares deposited as security for a loan.

…

“76. On appeal, the House of Lords also framed the question as one about statutory interpretation. They reversed the Court of Appeal's decision, approving the judgment and reasoning of Fry LJ. They did not explicitly address the issue of exhaustive classification between things in action and things in possession and said nothing about the definition of property. Lord Blackburn did say, however, that ‘in modern times lawyers have accurately or inaccurately used the phrase “[things] in action” as including all personal chattels that are not in possession’. Thus, to the extent that the House of Lords agreed with Fry LJ on the classification issue, that seems to have been on the basis that the class of things in action could be extended to all intangible property (ie it was a residual class of all things not in possession) rather than on the basis that the class of intangible property should be restricted to rights that could be claimed or enforced by action.

“77. Our view is thatColonial Bankis not therefore to be treated as limiting the scope of what kinds of things can be property in law. If anything, it shows the ability of the common law to stretch traditional definitions and concepts to adapt to new business practices (in that case the development of shares in companies).

“78.Colonial Bankwas referred to inAllgemeine Versicherungs- Gesellschaft Helvetia v Administrator of German Property[1931] 1 KB 672 by Slesser LJ as showing ‘how the two conditions of [thing] in action and [thing] in possession are antithetical and how there is no middle term’. Again, however, the case was not about the scope of property generally but about whether something that was undoubtedly property should be classified as a thing in possession or a thing in action.

“79. Most recently,Colonial Bankwas cited in 2014 inYour Response v Datateam[2015] QB 41. In that case, the claimant sought to assert a lien over a database in digital form but faced the obstacle of the previous decision of the House of Lords inOBG Ltd v Allan[2008] AC 1 that there could be no claim in conversion for wrongful interference with a thing in action because it could not be possessed. In an attempt to distinguish the case fromOBG, the claimant argued that, even if the database could not be regarded as a physical object, it was a form of intangible property different from a thing in action and so was capable of being possessed.

“80. The Court of Appeal rejected the argument. Moore-Bick LJ said that Colonial Bank made it ‘very difficult to accept that the common law recognises the existence of intangible property other than [things] in action (apart from patents, which are subject to statutory classification), but even if it does, the decision inOBG Ltd v Allan[2008] AC 1 prevents us from holding that property of that kind is susceptible of possession so that wrongful interference can constitute the tort of conversion’. He said that there was ‘a powerful case for reconsidering the dichotomy between [things] in possession and [things] in action and recognising a third category of intangible property, which may also be susceptible of possession and therefore amenable to the tort of conversion’ but the Court of Appeal could not do that because it was bound to follow the decision inOBG. The other members of the court agreed.

“81. The Court of Appeal did not, and did not need to, go so far as to hold that intangible things other than things in action could never be property at all, only that they could not be the subject of certain remedies. The intangible thing with which they were concerned was a database, which (as Floyd LJ said) would not be regarded as property anyway because it was pure information. They did not have to consider intangible assets with the special characteristics possessed by crypto assets.

“82. In other cases, the courts have found no difficulty in treating novel kinds of intangible assets as property. Although some of those cases are concerned with the meaning of property in particular statutory contexts, there are at least two concerning property in general. InDairy Swift v Dairywise Farms Ltd[2000] 1 WLR 1177 , the court held that a milk quota could be the subject of a trust; and inArmstrong v Winnington[2013] Ch 156 , the court held that an EU carbon emissions allowance could be the subject of a tracing claim as a form of ‘other intangible property’, even though it was neither a thing in possession nor a thing in action.

…

“84. We conclude that the fact that a crypto asset might not be a thing in action on the narrower definition of that term does not in itself mean that it cannot be treated as property.”

59. The conclusion that was expressed was that a crypto asset might not be a thing in action on a narrow definition of that term, but that does not mean that it cannot be treated as property. Essentially, and for the reasons identified in that legal statement,I consider that crypto assets such as Bitcoin are property. They meet the four criteria set out in Lord Wilberforce's classic definition of property inNational Provincial Bank v Ainsworth[1965] AC 1175 as being definable, identifiable by third parties, capable in their nature of assumption by third parties, and having some degree of permanence. That too, was the conclusion of the Singapore International Commercial Court inB2C2 Ltd v Quoine PTC Ltd[2019] SGHC (I) 03 [142].”

[emphasis added]

54. The reference in AA was toQuoineat first instance. By the time this case came before the Judge it had been heard by the Singapore Court of Appeal. Their decision was cited to the Judge as were those from other common law jurisdictions (the New Zealand High Court inRuscoe v Cryptopia Limited (in liquidation)¹⁶and the BVI High Court decision of Wallbank J inPhilip Smith and Jason Kardachi (in their capacity as joint liquidators of Torque Group Holdings Limited) (in liquidation) v Torque Group Holdings Limited (in liquidation)¹⁷). The Singapore Court of Appeal noted the views of the UK Jurisdiction Task Force and commented that there may well be much to commend the view that cryptocurrencies should be capable of assimilation into the general concepts of property but they noted that difficult questions arise as to the type of property that is involved which they found unnecessary to answer.

55. Huobi cited the Law Commission Report extensively before us in support of the submission that not only are BTC property as found by the Judge, but they are a third class of property that is neither a chose (or thing) in possession nor a thing in action and the equivalent of possession of a tangible asset is control. The significance for present purposes is the resolution of whether Tabarak agreed to, or actually exercised, control over Huobi’s BTC; if so, in what capacity did they, or were they intended to, control the BTC and what obligations flowed from that capacity.

56. I pause to observe that these issues are now addressed in the Digital Assets Law. Article 9 provides that“A Digital Asset is intangible property and is neither a thing in possession nor a thing in action.”Articles 10 to 13 address control and title. The Law is not retrospective and so we must apply the common law as its stood at the time of the judgment.

Control

57. Mr Spink took us to the Law Commission’s Digital Assets Consultation Paper. While it is true that the final report postdated the judgment, the Consultation Paper did not – it was published on 28 July 2022, after closing submissions but before judgment was handed down. Since the concept of control had not assumed the same significance at the trial as it did before us perhaps the parties can be forgiven for not drawing the Consultation Paper to the Judge’s attention.

58. Under the heading“Control”, the Law Commission stated:

“11.76The most viable alternative to an extension of the concept of possession is the development of a new, but functionally similar, concept that is more sensitive to the idiosyncrasies of data objects.Such a concept can capture the essence of the factual relationship that, for tangibles, constitutes possession. However, it can do so in a way that avoids importing the aspects of possession that are less suitable for the digital realm.

11.77We think that such a concept, which we explain in detail below, might be labelled control.A person in control of a data object stands in the same type of factual relationship to that object as a person in possession stands to a tangible object, but possession requires the additional element of intention so the two are not identical.

…

11.84 In Chapter 4 we provisionally conclude that the most appropriate way for the law of England and Wales to accommodate certain types of data objects is as members of a distinct third category of personal property

…

11.85 … This means, in general, that the ability factually to determine access to the data object can be sufficiently concentrated into a single person’s hands. In general, we think that the person who is able to exclude others from, and make use of, a rivalrous data object should be recognised as having “control” of that object.

…

11.91 Broadly speaking, we think that the person in control of a data object at a particular moment in time is the person who is able sufficiently

(1) to exclude others from the data object;

(2) to put the data object to the uses of which it is capable…

11.92 These elements require further explanation. The first element of this description captures the notion of excludability, which is at the core of the concept of property rights. As the UNIDROIT Working Group notes, for example, “the ability to exclude is an inherent aspect of proprietary rights”. A person in control of a data object will be able to prevent others from putting the data object to the uses of which it is capable. This is the idea of negative control.

11.93 The second element reflects the positive dimension of control — the ability to use the asset. The notion of “use” should be understood as referring broadly to any deliberate actions that can be taken in relation to the data object, and will include effecting a change of control, if that is something of which the data object is capable. When taken together with the first element of control, we think that these two elements capture the exclusivity dimension inherent in personal property rights in relation to an object

…

11.109 Applying a concept of control, grounded in the factual ability to exclude others from a data object and make use of it, gives rise to a number of legally important consequences. In many cases, these mirror closely the consequences of applying the concept of possession to tangible objects.

…

(3)Custody or custody-like arrangements.The concept of control also plays an important role in facilities and arrangements in which holders relinquish a degree of control over how and by whom their data objects can be used and accessed. This could be done for a variety of purposes, … As such, we consider that the broad concept of control might be best thought of as an important constituent element of custody arrangements.”

[emphasis added]

59. Mr Spink submitted that Tabarak was a “Direct Custodian” as described at paragraph 16.15 of the Consultation Paper:

“Direct custodians are persons or organisations that engage in activities that clearly satisfy the definition of custody above. That is, they hold crypto-tokens on behalf of or for the account of other persons and have the capacity to exercise or to coordinate or direct the exercise of factual control in terms of both its positive and negative aspects.”

He submitted that that should guide the construction that the court puts on the contract between the parties and/or the assumption of responsibility for the purpose of the tortious argument.

60. Mr Kotick, who appeared for Mr Thurner, supported Mr Spink’s submissions and took us to the Final Report of the Law Commission of June 2023. He referred us to paragraphs 3.9 and following, which indicate that courts have not only recognised the existence of certain (third category) things but they have recognised that those things are capable of being objects of personal property rights at law. The Law Commission endorsed that view for six reasons:

(1) treating certain digital assets (including crypto-tokens) as things to which personal property rights can relate is a practical and effective means of meeting the legitimate expectations of those parties who interact with such digital assets;

(2) this conclusion maintains consistency with the existing common law position, and other international case law, statute and law reform initiatives;

(3) this conclusion reflects the factual reality of how certain technology functions. Some digital assets (specifically, crypto-tokens) replicate some of the features of a property relationship between a person and an object;

(4) the law of personal property is perfectly able to deal with such things/assets and there is a high degree of existing legal certainty as to how principles of personal property law should apply to such things;

(5) consultees overwhelmingly supported the proposition that certain digital assets, including crypto-tokens, can and should be capable of being things to which personal property rights can relate; and

(6) the idea that some digital assets such as crypto-tokens are capable of being an object/thing to which personal property rights can relate has been discussed and considered in detail for many years and is already widespread in legal and academic commentary.

61. The Law Commission’s conclusion at paragraph 3.28 of the Report was that:

“We conclude that the law should not attempt directly to apply legal principles applicable to things in possession or things in action to third category things. … we conclude that, instead of directly applying the concept of possession, the law of England and Wales can develop jurisprudence around a concept of control which is better suited to the functions of third category things and the technology they use.We think that control will form an important constituent part of the legal rules and principles that apply to complex interactions with third category things. In particular, we conclude that control should be considered as a core constituent element within a range of higher-level organising or framing principles such as legal concepts of transfer, intermediated holding arrangements, collateral arrangements and causes of action and associated remedies.”

[emphasis added]

62. The Law Commission stated at paragraph 3.38 that their conclusion was consistent with the existing position at common law which has over the last ten years clearly moved toward the explicit recognition of a third category of thing to which personal property rights can relate noting (at paragraph 3.41) that since the judgment inAA v Persons Unknownwas handed down in 2019, courts in at least 14 of those 24 cases, including the Court of Appeal, have cited that judgment in support of the proposition that the digital asset in question is a thing which is capable of being an object of personal property rights.

63. In order to fall with the third category of property the Law Commission suggested three criteria (paragraph 4.5):

(1) it is composed of data represented in an electronic medium, including in the form of computer code, electronic, digital or analogue signals;

(2) it exists independently of persons and exists independently of the legal system; and

(3) it is rivalrous.

64. Mr Kotick referred to the decision of the English Court of Appeal inTulip Trading. In that case, Lord Justice Birss explained what is meant by “rivalrous” in context of BTC[2023] EWCA Civ 83, [24]">¹⁸:

“As a result it is meaningful to describe bitcoin not merely as something which is transferable but as “rivalrous” (see the Law Commission’s recent Digital Assets: Consultation Paper). For a transferable thing to be rivalrous, the holding of it by one person necessarily prevents another from holding that very thing at the same time. Because the holder cannot double spend their bitcoin, such that it is rivalrous, the crypto asset can be said to be capable of assumption by a third party (see the definition of property inNational Provincial Bank v Ainsworth). Thus, as Mr Justice Bryan heldin AA v Persons Unknownciting Ainsworth, a crypto asset such as bitcoin is property.”

65. He contrasted the position of private keys citing a recently published textbook“Crypto and Digital Assets Law and Regulation”by Charles Kerrigan at page 172¹⁹:

“Whilst English law has made progress in recognising user’s rights over their crypto assets challenges remain for users seeking to establish property rights over their private key. English law does not afford properly rights over "pure information", which is highly transmissible and cannot be relinquished once gained. The UK Jurisdiction Taskforce highlighted that, whilst the crypto-tokens themselves are properly treated a property under English law, ''the private key ... is no more than an item of pure information” and incapable of attracting full property rights. This approach limits a user's right over their private key to the legal rules around confidentiality.”

66. Mr Kotick pointed out thatTulip Tradingwas a case about a private key and it was in that context that Mrs Justice Falk at first instance in the English High Court held[2022] EWHC 667 (Ch)">²⁰that any loss suffered by Tulip was properly characterised as purely economic because there was no element of physical harm to person or property. He submitted that the case is only authority for the preposition that loss of a private key is pure economic loss and not for the broader proposition that loss of BTC is pure economic loss. I consider that is too restrictive a reading of the judgment. Mrs Justice Falk described the claim as relating to a loss of control or use of digital currency. If control is to be equated to possession of a physical object the substance of the case was more than just the loss of the private key, rather it was about the loss (and restoration) of property rights over BTC. Having said that, I recognise that the decision was interlocutory in nature (decided effectively on a “strike out” basis) and it was reversed on appeal albeit on other grounds without the Court of Appeal considering the question of economic loss.

67. This Court would not be bound by the decision inTulip Tradingin any event, but I do not find that Mrs Justice Falk was drawing a distinction between the loss of control of the BTC and loss of the private key. Whether there is such a distinction in my view remains an open question.

Holding

68. Mr Kotick does accept that when one speaks of “holding” a digital asset, one is speaking of exercising full factual control. He made reference to the Law Commission’s Final Report at paragraph 5.57:

69. He cited paragraphs 11.7 and 11.91-11.93. Those paragraphs largely reflect the paragraphs of the Consultation Paper cited by Mr Spink in reaffirming the importance of positive and negative control in determining whether a person is in control of a digital object at a given moment. This feeds into the definition of “custody”; at paragraph 16.10 of the Report the Law Commission stated:

“In relation to crypto-tokens specifically, a custodian can be characterised as a person holding crypto-tokens on behalf of, or for the account of other persons. In this context, “holding” refers to a custodian having the capacity to exercise, or to coordinate or direct, the exercise of “factual control”, …“Holding”, therefore, encompasses arrangements where the custodian has the capacity to exercise factual control entirely by itself, or where factual control is exercised in a practical sense through, or in collaboration with, one or more third parties.”

[emphasis added]

70. They continued at paragraphs 16.12 and 16.13:

“16.12 Based on this definition, the degree of control that the custodian has (or has the capacity to coordinate or direct) over crypto-tokens that it holds can be understood as comprising two dimensions:

(1) positive control, which involves the factual ability to use, dispose of or transfer an asset; and

(2) negative control, which involves the factual ability to exclude others from using the asset.

16.13 However, not all providers of services relating to the safekeeping of crypto-tokens necessarily constitute, nor do they hold themselves out as being, custodians as defined above, or at all. And the crypto-token markets and market participants often use the term custody in a colloquial sense to describe both the type of custodial relationship described above and/or “custodial/custody-like” services where a custodial relationship (as described above) may not exist. Therefore, we recognise that projects and businesses that engage in activities involving the control of cryptotokens which are received or transmitted from, or held in connection with transactions undertaken by, other persons can be sub-divided in three general categories:

(1) direct custodians (that is, the type of custodial arrangement described above);

(2) custodial (and other) technology services providers; and

(3) hybrid service providers.”

71. The Law Commission revised their earlier definition of “holding” at paragraphs 17.19 and 17.20:

“7.19 We now use “holding” more extensively and more explicitly as a framing device to accommodate a range of different operational models, services, and arrangements. We define “holding” as the capacity to exercise, or to coordinate or direct, the exercise of “full factual control”. 7.20 Full factual control has two dimensions:

(1) positive control, which involves the factual ability to use, dispose of or transfer an asset; and

(2) negative control, which involves the factual ability to exclude others from using the asset.”

72. Mr Kotick relied on that definition to submit that where (as here) a party does not have exclusive access to the Seed Phrase of a cold wallet the party cannot be said to have exclusive control and therefore does not hold the cryptocurrency associated with the wallet. The Court is able to dismiss that point relatively quickly:

(1) It ignores the words“in collaboration with, one or more third parties”in paragraph 16.10 of the Law Commission Report;

(2) If it were correct it would adversely impact the efficacy of multi-signature arrangements; and

(3) On the unchallenged facts of this case, the Judge found that both Huobi and Tabarak honestly believed that Tabarak did have exclusive control of the BTC notwithstanding the division of the Seed Phrase.

Conclusions

73. The Court considers that not only was the Judge correct to hold that BTC are property, but also that BTC are property of the third kind, adopting the Law Commission’s analysis of the common law position demonstrating that crypto assets are self- evidently neither tangible property nor a thing in action that must be asserted by taking legal action or proceedings. I leave to one side the question of whether possession of the sole tangible object conferring exclusive direct control over the BTC (i.e. a cold wallet) and said colloquially to contain the BTC, may be argued to confer possession of the BTC.

74. This third category of property, in common with tangible property (things in possession), exists independently of the assertion of any right of ownership, or whether a legal system recognises it as property, unlike a thing in action. A thing in action requires there to be a party against whom a right is asserted and legal recognition of that right. A data object will exist on the blockchain whether or not there is a holder of a private key and irrespective of its legal characterisation.

75. TheTulip Tradingcase is a vivid illustration – there the English Court of Appeal summarised the facts as follows[2023] EWCA Civ 83 [1]">²¹:

“Tulip Trading Limited, a company associated with Dr Craig Wright, claims to be the owner of some bitcoin with a very high total value (the value in $ expressed in April 2021 was about $4 billion). The bitcoin is held at two addresses on the blockchain called 1Feex and 12ib7. However the private keys have been lost in a hack, likely stolen. Without its private keys Tulip cannot access its assets or move them to safety. However, Tulip contends, the developers named as defendants in this case control and run the four relevant bitcoin networks, and it would be a simple matter for them to secure Tulip’s assets, e.g. by moving them to another address which Tulip can control. Tulip contends that the role the developers have undertaken in relation to Tulip’s property (the bitcoin) and the power this role gives them, and all the circumstances (discussed below), mean that the developers should be recognised as a new ad hoc class of fiduciary, owing fiduciary duties to the true owners of bitcoin cryptocurrency, including in this case Tulip as true owner of the bitcoin at 1Feex and 12ib7. The fiduciary duties owed should extend to implementing the necessary software patch to solve Tulip’s problem and safeguard Tulip’s assets from the thieves ..”

The Court found [86]:

“However there is, it seems to me, a realistic argument along the following lines. The developers of a given network are a sufficiently well defined group to be capable of being subject to fiduciary duties. Viewed objectively the developers have undertaken a role which involves making discretionary decisions and exercising power for and on behalf of other people, in relation to property owned by those other people. That property has been entrusted into the care of the developers. The developers therefore are fiduciaries. The essence of that duty is single minded loyalty to the users of bitcoin software. The content of the duties includes a duty not to act in their own self interest and also involves a duty to act in positive ways in certain circumstances. It may also, realistically, include a duty to act to introduce code so that an owner’s bitcoin can be transferred to safety in the circumstances alleged by Tulip.”

Thus, it was considered that there was an arguable case on the basis that the BTC was property that existed independently of any right Tulip could have exercised had it retained the private keys. The property was“held”by third parties who may owe fiduciary duties to the true owner.

76. I accept that the concept of control (both in its negative and positive senses) is the most apposite way of expressing“possession”of a crypto asset. Someone who exercises control over a crypto asset in which another has superior title, with the consent of that other, may be considered a custodian of the asset.

77. In an article by Professor Louise Gullifer KC²², Hin Lui²³and Henry Chong²⁴entitled"Client-Intermediary Relations in the Crypto-Asset World"²⁵the authors observe that if one accepts that crypto-assets are a form of property“this raises a plethora of further questions that need to be resolved by the courts … One such question, … concerns the relationship between a crypto-asset intermediary (such as a crypto-asset exchange or custodian) and its clients, in relation to its storage of cryptocurrencies or cryptosecurities for those clients.”

78. They identify an issue that Huobi contends is at the heart of the present case:

“The relationship between a crypto-asset intermediary and its clients is of practical importance because the vast majority of crypto-assets are kept by intermediaries, yet we simply do not know with any reasonable certainty the basis on which these assets are being held. Most agreements between clients and intermediaries are extremely vague, and are silent as to the legal relationship between the parties. Yet since common law courts will have to determine the legal category into which the agreement falls, they should be guided by a consistent set of principles that allow them to characterise agreements with a degree of certainty and practical justice that is acceptable to commercial parties… Moreover, the characterisation of the relationship will determine what (if any) are the baseline duties owed by the intermediary to its clients, and to what extent those duties can be excluded by express agreement.

79. The authors go on to suggest a number of possible legal relationships. They begin by defining a custodian as a (natural or legal) person who holds property for or on behalf of a client and if crypto-assets can constitute property, a custodian of crypto-assets is a person holding such assets for or on behalf of clients. As to“holding”their views are similar to those of the Law Commission, namely that an intermediary‘holds’a client’s crypto-asset if it has access to the private key in relation to the public key where the crypto-asset is located, enabling it to transfer the asset and to prevent others from transferring it; this type of access is called“factual control”and is similar to that required for a person to have possession of a tangible object.

80. They go on to consider outright transfer and trust, neither of which figure in this case, but move on to bailment, which does. They observe that under the current common law, it is impossible to create a bailment of an intangible asset (including crypto-assets) (see for exampleYour Response v Datateam[2014] EWCA Civ 281">²⁶). The rationale is that since (according to the conventional view) it is impossible to have possession of intangible assets in common law jurisdictions, and since possession is required for a bailment, it is impossible to have a bailment of intangible assets. After considering the theoretical possibility of what they call a“quasi-bailment”based on the fact that“factual control”of a crypto asset is so close to possession that crypto-assets can be subject to a relationship analogous to bailment, the authors ultimately conclude that as the incidents of bailment can be replicated through a mixture of trust and contract, any bailment analysis would be redundant in this context.

81. While it has not been fully argued before us I consider that the position under DIFC law may be different from that under English law. As I have explained, the DIFC is a common law jurisdiction but much of what is common law elsewhere is codified. Article 66(1) of the Law of Obligations defines a bailment as arising whenever a person (the bailor) lawfully in possession, or entitled to possession, of property passes possession of the property to another person (the bailee). Article 66(2) provides that possession of property may pass to a bailee: (a) by physical transfer of the property; or (b) by delivery of any property (including a document of title) entitling or enabling possession on the part of the recipient.

82. Clearly physical possession of a crypto asset is not possible but it may be subject to factual control analogous to possession and it may be suggested that delivery of a private key enables factual control. “Property” has a defined meaning in DIFC Law and it is that meaning that is used in the Law Obligations. The definition is to be found in thePersonal Property Law DIFC Law No.9 of 2005(as amended at March 2024)²⁷:“anything which is capable of being owned and transferred and as the context requires denotes either the property itself or title to the property”. The Personal Property Law has been amended by the Digital Assets Law but this definition remains unchanged. Clearly the legislator thought it to be wide enough to encompass crypto assets.

83. I agree. Crypto assets are capable of being owned. Professor Gulliferet alrecognise that there is an argument that crypto-assets cannot be transferred, insofar as the movement of value through the blockchain happens through the creation and destruction of informational entities instead of the movement of the same asset from place to place or from person to person and so crypto assets are transmitted rather than transferred. They point out in answer that such a view erroneously equates the informational entities (that are destroyed and created) with the assets themselves. Instead, one can conceptualise the informational entities as part of a process by which the underlying crypto-asset (such as a bitcoin) is being transferred from address to address. Irrespective of how each blockchain organises its informational entities throughout the process of‘transfer’, the end result is that an asset is transferred from person to person.

84. I consider that even if the“transmission”argument were not technically flawed in the way pointed out by Professor Gulliferet alit would depart from the expectations of parties and commercial common sense. When one deposits cash at a bank one does not expect to receive back the same notes, cash is fungible and the relationship between the banker and customer is that of debtor/creditor. While it would be possible to replicate a banker-customer type relationship by contract between a customer and a crypto-exchange, the nature of crypto assets is that they are rivalrous and non- fungible. The expectation of a customer that they deposit, swap, buy and sell identifiable assets located at a unique address.

85. Crypto assets are therefore“capable of being owned and transferred”and constitute property within the meaning of The Personal Property Law and Law of Obligations. It is therefore possible to argue as a matter of statutory construction that the definition of bailment in Article 66(1) of the Law of Obligations can extend to the factual control of crypto assets, if factual control is to be regarded as, or equivalent to, possession.

THE DECISION BELOW

86. It is not necessary to rehearse all the facts found by the Judge but it is necessary to go into some detail as Huobi seeks to appeal some of the findings.

87. I begin the narrative on 17 December 2019 when Tabarak sent Mr Al Ali an unsigned Account Opening Agreement (the ‘‘AoA”) and a separate Addendum. The AoA stated, amongst other things, that (a) Tabarak would provide the Client [Huobi] with its services with respect to providing facilities as per Tabarak’s regulated licence and may also arrange or source investment or financing opportunities within the scope, as well as Asset Management, Investment into Sukuk, Wealth Fund, Investment Trading and Custodial Services and FX Trading and FX Spot Transactions; (b) work for the Client [Huobi] would only commence once all due diligence and compliance matters have been fulfilled; (c) the Client [Huobi] had to pay a one-time non-refundable processing/due diligence/administration fee of US$ 25,000 + 5% VAT (the ‘‘AO Fee”); and (d) the Client [Huobi] had to send a Letter of Intent explaining the need for Tabarak’s services and each separate service would be the subject of a separate Addendum.

88. There was an exchange of WhatsApp messages between Mr Al Ali and Mr Morozov on 18 December 2019. Mr Al Ali, Mr Morozov and Mr Thurner met for a second time at Tabarak’s office on 20 December 2019. Later that day Mr Thurner sent an email (the ‘‘Second Deal Structure Email”) to Mr Al Ali, Mr Morozov and Mr Saxena, cc’d to Mr Ahmadi, Ms Zavyalova and Mr Abdul Khadeer Khan, who at the time was a member of Tabarak’s finance team dealing with the proposed modalities for the sale.

89. On 15 January 2020, Mr Al Ali and Mr Thurner had further discussions about the process by which Huobi would sell BTC to Navarcon during which Mr Thurner said that the proposed buyers were good for the funds that would be involved. On 19 January 2020, Mr Thurner sent an email (the ‘‘Third Deal Structure Email”) to Mr Al Ali, Mr Morozov, Mr Saxena and Mr Ismail Saheeb (Huobi’s Compliance Manager), cc’d to Mr Ahmadi and Ms Zavyalova including the following:

Evgeniy has placed verified funds with us at correspondent Bank in Europe
He and a Partner also verified Funds here in UAE with 3 Major Banks (close to 50 Mio. AED
HUOBI will show BTC at least 500 BTC) by sending small to TABARAK Trezor Wallet
TABARAK will send back to HUOBI Wallet
Evgeniy transfers AED amount equivalent to 500 BTC to TABARAK account of HUOBI
HUBI and Evgeniy are fixing the Price based on XE Chart
HUBI transfers BTC to TABARAK Trezor Wallet
TABARAK transfers AED to any by HUBI nominated account

90. On 20 January 2020, Mr Al Ali duly signed the AoA which was then delivered to Tabarak. However, Mr Al Ali did not sign the Addendum that had accompanied the AoA because he was not happy with the level of the commission that Tabarak were proposing to charge and wished to negotiate a lower rate with Mr Thurner.

91. By 30 January 2020 Mr Morozov, Huobi and Mr Thurner were agreed that Huobi would sell 200 BTC to Navarcon and the modalities of the transaction would be as set out in the Third Deal Structure Email of 19 January 2020. It was subsequently agreed that: (a) the transaction would take place at Tabarak’s offices on 3 February 2020; (b) the number of BTC to be sold would be 300; and (c) Navarcon would pay a fee of 3.2% on the agreed price. As to the commission payable to Tabarak, it was Tabarak’s position that this should be 0.35%, but Huobi offered 0.2%.

92. At the 3F Meeting Mr Morozov produced two new Trezor Wallets that were still contained within an unopened box. Mr Morozov put one these wallets to one side and stated that, for security reasons, he wanted the 300 BTC to be transferred directly to one of these devices rather than to Tabarak’s Wallet for onward transfer to the Wallet of Navarcon/Mr Morozov (“the Buyer”).

93. The Judge found that this was an obvious and fundamental departure from the agreed modalities for the sale of the 300 BTC. He found that Mr Morozov said he wanted to set up the Wallet and explained that the coins could only be transferred from the Wallet if the transferor knew all 12 words of the Mnemonic, and so the thing to do was for the first six words of the seed phrase to be noted by Tabarak and the remaining six words to be noted by those representing the Buyer. Mr Saxena objected to the Buyer’s team setting up the Wallet and Mr Thurner asked the Huobi team if they wanted to set up the Wallet. The Huobi team declined to accept this proposal and stated that it should be Mr Thurner who should set the Wallet up. This Mr Thurner did, explaining how the words of the Mnemonic would be divided between Huobi and Navarcon. Mr Al Ali on behalf of Huobi agreed to the proposal that Mr Thurner should set up the Wallet into which Huobi would transfer the 300 BTC.

94. All present could see that the Wallet was apparently new and had not been used before. Mr Thurner proceeded to set up the Wallet, plugging it into a laptop computer. Out of the view of everyone else in the room, the first six words of the Mnemonic were noted by Mr Thurner and Ms Zavyalova and written down by Ms Zavyalova. The laptop into which the Wallet was plugged was then passed to Mr Morozov and Mr Socin who, out of the sight of the Huobi team, appeared to write down the other six words of the seed phrase when they were generated by the device. Mr Thurner put in a pin code and the Wallet’s address was then created automatically and sent by email to Huobi and Navarcon.

95. After the price of the BTC had been settled and agreed, Mr Nahak of the Huobi team transferred the 300 BTC to the Wallet. Proof of the transfer was confirmed through the“Internet Blockchain Watch”and Mr Thurner sent to the parties a screen-shot of the balance shown on the Wallet. The device was then locked in the safe situated in Mr Ahmadi’s room and Mr Al Ali and Mr Socin left the meeting, the latter stating that he had to leave for approximately 2 hours. The remaining attendees went to lunch at theBurger & Lobsterrestaurant located in the Burj Daman building for about two hours.

96. At about 4:30 pm, the original attendees, save for Mr Al Ali and Mr Socin, returned to Tabarak’s meeting room and were told that no funds had yet arrived from Navarcon. Mr Morozov said that he was chasing for the money to arrive and all would be OK. At the request of Mr Saxena, Mr Thurner checked the Wallet through his laptop and was shocked to discover that 299.99 of the 300 BTC had been transferred to another wallet. The Wallet was then taken out of the safe and the police were called.

97. The experts considered that the most probable means by which the 300 BTC were misappropriated were that Mr Morozov and Mr Socin, when they had been passed the computer into which the Wallet had been plugged, scrolled back to find and then memorise all twelve words of the Mnemonic. In his amended report, Mr McDougall, stated that an additional verification process in setting up a Trezor Wallet not identified in the Joint Memorandum should have been carried out directly after all 12 words of the Mnemonic are displayed. This verification step asks the user to confirm, at random, a subset of the twelve words to make sure they have correctly noted down the twelve words. If the user incorrectly selects appropriate words, the entire set of 12 words is made available so that the user can review the whole of the Mnemonic again.

98. The Judge found that it was likely that that Mr Morozov and Mr Socin obtained the 12 seed words either by scrolling up to look at the first six words that had been assigned to Tabarak or by deliberately making an incorrect selection of seed words so as to see the entire 12-word seed phrase.

99. The Judge carefully reviewed the credibility of each witness from whom he received evidence giving reasons for his findings:

(1) Mr Al Ali’s evidence needed to be very carefully scrutinised before accepting that it was accurate and reliable;

(2) Mr Saxena’s evidence had to be treated somewhat cautiously because of the mistakes he admitted in his second witness statement that he had made in his first witness statement;

(3) Mr Ahmadi’s evidence was not consistently reliable;

(4) He accepted the evidence of Mr Malik, Tabarak’s Director of Compliance, Risk Management, Corporate Governance and AML as to Tabarak’s account opening procedures and client due diligence, that he was unaware of Mr Thurner’s dealings with Huobi and Mr Morozov, the AoA, the non-payment of the AO Fee, and the incomplete due diligence procedures. He did not accept his evidence that Mr Thurner acted without authority when dealing with Huobi and Mr Morozov in respect of the proposed transaction as this was a matter exclusively for the Court;

(5) He generally only accepted those parts of Mr Thurner’s exculpatory evidence where it was supported by other evidence, including the relevant context or a finding that parts of the evidence to which he was responding were unreliable in the first place; and

(6) Although he did not discount entirely the evidence of Ms Zavyalova, it was only where it was supported by other aspects of the evidence overall that he gave it weight.

100. The Judge found that there was an oral agreement between Mr Al Ali for Huobi and Mr Thurner acting for Tabarak in the terms set out at paragraph 24 above.

101. He further found that Huobi and Tabarak intended that the agreement would operate alongside and within the framework of the AoA signed by both parties, with Tabarak (acting by Mr Thurner) accepting, or being estopped from denying, that the terms would apply notwithstanding the Entire Agreement Clause in the AoA. In addition, the parties appreciated that the AoA would only incept once the AO Fee had been paid and“all Due Diligence and Compliance matters [had] been fulfilled”.

102. The Judge considered that the role to be played by Tabarak at the 3F Meeting under the agreement was straightforward and uncomplicated and did not require any appreciable knowledge of, or experience in, the trading of BTC beyond Tabarak being in possession of, and knowing how to operate, a wallet capable of receiving BTC from Huobi and sending the coins on to Navarcon once the purchase monies had been received.

103. He also held that Tabarak was under no obligation to advise as to the efficacy of the proposed modalities for the 3F Meeting with the process for the meeting having been agreed and accepted by Huobi and Mr Morozov as an appropriate and effective one, with Tabarak going along with their judgment. He rejected the evidence of Mr Al Ali and Mr Saxena that it was Mr Thurner who took the initiative in coming up with the modalities by which the sale of BTC by Huobi to Mr Morozov’s principals could be achieved. There was therefore no necessity or scope for Mr Thurner to propose the basic modalities of the transfer. They had in effect been set by Huobi and Mr Morozov leaving it to Tabarak to agree to perform the contemplated function of the middleman once he had made sure that he understood precisely what they required.

104. The agreement the Judge had found to have been concluded between Huobi and Tabarak was subject to: (i) the conditions precedent that the AO Fee be paid (the “AO Fee Condition”) and Tabarak’s due diligence processes completed (“the Due Diligence Condition”), unless these conditions were waived; and (ii) the commission and other sums due to Tabarak for participating in the Transaction had been agreed.

105. On a detailed analysis of the evidence the Judge dismissed Huobi’s case that it was agreed between Huobi and Tabarak that the AO Fee could be paid out of the proceeds of the Transaction. He was satisfied that Mr Thurner had apparent authority for all that he did and said in the lead up to the 3F Meeting prior to the alleged agreement that the fee could be paid out of the proceeds of the transaction and, after that call, throughout the course of the 3F Meeting. Notwithstanding, he held that Mr Thurner did not have apparent authority to agree to Mr Al Ali’s proposal concerning the fee over the telephone on 29 January 2020. This is because he, and through him, Huobi, were on notice that Mr Ahmadi was making it his business to ensure that the fee was paid before Tabarak took further action in conjunction with Huobi.

106. Again based on a detailed analysis of the evidence he found that at the 3F Meeting: (i) when talking to Mr Al Ali before the meeting got down to business, Mr Ahmadi did say that Huobi was not a client of Tabarak because it had not paid the AO Fee; (ii) in response, Mr Al Ali said to Mr Ahmadi that the fee would be paid that day out of the proceeds of the Transaction; and (iii) Mr Ahmadi did not respond to this statement from Mr Al Ali but took no steps to stop the pending transaction. He did not consider that Mr Ahmadi agreed to waive the AO Fee Condition or caused Tabarak to be estopped from denying that the AO Fee Condition had been waived in light of the fact that a sale of BTC was shortly to take place in Tabarak’s offices between Huobi and Mr Morozov with the assistance of Mr Thurner. The legal test applied by the Judge was that Mr Ahmadi’s failure to respond to Mr Al Ali and letting the transaction proceed, would not have led an objective observer in the position of Mr Al Ali and Mr Saxena clearly and unequivocally to conclude that, on behalf of Tabarak, Mr Ahmadi was waiving the AO Fee Condition. It followed, in his judgment, that the agreement he had held to have been concluded between Huobi and Tabarak never became a binding contract.

107. He went on to hold:

(1) that Tabarakwasestopped from denying that the Due Diligence Condition was not satisfied because Tabarak’s request for due diligence documents was met by Huobi, no further requests were made, and Tabarak proceeded to treat Huobi as a client by participating in trial transactions that took place on 24 December 2019 and 21 and 22 January 2020; and

(2) the fees and commission due to Tabarak for their role in the Transaction were agreed on 3 February 2020 sometime before the 300 BTC were transferred to Mr Morozov’s Trezor Wallet. He accepted Mr Saxena’s evidence that at the 3F Meeting, Mr Thurner approached him and Mr Nahak and in a private discussion asked that Tabarak’s margin be increased by 0.05% from the 0.2% which had been previously agreed. Mr Thurner suggested that this be achieved by an adding 0.05% to the sum charged to Navarcon without notice to Mr Morozov because of the delay and inconvenience Mr Morozov had caused by not showing up on time at a previous date arranged for the Transaction on 30 January 2020. Accordingly, the total fee was increased to 3.05% with Tabarak’s share being increased from 0.2% to 0.25%.

108. The Judge stated that even if that conclusion were wrong, the contract was in respect of the planned transaction that contemplated the transfer of the 300 BTC to Tabarak’s wallet after the price had been agreed where they would stay until the purchase money was received into Tabarak’s account and therefore it had no application to the different scenario that unfolded following Mr Morozov’s insistence that the BTC be transferred to one of the new Trezor Wallets he had brought to the meeting.

109. After a thorough review of both the written and oral evidence the Judge found that on the basis of the evidence that he accepted:

(1) the Buyers said they wished to use one of the apparently brand-new wallets they had brought to the meeting. Mr Saxena was concerned about this. Mr Saxena asked Mr Thurner whether he had any concerns arising from this. Mr Thurner replied saying words along the lines that he had no concerns as once the BTC were transferred, the Wallet would be locked in Tabarak’s safe, to which only Tabarak would have access; and

(2) Mr Saxena emailed Mr Thurner providing the bank details for payment to Huobi. Mr Saxena and Mr Al Ali objected to transferring the BTC as Tabarak had not yet received the Buyer’s payment. Mr Thurner responded using words along the lines that the Wallet would be in Tabarak’s custody in its safe, so the BTC would be safe and there was no reason to be concerned.

110. On the basis that BTC are property, the Judge held that the relevant Articles in the Law of Obligations were Articles 17-18 and 21 and it was therefore unnecessary for him to consider Article 20 which addresses economic loss (“economic loss” is not defined in the Law of Obligations but is contrasted with “physical damage” in Article 53(2)). He said that on the facts as he had found them to be, the authorities canvassed by Fraser J inMultiplex Construction Europe Ltd v Bathgate Realisations Civil Engineering Ltd[2021] EWHC 590 (TCC)">²⁸“were of some pertinence” but did not expand further. He went on to set out the parties’ respective submissions in detail and in particular noted that Huobi did refer to Article 20 of the Law of Obligations “presumably on the basis that their contention that BTC is property would not be upheld”. He recorded that in order to establish the necessary proximity Huobi contended that Tabarak was providing escrow/custody services and in support of the contention relied upon the decision of the UK Supreme Court inManchester Building v Grant Thornton UK LLP[2021] UKSC 20">²⁹.

111. It is helpful to set out the Judge’s findings on the claim in tortverbatim:

“103. At the 3F Meeting, once Mr Morozov insisted that the Transaction be done using one of the two Trezor Wallets he had come with, Mr Thurner and through him, Tabarak, acted in the honest but mistaken belief that, if the Mnemonic were split into two with Mr Morozov and Mr Socin having access only to the remaining six words of the seed phrase, neither side could get access to the 300 BTC once they had been transferred to the Wallet. Like the Huobi team attending the meeting, he did not know that the Trezor wallet could be prompted to reveal the whole Mnemonic phrase either by scrolling up or by deliberately inputting a small number of seed words that were not part of the Mnemonic. In my judgment, in acting as he did, setting up the Wallet and passing it to Ms Zavyalova and then to Mr Morozov stating, when asked, that he had no concerns about the proposed use of the Wallet because it would be locked in Tabarak’s safe, Tabarak/Mr Thurner were not in breach of an actionable duty of care owed to Huobi.

104. As I have held above, the agreement that was reached between Huobi and Tabarak was not in the nature of a retainer but was limited to how the proposed sale of 300 Bitcoin was to be implemented. I have also held that Mr Thurner was not under a duty to advise on the modalities that Huobi and Mr Morozov had agreed on, or as to any other modalities that might be contemplated. In addition, Mr Thurner did not agree to provide what the Claimants grandiosely call “custodian and escrow services”. Rather, he agreed to carry out the relatively simple tasks of: (i) using Tabarak’s wallet to receive the 300 BTC from Huobi and to transfer them to Navarcon once the price had been received by Tabarak; and (ii) opening an account for Huobi. What he was obliged to do (if only the agreement had been binding and enforceable) was to operate Tabarak’s own wallet to receive the 300 BTC and to transfer them to Navarcon once the purchase money had been received in an account maintained by Tabarak and then to transfer the net sales proceeds to Huobi.

105. It follows that this is not a case where the relationship was akin to contract where but for the lack of consideration there would have been a contract. If it had been, that would point in favour of an assumption of responsibility on the part of Tabarak (see e.g.Lord Devlin in Hedley Byrne & Co v Heller & Partners Ltd[1964] AC 465 at 528.) But it was not.

106. I have also held that Mr Thurner was not the originator of the proposed modalities by which the BTC were to be held and transferred, those modalities being an uncomplicated and pretty obvious way of dealing with the conflicting demands of Huobi and Mr Morozov that were agreed in principle by Mr Morozov and Mr Al Ali…

107. On any view, Mr Morozov’s insistence that the BTC be transferred into one of the Trezor Wallets he had brought to the meeting was “a game changer” …

108. At no time did Mr Thurner become an active advocate in favour of the use of the Trezor Wallet …

109. In my view, the Claimants’ reliance on theManchester Building Societydecision to reinforce their frequent refrain that the purpose of Tabarak’s involvement vis-à-visHuobi, is misplaced....

110. On the facts that I have found, I hold that the relationship between Tabarak/Mr Thurner was not sufficiently proximate for the alleged duty of care in respect of how the Trezor Wallet was handled, to exist. I also find that the Claimants have failed to establish that Tabarak/Mr Thurner owed the alleged duty of care in respect of the “assurances” given by Tabarak/Mr Turner. I say this because I find that Tabarak, acting by Mr Thurner, did not assume responsibilityquoadHuobi for these statements and it was not reasonable for Huobi to trust Tabarak/Mr Turner to exercise such a degree of care as the circumstances required. Nor was it reasonable for Huobi to rely on the “assurances” to the point, as it is alleged, that it went ahead with transferring the 300 BTC to the Trezor Wallet at a time when none of the purchase monies had been received.

111. I also hold that, in the circumstances as I have found them to be, it would not be just and reasonable that Tabarak should owe the alleged duties of care…”

112. The Judge then proceeded to dismiss the remaining claims briefly:

(1)

Breach of Confidence under Article 37 of the Law of Obligations– he found that Tabarak did not misuse the alleged confidential information;

(2)Breach under Article 71 of the Law of Obligations (“a bailee must take such care of the property bailed as is reasonable”)– he found that Tabarak’s care of the BTC was“reasonable”;

(3)Breach of Fiduciary Duty under Article 158 (1) of the Law of Obligations– as Tabarak was not liable in negligence, it followed that Tabarak was not in breach of the standard set out in Sch 3, para 5 of the Law of Obligations (“a fiduciary owes the principal a duty to exercise care, skill, and diligence, in the same circumstance by a reasonable person having both(a) the knowledge and experience that may reasonably be expected of a person in the same position as the fiduciary; and (b) the knowledge and experience which the fiduciary has”); and

(4)Claim for damages for breach of Regulatory Obligations– this is not the subject of appeal.

THE PRINCIPLES APPLICABLE TO APPEALS ON FACT

113.In Ibrahim Saif Hormodi v Bankmed (SAL) Trading In The DIFC Under The Trade Name Bankmed (Dubai)[2019] DIFC CA 006">³⁰this Court indicated that it would adopt the same approach as the UK Supreme Court when considering appeals of findings of fact in the case ofMcGraddie v McGraddie and another[2013] UKSC 58">³¹on appeal from the Scottish Court of Session, Inner House, Extra Division. In that case the Supreme Court also drew upon the experience of other common law jurisdictions.

114. In McGraddie the UK Supreme Court emphasized that an appellate court would only interfere with the findings of a judge at first instance if it is satisfied that any advantage enjoyed by the trial judge by reason of having seen and heard the witnesses could not be sufficient to explain or justify the trial judge's conclusion and then only if the judge’s conclusion was“plainly wrong”. In another UK Supreme Court case shorty thereafter (Henderson v Foxworth Investments Ltd[2014] UKSC 41">³²) it was explained that the word“plainly”does not refer to the degree of confidence felt by the appellate court that it would not have reached the same conclusion as the trial judge. It does not matter, with whatever degree of certainty, that the appellate court considers that it would have reached a different conclusion. What matters is whether the decision under appeal is one that no reasonable judge could have reached.

115. The same point was made by the UK Supreme Court inPrince Abdulaziz Bin Mishal Bin Abdulaziz Al Saud v Apex Global Management Ltd and another[2014] UKSC 64">³³in slightly different terms, namely that it would be inappropriate for an appellate court to reverse or otherwise interfere with a decision, unless it was “plainly wrong” in the sense of being outside the generous ambit where reasonable decision makers may disagree³⁴. That test was applied by this court inAl Khorafi v. Bank Sarasin-Alpen (ME) Ltd³⁵andDAS Real Estate owned and represented by Mussabeh Salem Mussabeh Humaid AlMuhairi v National Bank of Abu Dhabi Pjsc[2017] DIFC CA 007 [22]">³⁶.

116. In determining whether no reasonable judge could have reached the conclusion under consideration an appellate court is bound, unless there is compelling reason to the contrary, to assume that the trial judge has taken the whole of the evidence into consideration³⁷, notwithstanding that it may appear that the judgment may not present a balanced account of the evidence. While the trial judge must consider all of the evidence, it need not be discussed in the judgment as the weight to be given to any aspect of the evidence is pre-eminently a matter for the judge. An appellate court may only set aside a judgment on the basis that the judge failed to give the evidence a balanced consideration, if the judge's conclusion was rationally insupportable³⁸.

117. The judge should give their reasons in sufficient detail to show the parties and, if need be, the Court of Appeal, the principles on which they have acted and the reasons that have led them to their decision, but there is no duty on a judge to deal with every argument presented by counsel in support of their case. The judge’s function is to reach conclusions and give reasons to support their view, not to spell out every matter as if summing up to a jury. It is sufficient if what the judge says shows the basis on which they have acted[2014] EWCA Civ 5 [115] per Lewison LJ">³⁹.

118. InAnderson v City of Bessemer470 US 564 (1985), 574-575">⁴⁰the United States Supreme Court gave further support for the common law approach that an appellate court will defer to the trial court’s findings of fact on the basis that if a party (having fully deployed its energies and resources) failed to persuade a judge who is deeply immersed in the evidence to make a particular finding of fact at first instance, it is inherently unlikely the party will succeed second time around with three further judges:

“The rationale for deference to the original finder of fact is not limited to the superiority of the trial judge's position to make determinations of credibility. The trial judge's major role is the determination of fact, and with experience in fulfilling that role comes expertise. Duplication of the trial judge's efforts in the court of appeals would very likely contribute only negligibly to the accuracy of fact determination at a huge cost in diversion of judicial resources. In addition, the parties to a case on appeal have already been forced to concentrate their energies and resources on persuading the trial judge that their account of the facts is the correct one: requiring them to persuade three more judges at the appellate level is requiring too much. As the court has stated in a different context, the trial on the merits should be 'the 'main event' . . . rather than a 'tryout on the road'. . . . For these reasons, review of factual findings under the clearly erroneous standard – with its deference to the trier of fact – is the rule, not the exception.”

119. Similar remarks were made by Canadian Supreme Court inHousen v Nikolaisen⁴¹:

“The trial judge has sat through the entire case and his ultimate judgment reflects this total familiarity with the evidence. The insight gained by the trial judge who has lived with the case for several days, weeks or even months may be far deeper than that of the Court of Appeal whose view of the case is much more limited and narrow, often being shaped and distorted by the various orders or rulings being challenged.”

120. It may be with the luxury of hindsight and the more “limited and narrow” focus of the appellate court that it might feel better able to express certain findings but as Lord Hoffman in the English Supreme Court case of Piglowska v Piglowski[1999] 1 WLR 1360, 1372">⁴²:

“The exigencies of daily court room life are such that reasons for judgment will always be capable of having been better expressed . . . . An appellate court should resist the temptation to subvert the principle that they should not substitute their own discretion for that of the judge by a narrow textual analysis which enables them to claim that he misdirected himself.”

121. InFAGE UK Ltd⁴³,speaking in the English Court of Appeal, Lord Justice Lewison drew the strands in the foregoing together:

(1) The expertise of a trial judge is in determining what facts are relevant to the legal issues to be decided, and what those facts are if they are disputed.

(2) The trial is not a dress rehearsal. It is the first and last night of the show.

(3) Duplication of the trial judge's role on appeal is a disproportionate use of the limited resources of an appellate court, and will seldom lead to a different outcome in an individual case.

(4) In making their decisions the trial judge will have regard to the whole of the sea of evidence presented to them, whereas an appellate court will only be island hopping.

(5) The atmosphere of the courtroom cannot, in any event, be recreated by reference to documents (including transcripts of evidence).

(6) Thus even if it were possible to duplicate the role of the trial judge, it cannot in practice be done.

These principles apply not only to findings of primary fact, but also to the evaluation of those facts and to inferences to be drawn from them.

122. Mr Hill KC, on behalf of Tabarak, made repeated reference before us to the admonition against“island hopping”.

123. Huobi cites a number of subsequent English Court of Appeal authorities (and one first instance case), which, while accepting the principles enunciated above, it says entitle or obliges an appellate court to interfere with findings of fact, whether by substituting them with the findings it determines ought to have been made or by ordering a re-trial (on some or all findings of fact), if:

(1) there is an“identifiable flaw in the judge’s treatment of the questions to be decided, ‘such as a gap in logic, a lack of consistency, or a failure to take into account of some material factor, which undermines the cogency of the conclusion”[2019] EWCA Civ 932 at [75]">⁴⁴;

(2) there is an identifiable error,“such as (without attempting an exhaustive account) … the making of a critical finding of fact which has no basis in the evidence, or a demonstrable misunderstanding of relevant evidence, or a demonstrable failure to consider relevant evidence”[2019] EWCA Civ 1864 at [25]">⁴⁵;

(3) the judge’s conclusions are unreliable / unsafe due to: the judge’s failure properly to take account of his previous findings in considering the likelihood of the later facts having occurred; a“piecemeal approach”that“unfairly affected the judge’s evaluation of the facts”; a lack of“an element of standing back and considering the effects and implications of the facts he had found taken in the round”; the judgment being“affected by inconsistencies”[2020] EWCA Civ 408 at [59], [70], [73]">⁴⁶;

(4) the judge failed“to address inherent probabilities”and particularly so if“the evidence has not been considered with care and with the serious of the allegations in mind”[2020] EWCA Civ 1668 at [296]">⁴⁷; and

(5) the judge simply drew the wrong conclusions from the evidence[2020] EWHC 237 (Ch) at [54]">⁴⁸.

124. It seems to me that these cases do no more than provide examples of circumstances in which a judgment could be said to be“plainly wrong”,“rationally insupportable”or a decision“that no reasonable judge could have reached”. It is axiomatic that the consideration of those questions will be fact-sensitive in every case.

125. By way of reinforcing its submissions Huobi relies in addition to theBank St Petersburgcase andNatwest Markets Plc v Bilta (UK) Ltd (In Liquidation)[2021] EWCA Civ 680 at [45], [48], [52]-[57]">⁴⁹to suggest that where there has been inordinate delay in handing down a judgment and the judge has failed to recollect or address material evidence, an appellate court may consider that the deference paid to the judge on the basis that they will have had“regard to the whole of the sea of evidence”presented to them may be diminished.

126. The Court can address this last point immediately. InBank St Petersburgthe delay in producing the judgment was 22 months. Notwithstanding, the English Court of Appeal declined to allow the appeal on the grounds of delays alone observing that at paragraph [82]:

“The judge mitigated the delay by reading the transcripts assiduously. He did not forget or omit consideration of any material parts of the evidence. Instead, he undertook a minute, indeed commendable, analysis of the evidence on each separate point. The delay may, however, I think, have meant that he was less able to deal with findings he made in the round, perhaps because the findings on one part of the case were made at such a remove in time from other findings.”

127. In the event the Court of Appeal did find that there were inconsistencies in the decision and that the judge failed adequately to stand back from his sequence of factual findings so as to consider them as a while.

128. InNatwest Marketsjudgment was handed down 19 months after closing submissions. The court followed its own guidance inBank St Petersburgand observed that

“The danger posed by a seriously delayed judgment in a case which involves assessments of fact and which depends at least in part on the oral evidence of witnesses, is that the delay may have so adversely affected the quality of the decision that it cannot be allowed to stand.”

129. The court recognised the important warnings about the reliability of witness evidence in the cases ofGestmin SGPS SA v Credit Suisse UK Ltd⁵⁰andBlue v Ashley[2017] EWHC 1928 at [68]">⁵¹and that generally in commercial cases the documentary record will be given primacy. However there will be cases where the documentary record is sparse or non-existent and then the judge

“has little choice but to fall back on considerations such as the overall plausibility of the evidence; the consistency or inconsistency of the behaviour of the witness and other individuals with the witness’s version of events; supporting or adverse inferences to be drawn from other documents; and the judge’s assessment of the witness’s credibility.”

130. The present is just such a case – the Judge was strongly reliant on the recollection of those who gave evidence before him for the events of 3 February 2020. Mr Spink made reference to Mr Thurner's so-called“Memory Minutes”⁵²which he suggested were“contemporaneous or reasonably contemporaneous”. They were of course drafted by Mr Thurner in the context of the police investigation and, as Mr Spink recognised, when Mr Thurner was under some degree of suspicion. The minutes did not displace the need for the Judge to form his own view on the credibility of the oral evidence.

131. Lord Hodge JSC noted in an appeal from Court of Appeal of the Eastern Caribbean Supreme Court inPickle Properties Ltd v Plant (British Virgin Islands)[2021] UKPC 6 at [28],">⁵³“[t]here must be a basis for believing that there may have been a causal link between the excessive delay and the alleged errors or failings in the judgment.”

132. In the present case the Judge examined in detail the nature of each party’s case they developed during the course of submissions. He set out his findings on the credibility of each of witness of fact and identified those sections of the expert evidence he accepted and those rejected. Having said all that, there is no serious dispute as to the primary facts. While Huobi phrases certain of its Grounds of Appeal as appeals against findings of fact, they are (for the most part, but not exclusively) more accurately described as appeals against inferences drawn from unchallenged facts. Mr Spink admitted this; in oral submissions he said that Huobi challenged very few things that are primary facts; most of the challenges are to conclusions on reasonablenesset cetera.

133. The material delay was less than inBank St PetersburgandNatwest Markets, here it was just under 7 months. It is true that that exceeds the 3-month target for 80% of cases set out inPractice Direction No. 1 Of 2023 “Handing Down of Reserved Judgments in the Dubai International Financial Centre Courts”⁵⁴. The reference to 80% recognises that that there will always be exceptional cases where that target will be exceeded. Mr Spink noted that there were“hundreds and hundreds of pages of transcript, hundreds - if not thousands - of pages of written submissions, some of which were criticised by the judge as being excessive”. Nonetheless he maintained that the delay was excessive. He did not point to a causal link between the excessive delay and any specific alleged error or failing in the judgment; for example, he did not demonstrate that the Judge forgot a particular piece of evidence.

134. For his part Mr Hill commended the Judge on the basis that this was a colossal case for the judge to get on top of (the appeal bundle ran to more than 15,500 pages) and he did well to get it done in six months and three weeks. He submitted it could never be suggested that his advantages as a trial judge had been diminished.

135. I do not accept that it has been demonstrated by Huobi that the time taken to prepare the judgment had any direct impact on any identified finding (nor indeed did Huobi go as far as to submit that it did) nor do I accept that this Court should depart from the customary deference to be paid to the findings of fact made by a trial judge. If Huobi is to succeed on those grounds of appeal said to be challenges to the Judge’s findings of fact it must demonstrate that the findings were“plainly wrong”,“rationally insupportable”or constitute decisions“that no reasonable judge could have reached”in accordance with the international common law jurisprudence examined above.

THE GROUNDS OF APPEAL

Ground 1 - Claim for breach of confidence (appeal on a point of law)

136. Huobi contends that:

(1) The decision of the Judge at [112] of the judgment that the Defendants are not liable for breach of confidence under Article 37 of the Law of Obligations through Mr Thurner disclosing to Mr Morozov and/or Mr Socin during the course of the 3F Meeting the entirety of the 12-word seed phrase required to enable them or their associates subsequently to remove the BTC from the Wallet remotely using a computer (as the Judge found as a fact occurred in [30] and [103]) was wrong because:

(a) the Judge held that a necessary ingredient for a breach of Article 37 is a finding of conduct on the part of the person disclosing the confidential information that would amount or equate to negligence. On a correct construction of Article 37, negligence is not required: mere disclosure (as the Judge found occurred) is sufficient to constitute“misuse”; and

(b) on a correct construction of Article 37, the Defendants are liable thereunder.

137. Article 37 of the Law of Obligations provides:

“(1) Subject to Article 37(4), a person has a duty not to misuse specific information which he has received from another (a ‘confidant’), directly or via an intermediary, and which can reasonably be regarded as confidential, where he knows or ought to know that the information is confidential.

(2) If a person breaches his duty as defined in Article 37(1), he is liable to the confidant.

(3) Unless non-confidentiality is otherwise expanded by agreement, information is not confidential if:

(a) it is in the public domain;

(b) it is trivial or useless; or

(4) Misuse of information includes, but is not limited to, its disclosure.

(5) A person may disclose confidential information where:

(a) the confidant has consented, expressly or by implication, to its disclosure;

(b) its disclosure is required by law;

(d) it is no longer confidential; or

(e) it is disclosed to a person who has a legitimate interest in receiving it.

(6) It is no defence that the defendant did not know that he was misusing the confidential information.”

138. It is right to say that the Judge’s finding on this point was terse. At paragraph 112 of his judgment he held:

“For the reasons given above for the finding that Tabarak was not liable in negligence for the loss of the 300 BTC, Tabarak did not “misuse” the alleged confidential information.”

139. The paragraph must be read in context. The Judge had spent the preceding 72 paragraphs of his judgment in a detailed analysis of what occurred in the run up to and at the 3F Meeting. I do not understand that the Judge was holding as a matter of law that negligence is a component of a claim for misuse of confidential information; what he was holding was that based on the factual analysis he undertook when considering whether or not Tabarak was liable in negligence for the loss of the 300 BTC, Tabarak did not, as a matter of fact, misuse the alleged confidential information. That was a finding of fact that was not (nor is alleged in the Grounds of Appeal) to be plainly wrong and one with which this Court should not interfere. What the Judge didnotdo is make the error of law alleged. This Ground of Appeal therefore failsin limine.

140. In deference to the extensive arguments of counsel on the point I would add the following. First, under Article 37(1) a person must receive specific information which he has received from another directly or via an intermediary, and which can reasonably be regarded as confidential, where he knows or ought to know that the information is confidential. Clearly the first six words of the Seed Phrase were intended by all attending the 3F Meeting to be confidential in that Tabarak was not to disclose them to Mr Morozov or Mr Socin during the course of the 3F Meeting. I accept that the duty not to disclose those words was owed by Tabarak to Huobi. I do not accept that that the information was received from Huobi (as Huobi argues) “via an intermediary”. The intermediary is said to be Trezor Wallet itself. The Wallet was not Huobi’s property nor was the software that generated the Seed Phrase. The Seed Phrase was generated for disaster recovery if the physical Wallet were lost. If anyone “owned” the information comprising the Seed Phrase it was the owner of the Wallet, Mr Morozov. Mr Morozov had agreed to share that information with Tabarak and so if the information was received from anybody it was received from Mr Morozov.

141. Secondly, even if it could be said that the first half of the Seed Phrase was information received from Huobi, the Judge was unarguably correct in finding that the information was not misused. The Judge found that Huobi stated that it was Mr Thurner who should set up the Wallet⁵⁵, that at the 3F Meeting Tabarak/Mr Thurner were at times subject to the direction of Huobi⁵⁶, that it was the Huobi team who wanted Mr Thurmer to set up the Wallet⁵⁷and that Mr Ali agreed to the proposed use of Mr Morozov’s Wallet with Mr Morozov having access to the remaining 6 words of the Mnemonic⁵⁸. The information was therefore used for the purpose Huobi intended and Huobi authorised Tabarak to use the information.

142. Huobi argues that, taking Articles 37(4) and 37(6) in combination, unconscious disclosure was sufficient to amount to abuse. It is true that Article 37(6) does not require an intention to abuse the information or even carelessness as to whether it is abuse. It does not however follow that every disclosure of confidential information amounts to abuse. Toulson & Phipps on Confidentiality⁵⁹notes that misuse is an essential element of breach of confidence and that unauthorised use is the key issue. What is unauthorised will necessarily depend on the scope of the duty owed in particular relationship judged by the standards of the“ordinary person”.

143. I do not think that the standards of a so-called“ordinary person”assist much in the analysis of a technically complex commercial crypto-asset transaction, but the passage underlines the primacy of the parties’ relationship in determining whether a particular use of confidential information may be regarded as misuse of that information. In the present case the use of the information by Tabarak in handing over the Trezor Wallet after noting down the first 6 words of the Seed Phrase was what was intended by Huobi and therefore cannot be stigmatized as misuse.

144. Thirdly, even if it could be said that the first half of the Seed Phrase was information received from Huobi and that Articles 37(4) and (6) mean that any innocent disclosure of confidential information amounts to misuse, no liability will arise under Article 37(2) where the confidant has consented, expressly or by implication, to its disclosure within the meaning of Article 37(5)(a). It is clear that the Judge found that Huobi did so consent.

145. In the premises Ground of Appeal No. 1 must be dismissed.

Ground 2 - Claim for breach of contract (1) (appeal on a point of law and against a finding of fact)

146. Huobi contends that the findings at [81] to [83] of the judgment that there was no binding contract between Tabarak and Huobi because Tabarak (by Mr Ahmadi) did not waive the requirement that the account opening fee had to be paid before Huobi could become onboarded as a client and/or is not estopped from alleging that this precondition had been waived was wrong because:

(1) the Judge’s reasoning in support thereof is flawed, illogical and perverse;

(2) the Judge fell into error by failing to take into account the Claimants’ primary submission, which relies on Article 31 of the Contract Law, and so failed to take into consideration or apply the correct test;

(3) the Judge failed to take into account that waiver and estoppel can be inferred from silence;

(4) the Judge failed to take into account at all or sufficiently material evidence; and/or

(5) the Judge failed to take into account material probabilities; and

(6) had the Judge taken into account sufficiently or at all such material evidence and/or probabilities, and applied all the circumstances to the correct legal test, he would and ought to have found that Huobi and Tabarak entered a binding contract on 3 February 2020.

147. It seems to me that the grounds at paragraphs 146(1), (4) and (5) above are mere repetitions of the same challenge to the Judge’s findings of fact. The grounds at paragraphs 146(2) and (3) above are separate appeals on points of law. The ground at paragraph 146(6) above is unnecessary as it repeats the principal point that the finding that there was no binding contract between Tabarak and Huobi was wrong.

148. As noted at paragraphs 24, 100, 104 and 106 above the Judge found that there was an oral agreement between Mr Al Ali for Huobi and Mr Thurner acting for Tabarak, the agreement was subject to the conditions precedent that the AO Fee be paid (the “AO Fee Condition”) and Tabarak’s due diligence processes completed (“the Due Diligence Condition”); an objective observer in the position of Mr Al Ali and Mr Saxena clearly and unequivocally would not have concluded Mr Ahmadi was waiving the AO Fee Condition and so the agreement concluded between Huobi; and Tabarak never became a binding contract. The relevant passages of the judgment are as follows:

“81. The question that arises from this finding is whether, by his reference to Huobi’s failure to pay the AO Fee and his failure to respond to Mr Al Ali’s statement that the fee would be paid that day out of the proceeds of the Transaction: (i) Mr Ahmadi agreed to waive the strict requirement that the fee had to be paid before Huobi could become an onboarded client of Tabarak; or (ii) caused Tabarak to be estopped from denying that the precondition had been waived in light of the fact that a sale of BTC was shortly to take place in Tabarak’s offices between Huobi and Mr Morozov with the assistance of Mr Thurner.

82. In my judgment, Mr Ahmadi’s failure to respond to Mr Al Ali and letting the transaction proceed, would not have led an objective observer in the position of Mr Al Ali and Mr Saxena clearly and unequivocally to conclude that, on behalf of Tabarak, he was waiving the AO Fee condition precedent.

83. It follows that I find the agreement I have held to have been concluded between Huobi and Tabarak never became a binding contract.”

149. Grounds at paragraphs 146(1), (4) and (5) above do not identify any respects in which the Judge’s reasoning is said to be flawed, illogical or perverse, or in which he failed to take into account any material evidence, or in which he failed to take into account any material probabilities. Huobi’s first skeleton does suggest bases for those allegations (stripping out some repetition):

(1) it is said the reasoning was flawed, illogical and perverse because the Judge did not accept Mr Ahmadi’s evidence that he did not know what was going on, Mr Ahmadi was copied into the Deal Structure Emails, the Judge rejected Mr Ahmadi’s claim that he thought that Tabarak was only providing meeting facilities, Mr Ahmadi knew Mr Thurner was acting as an intermediary, it was inconsistent to allow waiver of the Due Diligence Condition but not the AO Condition and Mr Hamadi allowed Mr Thurner to proceed after he left the meeting;

(2) it is said the Judge ignored the evidence that Mr Thurner locked the Trezor Wallet in Mr Ahmadi’s safe in his presence, that Mr Ahmadi must have known that the transaction involved the use of a Tabarak bank account, and Mr Ahmadi knew that Tabarak was being paid as agreed by Mr Thurner out of the proceeds; and

(3) it is said to have been improbable that –

(a) Mr Ahmadi would not have accepted the fee and commission out of the transaction proceeds,

(b) Mr Ahmadi agreed to waive the AO Fee and in all the circumstances, it was reasonable to expect that Tabarak would receive the sums in short order, and

150. Mr Hill relied strongly on Lord Justice Lewison’s judgment inFage UK. He submitted that Huobi was“island hopping”in order to challenge the inferences and evaluations drawn from the Judge’s full assessment of the primary evidence in its totality. He said that Huobi is inviting this Court to substitute its own views for those of the Judge. This is not a permissible exercise; the question is whether the Judge reached a conclusion no reasonable judge could reach. It is not appropriate for an appellate court to make inferences and draw conclusions from the limited summary of the factual evidence in the judgment.

151. Huobi’s real complaint (although it does not shine out from its written or oral submissions) is that the Judge rejected Mr Al Ali’s evidence that Mr Ahmadi expressly agreed on 3 February 2020 that the AO fee did not have to be paid upfront. At paragraphs 72 to 79 of his judgment the Judge analysed the parties’ evidence, pleadings and submissions against such contemporaneous documents as there were, their internal consistency and the probabilities. He reached a reasoned conclusion at paragraph 80 that“(i) when talking to Mr Al Ali before the meeting got down to business, Mr Ahmadi did say that Huobi was not a client of Tabarak because it had not paid the AO Fee; (ii) in response, Mr Al Ali said to Mr Ahmadi that the fee would be paid that day out of the proceeds of the Transaction; and (iii) Mr Ahmadi did not respond to this statement from Mr Al Ali but took no steps to stop the pending transaction.”

152. These findings are unassailable as there is no sense in which they could possibly be said to have been plainly wrong. It was in the context of those findings that he went on to consider whether Mr Ahmadi’s failure to respond to Mr Al Ali’s statement that the fee would be paid that day out of the proceeds of the Transaction (i) amounted to a waiver of the strict requirement that the fee had to be paid before Huobi could become an onboarded client of Tabarak; or (ii) gave rise to an estoppel from denying that the precondition had been waived in light of the fact that a sale of BTC was shortly to take place in Tabarak’s offices between Huobi and Mr Morozov with the assistance of Mr Thurner, as set out at paragraphs 81 to 83 of his judgment.

153. Mr Spink (while making no concessions) realistically suggested that he did not need to challenge a positive finding of fact made by the Judge because all of the other conduct that took place constituted a waiver by estoppel of the AO Condition. He did however accept that the Judge did not misdirect himself when applying an objective test to the issue of whether or not there was a waiver. Mr Hill replied that the Judge determined the point against Huobi at that stage, holding that on a normal objective approach there was no waiver and that was the end of it. I agree; once one accepts the Judge was entitled to apply an objective test as to whether there was a waiver, it was a finding of fact that was open to the Judge on the evidence especially since there is no suggestion that he made any error of law. There is no basis (as alleged in Huobi’s first skeleton) for the suggestion that the Judge failed to take into account that waiver and estoppel may be inferred from, not only the conduct of the parties, but also from silence. If that were the case he would not have asked himself the questions he did at paragraph 81 of his judgment.

154. Huobi’s first skeleton suggests that the Judge made an error of law in failing to take account of Article 31 of the Contract Law which states that:

“A contract in writing which contains a clause requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated. However, a party may be precluded by its conduct rom asserting such a clause to the extent that the other party has acted in reliance on that conduct.”

The suggestion is misconceived. While it is correct that Clause 6 of the AoA does provide that once the Agreement had been signed should either Tabarak or the Client want to make any amendment to the Agreement, both Tabarak and the Client had to agree to the amendment in a separate addendum to be attached to the Agreement, Clause 6 only applies after the AoA has come into effect and what the Judge was considering was whether the AoA ever came into effect.

155. Equally misconceived are suggestions in Huobi’s first skeleton that the Judge failed to take into account that, pursuant to Article 51 of the Contract Law, in applying Article 49 and 50 (which concern interpretation of contracts), regard shall be had to all the circumstances, including the conduct of the parties subsequent to the conclusion of the contract. Again, these Articles are only of relevance once a contract has been formed. They are of no assistance in determining whether or not a contract has been formed in the first place.

156. It follows that Ground of Appeal No. 2 must be dismissed.

Ground 3 - Claim for breach of contract (2) (appeal against a finding of fact and on a point of law)

157. Huobi contends that the findings at paragraphs [60, 86, 104] of the judgment that Huobi and Tabarak did not enter a binding contract in relation to the transaction involving the Trezor Wallet was wrong because:

(1) insofar as the Judge relied upon a finding that Tabarak’s role was simply to implement modalities as agreed between Mr Morozov and Huobi and which they imposed on Tabarak, that finding was wrong;

(2) the Judge erred in law and misapplied the facts in undertaking his process of contractual analysis as applied to the relevant facts relating to the transaction involving the Trezor Wallet, in that he failed properly or at all to appreciate the legal significance and/or to take into account the fact that in agreeing to participate in such transaction in the manner proposed during the 3F Meeting and thereafter participating as agreed, Tabarak was agreeing to and in fact did take control of the 300 BTC received into the Trezor Wallet from Huobi on the basis outlined in sub-paragraph (3) below;

(3) as a matter of law and fact, the Judge ought to have found that a binding agreement between Huobi and Tabarak was made which included the terms listed below and that Tabarak breached terms of that contract:

(a) Tabarak would provide Huobi with a BTC address for receipt of the 300 BTC from Huobi and in relation to which Tabarak would have positive and negative control over the 300 BTC from Huobi;

(b) Having received the BTC at the BTC address, Tabarak would only transfer the BTC or allow the BTC to be transferred to the buyer once the purchase money had been paid by the buyer into an account maintained by Tabarak in Dubai;

(c) If the purchase money was received into Tabarak’s account, Tabarak would transfer the BTC to the buyer and transfer the net proceeds from the recipient account to an account nominated by Tabarak;

(d) If the purchase money was not received, Tabarak would transfer the BTC back to Huobi;

(e) In consideration of the foregoing, Huobi would pay Tabarak a fee and/or a commission.

158. At paragraph 60 of his judgment the Judge found that there was an agreement between Mr Ali acting for Huobi and Mr Thurner acting for Tabarak in the terms set out at paragraph 24 above. At paragraph 86 the Judge held that even if he were wrong that that agreement was subject to an unsatisfied condition precedent and therefore never incepted, the contract was in respect of the planned transaction that contemplated the transfer of the 300 BTC to Tabarak’s wallet after the price had been agreed where they would stay until the purchase money was received into Tabarak’s account and therefore it had no application to the different scenario that unfolded following Mr Morozov’s insistence that the BTC be transferred to one of the new Trezor Wallets he had brought to the meeting. A situation he described in paragraph 107 as “a game changer”.

159. At paragraph 104 of his judgment the Judge held that:

“As I have held above, the agreement that was reached between Huobi and Tabarak was not in the nature of a retainer but was limited to how the proposed sale of 300 Bitcoin was to be implemented. I have also held that Mr Thurner was not under a duty to advise on the modalities that Huobi and Mr Morozov had agreed on, or as to any other modalities that might be contemplated. In Mr Thurner did not agree to provide what the Claimants grandiosely call “custodian and escrow services”. Rather, he agreed to carry out the relatively simple tasks of: (i) using Tabarak’s wallet to receive the 300 BTC from Huobi and to transfer them to Navarcon once the price had been received by Tabarak; and (ii) opening an account for Huobi. What he was obliged to do (if only the agreement had been binding and enforceable) was to operate Tabarak’s own wallet to receive the 300 BTC and to transfer them to Navarcon once the purchase money had been received in an account maintained by Tabarak and then to transfer the net sales proceeds to Huobi.”

160. I assume that Ground 3 is not a mere repetition of Ground 2. Ground 3 must therefore be addressing a different agreement to that which the Judge had held had not come into effect, based upon the conduct of the parties following Mr Ahmadi’s departure from the meeting.

161. Following the“game change”, the Judge found that:

(1) Mr Saxena was concerned about this. Mr Saxena asked Mr Thurner whether he had any concerns arising from this. Mr Thurner stated that he had no concerns as once the BTC were transferred the Wallet would be locked in Tabarak’s safe to which only Tabarak had access⁶⁰; and

(2) Mr Thurner explained how the words of the Mnemonic would be divided between Huobi and Navarcon and that Mr Al Ali on behalf of Huobi agreed to the proposal that Mr Thurner should set up the Wallet into which Huobi would transfer the 300 BTC⁶¹.

162. The fees and commission due to Tabarak for their role in the Transaction were agreed on 3 February 2020 sometime before the 300 BTC were 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%⁶².

163. It appears that Mr Thurner provided the Public Address of the new Wallet by WhatsApp timed at 11:11.

164. At 12:23, Mr Saxena emailed Mr Thurner providing the bank details for payment to Huobi. Mr Saxena and Mr Al Ali objected to transferring the BTC as Tabarak had not yet received the Buyer’s payment. Mr Thurner responded using words along the lines that the Wallet would be in Tabarak’s custody in its safe, so the BTC would be safe and there was no reason to be concerned⁶³.

165. Shortly after 13:00, after the price of the BTC had been settled and agreed, Mr Nahak of the Huobi team transferred the 300 BTC to the Wallet. Proof of the transfer was confirmed through the “Internet Blockchain Watch” and Mr Thurner sent to the parties a screen-shot of the balance shown on the Wallet⁶⁴. According to Mr Thurner’s“Memory Minute”,“After the price given by HUOBI was agreed from NAVARCON, HUOBI started to transfer the BITCOIN from HUOBI Wallet to New TREZOR Wallet! At appr. 01:06 p.m. the 300 BITCOIN were transferred to the Wallet at the NEW TREZOR DEVICE.”

166. What seems to be implicit in these findings is that following Mr Ahmadi’s departure, the Transaction proceeded on the agreed basis that the Buyers and Tabarak would split the Mnemonic, the BTC would be allocated to an address provided by Tabarak details of which would be stored within the Wallet and Tabarak would hold the Wallet so as to ensure that control over the BTC was not transferred to the Buyers unless and until the purchase monies were received in the bank account nominated by Tabarak. If the monies were not received, Tabarak would transfer control over the BTC back to Huobi. Tabarak would be paid for undertaking these responsibilities.

167. It is to be noted that the Judge had found at paragraph [60] of the judgment that it was an express term of the contract he concluded had not incepted that if the purchase money were not received, Tabarak would transfer the BTC back to Huobi. If there were a contract that did come into effect after the non-incepted contract (and I emphasize “if”), I consider it is strongly arguable that it was an essential element and was necessary to give meaning to Tabarak’s involvement in the transaction that Tabarak would transfer the BTC back to Huobi if payment were not received from the Buyers. Even if there were no express agreement in these terms, it would be an implied obligation necessarily arising from the nature and purpose of the transaction⁶⁵.

168. Huobi seems in its written submissions overly concerned with the Judge’s dismissal of its application of the phrase“custodian and escrow services”to Tabarak’s role in the Transaction. Having stated (correctly) that the label given to a relationship is not determinative and what matters is the true nature of the relationship on a proper analysis, it then went on, at some length, to seek to justify the description. Its submissions were better and more succinctly expressed subsequently:

(1) Tabarak’s role was to ensure that the BTC would not be transferred to the Buyer until payment was received from the Buyer and Huobi would not be paid for the BTC until the BTC had been transferred by Huobi. (Huobi also suggest that necessarily Tabarak was involved in devising and implementing a process that met this objective – this does not follow logically and runs directly contrary to Judge’s primary findings of fact); and

(2) Applying the correct concept, namely that of control, to the Judge’s findings on the agreement he said was reached⁶⁶, it follows that he ought to have found that a binding agreement between Huobi and Tabarak was made which included the terms listed at 157(3) above and that Tabarak breached terms of that contract.

169. Huobi’s oral submissions seemed to go off in a different direction. It was submitted that Ground 3 was on the assumption that there had been a waiver or estoppel in relation to the AO fee. That is not something that appears in the written grounds of appeal or skeleton in support.

170. More helpful was the reference to paragraphs 184 and 185 of Huobi’s written closing submissions before the Judge where it was noted that Article 59 of the Contract Law provides that:

“To the extent that an obligation of a party involves a duty to achieve a specific result, that party is bound to achieve that result.”

171. Those passages also referred toTaaleem PJSC v (1) National Bonds Corporation PJSC (2) Deyaar Development PJSC[2010] DIFC CFI 014, [77]">⁶⁷where Justice Sir David Steel adopted a summary of the applicable legal principles on the formation of contracts under DIFC law that had been proposed by counsel and included reference to the judgment of Lord Clarke JSC in the English Supreme Court Case ofRTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co[2010] UKSC 14; [2010] 1 WLR 753, p. 771G">⁶⁸:

“The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”

172. Mr Spink emphasized that Tabarak’s role was that the BTC would not be transferred to the Buyer until payment was received from the Buyer and Huobi would not be paid for the BTC until the BTC had been transferred by Huobi. He argued that it was not an implied term in the normal sense in answer to observations of the Chief Justice in argument, but rather an inference – an express term through conduct. He then did submit it was an implied term. Perhaps in an attempt to reconcile both analyses he rejected the suggestion that“the game”changed so radically as to invalidate the Judge’s finding that at an earlier stage Tabarak had expressly agreed that if the purchase money were not received, Tabarak would transfer the BTC back to Huobi.

173. The thrust of Tabarak’s written submissions is that Ground 3 is an attempt to reverse the Judge’s findings of fact. In particular Tabarak argued that Huobi’s focus on“control”is another attempt to ascribe to Tabarak an agreement to guarantee“control”over the BTC in all circumstances which went far beyond (and is inconsistent with) the very limited role that the Judge found that Tabarak agreed to assume.

174. In his oral submissions Mr Hill asserted that it was a new allegation only emerging during argument that there may have been as he called it“a varied contract”which governed what actually occurred on 3 February 2020 and that the point is not therefore open to Huobi. That is not correct for the reasons stated at paragraph 160 above.

175. He accepted that in the“new world”following the“game changer”it was the function of Tabarak to stop the Buyers from getting their hands on the BTC until they had paid for them and that Tabarak was being paid appropriately for the service. Mr Hill suggested that it was open to Judge to have found that:

(1) The fact matters went ahead did not change matters – Tabarak through Mr Ahmadi was not willing to take the risk of non-payment if the purchase monies never arrived;

(2) Matters proceeded without Mr Ahmadi’s consent;

(3) Huobi could still have satisfied the condition precedent that day; and

(4) It was theoretically possible for Tabarak or various employees of Tabarak to engage in various respects with Huobi without Huobi being an onboarded client under a client agreement and that the CEO of Tabarak had no position on this,

but he did not do so because he reached his conclusions in the light of all of the evidence.

176. Mr Hill went on to submit that if there were a new or varied contract it would fail for uncertainty or that it would do no more than impose a general duty of care on Tabarak as opposed to a warranty or strict liability for the inherent flaw in the process that allowed the Buyers to access the BTC before payment. He noted that the Judge never descended to what would have been the actual terms because he did not need to and whether there was strict liability or only a duty to take reasonable care or anything of that kind. He asked rhetorically, assuming there were some varied contract in the “new world”, what were its terms, how were they agreed and whether a form of strict liability would arise by necessary implication.

177. The problem with Tabarak’s arguments is that the Judge did not consider and made no findings on whether there was a new or varied contract that arose in the circumstances described at paragraphs 161 to 167 above.

178. It may well be that he was not explicitly invited to do so. Indeed given the care with which he set out the parties’ respective submissions in his judgment it seems unlikely that that he was invited, but the point was raised in Huobi’s written closing submissions: at paragraph 192 it was submitted“Alternatively, the Agreement was entered into by no later than the time the Commission of 0.25% was agreed, which was also prior to the transfer of the BTC to the BTC Address”.

179. Having held at paragraph [86] of his judgment that the original contract (even if incepted) had no application to the different scenario that unfolded following Mr Morozov’s insistence that the BTC be transferred to one of the new Trezor Wallets he had brought to the meeting, the Judge directed himself that the Court must therefore consider whether Tabarak and/or Mr Thurner had a non-contractual liability for the loss of the 300 BTC. He did not consider Huobi’s alternative case that an agreement was concluded at or around the time that the increase in Tabarak’s commission was agreed.

180. It therefore appears that in the heat of a complex and difficult case, through no fault of his own, the Judge did not deal with a point that has assumed more importance in argument before this Court than it did before him.

181. Tempting as it is (in order to avoid further time and expense) to express one’s own view based on those facts set out at paragraphs 161 to 167 above, I consider that it would be wrong to do so. It would be“island hopping”of the highest degree and as Mr Hill put it,“You do not draw inferences from a potted summary of facts”. On the other hand, as Sir Geoffrey Vos asked rhetorically inBank St Petersburgis it fair that an appellant be subject to a judgment that the respondent acknowledges is equivocal.

182. Huobi stated that while its primary position is that this Court should make its own findings of fact and while it would prefer to avoid a retrial, it seeks a retrial if and to the extent that the Court concludes that it cannot allow the appeal on any other basis.

183. I have come to the conclusion that the only result that is fair to both parties is that there should be a retrial of the question whether there was an agreement formed at or before the agreement to increase the commission payable to Tabarak.

184. On the retrial the following questions will have to be considered:

(1) Was any contract formed applying the principles adopted inTaaleem v National Bonds Corporation?

(2) If so, what were the terms of the contract, particularly in the light of the conclusions of this Court set out above at paragraphs 73 to 85?

(3) Was Tabarak in breach of any of those terms?

185. I shall address causation and damages below.

Ground 4 - Claim for negligence (1) (appeal against a finding of fact)

186. Huobi alleges that the finding at paragraph [108] of the judgment that at no stage did Mr Thurner become an active advocate in favour of use of the Trezor Wallet is wrong or inadequate to reflect properly the material facts as supported by the evidence because:

(1) this is inconsistent with the Judge’s findings at paragraph [96] of the judgment;

(2) the Judge failed to take into account material evidence; and

(3) the Judge failed to take into account material probabilities established by the evidence.

187. At paragraph [108] of the judgment the Judge held:

“At no time did Mr Thurner become an active advocate in favour of the use of the Trezor Wallet; indeed, he did not take the lead in saying anything about the appropriateness of the use of the Wallet. Thus, it was the Huobi team who told Mr Morozov and Mr Socin, who were proposing to set up the Wallet themselves, that they did not wish to set up the Wallet but wanted Mr Thurner to do so; and it was only after this that Mr Thurner was asked whether he had any concerns, to which he replied that he did not because the Wallet was going to be locked in Tabarak’s safe to which only Tabarak had access.”

188. At paragraph [96] of the judgment the Judge held:

(1) Mr Thurner replied to Mr Saxena’s question whether he had any concerns about the use of the Buyers’ Wallet saying words along the lines that he had no concerns as once the BTC were transferred, the Wallet would be locked in Tabarak’s safe, to which only Tabarak would have access; and

(2) When Mr Saxena and Mr Al Ali objected to transferring the BTC before Tabarak had received the Buyer’s payment Mr Thurner responded using words along the lines that the Wallet would be in Tabarak’s custody in its safe, so the BTC would be safe and there was no reason to be concerned.

189. This was a ground that Mr Spink did not put in the forefront of his submissions relying on his skeleton argument without more.

190. It is hard to see any inconsistency between paragraphs 96 and 108 of the judgment. Mr Thurner was not advocating the use of “the Trezor Wallet”, by which I assume that proffered by Mr Morozov. Prior to the “game change” Huobi was content that a Trezor Wallet belonging to, and controlled by Tabarak, would be used⁶⁹. All Mr Thurner was found to have done was to reassure Messrs Mr Saxena and Mr Al Ali (as he genuinely believed to be the case on the common assumption that physical possession of the Trezor Wallet also meant control of the BTC) that physical possession would be retained by Tabarak in its safe and so only Tabarak would have access to the Wallet.

191. Huobi’s skeleton argument suggested the Judge failed to take account of Mr Thurner’s email to the Buyers, copied to Mr Ahmadi and Huobi after the event, accusing them of having misused Tabarak to enter into the deal. There was no reference to the use of the Trezor Wallet.

192. Tabarak criticises the suggestion that the Judge failed to take into account material probabilities as an example of Huobi expressing its wish that the Judge had reached a different conclusion on the material before him.

193. I agree with Tabarak that whether or not Mr Thurner was an active advocate was a pure finding of fact, based chiefly on the Judge’s evaluation of the oral evidence as to what happened at the meeting. Consequently, there was no error of principle, nor anything else that warrants the interference of the Court of Appeal.

194. Ground of Appeal No. 4 therefore must be dismissed.

Ground 5 – Claim for negligence (2) (appeal against a finding of fact and on a point of law)

195. Huobi claims that the finding at paragraph [63] of the judgment that Tabarak did not“come up with”or“propose”the“modalities”(which the Judge subsequently characterised at paragraph [110] of the judgment as a finding that Tabarak, through Mr Thurner“was not under a duty to advise on the modalities that Huobi and Mr Morozov had agreed on”) and/or the implicit finding flowing from this finding that Tabarak’s role did not require it to take responsibility for ensuring that a suitable process was deployed to enable the Purpose to be achieved is wrong or inadequate to reflect properly the material facts as supported by the evidence because:

(1) such a finding is inconsistent with the finding at paragraph [96] of the judgment;

(2) the Judge’s reasoning at paragraph [63] of the judgment for the finding that Tabarak did not (and was not obliged to)“come up with”or“propose”the“modalities”or (implicitly) otherwise take responsibility for ensuring that a suitable process was deployed to enable the Purpose⁷⁰to be achieved does not on proper analysis support that finding;

(3) the Judge misunderstood or failed properly to take account of the role and responsibilities undertaken by Tabarak;

(4) the Judge failed to take into account at all or sufficiently evidence that supported the following factual findings that he should have made:

(a) Huobi did not have the expertise to reach its own reliable conclusions as to the suitability of the process to be deployed by Tabarak to ensure that the Purpose would be achieved and relied on Huobi to deploy (and if necessary devise and propose before deploying) a suitable process;

(b) Tabarak knew or ought to have known that Huobi did not have such expertise and that, in any event, the successful achievement of the Purpose required Tabarak to take control of and thereby take responsibility for the safe custody of Huobi’s BTC and therefore take responsibility for deploying (and if necessary devising and proposing before deploying) a suitable process to ensure the Purpose would be achieved;

(c) Tabarak held itself out as having the expertise to deploy (and if necessary devise and propose before deploying) a suitable process to ensure that the Purpose would be achieved; and/or

(d) Tabarak knew or ought to have known that the role that it had undertaken responsibility to perform was to ensure that the Purpose was achieved (which necessarily involved Tabarak deploying (and if necessary devising and proposing before deploying) a process that was suitable to ensure that this objective and responsibility were met);

(5) accordingly, the Judge failed to take into account at all or sufficiently evidence and therefore material probabilities established by the evidence that supported the following factual findings that he should have made:

(a) Huobi looked to Tabarak to deploy (and if necessary devise and propose before deploying) a process that ensured that the Purpose was satisfied;

(b) Tabarak understood that Huobi was looking to Tabarak to deploy (and if necessary devise before deploying) a process that ensured that the Purpose was satisfied.

(6) the Judge failed to take into account at all or sufficiently evidence to the contrary; and

(7) in so finding, the Judge failed to take into account relevant evidence of the expert instructed by the Claimants (Mr McDougall), the Judge having fallen into error of law by wrongly finding such evidence inadmissible. Further, the Judge’s decision to exclude relevant parts of Mr McDougall’s evidence and/or admit section (ii) of the evidence of the expert instructed by the Second Defendant (Mr Popa) and in particular the first sentence thereof involved a serious procedural irregularity that caused the decision to be unjust.

196. In relevant part the Judge held at paragraph [63] of the judgment:

“Nor, in my judgment, was Tabarak under an obligation to advise as to the efficacy of the proposed modalities for the 3F Meeting, the process for the meeting having been agreed and accepted by Huobi and Mr Morozov as an appropriate and effective one, with Tabarak going along with their judgment. Indeed, I reject the evidence of Mr Al Ali and Mr Saxena that it was Mr Thurner who took the initiative in coming up with the modalities by which the sale of BTC by Huobi to Mr Morozov’s principals could be achieved. As I have said, the role that Tabarak was to play was straightforward and I find that … it was Huobi and Mr Morozov who agreed that the sale should involve a trusted third party who would transfer the BTC in question to the Buyer only once the purchase monies had been received into an account maintained by the third party. There was therefore no necessity or scope for Mr Thurner to propose the basic modalities of the transfer. They had in effect been set by Huobi and Mr Morozov leaving it to Tabarak to agree to perform the contemplated function of the middleman once he had made sure that he understood precisely what they required. Thus, when it came to the Deal Structure Emails, Mr Thurner was seeking confirmation in writing of what Huobi and Mr Morozov required and confirming his agreement to those requirements. In my view this is borne out not only by the evidence of Huobi’s and Mr Morozov’s requirements but also from the terms of these emails. Thus, in the first and second of these, each of which was closely preceded by a meeting, attended in the first case by Mr Thurner, Mr Al Ali and Ms Zavyalova and in the second case by Mr Al Ali, appear the words, “as informed and agreed” and the closing words “Please inform the parties agree to this procedure” and are there to obtain confirmation that what had been set out was indeed what Huobi and Mr Morozov were requiring of Tabarak. So too with the Second Deal Structure Email which contains the words “as discussed and agreed” and “Please inform the parties agree to this procedure” and “Please come back with your OK.” Likewise, the Third Deal Structure Email opened with the words “After reviewing all of the past and history and discussions, this is the procedure we would be able to satisfy all involved parties” and closed with “Please come back if all parties agree to that procedure!”

197. Again, this was (correctly in my judgment) a ground that Mr Spink did not put in the forefront of his submissions relying on his skeleton argument without more. Notwithstanding, Mr Hill felt it necessary to make extensive oral submissions identifying the evidence that underpinned the Judge’s findings in addition to the over 35 paragraphs and sub-paragraphs of written submissions in two skeletons which themselves referenced 93 pages of Tabarak’s Closing Submissions dealing with the factual evidence going to the parties’ relationship leading up to the meeting in February 2020, and the meeting itself.

198. While I understand why Mr Hill took such an approach and do not criticise him for it, this Ground, insofar as it seeks to impugn the findings at paragraph [63] of the judgment, may be dismissed relatively quickly. I have set out the paragraph abovein extensoas it is clear on its face that it was product of a careful and detailed analysis of both the documentary and witness evidence. For example, we were directed to the transcript of Mr Thurner’s cross examination on 21 December 2021 at pages 60-61 of the transcript:

“Q -- and you -- you asked him to lock it in the safe and

9 he did so?

10 A Correct. Yes. Correct.

11 Q And the reason you did that was -- and the reason you

12 set the pin code, is because it was Tabarak who was

13 safekeeping the -- supposed to be safekeeping the

14 Bitcoin before payment was made.

15 AIt was as it was agreed between the parties. We should

16keep for this two or three hours when -- until the money

17from Morazov or Navarcon should hit the account of

18Tabarak, the device. Yes.

19 Q And on your understanding, at that stage, the only

20 person who would have had access to the Bitcoin in the

21 wallet was Tabarak, correct?

22 A At this stage my understanding was that nobody can do

23 anything without the device and without the pin code.

24 That's correct. Yes.

25 Q And it would have been the case that had payment not

1 been made, which it wasn't as we know, by the buyer that

2 the Bitcoin would simply have been transferred back to

3 Huobi.

4 A This should happen if no payment will come in, yes.”

[emphasis added]

199. Further paragraph [96] is not inconsistent with paragraph [63] of the judgment for the same reasons as it was not inconsistent with paragraph [108] as explained at paragraph 190 above.

200. It is therefore not correct to suggest that the Judge’s reasoning does not support his conclusions or that he misunderstood or failed properly to take account of the role and responsibilities undertaken by Tabarak or that he failed to take into account at all or sufficiently evidence and therefore material probabilities established by the evidence or that he failed to take into account at all or sufficiently evidence to the contrary or as the Judge’s findings were self-evidently the product of his view of the evidence adduced before him. There is no allegation (nor could there be) that he was plainly wrong in the sense that he reached a conclusion no reasonable judge could have reached.

201. An additional element of Ground 5, expanded by way of amendment on the renewed application for permission to appeal to this Court of February 2022, was that the Judge failed to take into account relevant evidence of the expert instructed by the Claimants (Mr McDougall), wrongly finding that such evidence was inadmissible. It is also said that the decision to exclude relevant parts of Mr McDougall’s evidence and/or admit section (ii) of the evidence of the expert instructed by the Second Defendant (Mr Popa) and in particular the first sentence thereof, involved a serious procedural irregularity that caused the decision to be unjust.

202. At paragraph [41] of the judgment the Judge held that certain sections of Mr McDougall’s evidence were inadmissible on the ground that they expressed conclusions on matters that are exclusively for the Court to decide, namely that:

(1) the Defendants provided escrow services to Huobi;

(2) an escrow service defines the protocol of the transaction;

(3) the Defendants did not adequately adhere to industry standards expected of an escrow service; and

(4) the advice given by Mr Thurner as related in the witness statements of Mr Al Ali and Mr Saxena was not reasonable.

203. The Judge admitted section (ii) of Mr Popa’s report which stated:

“In my opinion and based on my experience, a highly sophisticated cryptocurrency company like the Claimant would be aware of all the risks involved in any of the scenarios described above and would ensure that a BTC transaction is carried by following one of the scenarios described above. Please note that in the above-described scenarios, if a physical wallet is to be used. the only guaranteed way that a transaction is legitimate can only be done via a 3rd party, as long as the 3rd party is legitimate and a regulated entity.

For instance, if a buyer has control over the wallet (recovery seed or private key), then the buyer does not have to pay, because he can just reimport (to take control) that wallet on another device after the transfer of BTC is done, without ever paying.

If the seller has control over the wallet (recovery seed or private key) then he transfers the BTC onto the wallet and waits for the payment from the buyer. Once the funds from the buyer are cleared, he can then reimport that wallet on another device and transfer the BTC, keeping both the BTC and the money.

In order to transact via a physical wallet (hardware) the only safe way is if the physical

wallet is bought from the third party from an unknown location and the 3rd party controls the wallet. Then, the transaction can take place. Please note that a legitimate wallet is required for the procedure to be legitimate and that is why we mention that the wallet has to be bought from a legitimate source (this way the rogue BTC seller cannot introduce an illegitimate wallet in the transaction chain).”

204. It is hard to see where these complaints are going. Ground 5 is directed to the Judge’s findings of fact at paragraph [63] of the judgment that Tabarak did not“come up with”or“propose”the“modalities”and/or the implicit finding flowing from this finding that Tabarak’s role did not require it to take responsibility for ensuring that a suitable process was deployed to enable the Purpose to be achieved were wrong. The Judge found in paragraph [63] that Tabarak was under no obligation to advise as to the efficacy of the proposed modalities for the 3F Meeting, the process for the meeting having been agreed and accepted by Huobi and Mr Morozov, and he rejected the evidence of Mr Al Ali and Mr Saxena that it was Mr Thurner who took the initiative in coming up with the modalities. The balance of the paragraph supported those conclusions. Even if admissible, Mr McDougall’s excluded evidence had no bearing on those conclusions nor did the admitted evidence of Mr Popa. In any event, the Judge was clearly correct to rule that the identified sections of Mr McDougall’s evidence were inadmissible because they went to (as Mr Hill put it)“the ultimate question”or, in my words in the course of argument,“the very thing”that the Judge had to decide.

205. Ground of Appeal No. 5 must be rejected. It would involve precisely the sort of rehash of the evidence adduced at trial that was rightly condemned inAnderson v City of BessemerandFAGE UKas treating the trial as, respectively,“a tryout on the road”or“a dress rehearsal”.

Ground 6 - Claim for negligence (3) (appeal on a point of law and against a finding of fact)

206. Huobi contends that the Judge fell into error by failing to provide any or sufficient clarity as to whether Article 18⁷¹and/or Article 20⁷²(which concerns pure economic loss) of the Law of Obligations was relevant and if so why.

207. As to Article 18 of the Law of Obligations, Huobi says that the findings at paragraphs [110, 111] of the judgment that, for the purposes of Article 18 there was insufficient proximity between Huobi and the Defendants to give rise to a duty of care“in respect of how the Trezor Wallet was handled”and/or that it would not be just and reasonable to impose such a duty of care on the Defendants was [sic] wrong in fact and law:

(1) because this part of the Judge’s decision was based on findings of fact that were wrong or inadequate to reflect properly the material facts as supported by the evidence (as set out under Grounds 4 and 5 above), when instead the Judge should have made the findings of fact set out above which are sufficient, as a matter of law, to meet the proximity and “just and reasonable” limbs of the Article 18 test for the imposition of a duty of care;

(2) because the Judge wrongly found at paragraph [97] of the judgment that Huobi’s claim in negligence“overall depends on them succeeding on their claim based on the ‘assurances’”when he should have appreciated that, in any event, the role adopted by and/or the responsibilities undertaken by Tabarak gave rise to a sufficient degree of proximity and further made it just and reasonable to impose a duty of care under Article 18.

208. As to Article 20 of the Law of Obligations, Huobi says that the Judge was wrong in fact and law to find:

(1) at paragraph [105] of the judgment that the Defendants did not assume a responsibility to Huobi:

(a) by reason of matters relied upon above in relation to Article 18 applying mutatis mutandis;

(b) because he relied on an alleged retainer at paragraph [104] (to which he also referred at paragraph [63]) when the Claimants did not contend that the terms upon which they relied applied beyond the 300 BTC (that were stolen);

(2) at paragraphs [106-108] and [110], that Huobi did not rely on the Defendants, nor was it reasonable to do so:

(a) the Judge failed to take into account sufficiently or at all material evidence;

(b) the Judge failed to take into account material probabilities established by the evidence.

(3) that the Claimants’ reliance on the decision inManchester Building Society v Grant Thornton UK LLP[2021] UKSC 20">⁷³was misplaced because:

(a) the Judge was wrong in law, in that he erroneously held that the reasoning inManchester Building Societydid not apply (i) because it does not apply to cases that do not involve a professional adviser and (ii) unless a defendant has admitted negligence;

(b) on the basis of the factual findings that the Judge ought to have made, the Claimants’ reliance on this decision was correct;

(4) in relation to the decision inMultiplex Construction Europe Ltd v Bathgate Realisations Civil Engineering Ltd[2021] EWHC 590 (TCC)">⁷⁴

(a) by stating at paragraph [97] that authorities canvassed inMultiplex“are of some pertinence”, but failing to set out adequately or at all precisely what he meant by this or why;

(b) by failing to take account sufficiently or at all of the Claimants’ detailed written submissions onMultiplex. On a correct application of those submissions to the facts that ought to have been found, the authorities canvassed inMultiplexsupported the Claimants’ case.

209. Finally, Huobi says that the Judge should have found that the Defendants were in breach of a relevant duty of care that was owed by the Defendants to Huobi.

210. It is necessary to unpack this Ground of Appeal to ensure that the issues are addressed in the correct order. The Judge recorded that Huobi’s final iteration of its case in its Closing Submissions was that the Defendants were under a duty of care to Huobi pursuant to Article 18 of the Law of Obligations to:

(1) take reasonable care to ensure that the BTC were not transferred to the Buyer before Tabarak had received payment from the Buyer;

(2) take reasonable care to ensure that the Buyer was not able to access the BTC before Tabarak received payment from the Buyer; and

(3) to act with reasonable case and skill in in arranging and supervising the Transaction, and in advising Huobi.

The standard of skill and care required being that ordinarily exercised by reasonably competent providers of crypto escrow/custody services in relation to OTC crypto-fiat transactions, alternatively of reasonably competent investment banks, asset managers and/or DFSA authorised firms who profess the same specialisation as Tabarak did, namely having expertise in crypto escrow/custody services in relation to OTC crypto- fiat transactions.

211. This was an accurate summary of paragraphs 201 and 204 of Huobi’s Closing Submissions following the trial. At that point in the proceedings Tabarak was asserting that BTC are not a form of property and therefore Article 18 could not apply as any loss suffered would be pure economic loss. Huobi disputed the assertion on the grounds that BTC are a form of property but even if the loss were pure economic loss the requirements of Article 20 of the Law of Obligations were satisfied.

212. The Judge held at paragraph [97] of the judgment that“I accept the Claimants’ contention that Bitcoin are property as was held in a carefully reasoned judgment by Bryan J sitting in the London Commercial Court inAA v Unknown Persons[2019] EWHC 3556 (Comm) at [56] – [59]. It follows that the relevant Articles in the Law of Obligations are Articles 17 -18 and 21. I therefore proceed to set out those Articles leaving out of account Article 20 (Economic Loss).”He thus accepted not only that BTC are property (with which I agree) but also the more questionable submission by Huobi that it follows that because BTC are property any loss of BTC (or rather loss of control over) is not pure economic loss.

213. Mr Spink now accepts on the authority ofTulip Tradingthat loss of BTC is in fact pure economic loss, but it seems to me that it hardly lies in the mouth of an appellant to criticise a judge on appeal for accepting its case without qualification. It seems unarguable that the Judge didnotfall into error by failing to provide any or sufficient clarity as to whether Article 18 and/or Article 20 of the Law of Obligations was relevant and if so why. He made it absolutely clear that he considered Article 18 to be relevant because BTC are a form of property. This Ground of Appeal failsin limine.

214. The Judge did go on at paragraphs [101] and [102] to hold:

“101. The Claimants go on to submit that Article 20 is satisfied, presumably on the basis that their contention that BTC is property would not be upheld. In the course of these submissions, they advance the same contention as is advanced in paragraph 213a of their Proximity argument, namely that the purpose of the Defendants’ involvement with Huobi was to provide escrow/custody services. In support of this contention, they cite and rely on the decision of theSupreme Court in Manchester Building v Grant Thornton UK LLP[2021] UKSC 20. They also return to this authority in paragraph 46 of their Response to the Defendants’ Closing Submissions.

102. In answer to the Defendants’ submission that it was not reasonable for Huobi to rely or depend on their escrow/custody services, the Claimants contend that: (i) the starting point is that Tabarak was (and is) an authorised firm and as such it was reasonable to expect Tabarak to maintain the standards required of such an authorised firm; (ii) it was the Defendants that held themselves out as providing and having expertise in providing crypto custody/escrow services and using cold wallets; (iii) as the Defendants were aware it was for them to provide/advise upon the processes and this is what they did; and (iv) at no stage did Huobi hold itself out as having expertise in the modalities of custody/escrow services, let alone cold wallets.”

215. On the assumption that it is open for Huobi now to abandon its primary case at trial, rely on its alternative case under Article 20 of the Law of Obligations and argue that the Judge’s findings on that alternative case were wrong in fact and law, it now appears to be Huobi’s case that:

(1) the Judge was wrong to find at paragraph [105] of the judgment that the Defendants did not assume a responsibility to Huobi;

(2) the Judge was wrong to find at paragraphs [106-108] and [110], that Huobi did not rely on the Defendants, nor was it reasonable to do so;

(3) the Judge erred in law in holding the Claimants’ reliance on the decision inManchester Building Societywas misplaced; and

(4) the Judge erred in law in not holding that the authorities canvassed inMultiplexsupported the Claimants’ case.

216. Article 20 of the Law of Obligations provides:

“(1) Where a claimant has suffered only pure economic loss as a result of the defendant's conduct, the defendant only owes a duty of care to the claimant if:

(a) the requirements of Article 17 are met;

(b) the defendant assumes a responsibility to the claimant;

(d) it is reasonable for the claimant to rely on the defendant.

(2) For the purposes of this Article 20, where a person makes a statement, he assumes a responsibility to persons to whom the statement is made or becomes available (such persons being ‘recipients’) if:

(a) he knows or ought to know that the statement will be communicated to the recipient, either specifically or as a member of an ascertainable class and that it is likely to be acted on by the recipient for the purpose for which the statement was made; and

(b) he intends, or the recipient reasonably believes that he intended, for the recipient so to act.”

217. The requirements of Article 17 are:

(1) the defendant owes a duty of care to the claimant;

(2) the defendant breaches his duty of care to the claimant; and

(3) the defendant's acts or omissions in breach of his duty of care to the claimant cause loss to the claimant.

218. Article 18 provides that a defendant owes a duty of care to a claimant where:

(1) it is reasonably foreseeable that the defendant's acts or omissions could cause loss to the claimant;

(2) the relationship between the defendant and the claimant is sufficiently proximate for a duty of care to exist; and

(3) it is fair, just and reasonable in the circumstances that the defendant should owe the claimant a duty of care.

219. Huobi submits before this Court that there are now more helpful authorities thanManchester Building SocietyandMultiplex. InJP SPC 4 and another v Royal Bank of Scotland International Ltd[2022] UKPC 18">⁷⁵(on appeal from the High Court of Justice of the Isle of Man) Lords Hamblen and Burrows JJSC stated:

“62The test for determining whether responsibility has been assumed by a defendant to a claimant is an objective onesee, for example,Henderson v Merrett[1995] 2 AC 145, 181B per Lord Go› of Chieveley,Williams v Natural Life Health Foods Ltd[1998] 1 WLR 830, 835G per Lord Steyn,Customs and Excise Comrs v Barclays Bank plc[2007] 1 AC 181, para 5 per Lord Bingham of Cornhill.

63 As Lord Steyn explained inWilliams v Natural Lifeat p 835F—G,the objective nature of the test means that it will generally be important to focus on exchanges which cross the line between the defendant and the claimant(or the group of persons of which the claimant is an identifiable member):

“The touchstone of liability is not the state of mind of the defendant.
An objective test means that the primary focus must be on things said or done by the defendant or on his behalf in dealings with the plaintiff. Obviously, the impact of what a defendant says or does must be judged in the light of the relevant contextual scene. Subject to this qualification the primary focus must be on exchanges (in which term I include statements and conduct) which cross the line between the defendant and the plaintiff.”

64 An examination of the case law indicates (seeClerk & Lindsell on Torts, 23rd ed, paras 7—113 to 7—137) that the factors which have been of particular relevance in determining whether there is an assumption of responsibility in relation to a task or service undertaken include:(i) the purpose of the task or service and whether it is for the benefit of the claimant; (ii) the defendant’s knowledge and whether it is or ought to be known that the claimant will be relying on the defendant’s performance of the task or service with reasonable care; and (iii) the reasonableness of the claimant’s reliance on the performance of the task or service by the defendant with reasonable care.”

[emphasis added]

220. Speaking extra-judicially Lord Sales in “Pure economic loss in the law of tort: the history and theory of assumption of responsibility”⁷⁶, noted that

“… assumption of responsibility provides a sound justification for imposition of liability in a distinct subset of pure economic loss cases in which the defendant does have an effective opportunity to bargain over the extent of the obligation to which it is to be subject. Where the relationship between the parties is of a character where the claimant’s potential loss is foreseeable by both parties, such that there is a meaningful opportunity for them to bargain over the liability to be taken on by the defendant, it is possible to spell out determinate criteria to explain when and to what extent liability should be imposed when something goes wrong.In a context where the defendant had a meaningful opportunity to negotiate over taking on the risk or refusing it, the concept of assumption of responsibility is the appropriate one to use.

… If there is consideration for an agreement, it can serve as a proxy or marker that the party to it had made use of a genuine opportunity to bargain over the terms on which they were prepared to accept legal responsibility for the task for which the agreement provides. On this view, what they ended up agreeing to can be regarded as a genuine product of the exercise of their will. The modern assumption of responsibility cases in the pure economic loss context can be explained by reference to a similar rationale based on the opportunity to bargain, albeit this depends on an analysis of the particular facts without using the proxy of consideration to reach that conclusion.

… an assumption of responsibility will have occurred in circumstances where the defendant agreed with the claimant to take on a task, thereby inviting the claimant’s reliance on them, in circumstances where it could have bargained to secure an alternative allocation of risk or could simply have declined to do it.

… Why in such cases is it the defendant rather than the claimant who should prima facie bear the risk if there is not an express agreement about how the risk is to be distributed. Absent agreement to the contrary, why shouldn’t the claimant bear the risk when choosing to rely on the defendant when it was not required to?

… The answer to this is to be found in the old cases on the proper performance of tasks which the defendant volunteers to do for the claimant. By taking on the task, the defendant invites the claimant to rely on its due performance of that task. Imposition of liability is justified by the moral claim that if a person voluntarily undertakes to do something in these circumstances it is right that they be required to do it to a proper standard. Even when the undertaking is given gratuitously, the courts have made a judgment that the force in this moral claim overpowers the countervailing claim that ordinarily claimants should bear their economic losses in circumstances where they have not chosen to contract in positive terms.”

[emphasis added]

221. Thus, Articles 20(1) of the Law of Obligations requires an objective analysis of the communications between the parties in the context of the situation where (i) the claimant may foreseeably suffer loss through a task or service to be performed by the defendant; (ii) the defendant has the choice whether or not to accept, decline or limit its liability for that loss; (iii) the defendant is or should be aware that the claimant will be relying on the defendant’s performance of the task or service with reasonable care; and (iv) it is reasonable for the claimant to rely on the performance of the task or service by the defendant with reasonable care.

222. While I accept that on the facts as recited in the judgment there is a plausible case that each of the criteria set out in the preceding paragraph was satisfied, the Judge found they were not. He found that“this is not a case where the relationship was akin to contract where but for the lack of consideration there would have been a contract”⁷⁷. Mr Spink suggests that the DIFC Contract Law does not require consideration as a requirement for the formation of a contract. It is true that there is no express reference to consideration in the Contract Law and Article 35 provides that“A contract is concluded, modified or terminated by the mere agreement of the parties, without any further requirements”but there are also multiple references to “price” and “performance”. I would therefore prefer to leave the question of whether consideration is an element in the formation of a contract under DIFC to another occasion when it is more fully argued. For present purposes I take the Judge’s reference to failure for want of consideration as an example of a relationship that is akin to, but for some reason is not, a contract.

223. The Judge found that “Mr Thurner was not the originator of the proposed modalities by which the BTC were to be held and transferred” and “What Huobi was primarily interested in was whether Tabarak … would act as middle man and provide an account in Dubai to which and from which the purchase monies resulting from OTC BTC transactions could be transferred”⁷⁸; that “Mr Thurner … did not take the lead in saying anything about the appropriateness of the use of the Wallet”⁷⁹; that “Tabarak was not and is not a professional adviser on the modalities that can be used in BTC transactions”⁸⁰; that “the relationship between Tabarak/Mr Thurner was not sufficiently proximate for the alleged duty of care in respect of how the Trezor Wallet was handled, to exist” and “the Claimants have failed to establish that Tabarak/Mr Thurner owed the alleged duty of care in respect of the “assurances” given by Tabarak/Mr Turner” [sic]⁸¹; and “it would not be just and reasonable that Tabarak should owe the alleged duties of care”⁸².

224. Each of these findings was based and expressly stated to be based “On the facts that I have found” and “in the circumstances as I have found them to be”. It cannot in my view be said that the Judge made the findings with no basis in the evidence, or misunderstood relevant evidence, or demonstrated a failure to consider relevant evidence. These were all findings that it was open to the Judge to make on“the whole of the sea of evidence presented to him”⁸³. There is no gap in logic, no lack of consistency, nor a failure to take into account of some material factor.

225. While I confess that I might have been tempted to find a relationship akin to contract in the absence of a contract (subject to Ground 3) given the agreement concerning the increase in Tabarak’s commission I remind myself of Lord Reed’s words inHenderson v Foxworth Investments Ltdthat it does not matter, with whatever degree of certainty, that the appellate court considers that it would have reached a different conclusion, what matters is whether the decision under appeal is one that no reasonable judge could have reached.

226. It is quite impossible to suggest that the Judge’s decision in the present case on the existence of a duty of care in tort is one that no reasonable judge could have reached.

227. If “the generous ambit where reasonable decision makers may disagree”⁸⁴might have permitted me to have reached a different decision on the existence a duty of care owed by Tabarak to Huobi I am in no doubt that he was correct in finding that had such a duty existed it would not have been breached by Tabarak.

228. Huobi (correctly) no longer characterises its case as one of negligent misstatement but rather that any assurances given by Tabarak (which the Judge found had not been made and in any event it was unreasonable for Huobi to place reliance upon) are part and parcel of the assumption of responsibility of Tabarak for the safekeeping of the BTC until payment. If it were possible to be a bailee of BTC⁸⁵the assurance would be evidential of the relationship.

229. The issue would (if a duty were established, which it was not) therefore be whether Tabarak took reasonable care of the BTC. The Judge found that Tabarak did take reasonable care of the BTC. His finding in that respect is in my judgment indisputably right.

230. It is common ground (and the unchallenged finding) that:

“Mr Thurner and through him, Tabarak, acted in the honest but mistaken belief that, if the Mnemonic were split into two with Mr Morozov and Mr Socin having access only to the remaining six words of the seed phrase, neither side could get access to the 300 BTC once they had been transferred to the Wallet. Like the Huobi team attending the meeting, he did not know that the Trezor wallet could be prompted to reveal the whole Mnemonic phrase either by scrolling up or by deliberately inputting a small number of seed words that were not part of the Mnemonic”. (paragraph [103] of the judgment)

From that the Judge concluded:

“In my judgment, in acting as he did, setting up the Wallet and passing it to Ms Zavyalova and then to Mr Morozov stating, when asked, that he had no concerns about the proposed use of the Wallet because it would be locked in Tabarak’s safe, Tabarak/Mr Thurner were not in breach of an actionable duty of care owed to Huobi.”

231. The cruel fact is that both Huobi and Tabarak acted under the innocent misapprehension that the modalities that the Judge found had been agreed between Huobi and the Buyers were sufficient to protect the BTC until payment. In the event they were not. The evidence does not establish that Mr Thurner or Tabarak more generally should have anticipated the flaws in the modalities that enabled the fraudulent seizure of control over the BTC by the Buyer before payment. There is therefore no basis on which it can be said that either Mr Thurner and through him, Tabarak, acted negligently.

232. I am reinforced in this view by paragraph 11 of the Grounds of Appeal (as amended) which simply allege that the Judge failed to make any findings in relation to breach of duty on the footing that a relevant duty of care was owed by the Defendants to Huobi and that he should have held that, on that footing, the Defendants were in breach of duty. What are not alleged are the respects in which it is said that the Defendants should have been held to have breached the relevant duty; nor was the issue addressed in oral submissions.

233. Huobi’s first skeleton argument does state at paragraph 79“The Claimants rely on matters set out at [31/71/201-202 & 31/61-62/171-180], including the verdicts of the experts as to the wholly incompetent handling of the transaction on 3 February 2020.”We were not taken to those references. They are to Huobi’s Closing Submissions before the Judge which made numerous allegations of breach (from (a) through (o)) including a failure to advise, negligent misstatement and in acting in accordance with the agreed modalities. None survives the Judge’s findings of fact.

234. For all the reasons stated above Ground of Appeal No. 6 must be dismissed.

Ground 7 - (appeal on a point of law)

235. Huobi contends that the finding at paragraph [114] of the judgment that Tabarak was not liable for breach of fiduciary duty was wrong because:

(1) the Judge found that as Tabarak was not liable in negligence for the loss of the 300 BTC, it follows that Tabarak was not in breach of Sch 3, para 5 of the Law of Obligations;

(2) however, the only finding that the Judge made in relation to negligence was in respect of whether a duty was owed. He did not consider whether, if a duty was owed, there was a breach of that duty; and

(3) by application of the correct test for whether a fiduciary duty was owed, the correct finding is that Tabarak (and Mr Thurner, which the Judge failed to consider at all) owed a fiduciary duty to Huobi and was in breach of that duty.

236. Mr Spink, in support of his submission that Tabarak and Mr Thurner owed fiduciary duties to Huobi first took us toReading v The King⁸⁶in which Asquith LJ stated that a fiduciary relationship exists:

“…whenever the plaintiff entrusts to the defendant property, including intangible property as, for instance, confidential information, and relies on the defendant to deal with such property for the benefit of the plaintiff or for purposes authorised by him, and not otherwise.”

237.Readingis a singular case. Reading was a British soldier who had driven a civilian lorry in full military uniform in order to divert attention from a smuggling operation. He was court-martialled and the not inconsiderable sum (by the standards of the day) he was paid was forfeit to the Crown. He applied by Petition of Right for return of the money. The passage cited was in the well-known context of an employee or agent disgorging a secret profit made in the course of and by reason of their employment. In subsequent passages it was emphasized that the agent was bringing their interest into conflict with that of the principal. It cannot be the case that on every occasion where a party entrusts property to another a fiduciary relationship arises.

238. Mr Spink also referred us toTulip Tradingin the Court of Appeal in which Birss LJ undertook a more comprehensive review of the modern law governing when a fiduciary duty might arise and reiterated that the definitive test under English law is to be found in the judgment of Millett LJ (as he then was) inBristol and West Building Society v Mothew[1998] Ch 1 at 18A-C">⁸⁷:

“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single- minded loyalty of his fiduciary.”

239. Mr Kotick describes Huobi’s assertion that a fiduciary duty arises “whenever the plaintiff entrusts to the defendant property” as simplistic and also refers toMothewand to the case ofSheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Ioannis Kent (Aka John Kent)[2018] EWHC 333 (Comm) [157-9] per Leggatt LJ (as he then was)">⁸⁸:

“157. …I bear in mind that it is exceptional for fiduciary duties to arise other than in certain settled categories of relationship. The paradigm case of a fiduciary relationship is of course that between a trustee and the beneficiary of a trust. Other settled categories of fiduciary include partners, company directors, solicitors and agents. … 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. Indeed, it has been said that a fiduciary “is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary” …

158. Despite saying in theMothewcase that a fiduciary is defined by the obligations to which he is subject and not the other way round, Millett LJ did give a general description of a fiduciary as “someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence”…

159.Thus, fiduciary duties typically arise where one person undertakes and is entrusted with authority to manage the property or affairs of another and to make discretionary decisions on behalf of that person… The essential idea is that a person in such a position is not permitted to use their position for their own private advantage but is required to act unselfishly in what they perceive to be the best interests of their principal. This is the core of the obligation of loyalty which Millett LJ in the Mothew case … described as the “distinguishing obligation of a fiduciary”. Loyalty in this context means being guided solely by the interests of the principal and not by any consideration of the fiduciary’s own interests. To promote such decision-making, fiduciaries are required to act openly and honestly and must not (without the informed consent of their principal) place themselves in a position where their own interests or their duty to another party may conflict with their duty to pursue the interests of their principal. They are also liable to account for any profit obtained for themselves as a result of their position.”

[emphasis added]

240. DIFC law defines fiduciary relationships in very similar terms. Article 158(1) of the Law of Obligations states that a person is the fiduciary of another if he has undertaken (whether or not under contract) to act for or on behalf of another in a matter in circumstances which give rise to a relationship of trust and confidence. Article 159 imposes a duty of loyalty to the principal on the fiduciary. The duty under Article 159 is explained in Schedule 3 to the Law to include (1) acting in good faith in the interests of the principal without regard to the fiduciary’s own interests, (2) avoiding conflicts of interest, (3) not making a secret profit, (4) confidentiality and (5) a duty to exercise reasonable care, skill and diligence.

241. It is upon the fifth element of the duty under Article 159 that Huobi relies but the anterior question is whether Tabarak or Mr Thurner did owe a fiduciary duty to Huobi. The Judge did not address that issue as he took the more practical approach that if he held (as he did) that neither Tabarak nor Mr Thurner were negligent, it did not matter whether there was a fiduciary duty or not because there would be no breach.

242. In deference to counsel’s submissions I will express a view. I do not consider the present situation falls within the category of relationship where a fiduciary would arise. On the facts as found, Tabarak agreed to perform a task in a manner that had been agreed by Huobi and the Buyers. Tabarak had given no advice as to how that task should be performed (but merely confirmed a common understanding) nor was Tabarak given any discretion in how the task was to be performed. There was no inherent conflict between the interests of Tabarak and Huobi in respect of which it was necessary to impose a fiduciary duty in order to protect. But for the unsatisfied condition precedent it would have been a straightforward arm’s length contractual relationship (and may have been, depending on the outcome of the retrial directed under Ground 3).

243. Even if I am wrong about the fiduciary relationship Huobi cannot escape the Judge’s finding of fact that Tabarak took reasonable care of the BTC. The suggestion that the Judge did not consider whether, if a duty was owed, there was a breach of that duty is wrong. At paragraph [114] of the judgment he held that for the reasons given above for the finding that Tabarak was not liable in negligence for the loss of the 300 BTC, it follows that Tabarak was not in breach of the standard set out in Sch 3, para 5 of the Law of Obligations. He had previously held⁸⁹that Tabarak/Mr Thurner were not in breach of an actionable duty of care owed to Huobi and set out his reasons in that and the following 9 paragraphs.

244. It follows that Ground of Appeal No. 7 must be dismissed.

Ground 8 - (appeal on a point of law)

245. Huobi claims that the decision of the Judge significantly to restrict the time given to the Claimants’ counsel to cross-examine Mr Thurner (1 hr 50 mins) while allowing Tabarak’s Counsel almost five times that (8 hr 54 mins) to cross-examine Mr Al Ali involved a serious procedural irregularity which caused the decision to be unjust.

246. It is said that:

(1) Mr Thurner’s credibility was very much a relevant issue, and the need to establish that his evidence was inaccurate was a significant task which required a reasonable amount of time;

(2) the Judge afforded 8 hr 54 mins to Ms Ahmed, Counsel for Tabarak, to cross- examine Mr Al Ali, the Judge restricted the time available to the Claimants’ Counsel to cross-examine Mr Thurner to 1 hour 50 minutes. This was plainly inadequate in the circumstances and therefore caused the decision to be unjust;

(3) Mr Al Ali was the first witness to give oral evidence, and Mr Thurner the penultimate witness (followed by Ms Zavyalova’s very short appearance). In light of the time that Ms Ahmed had been given to cross-examine Mr Al Ali and the Judge’s indications that he would provide such time as was reasonably required for cross-examination, the Claimants were surprised when the Judge announced on (what materialised to be) the penultimate day of trial (9 December 2021), that 12 December 2021 would be the final day of trial. The parties were directed to agree a timetable. That was not possible. There was plainly insufficient time to accommodate the respective parties’ requirements and, in any event, Tabarak’s legal team did not respond to the Claimants’ legal team’s request for their views; and

(4) On the morning of 12 December 2021, just before the start of the day, the Judge unilaterally imposed an unrealistic timetable. Accordingly, it was necessary for Ms Stewart, the Claimants’ Counsel, rapidly to cull and amend her planned cross-examination. To compound matters, Mr Thurner was a difficult witness (as is evident from the transcript and the Judge’s rebukes to him) and Ms Stewart (and therefore the Claimants) was further prejudiced in being unable to carry out a proper cross-examination by the Judge’s interruptions on timing and Ms Stewart’s need, in effect, to bargain, for an extra 10 minutes (which were duly shaved off the cross-examination of Ms Zavyalova). In the circumstances, Ms Stewart was prevented from cross-examining Mr Thurner to the extent justice required, Ms Stewart’s cross-examination time having been significantly reduced by the disproportionate time given to Ms Ahmed’s cross- examination of Mr Al Ali.

247. Mr Spink in oral submissions pointed to the disparity in the time to Tabarak’s Counsel for cross-examination Mr Ali and that allowed Huobi’s counsel for cross-examination of Mr Thurner. While I accept that the time taken over the cross-examination of Mr Al Ali seems excessive it appears to have had diminishing returns. The Judge’s approach to the credibility of both witnesses was markedly similar. Of Mr Al Ali he said (paragraph [42] of the judgment)“Mr Al Ali’s evidence needed to be very carefully scrutinised before accepting that it was accurate and reliable”and of Mr Thurner (paragraph [53] of the Judgment)

“Mr Thurner was an emotional witness. He was angry that Huobi had joined him as a defendant and that he was, as he would put it, being made the scapegoat for the theft of the 300 BTC. The damages sought by Huobi were very large and his reputation was at stake. He therefore had a strong motivation to deny, as he did, every part of evidence from Huobi and Tabarak that went towards a case that there had been contract between Huobi and Tabarak that applied to what occurred at the 3F Meeting and that he had caused Tabarak to act in breach of that contract, or tortiously, in respect of what he did and what he said in setting up the Trezor Wallet and failing to warn Huobi of the possible risks if the BTC were transferred to the Wallet before the price had been received from Navarcon. I have therefore generally only accepted those parts of Mr Thurner’s exculpatory evidence where it is supported by other evidence, including the relevant context or a finding that parts of the evidence to which he was responding were unreliable in the first place.”

248. I should have thought that two hours or so would have been adequate time within which to have cross-examined each of the witnesses in this case. It is difficult to perceive any prejudice to Huobi by limiting the time for cross-examination given the observations of the Judge on Mr Thurner’s evidence. Mr Spink suggests that one of the key areas on which counsel was not able to cross-examine in any detail was in relation to the modalities, the advice that was given and who was responsible for the modalities. He submits that had she been able to cross examine Mr Thurner for any length of time it is quite possible that she would have been able to extract in cross- examination, as she did on key points like Mr Thurner setting a PIN on the Trezor Wallet, favourable evidence to Huobi’s case.

249. Mr Hill described this as a simple trial management decision of the kind with which the Court of Appeal will not interfere but he left it to his Junior, Ms Ahmed, who was trial counsel to address the detail.

250. With the permission of the Court, Huobi submitted written submissions in reply on 7 February 2024. Those submission ran to a further 10 pages and referred to a number of further authorities not canvassed in argument:

(1)Jones v National Coal Board[1957] 2 QB 55">⁹⁰- a case about excessive judicial interventions during cross-examination, which is not really the complaint here;

(2)Labrouche v Frey and others[2012] EWCA Civ 881">⁹¹- a case in which it was held that a judge cannot, however much he believes that he has fully read and fully understood all the documents and arguments before coming into court, dismiss an application without giving the applicant a fair opportunity to make out his case orally⁹². This is also not the irregularity of which complaint is made in the present case; and

(3)Dunbar Assets plc v Dorcas Holdings Ltd[2013] EWCA Civ 864 at [28]">⁹³in which it was said that while there will be many cases in which the absence of any adverse consequences flowing from a serious procedural irregularity will mean that an appeal based upon on it will fail, there is a residue of cases of grave procedural irregularity where the absence of consequences does not displace the injustice constituted by the inappropriate treatment of the complaining party.

251. Under DIFC practice and procedure the Court of Appeal will allow an appeal from a decision of the Court of First Instance where the decision was unjust because of a serious procedural or other irregularity in the proceedings (RDC 44.117(2)). This reflects rule 52.21(3)(b) of the English Civil Procedure Rules.Dunbar Assetswas a decision on that rule. In that case the judge, at the beginning of the trial of a claim for possession acceded to what was, in substance, a striking out application made by the claimants, but did so without first permitting the defendants to respond to it by oral submissions, and gave judgment for the claimant. The Court of Appeal allowed the defendant’s appeal. The court explained that there is nothing procedurally irregular about a trial judge entertaining at the beginning of a trial a submission that the defendant’s pleadings disclose no defence to the claim, even if no formal application to strike out has been made by the claimant, if, on the judge’s pre-reading of the papers, it appears to the judge that there is a properly arguable case for strike out which, if established, would save the parties substantial further time and expense. But before entertaining such an application, the judge would have to be satisfied that the defendants had a fair opportunity to respond to it.

252. Once againDunbar Assetsis a case about a party’s right to be heard rather than a case management decision by a judge to curtail cross-examination. While great respect must be given to any judicial pronouncement of (now) Lord Briggs, I confess some doubt that a procedural irregularity that does not result in the decision under appeal being unjust could logically fall within the rule, but I can also see that one must allow for the exceptional case where the irregularity is so extreme that it merits appellate disapprobation. That point however does not arise for final determination in the present case as I consider that there was no procedural irregularity.

253. A judge is entitled in the exercise of their discretion over trial management to limit a party’s time for cross-examination. There is no guarantee that parties will be given equal time. A party is entitled to a reasonable opportunity to put its case but not to engage upon a wide-ranging exploration of the facts tantamount to oral discovery of facts that may have only peripheral relevance. There are many reasons why a judge may limit cross-examination: for example, they may consider that the cross- examination is repetitive or irrelevant to the issues the judge considers to be critical. On the other hand, the judge may feel that the cross-examiner has achieved their goal and that no further persuasion is required. It is impossible to enumerate all the reasons that may arise during the complex interplay in the court room between the judge’s internal ruminations, the cross-examiner’s ambitions and the evidence being given by the witness.

254. The trial management decision to limit cross-examination is eminently one for the trial judge and an appellate court should only interfere in obvious and exceptional cases where it is persuaded that injustice has indeed resulted.

255. I do not consider it necessary for this Court to descend into the arena of what occurred or did not occur during the trial in this case. The entire thrust of Huobi’s complaint seems to be based on the frustration felt by Huobi’s counsel in being limited in the time available to cross-examine Mr Thurner when Tabarak’s counsel was allowed a manifestly excessive time within which to cross-examine Huobi’s witnesses.

256. While at paragraph 39 of Huobi’s additional written submissions it identifies 22 issues it says were in dispute, all of which had to be addressed, it makes no attempt to tie those issues to the outcome of the case nor to explain how the absence of cross- examination or additional cross-examination on each rendered the decision unjust.

257. Even if a disparity in the time allowed for cross-examination were capable of amounting to a procedural irregularity justifying interference from an appellate court (which I doubt for the reasons expressed at paragraphs 252 and 253 above), I do not accept that it would fall within the residual category of procedural irregularity so grave that the absence of consequences does not displace the injustice constituted by the inappropriate treatment of the complaining party. In other words, it will be necessary to show that the procedural irregularity had an identifiable consequence or consequences on the decision.

258. The highest that Huobi was able to put its case was Mr Spink’s submission that had Mr Thurner been cross-examined for longer it is possible that favourable evidence to Huobi’s case might have been extracted. That simply will not satisfy the test under RDC 44.117(2) and Ground of Appeal No. 8 must be dismissed.

259. My conclusions are as follows:

(1) So far as Mr Thurner is concerned the appeal fails and must be dismissed in its entirety; and

(2) So far as Tabarak is concerned, the appeal is allowed in part and a retrial should be ordered under Ground No.3 as set out at paragraph 183 above. In addition to matters canvassed at paragraph 184, the parties agree that it will be necessary to address issues of causation and damages.

260. Procedurally:

(1) the parties should be directed to provide written submissions on costs within 7 days of the date of this judgment; and

(2) the case should be remitted to the Digital Economy Court under RDC 58.31 and a Case Management Conference be fixed under RDC 58.41(2).

CHIEF JUSTICE TUN ZAKI AZMI

261. I agree with the reasoning and conclusions of Justice Michael Black KC and have nothing further to add.

H.E. JUSTICE SHAMLAN AL SAWALEHI

262. I agree with the above judgment and have nothing further to add.

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You are here: BAILII >> Databases >> The Dubai International Financial Centre >> Gate Mena DMCC (Formerly Known as Huobi OTC DMCC) (2) Huobi Mena FZE v (1) Tabarak Investment Capital Limited (2) Christian Thurner [2024] DIFC CA 002 (13 June 2024) URL: http://www.bailii.org/ae/cases/DIFC/2024/DCA_002.html Cite as: [2024] DIFC CA 002, [2024] DIFC CA 2

The Dubai International Financial Centre

(1) Gate Mena DMCC (Formerly Known as Huobi OTC DMCC) (2) Huobi Mena FZE v (1) Tabarak Investment Capital Limited (2) Christian Thurner [2023] DIFC CA 002