Huobi has successfully appealed a decision by the Dubai International Financial Centre (DIFC) courts to throw out its claim against a digital asset custodian over its failure to secure 300 BTC it had been holding in escrow for the digital asset exchange, in what is being called a ‘landmark case’ for the industry.
The case had initially been brought by digital asset exchange Huobi against Tabarak Investment Capital Limited, a Dubai-registered financial services company. Huobi had agreed to sell 300 BTC to a company named Navarcon. Tabarak was to act as custodian, holding the BTC in escrow until payment was complete. However, shortly after the BTC was transferred to the custodian, 299.99 of the 300 BTC total was withdrawn from the wallet.
Experts at the eventual trial would testify that Navarcon’s representatives had likely memorized the wallet’s 12-word mnemonic and used that to recreate the wallet and then withdraw its contents.
In response, Huobi sued Tabarak for breach of contract and negligence. Though the claim failed at first instance, the successful appeal means it will be sent back for trial.
Steeped in the digital asset industry as the lawsuit was, it provided the DIFC a chance to examine some fundamental questions of digital asset law and how it applies in their jurisdiction.
“It is very rare to have the opportunity to work on a case that establishes the answers to important legal questions that will reverberate around the world,” said Max Davies, Legal Director at Charles Russel Speechlys, representing Huobi.
Indeed, the DIFC Court of Appeal noted in its decision that the case will likely attract international attention. It involved the consideration of a number of foundational questions about how the law should apply to digital assets.
The appeal judgment confirmed that digital assets are legal property under the DIFC’s laws. This continues a trend of recognition that property laws can and do apply to digital assets, notwithstanding their unique characteristics. In doing so, the Court of Appeal commented that to find otherwise would be contrary to commercial common sense.
This meant that the Court of Appeal also had to consider what it means to ‘possess’ property in a digital asset context. The Court found that having control of digital assets, such as by possessing relevant private keys, is equivalent to possession.
The decision builds on the growing recognition in jurisdictions worldwide that digital assets are legal property and subject to the same laws as any other form of property. The Appeal judgment and the original ruling cite the influential U.K. case of AA v Persons Unknown in reaching their decision about digital-assets-as-property. Both that case and Tulip Trading v Bitcoin Association and others were cited by the U.K. Law Commission has having brought a ‘great deal of certainty’ to the law of digital assets in the United Kingdom.
Though a court in Dubai might seem far away from those in England or the United States, a decision from the DIFC is likely to be notable internationally. The DIFC is a special economic zone within Dubai with its own common law courts; it has jurisdiction to hear disputes originating in the zone itself, as well as to hear any local or international commercial cases provided all relevant parties have opted in. In 2022, the DIFC courts launched a set of specialized rules to address the ‘modern digital economy,’ including blockchain and digital assets.
Though the DIFC is founded on the laws of Dubai and the United Arab Emirates, its rules are largely based on those of the English civil courts, and its judges are sourced from all over the common law world. Additionally, DIFC courts routinely examine precedents from other international jurisdictions in order to interpret its governing laws.
Between that and Dubai’s growing importance as a venue for settling commercial legal disputes, the DIFC Court of Appeal’s commentary is likely to be picked up in other jurisdictions.
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