October 26, 2022 Technology and construction division - Judgments
Claim No: TCD 001/2020
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 FIRST INSTANCE
TECHNOLOGY AND CONSTRUCTION DIVISON
BEFORE JUSTICE SIR RICHARD FIELD
BETWEEN
(1) GATE MENA DMCC
(2) HUOBI MENA FZE
Claimants
and
(1) TABARAK INVESTMENT CAPITAL LIMITED
(2) CHRISTIAN THURNER
Defendants
Hearing : | 23-29 November 2021 – 6 December 2021 9 December 2021 – 12 December 2021 Final Closing Submissions served on 15 March 2022 |
---|---|
Counsel : | Ms Justina Stewart instructed by Charles Russell Speechlys LLP for the Claimants Ms Bushra Ahmed instructed by KBH Ltd for the First Defendant Mr Brian Kotick and Mr Salah Mattoo instructed by M.B. Kemp (ME) LLP for the Second Defendant |
Judgment : | 5 October 2022 |
JUDGMENT OF JUSTICE SIR RICHARD FIELD
Introduction
1. On 3 February 2020 there was a meeting (the ‘‘3F Meeting”) at the offices of the First Defendant (“Tabarak’’), a DIFC company authorised by the DFSA to provide a range of financial services including advising on financial products and arranging investments, credit, custody and the management of assets such as shares, structured products, options, units and warrants.
2. Those attending were:
(i) Sultan Bin Kharsham Al Ali (“Mr Al Ali”) who was: (a) the General Manager of the First Claimant (‘‘Huobi”) (formerly called Huobi OTC), a company registered in the Dubai Multi Commodities Centre and licensed to carry out Over The Counter (“OTC”) cryptocurrency transactions; and (b) the Chairman of the Board of Directors and a Co-Founder (together with Mr Mohit Davar (“Mr Davar”) of the Second Claimant (“HMena”) which at all material times down to 23 September 2021 was the majority shareholder in Huobi.
(ii) Mr Shantu Saxena (“Mr Saxena”) who was the General Manager of HMena in which capacity, at all material times, he worked on strategy, management and marketing on behalf of Huobi.
(iii) Mr Sushant Kunjabihari Nahak (“Mr Nahak”) who was a trader working for both HMena and Huobi.
(iv) Mr Evgeniy Morozov (“Mr Morozov”), a Russian citizen, who represented that he was acting for a group of investors which used Navarcon s.r.o (“Navarcon”), a company registered in the Slovak Republic, as a corporate vehicle for the acquisition of, and trading in, cryptocurrencies including bitcoin (“BTC”).
(v) Mr Alekseij Socin (“Mr Socin”) who attended to assist Mr Morozov.
(vi) Mr Christian Thurner (“MrThurner”) who was employed by Tabarak as its director of investments.
(vii) Ms Anastasia Zavyalova (“Ms Zavyalova”) who was employed by Tabarak to act as Mr Thurner’s assistant.
3. Before the meeting began in Tabarak’s meeting room, the above attendees were introduced to Mr Mohamed Ahmadi (“Mr Ahmadi”), Tabarak’s founder and CEO, who thereafter remained in his office and did not participate in the meeting.
4. The purpose of the meeting was to carry out a pre-arranged transaction by which Huobi would sell 300 BTC to Navarcon at a price to be fixed by reference to the wholesale prices on the cryptocurrency exchanges operated by Kraken, Jump Trading and Enigma Capital, plus Huobi’s commission.
5. Tabarak first became of interest to Mr Al Ali when he asked a contact called Rudolf in November 2019 if he knew of a local Dubai bank that would open an account for a cryptocurrency-related company. (Rudolf had occasionally brought business opportunities to Mr Al Ali’s attention for which he received a commission). Rudolf replied that Tabarak would be able to open such an account for use by Huobi and he gave Mr Al Ali Mr Thurner’s telephone number. Later, in early December 2019, Rudolf told Mr Al Ali that Mr Morozov was looking to buy a large quantity of BTC and he (Mr Morozov) was already a client of Tabarak and held sufficient verified funds to buy “large quantities” of BTC. Soon afterwards, Mr Al Ali, Mr Morozov and Rudolf met in the Dubai Mall when Mr Morozov said that he wanted to purchase 2,000 BTC from Huobi or HMena or Huobi Global, a large Seychelles incorporated company operating throughout China with which Mr Al Ali and Mr Davar had a joint venture agreement. In the discussion that followed, Mr Al Ali insisted that the BTC to be sold by Huobi would not be transferred to the buyer until the price had been received by Huobi. At the same time, Mr Morozov insisted that the price would not be remitted to the seller until the BTC had been received by the buyer. It was Rudolf who suggested that this problem could be solved if Tabarak could be used as an intermediary with the coins being transferred to Tabarak on condition that they would only be transferred by Tabarak to the buyer once the buyer had paid the whole of the price into an account operated by Tabarak, following which Tabarak would transfer the price to an account opened in Huobi’s name.
6. Following a phone call made by Mr Al Ali to Mr Thurner, there was a meeting at Tabarak’s offices on 16 December 2019 attended by Mr Al Ali, Mr Thurner and Ms Zavyalova. This meeting was preceded by an earlier meeting that day at the Four Seasons attended by Mr Al Ali, Mr Morozov and Rudolf.
7. The discussion at the later meeting at Tabarak’s offices contemplated the possibility of there being other transactions of a similar nature between the parties.
8. Later that day, Mr Thurner sent an email to Mr Al Ali and Mr Morozov (the ‘‘First Deal Structure Email”), the footer of which had Mr Thurner’s name in gold print over Tabarak’s printed name. The message was in the following terms:
“Subject: Process and Handling – Digital Asset Deal
Dear Sir,
Dear Evgeniy,
as informed and agreed during today’s meeting, we herewith place the way how the business between you 2 parties could work:
Partners will sign a SPA Agreement and then the real work of transfer starts! Partners agree to run transactions based on price building platform…….!
Partner 1 gives order to inform partner 2 about amount XY of money on account at their TABARAK account.
TABARAK executes and inform Partner 2!
Partner 2 send BTC to TABARAK Wallet in order to inform Partner 1 about
TABARAK executes and inform Partner 1
Partner 1 order TABARAK to transfer money to nominated account at……
Partner 2 order TABARAK to transfer BTC to Wallet….
Partial deal done and finished!
Parties agreed to start next deal! Amount and value will be negotiated and confirmed by parties.
Execution starts when OK!
This way the deal could work and both parties are satisfied and no harm will of parties will take place!
Please inform the parties agree to this procedure? TABARAK is ready to start immediately!
Best regards”
9. The “Wallet” referred to in this email signifies “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,” see the Joint Report of the Three Experts instructed by each of the parties to these proceedings, Mr Joshua McDougall (Claimants), Mr Paul Sibenik (First Defendant) and Mr Sergiu Popa (Second Defendant).
10. Also on 17 December 2019, Tabarak sent Mr Al Ali an unsigned Account Opening Agreement (the ‘‘AoA”) and a separate Addendum thereto. The AoA stated, inter alia, 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.
11. The AoA also contained an Entire Agreement Clause providing that “with respect to its subject matter, this Agreement and its Exhibits constitute the entire understanding of the Parties superseding all prior agreements, understandings, negotiations and discussions between them whether written or oral, and there are no other understandings, representations, warranties or commitments with respect thereto”.
12. Schedule A to the AoA provided that the Client [Huobi] will indemnify Tabarak from and against any losses etc caused by any untrue statement made available by the Client [Huobi] or arising out of any advice or services pursuant to the agreement.
13. The Addendum set out a list of fees that would be payable once the documents had been signed by both parties. Included in this list were: Regular Transfer Service - 0.35% (Principal) and OTC Business TABARAK/HUOBI – Plus 1% Flat on XE Chart.
14. There was an exchange of WhatsApp messages between Mr Al Ali and Mr Morozov on 18 December 2019 referring, inter alia, to proof of coins (POC) and Mr Al Ali, Mr Morozov and Mr Thurner met again at Tabarak’s office on 20 December 2019. Later that day Mr Thurner sent an email (the ‘‘Second Deal Structure Email”) in the following terms 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.
“Subject: NEW BTC WALLET ADDRESS according to today’s meeting at TABARAK Offices – Handling
Dear All,
as discussed and agreed, please find attached the new BTC WALLET ADDRESS to start transactions as follows:
This will be the procedure and will stay until first 3000 BTC are transacted!
Please come back with your OK and the timetable to initiate the business!
Best regards”
15. On 23 December 2019 and 13 January 2020 there were further negotiations between Huobi and Mr Morozov during which Mr Morozov stated that he wanted to purchase 3000 BTC direct from Huobi preceded by a POC, but Huobi declined to enter into a transaction of that size and insisted that any deal had to be done with Tabarak acting as an intermediary.
16. 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.
17. 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 Saheeb1 , cc’d to Mr Ahmadi and Ms Zavyalova as follows:
“Dear All,
After reviewing all of the past and history and discussions, this is the procedure we would be able to satisfy all involved parties:
When done, next Part will be agreed upon transaction starts again the same way!
Please come back if all parties agree to that procedure!
Thank You!”
18. It was Mr Thurner’s understanding that Navarcon would transfer funds from its bank account with Unicredit Bank Bulgaria – Sofia to a bank account of a related UAE entity, which entity would then send the funds to purchase the BTC to Navarcon’s client account with Tabarak.
19. 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.
20. On 21 January 2020, there was a trial transaction by which Huobi received AED 100,000 worth of cryptocurrencies from its client Emaar which were then sold to raise USD 27,555 which was transferred to Tabarak. Tabarak were then due to convert the USD 27,555 to AED and transfer the funds to an Emaar account. Tabarak contributed to this test by supplying Tabarak’s Noor Bank account details.
21. On 22 January 2020, Tabarak engaged Huobi to convert two BTC to fiat currency. Tabarak duly transferred the two BTC to Huobi’s trading account with Tabarak that had been set up using the reference number on the AoA. The following day, Huobi confirmed completion of the sale and confirmed the sale proceeds were sent to Huobi on the previous day.
22. By the 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 arranged that the transaction would be implemented at Tabarak’s offices on 30 January 2020 but on the appointed day Mr Morozov did not turn up until it was too late to put the transaction through. Also, Mr Morozov was asking for 300 BTC and not 200 BTC, as had been agreed. It was then 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%.
23. Those attending the 3F Meeting were seated at a rectangular table. Mr Thurner sat at one end and Mr Socin sat at the other end. Mr Morozov and Ms Zavyalova sat along one of the longer sides, with Mr Morozov at the end close to Mr Socin. Ms Zavyalova was close to Mr Thurner at the other end. Seated opposite Mr Morozov and Ms Zavyalova were Mr Nahak (sitting towards the end where Mr Socin was seated), Mr Saxena (in the middle of the row) and Mr Morozov (sitting towards the end occupied by Mr Thurner). Shortly after the start of the meeting, Mr Morozov produced two new Trezor Wallets that were still contained within an unopened box. These wallets were “cold” wallets meaning that they were not connected to the internet. They were small devices like a USB stick that required to be connected to a computer to be set up. They were constructed to generate a 12-word “recovery seed” (called the “Mnemonic”) to be noted during the initialisation of the wallet, the purpose of which is to allow access to the BTC if the wallet was no longer accessible because it had been lost or was malfunctioning.
24. 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”). This was an obvious and fundamental departure from the agreed modalities for the sale of the 300 BTC. I find 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. There is a lively dispute as to the rest of who said and did what in the wake of Mr Morozov’s proposal, but it is common ground that, after some consideration, 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.
25. All present could see that the Wallet was sealed in a cellophane wrapping and it was obvious that it was 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 admits that he put in a pin code and the Wallet’s address was then created automatically and sent by email to Huobi and Navarcon.
26. 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 the Burger & Lobster restaurant located in the Burj Daman building for about two hours. 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. All then present in the meeting room had their mobile phones confiscated and were separately questioned by the police, as was Mr Socin who had been summoned back to Tabarak’s offices. In the event, Mr Saxena, Mr Nahak, Mr Thurner, Ms Zavyalova, Mr Morozov and Mr Socin spent the night in custody and were released on bail the following morning.
The means by which the 300 BTC were misappropriated using the Wallet
27. The three expert witnesses considered four possible modi operandi by which the 300 BTC might have been misappropriated: (i) physical breach; (ii) tampering with the Wallet; (iii) collusion between the non-Huobi parties; and (iv) scrolling by Mr Morozov and Mr Socin when they had been passed the computer into which the Wallet had been plugged to find and then memorise all twelve words of the Mnemonic.
28. It is the view of the experts in their Joint Memorandum that modality (iv) offers the most likely explanation as to how the theft of the 300 BTC occurred. Their ground for so concluding was that it would not have been technically challenging to scroll back through the seed phrase and record all the words of the seed phrase either with a hidden camera or by memory. Armed with this information, Mr Morozov and Mr Socin could then have used the 12 word seed phrase to remove the BTC from the Wallet remotely using a computer. The experts also express the view that Mr Morozov and Mr Socin are extremely likely to be the beneficiaries of the misappropriated 300 BTC.
29. In his amended report, the expert called by the Claimants, Mr McDougall, states 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 and would have been available after the first and the second six words were written down firstly by Ms Zavyalova and then by Mr Morozov and Mr Socin. This verification step asks the user to confirm, at random, a subset of the twelve words to make sure he or she had correctly noted 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.
30. I accept the joint opinion of the experts and Mr McDougall’s amended statement as to the verification stage in setting up a Trezor Wallet and find, on the balance of probabilities, 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.
The case advanced by the Claimants on the issue of liability
31. The First Claimant sues in its new name. Until 23 September 2021, it was called Huobi OTC DMCC. Its name was changed because its share capital was sold to a third party which was a competitor of the companies using the Huobi brand. By an assignment also dated 23 September 2021, the first Claimant assigned its rights in its claims against both Defendants to HMena. The principal claim advanced by the Claimants is against Tabarak; its claim against Mr Thurner proceeds on the basis that Mr Thurner was not acting for and on behalf of Tabarak in his dealings with Huobi but instead was acting on his own personal account.
Huobi’s pleaded case
The factual introduction
[A] It was Mr Thurner on behalf of Tabarak, not Tabarak or Mr Morozov, who proposed the modalities set out in the First, Second and Third Deal Structure Emails dated respectively 16 December and 20 December 2019 and 19 January 2020.
[B] On or about 17 December 2019, Huobi and Tabarak entered into an agreement (the ‘‘December Agreement”) entitled the “Asset Management Agreement & Account Opening Agreement” (the “AoA”).
[C] On or about 28 or 29 January 2020, Tabarak agreed that Huobi would be paid an account opening fee of US$ 26,250 and in the circumstances Huobi and Tabarak entered into an agreement, (“the January Agreement”) pursuant to which:
(i) Tabarak would propose a deal structure which would ensure that the contemplated sale of BTC to Navarcon would proceed in such a way that Mr Morozov/Navarcon could not retrieve the BTC without first paying for them (the ‘‘Transaction”);
(ii) Tabarak would take such steps as were necessary to effect the Third Deal Structure; and
(iii) Huobi would pay Tabarak a commission, to be paid from the proceeds of the Transaction.
[D] Alternatively, the January Agreement formed part of and/or constituted an addendum to the December Agreement (together called the ‘‘Agreement”).
HMena’s case as to what happened at the 3F Meeting
[E] On behalf of Tabarak, alternatively on his own behalf, Mr Thurner set up one of the wallets (the ‘‘Wallet”) brought by Mr Morozov to the meeting to receive the BTC and used the Wallet to generate the 12 word seed phrase required to access funds in the Wallet. Ms Zavyalova recorded the first six words of the 12 words seed phrase and Mr Thurner then passed the Wallet to Mr Morozov and Mr Socin to record the second six words of the seed phrase.Mr Morozov then insisted that the Wallet be used for the Transaction and Huobi asked Mr Thurner whether he had concerns arising from the use of the Wallet to effect the transaction. On behalf of Tabarak, alternatively on his own behalf, Mr Thurner advised that:
(i) he had no concerns;
(ii) he had set up the Wallet; and
(iii) once the BTC were transferred to the Wallet it would be held in Tabarak’s safe, to which only Tabarak had access
[F] The effect of Mr Thurner‘s advice was that:
(a) the Transaction could be effected securely using the Wallet, in a way which would prevent Mr Morozov from retrieving the BTC from the Wallet before making payment for them;
(b) only Tabarak and/or Mr Thurner would be in a position to remove the BTC once they were transferred to the Wallet;
(c) the risk of the Buyer withdrawing the BTC without paying for them was not increased (or was not increased appreciably) by the use of the Wallet; and
(d) there was no appreciable risk that Mr Morozov would be able to remove the BTC from the Wallet before paying for them.
[G] Mr Thurner then asked Mr Nahak and Mr Al Ali to transfer 300 BTC to the Wallet. They objected as Mr Morozov had not yet transferred payment for the BTC to Huobi’s account. In response, on behalf of Tabarak alternatively on his own behalf, Mr Thurner:
(i) advised Huobi that the BTC would be held in the Wallet which would be kept in Tabarak’s custody and would be safe;
(ii) advised that Tabarak had already verified that Mr Morozov had funds in Dubai sufficient to complete the Transaction;
(iii) stated that there was no reason to be concerned;
(iv) advised Huobi that the transfer would be “safe”, meaning that there would be no appreciable risk of Mr Morozov withdrawing the BTC without paying for them; and
(v) advised Huobi to proceed with the Transaction.
(vi) In reliance on Tabarak’s aforesaid advice, Huobi transferred 300 BTC into the Wallet.
The duties owed by the Defendants in respect of the Transaction
The contractual duties:
(1) Under the ‘‘Agreement”.
[H] (i) Tabarak would propose a mechanism for the Transaction which would prevent Mr Morozov from being able to retrieve the BTC before he had paid for them; (ii) Tabarak would not transfer the BTC to Mr Morozov until it had received payment for the BTC from Mr Morozov; (iii) Tabarak would not permit Mr Morozov to access or retrieve the BTC until after Tabarak had received payment for the BTC from Mr Morozov; (iv) Tabarak would take reasonable care to ensure that the BTC were not transferred to Mr Morozov before Tabarak received the payment from Mr Morozov; (v) Tabarak would take reasonable care to ensure that Mr Morozov was not able to access the BTC before Tabarak received payment from Mr Morozov.
(2) Under the Implied Terms in Contracts and Unfair Terms Law, 2005 (“the Implied Law”)
[I] By virtue of Article 17 of this law, it was an implied term of the Agreement in arranging and supervising the Transaction, proposing the modalities in the First, Second and Third Deal Structures and in giving the aforesaid advice, Tabarak would act with reasonable care and skill.
The duty in tort
[J] By Article 18 of the Law of Obligations, Tabarak and/or Mr Thurner was under a duty of care in giving the aforesaid advice and assisting with the Transaction.
Duties under miscellaneous alternative laws and/or legal principles
[K] The Claimants plead breaches of Articles 37, 71, 72 and 155 of the Law of Obligations and the DFSA Rulebook.
The pleaded breaches of duty by Tabarak and/or Mr Thurner
[L] (1) Advising Huobi to adopt a mechanism for the Transaction which was not reasonably secure and which was liable to and did:
(a) cause Huobi to transfer the BTC out of its control and Tabarak’s control before payment was received from Mr Morozov;
(b) permit Mr Morozov to transfer the BTC out of the Wallet without paying for them;
(c) advise Huobi to transfer the BTC before payment was received from Mr Morozov;
(d) advise Huobi to transfer the BTC to the Wallet at a time when the BTC could be retrieved by Mr Morozov and/or there was a risk that they could be so retrieved;
(e) advise Huobi that Mr Morozov would not be able to access the BTC in the Wallet when in fact he could;
(f) fail to advise Huobi there was a risk that Mr Morozov would be able to remove the BTC from the Wallet before he had paid for them;
(g) fail to advise Huobi that Mr Morozov would be able to retrieve the BTC remotely, if he had the 12 words of the phrase for the Wallet;
(h) disclose the 12 word seed phrase for the Wallet to Mr Morozov when it was not authorised to do so, alternatively failed to take reasonable steps to ensure that the phrase was not disclosed to the Buyer;
(i) pass the Wallet to the Buyer and allowed him to retain the Wallet and replace it with another BTC wallet or fail to prevent him from doing so;
(j) transfer or allow the transfer of the BTC out of the Wallet before Tabarak had received payment for the BTC from Mr Morozov;
(k) fail to take reasonable care to ensure that the BTC were not transferred or could not be transferred out of the Wallet before Tabarak had received payment from Mr Morozov;
(l) used or allowed the use of the BTC in a manner which was not permitted by Huobi by transfer out of the Wallet;
(m) in the premises, failed to take such care of the BTC as was reasonable in the circumstances.
(n) In the further alternative, the facts speak for themselves in establishing that the BTC were transferred to Mr Morozov as a result of the negligence and a breach of duty of Tabarak and/or Mr Thurner;
(a) the BTC were within the custody and control of Tabarak and/or Mr Thurner;
(b) the transfer of the BTC out of the Wallet is something which would not have occurred without the negligence and/or breach of duty of Tabarak and/or Mr Thurner; and
(c) Further, as a result of the aforesaid matters, Tabarak negligently breached its regulatory duties.
The Claimants’ Opening Skeleton Argument
The Claimants submit, inter alia, that:
(a) Part of the alleged contract between Huobi and Tabarak is derived from the AoA signed by Mr Al Ali for Huobi and Mr Thurner for Tabarak, but no particulars are given as to when this agreement was signed and became operative.
(b) The terms of the contract included: (i) Tabarak would advise Huobi on, arrange and supervise a deal structure which would ensure that the contemplated Transaction would proceed in such a way that Navarcon or any other third party could not retrieve the BTC without first paying for them: (ii) Tabarak would carry out the aforesaid services with reasonable skill; and (iii) in exchange, Huobi would pay Tabarak from the proceeds of the Transaction the Account Opening Fee of US$ 26,250 and a commission in the sum of 0.25% of the Transaction proceeds.
(c) At the 3F Meeting, the Defendants advised Huobi to adopt the mechanism involving the use of one of Mr Morozov’s Trezor wallets with the Mnemonic split between Huobi and Navarcon which mechanism the Defendants supervised and in which they were involved.
(d) It is clear that the Defendants devised the said mechanism so as to ensure safe custody of the BTC by the Defendants pending payment by Navarcon into Tabarak’s account, with the Defendants having control of the BTC at the BTC Address via the Wallet.
(e) Accordingly, Huobi and Tabarak and Mr Thurner agreed that Tabarak would provide custodial services in relation to the BTC (i.e. would prevent the coins from being transferred out of the Wallet until and unless Navarcon’s payment arrived in Tabarak’s account) and if those sums did not arrive within a reasonable time, return the BTC to Huobi.
(f) “Custodial Services” in the AoA, in the context, refers to the Defendants providing custodial services in relation to the BTC.
(g) Even if there was no express retainer, a retainer is to be inferred from the conduct of the parties.
(h) The case that Tabarak provided custodial and escrow services is supported by the expert report of Mr McDougall, the expert called by the Claimants.
(i) The Defendants acted in breach of the alleged contract by advising Huobi to agree to the use of Mr Morozov’s Tezor Wallet with the seed phrase being split between Huobi and Navarcon and in assuring Huobi that this mechanism was a safe way of effecting the Transaction when in fact the entire 12 word seed phrase could be seen by Mr Morozov by scrolling up to see what the first six seed words were that had been disclosed to Mr Thurner and Ms Zavyalova.
The Claimants’ Closing Submissions
A. The Agreement that governed the 3F Meeting
(1) In these submissions, it is the Claimants’ case that the Agreement constituted an “addendum” referred to in the AoA and incepted around 29 January 2020 or alternatively no later than the time Tabarak’s commission of 0.2%, which was prior to the transfer of the BTC to the BTC Address.
(2) By this agreement, Tabarak would:
(a) receive, out of the proceeds of the Transaction, the AO Fee (USD 26,250) and the commission (at 0.25%, i.e. USD 7,248.43) (i.e. the total sum of USD 33,498.43);
(b) propose a mechanism for the Transaction which would prevent from being able the Buyer to retrieve the BTC from the BTC address before they had paid for them;
(c) not transfer the BTC to the Buyer until it had received payment for the BTC from the Buyer;
(d) not permit the the Buyer to access or retrieve the BTC until after Tabarak had received payment for the BTC from the Buyer;
(e) take reasonable care to ensure that the BTC were not transferred to the Buyer before Tabarak had received payment from the Buyer;
(f) take reasonable care to ensure that Buyer was not able to access the BTC before Tabarak received payment from the Buyer; and
(g) if Tabarak did not receive payment from the Buyer within a reasonable time, promptly return the 300 BTC to Huobi.
(3) Further or alternatively, pursuant to the Implied Terms in Contracts and Unfair Terms Law 2005, by Article 17 it was an implied term of the captioned agreement that, in arranging and supervising the Transaction, and in advising Huobi, Tabarak would act with reasonable care and skill.
(4) Applying Article 50(1) of the DIFC Contract Law 2005: in engaging with Tabarak in relation to the Transaction (resulting in the transfer of the 300 BTC to the BTC address), Huobi intended that the Agreement applied and Tabarak knew or could not ave been unaware of that intention, and vice versa.
(5) Alternatively, under Article 50(2) a reasonable person of the same kind as Huobi would interpret Tabarak’s statements and other conduct consistently with the Agreement having been made, and vice versa. This is clear from a consideration of all the circumstances (under Article 51) and in particular:
a. From the first meeting at Tabarak’s offices on 16 January 2020 and as evidenced by email exchanges, the most notable of these being Mr Thuber’s emails to Huobi dated 16 December 2019, 20 December 2019 and 19 January 2020, all being exchanges in relation to the Transaction which concerned Tabarak’s provision of crypto custody/escrow services so as to satisfy the purpose of Tabarak’s engagement. There was no other reason, from Huobi’s perspective, for Tabarak to be involved in the Transaction. These were services which Tabarak held itself out to Huobi as providing and having experience in, and which Tabarak authorised Mr Thurner to offer and provide.
b. Prior to 3 February 2020, Tabarak proposed to Huobi modalities for the Transaction so to ensure that Huobi’s and Mr Morozov’s objectives were satisfied, namely that the BTC was not transferred to the Buyer until payment was received and the Buyer did not pay for the BTC until they had been transferred (the“Purpose”). Tabarak played a central role in the processes, e.g. by use of the Tabarak Buyer Client Account and Tabarak’s BTC Wallet, etc.
c. Tabarak led Huobi to believe that the Buyer was a client of Tabarak’s, which meant that the “Tabarak Buyer Client Account” could be utilised in order to provide the escrow/custody service.
d. Tabarak led Huobi to believe that it was performing the role of escrow/custodian and in fact acted as escrow/custodian in relation to the Transaction.
e. Huobi and Tabarak agreed that the AO Fee and Commission would be paid out of the Transaction proceeds.
f. Huobi transferred 300 BTC to the BTC address which both Huobi and Mr Thurner believed was under Tabarak’s exclusive control pending payment by the Buyer into the Tabarak Buyer Client Account.
g. As to term (g) (if such payment was not received within a reasonable time, Tabarak would return the BTC to Huobi promptly) - inter alia Mr Thurner admitted this in cross-examination.
(6) Term (e) (that Tabarak would take reasonable care to ensure that the BTC were not transferred to the Buyer before Tabarak had received payment from the Buyer) and term (f) (that Tabarak would take reasonable care to ensure that the Buyer was not able to access the BTC before Tabarak received payment from the Buyer) plainly satisfy the requirements for the implication of a term.
Breach of Duty in Tort
(7) Further or alternatively, the Defendants were under a duty of care to Huobi pursuant to Article 18 of the Law of Obligations, with duties owed by the Defendants identical to term (e), term (f) and the implied term, 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.
B. The assurances Mr Thurner gave at the 3F Meeting that it would be safe for Huobi to transfer the BTC into the Trezor Wallet provided by Mr Morozov.
(8) Mr Thurner gave two assurances that the proposed use of the Buyer’s Trezor Wallet would be safe: (i) in reply to Mr Saxena asking Mr Thurner if he had any concerns about using the Trezor Wallet brought to the 3F Meeting to transfer the BTC to Navarcon, Mr Thurner said 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 had access and Mr Al Ali said that the procedure was Tabarak’s concern and Huobi would transfer the BTC to whichever Wallet Tabarak directed; (ii) Mr Thurner assured Huobi using words along the lines that the Wallet would be safe and there would be no reason to be concerned and advised Huobi to make the transfer.
C. The additional pleaded causes of action
(9) The claimants also plead that Tabarak is liable for the loss of the 300 BTC under the following causes of action:
(i) Breach of Confidence – Article 37 of the Law of Obligations
(ii) Breach of duties as a bailee – Article 71 of the Law of Obligations
(iii) Breach of fiduciary obligations – Sch 3, para 5 to the Law of Obligations;
(iv) Breach of regulatory obligations, - Article 94 of the Regulatory Law and negligent breaches of GEN 4.2.2; GEN 4.2.3; and GEN 4.2.6
D. The Claimants’ observations on the evidence given by the main witnesses of fact
(1) Mr Al Ali and Mr Mr Saxena were reliable witnesses whose evidence should be accepted by the Court. Throughout hours of cross-examination, they remained patient and courteous and answered the questions put on behalf of the Defendants without trying to put a spin on their answers.
(2) Mr Ahmadi was not a credible witness. The position he took in relation to key issues was plainly implausible in light of contemporaneous documents, including in particular numerous emails he was copied into between Mr Al Ali and Mr Thurner which referred to the proposed transaction by which Tabarak would participate in the sale of BTC to Navarcon.
(3) Mr Thurner was an unsatisfactory witness who attempted to adopt a cloak of outrage and was guilty of obfuscation and implausibility in the light of documentary evidence.
(4) Ms Zavyalova had a junior, administrative role working as Mr Thurner’s assistant. In the event, she did not have an accurate recollection of events and being a close associate of Mr Thurner at all material times down to and including the trial, she was not a wholly independent witness.
E.The Claimants’ position in relation to paragraph 45 of Tabarak’s Opening Skeleton Argument
32. Paragraph 45 of Tabarak’s Opening Skeleton Argument advanced the case that agreements separate from the AoA founded on the Deal Structure Emails would be governed by UAE law rather than DIFC law. In response, the Claimants’ contended: (i) this was the first time Tabarak had sought to rely on this submission; (ii) Ms Ahmed herself had confirmed (as shown by the PTR transcript) that DIFC law applied; and (iii) permission had not been granted for Tabarak close to the start of the trial to rely on further grounds of contributory negligence. In the event, neither of these matters were persisted in on behalf of Tabarak and accordingly no more need be said about them.
Tabarak’s Closing Submissions (First Round)
33. These submissions were excessively long. The first 444 paragraphs spread over 132 pages consisted of an overview, observations on the quality of the evidence of Mr Al Ali, Mr Saxena and Mr Ahmadi and then an extensive and over-elaborate analysis of the evidence organised under different topic headings.
34. There were more than a further 109 paragraphs over an additional 34 pages setting out Tabarak’s submissions.
35. The principal points can be summarised as follows.
(a) Mr Al Ali’s evidence was unreliable and ever-changing. The Court allowed Huobi to adduce a third witness statement signed by Mr Al Ali on the first day of the trial in which Mr Al Ali sought to make corrections to parts of what he said in his first two witness statements and to adduce completely new evidence when this evidence could have been given in his second witness statement in which he responded to Mr Ahmadi’s witness statement.
(b) Mr Saxena’s evidence was also unreliable. His explanation for how he came to realise that there were matters in his first statement that needed corrected was weak and unconvincing and his second witness was inconsistent with his first one.
(c) Mr Ahmadi was a truthful witness whose evidence should be believed. He testified that to Mr Thurner’s knowledge, Tabarak had a blanket, unwritten policy prohibiting trading of any kind in cryptocurrency; Mr Thurner had no authority to involve Tabarak in the sale by Huobi of BTC to Mr Morozov; he did not know that Tabarak was involved in a transaction involving the sale of BTC; he understood Tabarak’s relationship with Huobi was centred on property transactions where payment was sought to be made by using digital assets.
(d) Mr Thurner did not put forward the proposals that were recorded in the Deal Structure Emails. Instead, he was setting out what had been agreed between Mr Al Ali and Mr Morozov and accepted by him.
(e) There was no binding contract between Tabarak and Huobi governing the proposed transaction to be effected on 3 February 2020. This is because: (i) the conditions precedent stated in the AoA – payment of the AO Fee and completion by Tabarak of the KYC process quoad Huobi had not been satisfied; and (ii) Mr Thurner was not authorised to bind Tabarak to a contract involving trading in cryptocurrency and was not authorised to act for a client who had not paid the stipulated AO Fee.
(f) Whilst Mr Thurner might well have said to Mr Saxena at the meeting that the Trezor Wallet supplied by Mr Morozov at the 3F Meeting would be held safely in Tabarak’s safe, he did not advise Huobi to proceed with the proposal to use Mr Morozov’s Trezor Wallet; nor did he give any of the other assurances that Huobi alleges he gave.
(g) As to the claim in tort, Tabarak did not owe the alleged duty of care encompassing the claimed losses because the requirements of Article 18 are not met because (1) it is not fair, just and reasonable that the duty should be owed; (2) neither of the Defendants assumed responsibility to Huobi; (3) it was not reasonable for Huobi to rely on Tabarak or Mr Thurner; and (4) neither Tabarak nor Mr Thurner intended Huobi to rely on any alleged assurances that might be proved to have been given.
(h) Extensive reference is made to the judgment of Fraser J in Multiplex Construction Europe Ltd v Bathgate Realisations Civil Engineering Ltd et al2 in which Fraser J undertook an exhaustive examination of the leading English authorities dealing with when, in the absence of a contract between the parties, a claimant is liable in negligence for misleading advice and/or statements on which the claimant relied and in consequence suffered pure economic loss. In this case the judge had to decide preliminary issues aimed at determining whether the claimant, who was the main contractor on a large construction project in London, was entitled to sue RNP, a design checker with whom the claimant had no contract, in respect of certificates issued by RNP to a sub-contractor which were passed on to the Plaintiff. After a painstaking consideration of the facts, Fraser J held that no actionable duty of care had been owed by RNP to the Claimant.
(i) The cause of Huobi’s alleged loss was the act of Huobi transferring the 300 BTC to the Trezor Wallet at a time when the price due for the sale had not been received by Tabarak on behalf of Huobi.
Mr Thurner’s Closing Submissions (First Round)
36. The principal contentions made in these submissions were:
(1) Mr Thurner had actual authority to act in the way he did in relation to the transaction proposed to be effected on 3 February 2020 because: (i) he was employed by Tabarak under a contract of employment with the title “Director of Investments”; and (ii) the scope of Mr Thurner’s authority spread across all industry sectors related in financial assets, including digital assets.
(2) In the alternative, Mr Thurner had the necessary implied authority bearing in mind his title (“Director of Investments”), his signature block for his emails used his title and his seniority as an employee and on 3 February 2020, Mr Ahmadi allowed Mr Thurner to participate in the transaction that was set to be carried out at Tabarak’s offices.
(3) In the further alternative, Mr Thurner appeared to have the necessary apparent authority as a result of his position as Tabarak’s Director of Investments.
(4) Mr Thurner owed no duty in tort to Huobi in respect of his involvement in the use of Mr Morozov’s Trezor Wallet to receive the 300 BTC for onward transfer to Navarcon after Navarcon had transferred the price to Tabarak’s account. Huobi ought not to be allowed to maintain the case that it ran at trial that Mr Thurner had assumed the responsibility of an escrow agent or custodian by virtue of his advice and/or assurances he gave at the 3F Meeting because this theory of liability had not been pleaded and Mr McDougall’s expert opinion in support of the theory was inadmissible.
(5) Those representing Huobi at the 3F Meeting had sufficient knowledge and expertise in OTC transactions and BTC safety and security standards to appreciate the risks of conducting the Transaction in the way it did.
Tabarak’s Reply Submissions
(1) At the trial, the Claimants abandoned their pleaded case founded on the ‘‘December Agreement”, alternatively the “January Agreement” and ran a new claim founded on the signed AoA, supplemented by an agreement serving the purpose of an addendum for the AoA resulting from the dealings between Huobi, Mr Morozov and Mr Thurner on behalf of Tabarak which contained, inter alia, seven terms (a. to g.)3 which, taken together constitute an agreement that Tabarak would provide the services of an escrow agent and a custodian of the BTC in respect of the money to be received from a buyer of BTC sold by Huobi and in respect of the BTC to be transferred to Tabarak by Huobi for onward transfer to the proposed buyer after the price due from the buyer has been received in an account maintained by Tabarak.
(2) This new claim should not be allowed to proceed since it has not been pleaded and no application has been made for it to be pleaded.
(3) In any event, the new case fails because the Claimants have failed to demonstrate that: (i) the parties reached the alleged agreement; (ii) the parties intended the agreement to be legally binding; and (iii) the agreement is supported by consideration and is sufficiently certain and complete to be enforceable, see Leggatt J in Blue v Ashley [2017] EWHC 1928 (Comm).
(4) The Addendum agreement does not conform to the terms of the AoA which contemplates that: (i) the services to be provided by Tabarak are the provision of banking facilities as per Tabarak’s regulated licence (which leaves no room for the postulated agreement); and (ii) a “Letter of Intent” explaining the client’s need of services and on a case by case basis a separate Addendum which includes the specific service requested by the Client to be provided by Tabarak, whereas no letter of intent was provided by Huobi as required by the AoA.
Mr Thurner’s Closing Submissions in Reply
37. These submissions are substantially fuller than Mr Thurner’s Closing Submissions.
38. The principal points made in these submissions are:
(a) As admitted by Mr Al Ali in his oral evidence, Huobi’s real purpose in first approaching Tabarak was to use a local bank to effect payment for its planned OTC transactions, not to seek custody or escrow services.4
(b) Mr Thurner did not represent to Huobi that he had experience or expertise in crypto-escrow/custodial services. (Mr Al Ali and Mr Saxena admitted that they never enquired directly as to Mr Thurner’s knowledge or experience in such services).
(c) As Mr Saxena accepted, the level of technical experience needed to use a cold wallet was common sense since you just have to plug a USB into a computer and then follow the instructions on the screen.5
(d) Mr Thurner never represented that Navarcon/Mr Morozov (the ‘‘Buyer”) was a client of Tabarak or that the Buyer held an account with Tabarak or that the Buyer held funds in the UAE. The words, “Partner 1. Navarcon and Evgeniy Morozov running already accounts with us” in the First Deal Structure Email were looking forward to those parties becoming clients of Tabarak.
(e) Mr Thurner did not state to Huobi that the Buyer had funds in the UAE. Mr Morozov himself showed Huobi that Navarcon held funds in Unicredit Bank of Bulgaria.6
(f) Mr Thurner had actual or apparent authority to enter into the AoA on behalf of Tabarak. Whilst it is true that the AoA signed by Mr Thurner and sent to Tabarak departed in some respects from the standard wording of the company template, for the most part the amendments consisted of moving clauses around and presenting them in a different order (see Mr Malik’s witness statement para 18). Further, the services listed in the AoA were only concerned with digital asset management and did not include any reference to the provision of crypto-custody/escrow services.
(g) Before the 3F Meeting got under way, Mr Ahmadi agreed that the AO Fee and the percentage fee would be paid out of the proceeds of the Transaction. As accepted by Mr Saxena, the latter fee was in respect of “Regular Transfer Service.”
(h) Mr Thurner accepts that at the 3F Meeting, he said Huobi should not worry about the BTC in the Wallet, “the Wallet will be in Tabarak’s safe and no-one has access to the safe other than him and Mr Ahmadi”.
The Court’s observations on the evidence given by the witnesses
39. Where more than one witness statement from the same witness has been relied on, I identify these statements in the chronological order in which they were served for the purposes of the trial.
The expert evidence
40. As I have already said, I accept the joint opinion expressed in the Joint Memorandum signed by the three experts and the evidence of Mr McDougall in his amended statement as to the compulsory verification stage in setting up the type of Trezor Wallet brought by Mr Morozov to the meeting and I find on the balance of probabilities that Mr Morozov and Mr Socin obtained all of the 12 words of the seed phrase by using a scrolling facility provided by the Tezor Wallet and then used those words dishonestly to misappropriate the 300 BTC by remotely accessing the Wallet.
41. I also accept the experts’ descriptions of the features of the Trezor Wallet in question and the necessary steps involved in setting up such a device. However, I find that the following sections of the reports of (1) Mr McDougall, (2) Mr Sibenik and (3) Mr Popa (together with the live evidence they gave in respect thereof) are inadmissible on the ground that they express conclusions on matters that are exclusively for the Court to decide:
Mr McDougall – his conclusions, based on his background, training, education and experience that:
(i) the Defendants provided escrow services to Huobi;
(ii) an escrow service defines the protocol of the transaction;
(iii) the Defendants did not adequately adhere to industry standards expected of an escrow service; and
(iv) the advice given by Mr Thurner as related in the witness statements of Mr Al Ali and Mr Saxena was not reasonable, are inadmissible on the ground that they express opinions on matters that are exclusively for the Court to decide.
Mr Sibenik – the whole of his report.
Mr Popa – the conclusions expressed in sections (vii), (viii), (ix), (x), (xi) and (xii).
Mr Al Ali
42. In my judgment, for the following reasons, Mr Al Ali’s evidence needed to be very carefully scrutinised before accepting that it was accurate and reliable.
(i) Mr Al Ali himself accepted in Al Ali (3) that he had made mistakes in his first witness statement (Al Ali (1)) and in my view these mistakes were surprising given that, for a certainty, Huobi’s solicitors would have impressed on him that it was important to take great care over his recollection of events and to read his unsigned drafts very carefully before signing them. For example, it is surprising that it was only in Al Ali (3), which was admitted into evidence very late on the first day of the trial, that Mr Al Ali changed his account of the date when he returned a signed copy of the AoA from 20 December 2019 to 20 January 2020. Indeed, this is particularly surprising since Mr Ahmadi had pointed out the mistaken date in his first witness statement but Mr Al Ali failed to deal with this in Al Ali (2) when responding to Ahmadi (1). It is also surprising that it was only in Al Ali (3) that he testified that at an early point in the 3F Meeting, he told Mr Ahmadi that it had been agreed that Huobi would pay the AO Fee that day out of the proceeds of the contemplated transaction.
(ii) There is a great deal at stake in these proceedings for Mr Al Ali who led the Huobi team that attended the 3F Meeting where he agreed on behalf of Huobi that Mr Morozov’s Trezor Wallet should be used and sanctioned the transfer of the 300 BTC to theWallet at a time when the price had not been received from Navarcon. In this connection, it is to be noted that, in a WhatsApp message sent on 6 February 2020 to a group of Huobi personnel including Mr Al Ali, Mr Davar and Mr Saxena, Mr Al Ali said, “I am happy to step out and give up my share as compensation for the loss as I am responsible for that trade and they act on my instructions”.
(iii) Mr Al Ali would also have been aware of the following instruction given by Mr Davar on the Huobi WhatsApp group, “we need to make sure in all your statements to the lawyers and police etc you stress that it was at the explicit assurance of Christian and then the Tabarak CEO you transferred the coins to them as escrow agents while the funds from the buyer were still being wired”.
(iv) I also find that in order to assist in building the unpleaded case presented at trial that Tabarak was contractually bound to provide “custodial services” there is a tendency in parts of Mr Al Ali’s evidence, particularly in Al Ali (1)7 , not to refer to the role to be played by Tabarak in the Transaction in the terms of the Deal Structure Emails which reflect the language I am sure that was actually used between Mr Al Ali, Mr Morozov, but to echo the expressions “custodial services” and “escrow services” in the AoA.
Mr Saxena
43. In my judgment, Mr Saxena’s evidence has 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. For this he offered the weak excuse that he had prepared his first statement in a rush when his wife was due to give birth, sometime after the relevant events actually occurred and without having refreshed himself properly by referring to the underlying documents. I have also had to bear in mind Mr Davar’s direction to Mr Saxena in the WhatsApp message related above that “we need to make sure in all your statements to the lawyers and police etc you stress that it was at the explicit assurance of Christian and then the Tabarak CEO you transferred the[m] coins to them as escrow agents while the funds from the buyer were still being wired”. All that said, I think that: (i) apart from Mr Saxena’s evidence that Tabarak was engaged to advise on how the Transaction should be safely implemented; (ii) the width of his evidence as to the alleged assurances given by Mr Thurner as to the safety of using the Buyer’s Trezor Wallet at the 3F Meeting; and (iii) the italicised passages in para 65 of Saxena 1 and para 36 of Saxenda 2 referred to in paragraphs 91-92 below, Mr Saxena generally endeavoured to assist the court and gave accurate evidence.
Mr Ahmadi
44. In my judgment, Mr Ahmadi’s evidence was not consistently reliable. In particular, I found his evidence that there was a blanket (albeit unwritten) policy within Tabarak prohibiting trading of any kind of cryptocurrency implausible given that he was copied into various emails that showed Mr Thurner’s involvement in the plans of Huobi and Mr Morozov to sell and buy BTC using Tabarak as an intermediary for which Tabarak would earn a commission. His evidence that he was not following what was being stated in those emails and that he did not understand what was going on, was not convincing.
45. As will appear below, I do not accept his evidence that his understanding was that Tabarak was simply allowing its meeting room to be used as a space in which Huobi would sell BTC to Navarcon/Mr Morozov. In my judgment, Mr Ahmadi must have understood that Mr Thurner would be playing an intermediary role for which it would be paid a fee and/or a commission.
Mr Aziz Malik
46. At all material times, Mr Malik was Tabarak’s Director of Compliance, Risk Management, Corporate Governance and AML and I accept the entirety of his evidence 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, the incomplete due diligence procedures, Mr Thurner’s Defence and his current employment. I also accept Mr Malik’s evidence in cross-examination that he was wholly unaware of the investigation into Mr Thurner’s role in the events occurring at the 3F Meeting which throws into some doubt Mr Ahmadi’s evidence that there was such an investigation that culminated in a report.
47. What I do not accept are Mr Malik’s assertions that Mr Thurner acted without authority when dealing with Huobi and Mr Morozov in respect of the proposed transaction whereby Huobi was going to sell BTC to Navarcon with the assistance of Tabarak. I say this because, whether Mr Thurner did indeed lack actual authority or any authority, be it implied or apparent, is exclusively a matter for the Court.
Mr Thurner
48. Mr Thurner was employed by Tabarak under a contract of employment dated 3 February 2019 with the position of “Investment Manager” in the capacity of “Senior Manager,” whose scope of work included identifying business opportunities by identifying prospects and evaluating their position in the industry; researching and analysing sales options and identifying new products by remaining current on industry trends, market activities and competitors. The contract was expressed to be governed by DIFC law and provided that Mr Thurner was to be remunerated by a commission of 20% of any account opening fees and 25% of any profit he generated in respect of the completion of transactions. Mr Thurner was given the title “Director of Investments” which, within Dubai, would not normally signify that he was a member of the Board of Directors. As already mentioned, his email signature bore the title “Director of Investments”.
49. Prior to becoming an employee of Tabarak, Mr Thurner had approached Tabarak with the suggestion that a group of investors involved in a company called Pecunio Blockchain Technologies FZE (“Pecunio”), whom he was representing, were interested in acquiring 20% of Tabarak with Tabarak establishing a physical gold desk. Pecunio was a platform for blockchain investments. At this time, Mr Thurner was Pecunio’s COO. In the end, the proposed deal did not go ahead.
50. Since July 2020, Mr Thurner has been CEO of OCS International FZE in Umm Al Quwain, UAE, and at the time he gave evidence, he was a Board Member and Senior Executive at OCS International Finance Ltd, which he described as a boutique Investment Bank that specialises in business advertising and client handling in the Gulf Region as well as internationally.
51. In evidence, Mr Thurner said that: (i) Mr Ahmadi was aware of the Transaction and that he (Mr Thurner) would be signing the AoA on behalf of Tabarak; (ii) the signed AoA was within a hardcopy file for Huobi at Tabarak’s offices; (iii) he attended the meetings that Mr Al Ali and Mr Saxena say he attended; (iv) before the 3F Meeting got underway, Mr Ahmadi agreed that the AO Fee could be paid out of the proceeds of the Transaction; (iv) it was strictly only with the express consent of Huobi (given by Mr Al Ali) that he set up the Buyer’s Trezor Wallet at the 3F Meeting, splitting the 12 word seed phrase equally between Tabarak and Navarcon/Mr Morozov.
52. Mr Thurner denied that: (i) it was he who proposed the different modalities set out in the Deal Structure Emails; (ii) Tabarak, acting by himself, was engaged to advise on the proposed Transaction; (iii) Tabarak agreed to act as custodian of the BTC during the Transaction; (iv) he said to Mr Saxena that he had seen the Buyer’s funds and confirmed that as soon as Huobi transferred the BTC to Tabarak’s wallet he would wire the funds to Huobi’s US account; (v) he gave the assurances at the 3F Meeting that Mr Al Ali and Mr Saxena allege that he gave in their evidence.
53. 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.
Ms Zavyalova
54. Ms Zavyalova was employed by Tabarak as Mr Thurner’s assistant on terms that her remuneration, as agreed between her and Mr Thurner, was to be paid exclusively by Mr Thurner. Her evidence was mostly focused on the 3F Meeting and wholly supported Mr Thurner’s evidentiary version of events at every turn. She was not herself a defendant facing a very large claim in damages, but I am satisfied that she feels profoundly sorry for Mr Thurner with the consequence that at times her testimony was the result of wanting to assist him rather than giving an objective account of what she witnessed. Accordingly, although I do not discount entirely the evidence she gave, it is only where it is supported by other aspects of the evidence overall that I give it weight.
Discussion
Was there a binding and enforceable contract between Huobi and Tabarak that applied to the events that occurred at the 3F Meeting?
55. The contract finally contended for by Huobi is not a mirror image of the contract pleaded in the Re-Re-Amended POC (“the RRAPOC”). In particular, the contract now contended for is not founded on an agreement that was reached on 17 December 2019 in the form of the AoA or on an agreement founded on the December Agreement together with an agreement reached on 28 or 29 January 2020 under which Huobi agreed to pay an account opening fee of US$ 26,250 (the January Agreement) or that the January Agreement formed part of and/or constituted an addendum to the December Agreement. It is also to be noted that the pleaded terms of the December and January Agreements do not include an obligation expressed in terms of custody or the provision of custodial services.
56. However, it is asserted in Huobi’s Opening Skeleton Argument that the purpose of the agreed procedure whereby the BTC would be transferred to Tabarak’s wallet and only transferred to Navarcon once the purchase money had been received into an account operated by Tabarak, was to ensure safe custody of the BTC pending payment by Navarcon into Tabarak’s account. It is also contended that “Custodian Services” in the AoA, in the context, refers to the Defendants providing “custodial services” in the AoA. In my view, this is all of a piece with the frequent references in Al Ali (1) to Tabarak performing the services of a custodian of the BTC and the funds. As I have already said, in my judgment, these references are designed to make good the pleaded link to the AoA, the anchor document for Huobi’s case, which was eventually signed by Mr Al Ali on behalf of Huobi and returned to Tabarak on 20 January 2020.
57. This theme is repeated in parts of Huobi’s Closing Submissions where it is asserted that Tabarak represented that it was pleased to act as a “custodian” and led Huobi to understand that it was performing the role of “escrow agent”/ “custodian” and in fact performed that role. There is also a reference to Mr Al Ali’s oral testimony that Mr Thurner said “We’ll become the custodian”.
58. However, when it comes to setting out the terms of the agreement between Huobi and Tabarak in Huobi’s closing submissions, nowhere are there to be found the words “custodian” or “escrow agent”, see paragraph A 2 (a) – (g) at p. 18 above. Instead, the language is intended to reflect the language that passed between Mr Al Ali, Mr Thurner and Mr Morozov both orally and in the Deal Structure Emails which, as I have said already, do not contain the words “custodian” or “escrow agent”.
59. In my judgment, the case put by Huobi in its Closing Submissions is not such a departure from its pleaded case that it could only be considered if Huobi obtained permission to amend the RRAPOC.
60. 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.
61. I further find that Huobi and Tabarak intended that the aforesaid 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 aforesaid 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”.
62. In my judgment, 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.
63. I also wish to emphasise my conclusion that the agreement I have found to have been made between Tabarak and Huobi was in respect of the transaction planned to take place on 3 February 2020. Accordingly, I reject Huobi’s contention that the agreement was in the nature of some sort of retainer that would apply without further ado to other sales of BTC to Navarcon by Huobi, save for the quantity of the coins involved. Instead, in my opinion, if the terms of the agreement were to apply to subsequent transactions this would have had to have been agreed transaction by transaction and only where the modalities provided for in the instant agreement were intended to apply. 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 Morozov9 as an appropriate and effective one, with Tabarak going along with their judgment.10 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, following Rudolf’s suggestion that Tabarak be approached, 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!”
64. I am also of the view that the agreement I have found to have been concluded between Huobi and Tabarak was subject to: (i) the conditions precedent that the AO Fee be paid and Tabarak’s due diligence processes completed, unless these conditions were waived; and (ii) the commission and other sums due to Tabarak for participating in the Transaction had been agreed.
65. It is Huobi’s case that on two occasions it was agreed between Huobi and Tabarak that the AO Fee could be paid out of the proceeds of the Transaction, the first occasion being a telephone call between Mr Al Ali and Mr Thurner on 29 January 2020 (the ‘‘29 January 2020 Agreement”) and the second occurring at Tabarak’s offices shortly before the 3F Meeting got down to business when Mr Ahmadi agreed this proposal ( “the 3 February 2020 Agreement”).
66. As to the 29 January 2020 Agreement, there is no mention in Al Ali (1) of any such agreement being reached by him and Mr Thurner on 29 January 2020, notwithstanding that he states in paras 41.3 – 42 of Al Ali (1) that on 29 January 2020, Mr Saxena told him that the situation had changed and Huobi had to pay the AO Fee “tonight”; Huobi was willing to pay the AO Fee and the only reason it did not was because further negotiations then took place on 3 February 2020, during which it was agreed the fee would be deducted from Huobi’s revenue from the Transaction. Further, the only possible reference to an agreement made over the telephone for the fee to be paid out of the proceeds of the Transaction in Saxena (1) is Mr Saxena’s hearsay statement that he explained at a meeting with Mr Thurner on 28 January 2020 that, as soon as the Transaction was completed, Huobi would pay the AO Fee by deducting Huobi’s revenue from the Transaction and this was later agreed by Mr Thurner during a subsequent telephone call [paras 35-36].
67. There is also no mention of the 29 January 2020 Agreement in Al Ali (2) or in either of Mr Thurner’s witness statements; nor was the alleged agreement put to Mr Thurner by Huobi’s counsel in cross-examination. Indeed, the first mention of the alleged 29 January 2020 agreement is in Al Ali (3) where in para 14 he withdraws what he said in para 42 of Al Ali (1) stating, “I now wish to correct this as I agreed with Mr Thurner that the Account Opening Fee would be paid out of the proceeds of the Transaction on 29 January 2020, the day before the attempted transaction was due to take place.” Then in the relevant parts of paragraphs 21 – 30, Mr Al Ali states that Mr Saxena met Mr Thurner on 29 January 2020 to tell him that Huobi would pay the AO Fee, following which preparations began internally to pay the fee and, once Mr Al Ali was satisfied about the level of Tabarak’s commission, he instructed the Huobi team to pay the fee before the transaction planned for the following day, 30 January 2020. However, it was then realised that there was insufficient time to pay the fee before the meeting the next day and Mr Al Ali therefore called Mr Davar who suggested that Huobi could propose deducting the fee from the proceeds of sale the following day. Mr Al Ali then called Mr Thurner in the afternoon of the same day and made this proposal, which Mr Thurner agreed to, and it was on this basis that the transaction the following day on 30 January 2020 was attempted but the Buyer failed to show up.
68. In Mr Saxena (2), Mr Saxena states in para 16 that he was “mistaken” when he said in para 35 of Mr Saxena (1) that he told Mr Thurner on 28 January 2020 that, as soon as the Transaction was completed, Huobi would pay the account opening fee by deducting the amount from Huobi’s revenue from the Transaction. And in paragraphs 16, 24 and 25, Mr Saxena makes the following hearsay statements: “I understand that the matter of the timing of the payment of the account opening fee was resolved directly between Mr Al Ali and Mr Thurner later on 29 January 2020.” “… Somewhere in that chain of events [the process of taking steps to make the payment] it was realised that there was insufficient time for the payment …. to reach Tabarak before the transaction was scheduled to take place for the following morning. As I understood it at the time (around 30 January or shortly thereafter) from Mr Al Ali, he spoke with Mr Davar … [who] suggested a solution in that the account opening fee could simply be deducted by Tabarak from the proceeds of the transaction. Mr Al Ali then spoke with Mr Thurner and suggested this to him and Mr Thurner agreed to this so that the transaction could proceed as scheduled.”
69. Notwithstanding that it was only in Al Ali (3) that Mr Al Ali provided evidence of the 29 January Agreement 2020, I have decided to accept what Mr Al Ali says in this witness statement about the 29 January Agreement 2020. I do so in light of the following. On 28 January 2020, Huobi received an email from Mr Thurner stating that Mr Ahmadi was complaining regarding the account [opening] fees.11 Mr Thurner thought that Tabarak was not the partner Huobi was looking for. A transfer would be done as agreed within a testing session and then the Huobi account would be closed under the title “Test failed”. Mr Saxena then phoned Mr Thurner who was in Russia, returning the next day. Mr Thurner said that Mr Ahmadi was unhappy that the fee was still unpaid and was creating a fuss but Mr Thurner thought it should be sorted out and was keen to do business with Huobi (see the WhatsApp message at 6.23 pm on 28 January 2020 [9/239]). Mr Saxena met Mr Thurner the following day and was told that the fee should be paid in full. Mr Saxena agreed that it would be. There is no doubt that either on 28 or 29 January 2020, Tabarak delivered an invoice for the fee to Huobi. On the 29 January 2020, Mr Saxena sent a WhatsApp message at 12:57 in the afternoon to Mr Davar, stating “All sorted with Tabarak. They had an internal issue which has now been sorted – we need to make the payment of $25k to them at the earliest … as agreed we will make the payment tonight.” [9/240]. Later in the afternoon at 1:01 pm, Mr Saxena messaged Mr Davar that, once Mr Al Ali had obtained clarifications from Tabarak, Huobi would execute the payment and at 2.08 pm, Mr Al Ali sent a WhatsApp to the Huobi group stating “I just had a call with Rudolf all clear we can pay now the account opening fees to Tabarak …” [9/240].
70. It is common ground that Huobi did not pay the fee before the planned transaction on 30 January 2020 and I accept Mr Saxena’s evidence that there was not sufficient time to transfer the funds to Tabarak using his company’s Silvergate’s account into Tabarak’s account ahead of the planned Transaction the following day. There being no doubt that Huobi were very keen that that transaction should proceed and were now facing the prospect of being unable to pay the fee in time, notwithstanding the earlier assurances that the fee would indeed be paid, I accept Mr Al Ali’s evidence that he persuaded Mr Thurner over the telephone in the late afternoon to accept that the fee would be paid out of the proceeds of the following day’s transaction.
71. However, although I am satisfied that Mr Thurner had apparent authority12 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, I hold 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. Indeed, Mr Al Ali admitted in cross-examination on behalf of Mr Thurner that it was his understanding that Mr Ahmadi would be the final approval for the AO Fee, see Day 3, 91/3-16.
72. I turn to deal with Huobi’s case in respect of the 3 February 2020 Agreement.
73. In Mr Al Ali (1), Mr Al Ali makes no mention of Mr Ahmadi agreeing on 3 February 2020 that the AO Fee could be paid out of the proceeds of the transaction although he states in para 42 that further negotiations over the AO Fee took place on 3 February 2020 and it was agreed that the fee would be deducted from Huobi’s revenue from the Transaction.
74. In paras 20 and 40 of Al Ali (2) and para 30 of Al Ali (3), Mr Al Ali states:
“In fact, and as I have already partially explained at para. 42 of my First Witness Statement, after I spoke with Mr Ahmadi on the morning of the Transaction on 3 February 2020, Mr Ahmadi agreed that the Account Opening Fee did not have to be paid up front and could be paid at the time the Transaction took place. As a result, Huobi was prepared, ultimately, to transfer the 300 BTC that day. The agreement was that the fee would be taken out of the proceeds due to be transferred from the Buyer in consideration of the 300 BTC” [Emphasis supplied] [para 20]
“I completely disagree with para. 44 of Ahmadi 1. By the morning of 3 February 2021, Mr Ahmadi knew exactly what the Transaction involved because he and I discussed the payment of the Account Opening Fee. Had Mr Ahmadi really “resolved to review and revisit the Transaction or if had had any doubts that Huobi was properly onboarded as a client, he could have mentioned them at that stage. But he did not.” [para 40]
“On the morning of 3 February 2020, before the Transaction took place, Mr Saxena and I spoke to Mr Ahmadi and Mr Thurner. Whilst Mr Ahmadi initially raised a further protest about the fact that the Account Opening Fee had not yet been paid, Mr Saxena explained to him that Mr Thurner had agreed that it could be deducted from the proceeds of the sale. Mr Ahmadi did not say anything about this (and certainly did not object) and left shortly after to allow us to get on with the Transaction. I next saw Mr Ahmadi again when Mr Thurner gave him the Wallet to put in his safe once we had transferred the BTC to the Wallet’’. [para 30]
75. In para 61 of Saxena (1), Mr Saxena states:
“We initially met with Mr Turner and Mr Ahmadi of Tabarak. At the outset of the meeting, Mr Ahmadi stated that Huobi was not yet a client of Tabarak on the basis that the Account Opening Fee of USD 26,250 (i.e. USD 25,000 plus VAT at 5%) had not yet been paid. However, Mr Al Ali replied that the account-opening fee would be simply deducted from the purchase price paid by the Buyer. Nothing further was said by Tabarak in this respect and Mr Ahmadi left the meeting shortly thereafter.”
76. In para 29 of his third witness statement, Mr Saxena essentially repeats the above account and in para 30 he says:
“We presumed that Mr Thurner would have discussed this with Mr Ahmadi. Maybe he didn’t. But if Mr Ahmadi had any objection, he certainly did not say so. Nor did he make any attempt to stop the transaction or tell us to leave. He didn’t say anything more about the account opening fee and was instead talking about how we could work together more …”
77. Mr Ahmadi testified in para 53 of Ahmadi (2) that at no point during the introductory meeting on 3 February 2020 did a conversation take place of the nature described by Mr Saxena in Mr Saxena (2). He said the same in cross-examination when he explained that to have raised Huobi’s failure to pay the AO Fee would have been impolite given that the room was full of people, including Mr Morozov and Mr Socin.
78. Mr Thurner makes no mention in his two witness statements of the alleged conversation between Mr Al Ali and Mr Ahmadi on 3 February 2020 but when cross-examined on behalf of Huobi, he said that although the conversation between Mr Al Ali and Mr Ahmadi was in Arabic, which he did not understand, it was clear from what Mr Saxena was saying that it had been agreed that the account opening fee would be paid out of the proceeds of the transaction [Day 8, 47/18-22 p. 48].
79. It is contended on behalf of Tabarak that the evidence of Mr Al Ali and Mr Saxena on this issue is deliberately untrue. In support of this submission the following points, among others, are advanced.
(i) The alleged conversation/agreement is not pleaded.
(ii) There is no reference to the conversation/agreement in any of the contemporaneous WhatsApp messages exchanged on the day.
(iii) Mr Thurner’s evidence is unreliable – he had made no prior reference to this conversation; he did not understand Arabic; and he had a strong motive to say what he did to avoid the conclusion that he was acting beyond his authority when making the 29 January 2020 agreement.
80. Having regard to: (i) the fact that the conversation on 3 February 2020 is attested to by Mr Saxena (who was undoubtedly at the meeting) in his first witness statement; (ii) it is clear that Mr Ahmadi was extremely exercised over Huobi’s failure to pay the AO Fee (see his email to Mr Thurner of 27 January 2020 to Mr Thurner and Mr Thurner’s WhatsApp message to Tabarak of 28 January 2020); (iii) there is no evidence that Mr Thurner had informed Mr Ahmadi in advance of the meeting that he had agreed that the fee could by paid out of the proceeds of the transaction; and (iv) the weak explanation Mr Ahmadi gave in cross-examination for having failed to bring up the subject of the unpaid fee - weak because it is clear that he was talking to Mr Al Ali in Arabic, a language that Mr Ahmadi would have had good reason to understand that Mr Morozov and Mr Socin could not speak or understand, I find 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.
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.
84. As to the contention that the agreement also never incepted because the stipulated due diligence to be conducted by Tabarak was never completed, I find that Tabarak is estopped from denying that this 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 the trial transactions that took place on 24 December 2019 and 21 and 22 January 2020.
85. Although it is not strictly necessary to do so, I think it appropriate to say that I find that 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. I say this because I accept Mr Saxena’s evidence in paras 32 and 33 of Mr Saxena (3) 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 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%.
What enforceable legal duties did Tabarak owe Huobi in respect of the events occurring during the 3F Meeting?
86. I have already held that Tabarak was not subject to any binding contract by reason of the failure to pay the AO Fee in advance of the Transaction. 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. The Court must therefore consider whether Tabarak and/or Mr Thurner have a non-contractual liability for the loss of the 300 BTC.
87. Tabarak and Mr Thurner submit that there was no enforceable contract between Huobi and Tabarak that was applicable to the 3F Meeting and that neither Tabarak nor Mr Thurner owed a duty of care to Huobi in respect of that meeting, essentially on the ground that Tabarak had merely provided a neutral location for Huobi to sell and Navarcon to purchase 300 BTC. Mr Thurner also denies that he gave the assurances the Claimants assert he gave at the 3F Meeting.
88. Summarising, the Claimants submit that Tabarak and/or Mr Thurner owed Huobi a duty of care in that those Defendants assumed at the 3F Meeting both an advisory role and the responsibility of keeping the BTC safe and that duty was breached by Mr Thurner in: (a) giving the assurances as to the safety of the use of the Trezor Wallet it is alleged he gave; (b) setting up the Wallet and passing it to Mr Morozov and Mr Socin to note the Buyer’s six words of the Mnemonic; and (c) in placing the Wallet in Tabarak’s safe in the mistaken belief that this would ensure the safety of the BTC.
89. The Claimants contend that, during the 3F Meeting, Mr Thurner gave the following assurances:
Assurance (1)
The Buyer said they wished to use one of the apparently brand-new wallets they
had brought to the meeting:
a. Mr Saxena was concerned about this. Mr Saxena asked D2 whether he had any concerns arising from this.
b. D2 (Mr Thurner) assured C1 saying words along the lines that he had no concerns as once the BTC were transferred, the Wallet would be locked in D1’s (Tabarak’s) safe, to which only D1 would have access (together “Assurance 1”).
c. Mr Ali said that the procedure was D1’s concern and C1 would transfer the BTC to whichever wallet D1 told it to.
Assurance (2)
At 12:23, Mr Saxena then emailed D2 providing the bank details for payment to C1.
Mr Saxena and Mr Al Ali objected to transferring the BTC as D1 had not yet received the Buyer’s payment.
However, D2:
a. Assured C1 using words along the lines that the Wallet would be in D1’s custody in its safe, so the BTC would be safe and there was no reason to be concerned (“Assurance 2”); and
b. Advised C1 to make the transfer.
90. In paras 72 and 76 his first witness statement, Mr Al Ali states:
“Mr Thurner asked Huobi whether we were comfortable with using the Buyer’s own wallet. I replied that the custody procedure was Tabarak’s concern and Huobi would transfer the BTC to whichever wallet Tabarak told us to. Mr Saxena also asked Mr Thurner whether he had concerns arising from the use of the wallet for the Transaction. Mr Thurner confirmed he had no concerns about the use of the Wallet as, once the BTC were transferred into the Wallet it would be held in Tabarak’s safe to which only Tabarak had access. The Buyer offered to set the Wallet up himself, at which point Mr Saxena intervened and said that Mr Thurner should do it instead. Mr Thurner went on to say that the Transaction could be effected securely using the Wallet; the risk of the Buyer withdrawing the BTC without paying for them was not increased by the use of the Wallet, and there was no risk that the Buyer would be able to remove the BTC from the Wallet before paying for them.[72]
Mr Thurner also told Mr Saxena and me that it would be safe for Huobi to transfer the BTC into the Wallet before the Buyer made payment. He also reminded us of something he had said previously in the Third Deal Structure email and elsewhere, that Tabarak had checked that the Buyer had sufficient funds in Dubai to complete the Transaction. Mr Thurner assured me that there was no reason to be concerned by the use of the Buyer's Wallet’’.[76]
91. In paras 64 and 65 of Saxena (1), Mr Saxena states as follows:
The Buyer brought two Trezor wallets with him for the purposes of the Transaction. The devices appeared to have only recently been purchased and they were still in their plastic wrapping. The Buyer said that he wanted to set them up, but I objected to that. Mr Thurner asked the Huobi team if we wanted to set up the wallets but we said no, and that it should be Mr Thurner who set the wallet up. The Buyer's associate, Alexi, asked Mr Thurner if there were any CCTV camera in the meeting room, to which Mr Thurner replied that there were not.[64]
I also asked Mr Thurner whether he had any concerns about the Buyer's wallet being used for the Transaction, rather than Tabarak's wallet, as had been previously discussed and agreed. Mr Thurner replied that he did not have any concerns. He reassured me by saying that he would set up the Wallet and that once the Bitcoin was transferred into the Wallet, the Wallet would be placed in Tabarak's safe, which only Mr Thurner and Tabarak's CEO, Mr Ahmadi, had access to. I relied on Mr Thurner's assurances in this regard and believed him since he had taken control of the Wallet. I also knew that we were dealing with a properly licensed and regulated company so I trusted that they would have the requisite knowledge and competencies to execute the Transaction . Mr Thurner then proceeded to set up one of the wallets (the ‘‘Wallet"). The other device was left sealed and was not used. I did not handle the Wallet at any time either before, during, or after the Wallet was being set up, and to the best of my knowledge neither did Mr Al Ali or Mr Nahak.[65]
92. In para 36 of his second witness statement, Mr Saxena states:
“To the best of my memory Mr Thurner said that we should not worry about the BTCs in the wallet. He said that the wallet will be in their safe and that no one has access to the safe other than him and Dr Ahmadi. We thus understood that the Buyer would not have access to the wallet in any way and that our BTCs would be safe with Tabarak. I would also add that, at that point, Mr Thurner was being quite forceful and was pushing us to make the transfer of the BTC: told us that we should allow the process to go on and that it was “safe”.
93. In his second witness statement, Mr Thurner denies that he gave the assurances Mr Al Ali and Mr Saxena allege he gave at the 3F Meeting. Ms Zavyalova states in her witness statement that neither she nor Mr Thurner advised Huobi in any manner.
94. The following is the full extent of the cross-examination of Mr Thurner on behalf of Huobi as to the statements he made at the 3F Meeting when asked if had any concerns about the use of the Buyer’s Trezor Wallet before the Mnemonic was split and in respect of the transfer of the BTC to the wallet at a time when the purchase price had not been received. 13
Qu: And you asked Huobi if they were comfortable using the buyer’s own wallet because the buyer had said that he wanted to use those new wallets, all those wallets, yes?
Ans: May I give you a few more words? I had our Trezor device with me and this was agreed to be used and I said it was surprisingly that the buyer brought and they asked Huobi if they really want to do the deal with the devices of the buyer and they accepted and said, “Yes, let’s go ahead“. Only Mr Saxena, he was the only one who said, “Stop, I really have a problem, I think this is not good“.
Qu: But you replied, when he actually asked you, in fact, he said -- he asked you whether you had any concerns arising out of using the wallets that the buyer had brought, and you replied you didn’t have any concerns because once the bitcoin were transferred, they would be in the -- transferred into the wallet, they would be held in -- the wallet would be held in your safe to which only Tabarak had access, and, by, “You’re safe“, I mean Tabarak’s safe.
Ans: So it is a very long sentence that you made.
Qu: “Basically you assured Mr Saxena that you didn’t have any concerns about using the wallet the Buyer has brought because once the bitcoins have been transferred to the address associated with the Wallet, they would be safe?”
Ans: “It is not correct. The correct answer, all the correct thing is that I told them when we have the deal and when we have them, because they ask me, the bitcoin is on the Trezor Wallet, my understanding is when we took it and have it for this two or three hours what they were asking for, with us nobody can touch it and nobody can do anything that something is not to be used from this device”.
Qu: “Yes so you were assuring Mr Saxena that any bitcoin that were transferred to the address would be safe”?
Ans: “It was not an assuring it was a discussion which they had, because as I said, Mr Saxena was the only one who was nearly to decline the deal, but finally he was overruled by Mr Sultan Al Ali because they were, as I said, desperate to do the deal. It was not an assurance”.
95. I decline to accept what is said in the italicised parts of paras 72 and 76 of Al Ali (1) and para 36 of Al Ali (2) because: (a) this evidence is not corroborated, in the case of paras 72 and 76, by Mr Saxena, and in the case of para 36, by Mr Al Ali; (b) the contents of these parts of the evidence were not put to Mr Thurner when he was cross-examined on behalf of the Claimants; and (c) they are not relied on in the Claimants’ closing submissions. As to the italicised passage in para 65 of Saxena (1), I regard this as blatant overegging. Tabarak, acting by Mr Thurner, was not engaged to advise Huobi on the safety of the modalities to be adopted for the Transaction planned for 3 February 2020 or for any other modalities that might pop up.
96. On the basis of the evidence that I have said I accept14 , I propose to set out the statements I find Tabarak made at the 3F Meeting by amending the Claimants’ alleged “assurances” as follow:
Statement (1)
The Buyer said they wished to use one of the apparently brand new wallets they had brought to the meeting
a. Mr Saxena was concerned about this. Mr Saxena asked Mr Thurner whether he had any concerns arising from this.
b. 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 had access.
Statement (2)
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 concerned.
97. 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 in AA 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). That said, I think on the facts as I have found them to be, the authorities canvassed by Fraser J in Multiplex are of some pertinence. I also observe that given the Claimants’ case based on Huobi’s alleged reliance on the “assurances” given by Mr Thurner, which they say caused Huobi to accept the proposal that the Buyer’s Wallet be used with the Mnemonic being split in half and later caused Huobi to transfer the BTC to the Trezor Wallet before the purchase money had been received, it seems to me that the Claimants’ claim over all depends on them succeeding on their claim based on the “assurances."
98. Articles 17, 18 and 21 of the Obligations Law provide:
CHAPTER 2: NEGLIGENCE
17. Liability
(1) A defendant is liable in negligence to a claimant if and to the extent:
(a) the defendant owes a duty of care to the claimant;
(b) the defendant breaches his duty of care to the claimant; and
(c) the defendant’s acts or omissions in breach of his duty of care to the claimant cause loss to the claimant.
(2) The defendant’s liability provided in Article 17(1) shall be reduced by the extent to which the claimant’s negligent acts or omissions contributed to his loss.
18. Duty of care
(1) Subject to Articles 18 (2) and (3), a defendant owes a duty of care to a claimant where:
(a) it is reasonably foreseeable that the defendant’s acts or omissions could cause loss to the claimant;
(b) the relationship between the defendant and the claimant is sufficiently proximate for a duty of care to exist; and
(c) it is fair, just and reasonable in the circumstances that the defendant should owe the claimant a duty of care.
(3) A person only owes a duty positively to act where he has assumed responsibility for the claimant, for certain property, or for a third-party causing loss to the claimant.
21.Standard of care
(1) In order to establish a breach of a duty of care a claimant must show the defendant failed to exercise reasonable care to avoid causing loss to the claimant, having regard to the probability, and the likely seriousness, of the loss.
(2) Reasonable care means the care which a person of ordinary care and skill, engaged in the type of activity in which the defendant was engaged, would have exercised.
(4) A professional person exercises reasonable care if he shows the standard of care of an ordinary skilled person exercising and professing to have the special skill in question.
(5) Where there are different views within the profession about what constitutes reasonable care, a professional shows reasonable care when he takes an approach endorsed or followed by a responsible body or professional opinion.
99. The Claimants also submit that the following matters in general support the duty of care they contend for: (a) Tabarak held out that Navarcon/Mr Morozov was a client; (b) Mr Thurner provided advice on the “process”; (c) Tabarak assume the role of custodian/escrow agent; and (d) Tabarak held it itself out as providing and having experience in crypto-related services including custody and escrow services.
100. In paragraph 213 of their Closing Submissions, the Claimants submit as follows that the three-fold test results in an imposition of a duty of care.
a. Proximity:
i. The only purpose of Ds’ involvement vis à vis C1 [Huobi] in the Transaction was to provide escrow/custody services in order to satisfy the Purpose [how Tabarak could assist, in the role of a trusted third party, by designing and implementing a process so as to ensure that C1’s and the Buyer’s objectives were satisfied] namely that the BTC was not transferred to the Buyer until payment was received and the Buyer did not pay for the BTC until they had been transferred]of which Ds were aware.
ii. Proximity was established over the series of meetings, emails and WhatsApp exchanges in relation to the Transaction culminating in the execution of the Transaction at D1’s offices on 3.2.20.
iii. As covered extensively above, Ds led C1 to understand that they were providing escrow/custody services and that they had expertise in providing the same (including in the use of cold wallets). Moreover, they did provide those services. Indeed, they took a central role in the Transaction and the provision of those services (including assuming sole responsibility for controlling the BTC pending payment and giving the Assurance to C1 regarding safety).
iv. Proximity was also established due to the causal relationship between Ds’ actions and the Assurance (upon which C1 relied) and the loss sustained by C1.
v. Ds did not need to become involved in this way – but they positively elected to, having agreed that they would earn money from the Transaction proceeds.
vi. Their positive involvement and positive acts of carelessness – not least handing over the Wallet to the Buyer during the Mnemonic phrase, so enabling the Buyer to access the entire Mnemonic and therefore the BTC in the BTC address caused damage to C1’s property (BTC constituting property, as to which see paragrah 97 above). This alone merits the imposition of a duty of care upon Ds.
b. It was reasonably foreseeable that if Ds failed to prevent the Buyer being able to access the BTC before payment that C1 could suffer considerable loss.
c. In all the circumstances, it is just and fair as between the parties to impose the duty of care on Ds. There are no legal, social or public policy implications to the contrary.
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 the Supreme 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.
Decision on the claim in tort
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.)15 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. Further, whilst Mr Thurner might have said something to Huobi to the effect that Tabarak was involved in advising on and/or arranging custodial services in respect of crypto assets, I am quite sure that Huobi did not set much store by this bit of puffing. What Huobi was primarily interested in was whether Tabarak, a DIFC company and small merchant bank, 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. It is to be noted that Mr Thurner was never asked by Huobi to provide any particulars, let alone detailed particulars, as to his experience in conducting BTC transactions. It was enough for Huobi that Tabarak had a BTC wallet that had been used in the trial transaction conducted on 22 January 2020.
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”. It put Huobi, and in particular, Mr Al Ali, in a very tight spot. Huobi was under strong pressure from Huobi Global to start achieving large OTC sales of Bitcoin16 and in addition Huobi was extremely keen on developing a relationship with Mr Morozov in the hope that it would lead to numerous profitable sales of BTC. Tabarak and Mr Thurner also had a stake in the sale of the BTC to Navarcon: they were keen to earn the commission and fees that had been agreed earlier during the meeting and they also looked forward to being involved as a middle man in future BTC sales by Huobi to Mr Morozov. This said, at the 3F Meeting Tabarak/Mr Thurner were at all times subject to the direction of Huobi, whose transaction it was that was being undertaken.
108. 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.
109. In my view, the Claimants’ reliance on the Manchester Building Society decision to reinforce their frequent refrain that the purpose of Tabarak’s involvement vis-à-vis Huobi, is misplaced. That was a case that involved a professional adviser who had given negligent advice that the Claimant could apply an accountancy treatment known as “hedge accounting” that would reduce the effect in its accounts of the volatility of the mark-to-market ("MTM") value of interest rate swaps. Relying on this advice, the Claimant entered into a programme of fixed interest lifetime mortgages that were funded through variable rate borrowing with the protection of interest rate swaps. Following the admission by the defendant firm of accountants that the advice had been negligently given, the Claimant closed out the swaps that were out of the money due to the effect of the financial crisis on interest rates. The question was whether the duty of care owed by the defendant accountants was in respect of the whole of the loss that had been suffered as a result of the Claimant’s reliance on the advice, including the losses due to the fall of interest rates, or just to the transaction costs incurred in the closing-out programme. In the instant case, Tabarak was not and is not a professional adviser on the modalities that can be used in BTC transactions and Tabarak has not admitted negligence, so that the question is whether Tabarak owed a duty of care, not whether an admitted duty of care was owed in respect of an additional loss that resulted from a concurrent cause.
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 responsibility quoad Huobi 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.17 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. Mr Al Ali feared that the use of the Buyer’s Wallet, with it being passed to Mr Morozov to note the remaining 6 words of the Mnemonic, posed a risk, but he unwisely chose to agree to the proposed use of the Wallet and to agree that the 300 BTC be transferred to the Wallet even though the purchase price had not been received from Navarcon. During the WhatsApp messages exchanged between Mr Saxena and Mr Davar on 23 January 2020,18 Mr Saxena’s statement “we are trying to close deals,” elicited this instruction from Mr Davar:
“It’s OK keep pushing … Just don’t take any unnecessary risks.”
If Mr Al Ali had heeded that instruction and refused to agree to the use of Mr Morozov’s wallet, the 300 Bitcoin would not have been lost.
Tabarak is not liable in damages under the other heads of claim pleaded in the RRAPOC for the following reasons:
Breach of Confidence under Article 37 of the Law of Obligations
112. 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.
Breach under Article 71 of the Law of Obligations (“a bailee must take such care of the property bailed as is reasonable”)
113. 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’s care of the BTC was “reasonable”.
Breach of Fiduciary Duty under Article 158 (1) of the Law of Obligations
114. 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 (“a fiduciary owes the principal a duty to exercise care, skill, and diligence, in the same circumstance by a “reasonable person.”
Claim for damages for breach of Regulatory Obligations
115. Under Article 194 of the Regulatory Law, damages for breaches of such obligations may only be awarded where a person intentionally, recklessly or negligently commits a breach of duty, requirement, prohibition, obligation, or responsibility imposed under the Law or rules other legislation administered by the DFSA.
116. The Claimants submit that Tabarak was in negligent breach of GEN 4.2.2, GEN 4.2.3; and GEN 4.2.6.
117. For the reasons given above for the finding that Tabarak was not liable in negligence for the loss of the 300 BTC, I find that 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.
CONCLUSION
For the reasons given above, the Claimants’ claims against each of the Defendants are dismissed.
Issued by:
Ayesha Bin Kalban
Acting Registrar
Date of issue: 26 October 2022
At: 11am