HUOBI OTC DMCC v TABARAK INVESTMENT CAPITAL [2021] DIFC TCD 001 — The limits of joinder in complex cryptocurrency litigation (03 June 2021)

This order addresses the procedural boundaries of joining non-parties to litigation involving high-value cryptocurrency transactions, clarifying the DIFC Court’s stance on the necessity of joinder versus the use of subpoenas for witness testimony.

What were the specific factual allegations and the monetary value at stake in the dispute between Huobi OTC DMCC and Tabarak Investment Capital?

The litigation arises from a failed Bitcoin (BTC) transaction involving 300 BTC, which the Claimant, Huobi OTC DMCC, alleges was mishandled due to a flawed mechanism devised by the First Defendant, Tabarak Investment Capital Limited, and its Investment Manager, the Second Defendant, Mr. Christian Thurner. The Claimant asserts that the transaction was intended to ensure the Buyer, Mr. Evgeniy Morozov, could not retrieve the BTC without first paying the purchase price. However, the mechanism failed, resulting in the transfer of the assets without payment.

The financial stakes are significant, reflecting the volatility and high value of the assets involved. As noted in the court’s summary of the pleadings:

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 legal strategy involves a multi-pronged approach, targeting the corporate entity and the individual manager. As the court observed:

The Claimant’s claim against D1 is brought in both contract and for breach of a duty of care in tort.

For further context on the broader implications of this dispute, see the deep editorial analysis at: Gate Mena v Tabarak Investment Capital [2022] DIFC TCD 001: The High Cost of Misjudged Cryptocurrency Custody.

Which judge presided over the Permission Application in the Technology and Construction Division?

The Permission Application was heard by Justice Sir Richard Field, sitting in the Technology and Construction Division (TCD) of the DIFC Courts. The order was issued on 3 June 2021, following consideration of the Second Defendant’s application dated 24 March 2021 and subsequent written submissions regarding the joinder and costs.

What were the respective legal arguments advanced by the parties regarding the joinder of Mr. Morozov and Navarcon?

The Second Defendant (D2), Mr. Christian Thurner, sought permission under RDC Part 20 to join Mr. Evgeniy Morozov (the Buyer) and Navarcon s.r.o. as the Third and Fourth Defendants. D2 argued that their participation as parties was necessary to resolve factual disputes concerning the BTC transaction, essentially contending that their presence would facilitate a comprehensive determination of the liability and the mechanics of the failed transfer.

Conversely, the Claimant resisted the joinder, maintaining that the existing proceedings were sufficient to determine the liability of the current defendants. The court noted that the defendants had alternative procedural avenues to secure the necessary evidence without elevating these individuals to the status of defendants. The court highlighted that the defendants had failed to utilize existing rules to seek contribution, stating:

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.

What was the precise doctrinal issue the court had to answer regarding the application of RDC 20.7?

The court was tasked with determining whether it was "desirable" to add Mr. Morozov and Navarcon as parties to the proceedings under RDC 20.7. The core doctrinal question was whether the joinder was necessary for the court to resolve all matters in dispute, or whether the issues involving the proposed parties were sufficiently connected to the existing proceedings to warrant their formal inclusion. The court had to weigh the policy objective of enabling parties to be heard against the procedural efficiency of the litigation, specifically addressing whether the court could resolve the dispute without the proposed parties being joined as defendants.

How did Justice Sir Richard Field apply the "desirability" test for joinder under RDC 20.7?

Justice Sir Richard Field applied the test of "desirability" by evaluating whether the presence of the proposed defendants was truly required for the court to adjudicate the claims against the existing defendants. He concluded that the defendants’ desire to have these individuals testify did not necessitate their formal joinder as parties. The court reasoned that the evidence could be obtained through standard procedural mechanisms, such as subpoenas, rather than through the more drastic step of joining them as defendants.

The court’s reasoning focused on the practical utility of the joinder application, emphasizing that the court’s ability to resolve the core dispute was not contingent upon the proposed parties being named defendants. As stated in the judgment:

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.

This reasoning underscores the DIFC Court’s preference for maintaining streamlined proceedings unless a clear, substantive legal necessity for joinder is demonstrated.

Which specific statutes and RDC rules were central to the court’s determination of the joinder application?

The court’s analysis was primarily governed by RDC Part 20, specifically RDC 20.7, which mirrors the English Civil Procedure Rules (CPR) 19.2. These rules provide the framework for adding parties when it is "desirable" to resolve all matters in dispute. Additionally, the court referenced RDC 38.28 in the context of the Claimant’s request for immediate assessment of costs. The court also considered the implications of RDC Part 21 regarding the potential for seeking contributions from third parties, which the defendants had failed to pursue.

How did the court utilize the precedent of Grand Valley General Trading LLC v GGICO Sunteck Limited in this ruling?

Justice Sir Richard Field utilized Grand Valley General Trading LLC v GGICO Sunteck Limited [2018] DIFC CFI-044 as the foundational authority for interpreting RDC 20.7. The court relied on the "two lodestars" identified in that case: the policy objective of enabling parties to be heard if their rights might be affected, and the necessity of the joinder for the court to resolve all matters in dispute. By applying this precedent, the court determined that the Second Defendant’s application failed to meet the threshold of desirability, as the proposed parties’ rights were not directly affected in a way that required their participation as defendants, nor was their joinder essential for the court to resolve the existing claims.

What was the final disposition of the Permission Application and the court’s order regarding costs?

The court dismissed the Permission Application in its entirety. Regarding the costs of the application, the court ordered the Second Defendant to bear the financial burden, rejecting the Claimant’s request for indemnity-basis costs but upholding the standard basis assessment. The court’s order was explicit:

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).

The court also addressed the Claimant’s request for immediate assessment and indemnity costs, denying both. The court noted:

I reject the Claimant’s request for an order under RDC 38.28 that its costs should be immediately assessed.

Furthermore, the court clarified its stance on the conduct of the parties:

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.

Regarding the costs thrown away due to the Case Management Conference (CMC) and the EOT application, the court reserved its decision:

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.

What are the wider implications of this ruling for practitioners litigating in the DIFC Technology and Construction Division?

This decision serves as a significant reminder of the high threshold for joining non-parties in the DIFC Courts. Practitioners must recognize that the court will not permit joinder simply to facilitate the production of evidence or witness testimony. If a party wishes to obtain evidence from a non-party, they must utilize the appropriate procedural mechanisms, such as subpoenas, rather than attempting to force joinder under RDC Part 20. This ruling reinforces the court’s commitment to procedural efficiency and discourages the unnecessary expansion of litigation. Litigants should anticipate that any attempt to join parties without a clear, substantive legal basis will likely be dismissed with costs awarded against the applicant.

Where can I read the full judgment in HUOBI OTC DMCC v TABARAK INVESTMENT CAPITAL [2021] DIFC TCD 001?

The full judgment can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/technology-and-construction-division/tcd-001-2020-huobi-otc-dmcc-v-1-tabarak-investment-capital-limited-2-mr-christian-thurner-11 or via the CDN link: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/technology-and-construction-division/DIFC_TCD-001-2020_20210603.txt.

Cases referred to in this judgment:

Legislation referenced:

• RDC Part 20 (Joinder)
• RDC 20.7 (Adding parties)
• RDC 20.11 (Court permission for joinder)
• RDC 38.28 (Assessment of costs)
• RDC Part 21 (Contribution)
• DIFC Courts’ Practice Direction No. 3 of 2017, Article III (A) (1)