Dubai Court rejects Bitcoin claim lacking proof of crypto-wallet ownership (and solutions for digital asset disputes in the UAE)

Dubai court dismisses claim of loss of 608 Bitcoins due to lack of proof of ownership of crypto-wallet.

Dubai Magistrates Court Rules:

“…the plaintiff had transferred the cryptocurrency “Bitcoin” to the defendant…did not indicate how to prove ownership of the account to the defendant, noting that by referring to the page indicated in the advisory report taken from the site “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 by the alleged debtor.

Background

The plaintiff met 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 the project is not completed for some reason, the defendant and the company that owns the crypto wallet must return the Bitcoins to the plaintiff.

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

The request for the return of the Bitcoins was denied by the defendant, and the defendant “disappeared”.

Complaint and decision

The plaintiff sued the defendant in the Dubai Magistrate’s Court to seek restitution of the 608 Bitcoins or their equivalent market value.

The plaintiff filed an expert report which proved the validity of the transfer by referring to a website of blockchain (public ledger) records showing that the Bitcoins were held by a particular crypto wallet.

The Court noted that the expert report did not prove that the crypto wallet belonged to the defendant or the investment company, as the only identifiers of ownership of the wallet were “symbols”.

By “symbols”, the Court refers to the identification number of the crypto wallet.

Essentially, the Dubai court set a threshold for proof of token possession by a wrongdoer.

Proof of identity for crypto wallets is a recurring issue in digital asset litigation.

But solutions and remedies are available to claimants.

Solutions for Disputes Related to Digital Assets

Disputes relating to digital assets – particularly involving the misappropriation of tokens – have given rise to innovative solutions in different jurisdictions using common law injunctive procedures.

Mareva injunctions

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

It extends to all of a defendant’s assets worldwide, limiting the defendant’s use of those assets except for regulatory purposes (i.e. payment of employee salaries) to unless consent is given by the applicant.

And requires the defendant to disclose their worldwide assets above a certain threshold (i.e. above $10,000 or $50,000).

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

Norwich Commands

Norwich Orders – or Norwich Pharmacal Orders – are restraining orders obtained against an innocent third party to identify a wrongdoer or details relating to a potential wrongdoer.

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

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

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

Orders from Anton Piller

A growing trend is the use of Anton Piller orders to access a defendant’s digital assets and investigate documents that could prove the transfer of the tokens.

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

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

Solutions in UAE

The UAE has two common law 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 may also consider requests for orders from Norwich to compel third parties to provide evidence in support of a dispute.

Anton Piller orders in the courts of the ADGM and the DIFC are possible, but there is to date no record of the enforcement of these orders.

Disputes relating to digital assets in the UAE

According to “The 2021 Geography of Cryptocurrency Report” by Chainalysis, the United Arab Emirates hosted $25.5 billion worth of cryptocurrency transactions between July 2020 and June 2021.

With a significant value of cryptocurrency transactions taking place in the UAE, plaintiffs should carefully strategize for any litigation process and utilize all domestic and cross-border remedies.

Relying on archaic means to assert rights in an increasingly complex industry may not be successful – and instead, innovative tactics and strategies must be put in place.

The UAE has six court systems – each with their own utility – and the UAE has entered into agreements and treaties with various international dispute resolution forums and tribunals, which claimants should consider when pursuing claims. digital asset claims.

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