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Claim No. TCD 001/2020

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BETWEEN

HUOBI OTC DMCC

Claimant

and

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

Defendants

ORDER WITH REASONS OF JUSTICE SIR RICHARD FIELD

UPON considering the Second Defendant’s application dated 24 March 2021 for, inter alia, permission under RDC Part 20 to join Evgeniy Morozov (“Mr Morozov”) and Navarcon s.r.o. (“Navarcon”) as, respectively, the Third and Fourth Defendants in these proceedings (the “Permission Application”)

AND UPON considering the pleadings herein

AND UPON considering that part of the Consent Order dated 9 May 2021 directing that the costs of the Second Defendant’s application for an extension of time (the “EOT Application”) shall be determined concurrently with the Permission Application

AND UPON reviewing the first and second witness statements of the Second Defendant dated respectively 23 March 2021 and 6 May 2021

AND UPON considering the written submissions addressing the Permission Application (including costs) and the costs of the EOT Application

IT IS HEREBY ORDERED THAT:

1. The Permission Application is dismissed.

2. The Second Defendant will pay the Claimant’s costs of the Permission Application to be assessed, if not agreed, by the Registrar on the standard basis, after the conclusion of the Claimant’s Claim in these proceedings (Claim No: TCD-001-2020).

3. As between D1 and D2, there shall be no order as to costs in respect of the Permission Application.

4. There shall be no order as to costs in respect of the EOT Application.

5. The costs thrown away in respect of the CMC by reason of the EOT Application and/or the Permission Application are reserved.

6. Any late filing fees otherwise due pursuant to Article III (A) (1) of DIFC Courts’ Practice Direction No. 3 of 2017 in respect of the late filing of the Second Defendant’s Defence are hereby waived.

Issued by:
Nour Hineidi
Registrar
Date of Issue: 3 June 2021
Time: 3:45pm

SCHEDULE OF REASONS

A. The Permission Application

The parties’ claims and defences

1. First it is necessary to state briefly the claims made by the Claimant against the First Defendant and Second Defendant, respectively (“D1”) and (“D2”) and their defences to those claims.

2. As against D1, the Claimant alleges that D1 acted in breach of an agreement to devise a mechanism for the sale by the Claimant of 300 Bitcoin (“BTC”) to Mr Morozov (the “Buyer”) at a price to be fixed by reference to XE currency exchange under which the transaction would proceed in such a way that the Buyer could not retrieve the BTC without first paying for them. The mechanism adopted was devised by Mr Christian Thurner, D1’s Investment Manager. The Claimant alleges that instead of ensuring the price had been paid before transferring the BTC, the mechanism adopted for the BTC transaction resulted in the BTC being transferred to the Buyer without the price being paid following which the buyer failed to pay the price, leaving the Claimant with a loss of USD 2,865,873.57, alternatively USD 2,899,372.00. The Claimant’s claim against D1 is brought in both contract and for breach of a duty of care in tort.

3. D1’s primary defence is that the Claimant itself on its own behalf undertook any and all negotiations concerning the terms and conditions of the BTC Transaction. D1 also pleads that, apart from setting up a meeting at D1’s offices between the Claimant and the Buyer, Mr Thurler, in devising the mechanism for the BTC transaction, did not act in the course of his employment by D1. Still further, D1 contends that there is no causal link between any of the acts and omissions alleged against it by the Claimant and the transfer of the BTC under the transaction.

4. In light of D1’s averment that Mr Thurner did not act in the course of his employment in devising the mechanism for the BTC transfer, the Claimant amended its Particulars of Claim to advance a case against Mr Thurner (“D2”) in the alternative to its case against D1, contending that D2 was in breach of fiduciary duty and of a duty of care in tort.

5. In his Defence, D2 denies that he either advised or assisted any of the parties on his own behalf in respect of the DTC transaction and he denies that he owed the Claimant the alleged duty of care.

RDC Part 20 and CPR 19.2

6. The Permission Application is made under RDC Part 20, the relevant provisions of which are as follows:

7. RDC r.20.7 reproduces CPR 19.2 which provides:

8. The CFI in Grand Valley General Trading LLC v GGICO Sunteck Limited [2018] DIFC CFI-044 (19 March 2019)¹ held that, when considering a joinder application under RDC 20.7, the “two lodestars” are the policy objective of enabling parties to be heard if their rights might be affected by the Court’s decision in the proceedings as presently constituted and the overriding objective. In so holding the CFI was adopting the approach articulated by Sir Terence Etherton MR in The Welsh Ministers v Price & Another [2017] EWCA Civ 1768 at [60]. Earlier in his judgment at [51], Sir Terence Etherton observed that the provisions of CPR r.19.2(2) ought to be given a wide interpretation and the words "in dispute" ought to be read as "in issue". The EWCA in this case (which is also known as Re Pablo Star) held that the Welsh Ministers’ application to be added as parties to an application to restore a company to the register should be dismissed in the exercise of the Court’s discretion.

9. In PDVSA Services SA v Clyde & Co [2020] EWHC 2322 an arbitration award creditor (POS) sought the joinder of the National Crime Agency (NCA) into injunction proceedings in which the award debtor, PDVSA Services SA (“PDVSA”) had obtained an injunction restraining Clyde & Co from paying out from an escrow account the sums that had been awarded to POS. The escrow account had been set up to receive the proceeds of demands by POS under a standby letter of credit issued by a third-party bank in favour of POS. The escrow account was operated by Clyde & Co and, under the escrow agreement between the parties, Clyde & Co agreed to instruct the bank at which the account was held to pay the sums into the account at the direction of the arbitral tribunal. Shortly after the issuance of the arbitral award, PDVASA started proceedings in Paris (the seat of the arbitration) to have the award set aside on the basis that the underlying contracts and performance giving rise to the payments to POS involved money-laundering, bribery and corruption connected to an alleged fraud in Malaysia. Thereafter, PDVSA began the injunction proceedings into which POS sought to join the NCA. The basis of POS’s joinder application was that Clyde & Co had been told by the NCA that it would not consent to it paying out the proceeds in the escrow account to POS and that therefore Clyde & Co were at risk of committing a criminal offence if they paid the proceeds to POS. POS submitted that the NCA should be made a party so that the Court could consider the lawfulness of NCA’s stance. The NCA, represented by Mr Evans QC, resisted the joinder application.

10. In the course of his judgment, Snowden J said in [33] and [34]:

11. Snowden J then went on to observe that in the same way as the NCA has a sufficient interest and role in the operation of Proceeds of Crime Act to justify it asking to be heard on an application between private parties for a mandatory payment order, the same interest could conceptually justify the NCA being joined to such proceedings at the instigation of one of the parties so as to assist the court in understanding the ramifications of the order that it was being asked to make² . He accepted, however, the court should be very wary of seeking to involve the NCA against its will in commercial litigation between private parties. Ordinarily, the NCA should be able to decide for itself whether to apply to be heard if it considers that a court decision might have an impact upon the operation of the statutory regime under POCA³ . He very much doubted that it is generally open to a party to litigation simply to demand that the NCA should "explain itself" to the court or the parties⁴ .

12. In the event, Snowden J decided that it was unnecessary to reach a final view on POS’s joinder application because the NCA had written to him in the course of the hearing stating that it no longer refused to consent to Clyde & Co paying out the proceeds of the escrow account to POS in accordance the award of the arbitral tribunal.

The case for joinder advanced by D2

Joinder will assist the Court to resolve the matters in dispute.

13. D2 cites [34] of the judgment in the PDVSA case and submits that the joinder of Mr Morozov and Navarcon (referred to by D2 as “the Buyers” by D2) can assist the Court to resolve all the factual issues in dispute between the current parties to the proceedings. The Buyers’ participation, argues D2, will assist the Court to understand the role of each of the Defendants in the transaction; explain the nature and purpose of the transaction’s deal structure and provide their submission on the alleged loss and damage the Claimant has alleged against the Defendants and the Buyer. In this connection, D2 says it is pertinent to note that the Claimant has mentioned facts concerning the Buyer over 35 times in its Amended Particulars of Claim and made assertions in regard to the Buyer’s involvement in the transaction.

14. D2 also contends that Mr Morozov can assist the Court in understanding and providing his (Mr Morozov’s) submission on the pending criminal complaint case lodged against him by the Claimant and its connection with the present proceedings. In addition, given that Mr Morozov’s pending criminal complaint is dependent on the outcome of these proceedings, it would assist the Court to understand the position of the Buyers in respect of the alleged loss and damage.

It is desirable to add the Buyers to the proceedings.

15. D2 argues that it is desirable to add the Buyers as new parties because this would mean that the Court would have the benefit of hearing the facts and evidence from the Buyers directly as opposed to relying on the Claimants version of facts and evidence. Also, since the Defendants’ and Buyers’ rights will be directly affected by the decision in this case, it would be fair, reasonable and just for the Court to add the Buyers as additional defendants. Determining all the issues in dispute without the participation of the Buyers will cause irreparable prejudice to the Defendants and prevent the Court from having the benefit of “holistic understanding” of the facts surrounding the transaction and the alleged loss and damage suffered by the Claimant.

D1’s case in support of D2’s joinder application

16. D1 submits that, given the issues raised on the pleadings against D1 and D2 and D1’s submission that, if the Claimant has indeed suffered the loss it alleges, then one or both of Mr Morozov and Navarcon (“the Additional Defendants”) is responsible, it is desirable to join in the Additional Defendants so that the Court can resolve the matters in dispute in the proceedings. Further, D1 contends that, in light of the criminal complaint filed by the Claimant against Mr Morozov which suggests that the Claimant considers the primary defendant is Mr Morozov, there is an issue involving Mr Morozov which is connected to the matters in dispute and accordingly it is desirable for this reason to add Mr Morozov as a defendant.

17. D1 additionally submits that it would be desirable to add the Additional Defendants because to do so would be in the interest of the Claimant given that there is a direct causal link between one or both of the Additional Defendants’ actions and the loss allegedly suffered by the Claimant.

The Claimant’s case against D2’s joinder application

18. The claimant submits that the permission application should be refused on the basis that it:

Discussion and decision

19. I consider first whether the conditions of RDC 20.7(2) are satisfied. In my judgment, on the pleadings and the parties’ lists of issues, there is no issue involving Mr Morozov or Navarcon and an existing party which is connected to the matters in dispute in the proceedings. The Claimant has chosen to sue only D1 and D2. It makes no claim against Mr Morozov or Navarcon. That is the Claimant’s prerogative. Nor do D1 or D2 make any claim against these candidates for joinder. Each of D1 and D2 could have joined in both Mr Morozov and Navarcon under RDC Part 21 seeking a contribution to such compensation that either might be ordered to pay the Claimant but neither has chosen to do so. In my judgment, it follows that the Permission Application cannot succeed under RDC 20.7(2).

20. I turn then to RDC 20.7 (1). Neither Mr Morozov nor Navarcon has consented or otherwise agreed to participate in the proceedings. If they were made defendants, since they would face no claim, each would be entitled to limit any pleading to a statement that no claims are made against them and on that basis they deny any liability to any of the other parties.

21. Accepting for the moment Snowden J’s observation in the PDVSA case that the broad terms of CPR 19.2(2) are wide enough to cover a situation in which a non-party is sought to be joined which does not have rights which might be affected as such, the question is whether it would be desirable to join in Mr Morozov and Navarcon in the broader interests of justice and the overriding objective so that the court could resolve all the matters in dispute in the proceedings. In my opinion, it would most certainly not be so desirable in the instant case because the Court could not lawfully exercise its power to compel either of the Additional Defendants to testify as parties to the proceedings to the events alleged by the Claimant and D1 and D2 regarding the BTC transaction. A fortiori, the Court could not compel Mr Morozov to give such evidence if he relied on the privilege against self-incrimination, which he might well do.

22. The case may be quite different where a public body of the nature of the NCA is concerned which may be compellable on public law grounds to justify an action it had taken even though it is not a party to the proceedings in question. Here, however, we are concerned with a private individual and a private company and the relevant proceedings involve private law rights and remedies.

23. There is also a further consideration that compels the conclusion that it is not desirable to join in Mr Morozov and Navarcon as parties. It is this. D1 and D2 do not need to join in Mr Morozov and Navarcon in order to have the former and a duly authorised officer of the latter to testify as witnesses as to the BTC transaction. All these defendants have to do is obtain the consent of these potential witnesses to testify and if they refuse to do so, it would be open to D1 and D2 to explore the possibility of compelling them to testify or produce documents by serving respectively a subpoena ad testificandum and/or a subpoena duces tecum.

24. It follows that, for the reasons I have given in paragraphs 19 – 22 above, the Permission Application must be and is dismissed.

B. Costs

The costs of the Permission Application

25. D2, having failed to succeed on the Permission Application, must pay the Claimant’s costs in resisting its application. I reject the Claimant’s request for an order under RDC 38.28 that its costs should be immediately assessed. The Permission Application having been dismissed, in my view it is more likely than not that the trial of the Claimant’s claim will be able to begin on the date currently set for the trial - 4 October 2021, which is four months hence. In these circumstances, and given that D2 is an individual defendant facing the heavy and stressful task of preparing for the trial of a very substantial claim in damages, it would, in my opinion, not be fair or appropriate to order immediate assessment.

26. I also reject the Claimant’s contention made in paragraphs 24.2 – 25 that the costs should be assessed on the indemnity basis. I do not consider that D2’s conduct related in paragraphs 8 and 9 of the Claimant’s submissions constituted an attempt to mislead. Nor do I think that the Permission Application so totally lacked merit that it was “outside the norm” given Snowden J’s observations in his judgment at [34] in the PDVSA case that were cited by D2.

27. As to the Claimant’s application for the costs thrown away in respect of the CMC, I reserve those costs until after the trial when it will be much easier to determine what the impact of the two applications made by D2 has been on the CMC.

28. Accordingly, the order I make in respect of the Claimant’s costs of the Permission Application is that D2 must pay these costs which will be assessed by the Registrar on the standard basis, if not agreed.

29. Since D1 supported D2’s Permission Application, which has been dismissed, there is no question of D2 having to pay D1’s costs of the application. Instead, as between D1 and D2, there shall be no order as to costs in respect of the Permission Application.

The costs of the EOT Application

30. Having missed the deadlines set by the Rules for acknowledging service and serving a Defence, D2 was obliged to apply for an extension of time and I reject D2’s application that his costs of the EOT Application should be paid by the Claimant, the application being totally devoid of any merit.

31. In light of the fact that the EOT Application was in the end consented to, I make no order as to costs in respect of this application. I am also of the view that any late filing fees otherwise due pursuant to Article III (a) (1) of DIFC Courts’ Practice Direction No. 3 of 2017 in respect of the late filing of D2’s Defence 7 days late, should be waived.