Dubai Court Rejects Bitcoin Claims Lacking Evidence of Crypto Wallet Ownership (and Solutions for Digital Asset Disputes in the UAE)

Dubai Court Rejects Bitcoin Claims Lacking Evidence of Crypto Wallet Ownership (and Solutions for Digital Asset Disputes in the UAE)
Dubai Court Rejects Bitcoin Claims Lacking Evidence of Crypto Wallet Ownership (and Solutions for Digital Asset Disputes in the UAE)

Dubai Court rejects claim for loss of 608 Bitcoins due to lack of proof of ownership of crypto wallet.

Dubai Primary Court rules:

“…the plaintiff had transferred the encrypted currency “Bitcoin” to the defendant … did not indicate how to prove the ownership of the account to the defendant, noting that by referring to the page shown in the advisory report taken from the website “blockchain ” , it became clear to the court that they are symbols…”

In short, the court found that cryptocurrency claims require a plaintiff to prove ownership of the crypto wallet of the alleged debtor.

Background

The plaintiff met with the defendant in Dubai, and agreed to make an investment in Bitcoin in return for “fantastic financial returns”.

In January 2019, the plaintiff transferred 608 Bitcoins to the defendant.

The bitcoins were transferred to the crypto wallet of an investment company in accordance with the terms of the agreement between the plaintiff and the defendant.

It was also agreed that after February 15, 2019, even if for some reason the project is not completed, the defendant and the company that owns the crypto wallet must return the Bitcoins to the plaintiff.

On March 15, 2019, the plaintiff demanded from the defendant and the investment company the return of the Bitcoins delivered to them.

The demand to return the Bitcoins was rejected by the defendant, and the defendant “disappeared”.

Claims and decision

The plaintiff sued the defendant before the Dubai Primary Court demanding the return of 608 Bitcoins or its equivalent market value.

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The plaintiff submitted an expert report proving the validity of the transfer by referencing a public ledger website showing that the Bitcoins were held by a specific crypto wallet.

The court commented that the expert report did not prove that the crypto wallet belonged to the defendant or the investment company, as the only identification of the wallet’s ownership was “tokens”.

By “tokens” the right refers to the identification number of the crypto-wallet.

Essentially, the Dubai Court set a threshold for proof of token possession by a criminal.

Proof of identity for crypto wallets is an ongoing issue in digital asset disputes.

But solutions and remedies are available to claimants.

Solutions for digital asset disputes

Disputes over digital assets – particularly those involving misappropriation of tokens – have resulted in innovative solutions in various jurisdictions using common law injunctive processes.

Mareva injunction

A Mareva injunction is a worldwide asset freezing and disclosure order.

It extends to all of a defendant’s assets worldwide, and restricts the defendant from using those assets except for regulatory purposes (ie to pay labor wages) unless consent is given by the plaintiff.

And requires defendants to disclose their worldwide assets above a certain threshold value (ie above USD 10,000 or USD 50,000).

The Hong Kong High Court recently granted such a remedy over bitcoins that were misused in the Nico Constantijn Antonius Samara vs Stive Jean Paul Danfreezing up to US$2.6 million of the defendant’s assets (including any digital assets).

Norwich book

Norwich orders – or Norwich Pharmacal orders – are orders against an innocent third party to identify a criminal or details relating to a potential criminal.

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A Norwich Order compels an innocent third party (such as a cryptocurrency exchange) to disclose relevant information to a claimant/applicant.

In digital asset disputes, these orders have been used to force exchanges to disclose details related to crypto wallets and digital assets.

The English High Court recently issued a Norwich Order in Mr Dollar Bill Limited v Persons Unknown and Others – In particular, the Norwich order was issued against cryptocurrency exchanges outside of England forcing them to help identify what had happened to the tokens in question.

Anton Piller orders

A growing trend is the reliance on Anton Piller orders to access the digital assets of a defendant and examine records that could prove the transfer of tokens.

Anton Piller warrants are a common legal remedy that compels a defendant to allow a plaintiff to enter their property to search and seize evidence and records, including electronic data and equipment.

An Anton Piller order in a cryptocurrency dispute was recently issued by the Ontario Superior Court of Justice in Cicada 137 LLC v. Medjedovic in relation to an alleged theft of CAD 15 million in digital assets from the plaintiff’s crypto wallet.

Solutions in the UAE

The United Arab Emirates has two common court systems: the Abu Dhabi Global Market Courts (ADGM) and the Dubai International Financial Center Courts (DIFC).

Both the ADGM and the DIFC have the authority to grant Mareva injunctions, and the DIFC has historically granted several Mareva injunctions against parties in the UAE and elsewhere.

The ADGM and DIFC can also consider applications for Norwich orders to compel third parties to produce evidence in support of a dispute.

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Anton Piller orders for the ADGM and DIFC courts are possible, but there is no record of execution of such orders to date.

Disputes over digital assets in the UAE

According to ‘The 2021 Geography of Cryptocurrency Report’ by Chainalysis, the UAE hosted USD 25.5 billion of cryptocurrency transactions between July 2020 and June 2021.

With a significant value of cryptocurrency transactions taking place in the UAE, litigants must carefully strategize any dispute process and utilize all domestic and cross-border remedies.

Relying on archaic methods to pursue requirements in an industry that is incrementally complex may not be fruitful – and instead, innovative tactics and strategies must be put in place.

The UAE has six legal systems – each with its own merits – and the UAE has agreements and treaties with various international dispute resolution forums and courts that claimants must consider when pursuing digital asset claims.

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