Who Bears the Risk when Crypto Goes Missing?
The DIFC Digital Economy Court's Landmark Decision of Gate MENA DMCC v Tabarak Investment Capital Limited
On 17 June 2026, the DIFC Digital Economy Court handed down its decision in Gate Mena v Tabarak, dismissing a claim arising from the theft of 300 Bitcoin ("BTC") during a botched over-the-counter transaction. The ruling is a significant DIFC judgment on the standard of care owed by intermediaries who hold crypto assets. It also serves as a cautionary tale about what happens when high-value digital asset transactions are conducted on the basis of oral agreements.
Key Takeaways
Contract formation by conduct. In the DIFC, the objective test for contract formation permits regard to preliminary negotiations and subsequent conduct. Parties can, by virtue of their conduct, find themselves bound by a contract they never formally signed.
- Reasonable care, not strict liability, for intermediaries following instructions. Intermediaries whose role is limited to simply following instructions (and who do not design or advise on the transaction modalities) are unlikely to be subject to strict liability when performing their contractual obligations. However, those intermediaries who assume advisory or specialist custodial roles may face a higher threshold.
- Crypto assets are property, and bailment principles may apply to their custody. It is an established principle that crypto assets constitute property for the purposes of DIFC law. However, Justice Black went further and observed that Tabarak's position was "closer to that of a custodian than that of a banker", lending support to the proposition that the definition of bailment under Article 66(1) of the DIFC Law of Obligations can extend to the control of crypto assets.
- The question of whether damages can be awarded in cryptocurrency remains open. The Court declined to determine this question (as the claim failed on other grounds). This is an important and complex issue which has, to date, been unanswered by the DIFC Courts. If BTC is classified as "money" under DIFC law, then damages could be awarded in BTC (under Article 121 of the DIFC Contract Law and Article 20 of the DIFC Damages Law), potentially yielding dramatically different quantum given the appreciation of BTC since early 2020.
- Importance of documenting arrangements. The entire dispute arose from a transaction worth approximately USD 2.8 million that was governed by arrangements agreed orally at a single meeting, with the parties only later attempting to record terms via WhatsApp. The Court was able to find the existence of a contract, but its terms were uncertain, heavily contested and required extensive (and expensive) litigation to determine. Businesses operating as exchanges, custodians, or intermediaries should ensure their arrangements are properly documented in writing.
Background to the Dispute
The dispute arose from a transaction on 3 February 2020. The First Claimant, Gate MENA DMCC (formerly Huobi OTC DMCC, referred to in this article as "Huobi DMCC"), was an entity licensed by the Dubai Multi Commodities Centre for over-the-counter cryptocurrency trading. The Second Claimant, Huobi MENA FZE ("Huobi MENA"), traded BTC and other cryptocurrencies on international markets. Both entities were part of Huobi Global, a Seychelles-registered, digital asset financial services provider.
The Defendant, Tabarak Investment Capital Limited ("Tabarak"), was a DIFC-registered company authorised by the DFSA to provide various financial services. The judge at first instance, Justice Sir Richard Field, described it as a "small merchant bank".
Huobi DMCC agreed to sell 300 BTC to a buyer acting through a Slovak-registered company called Navarcon s.r.o (“Navarcon”), at the prevailing market price of approximately USD 2.8 million. Neither side trusted the other, and so they arranged for Tabarak to play "an intermediary role", as termed by the judge at first instance. Tabarak would provide both a bank account to receive the purchase price and a wallet to hold the BTC, with the BTC not to be transferred to the buyer until cleared funds arrived in Tabarak's bank account.
The Fraud
Evgeniy Morozov (“Morozov”) and Aleksij Socin (“Socin”) purported to be interested in purchasing BTC on behalf of a group of investors acting through Navarcon. At the meeting on 3 February 2020, Morozov insisted on a fundamental departure from the agreed deal structure. Rather than using Tabarak's own hardware wallet, Morozov produced an apparently new and security-sealed Trezor Wallet, and insisted that the 300 BTC be transferred directly to it. The judge at first instance described this as "a game changer" which put Huobi "in a very tight spot".
A security procedure was improvised. Mr Thurner, Tabarak's Director of Investments, set up the wallet so that its 12-word recovery seed phrase was split. The first six words noted by Tabarak, the remaining six by Morozov and Socin. The 300 BTC were then transferred to the wallet, which was locked in a safe situated in the office of Tabarak's CEO, Mr Ahmadi. When the parties returned from lunch, no payment had arrived, and it was discovered that 299.99 of the 300 BTC had been transferred to another wallet.
The judge at first instance found on the balance of probabilities that Morozov and Socin had fraudulently exploited functionality in the Trezor Wallet's setup process, either by scrolling up to view Tabarak's six seed words or by deliberately making incorrect selections so as to reveal the entire twelve-word seed phrase. The BTC were lost.
The theft of the 300 BTC meant that Huobi DMCC were unable to engage in any further transactions, ceasing operations entirely by April 2020. Huobi MENA maintained its trade licence, but solely for the purposes of prosecuting the proceedings.
Procedural History
The case had a lengthy procedural history before arriving at retrial. The original trial was heard in November and December 2021 before Justice Sir Richard Field in the Technology and Construction Division, with judgment handed down on 5 October 2022. The judge at first instance found, among other things, that the agreement between Huobi and Tabarak never incepted due to the non-payment of an Account Opening Fee required under their Account Opening Agreement, and that Tabarak exercised "reasonable" care of the BTC.
On appeal, the Court of Appeal found that while the original agreement had failed, the transaction did in fact proceed. Not only did it proceed, but the parties even negotiated an increase in Tabarak's commission, and the trial judge had not addressed Huobi's alternative case that a separate agreement was concluded at or around the time of that increase in Tabarak's commission. The Court of Appeal notably observed that crypto assets are "capable of being owned and transferred" and constitute "property" within the meaning of the DIFC Personal Property Law 2005 and the Law of Obligations 2005, and that the definition of bailment could extend to the factual control of crypto assets. The Court of Appeal ordered a retrial on focused issues, which took place over five days from 2 to 6 February 2026 before H.E. Justice Michael Black sitting in the Digital Economy Court.
The Key Issues at Retrial
The retrial was directed to four principal clusters of issues, reorganised by Justice Black into a logical structure:
First, the New Case Issue: whether the Claimants were entitled to allege the existence of an entirely new contract formed at the 3 February 2020 meeting, as distinct from the earlier agreement that had failed to incept.
Second, the Contract Formation Issue: whether a contract was in fact formed at or before the increase in Tabarak's commission was agreed, applying the objective test for contract formation under DIFC law and the principles from Taaleem PJSC v National Bonds Corporation PJSC.
Third, the Contract Terms Issue: if a contract was formed, whether it imposed strict liability on Tabarak to return the 300 BTC regardless of fault, or merely an obligation to take reasonable care.
Fourth, issues of breach, loss, damages, and interest: which were ultimately rendered moot by the Court's findings that Tabarak’s care of the BTC was “reasonable” on the Contract Terms Issue.
The Court's Findings
1. Contract Formation
On the threshold question, Justice Black held that it was open to the Claimants to argue that a new contract was formed at the meeting. This was the very issue that the Court of Appeal had directed to be tried.
On formation itself, the Court found that a contract did arise between the parties sometime before the 300 BTC were transferred to the Trezor Wallet. This is a notable finding because the original agreement between Huobi and Tabarak had failed to incept: the Account Opening Fee was never paid, and the judge at first instance held that this condition precedent was never waived. The parties nonetheless went ahead with the transaction. In particular, Tabarak set up the wallet, took custody of the BTC and negotiated an increased commission. The question was whether that conduct, in the absence of a formally binding agreement, gave rise to a new and separate contract.
Justice Black determined that the answer to that question was yes. His reasoning was grounded on several pillars: (1) it was never envisaged that Tabarak would act gratuitously; this was a commercial transaction involving one party providing services to the other and being paid for them, (2) there was a presumption that parties to commercial transactions intend to create legal relations, and (3) substantial performance had occurred, making it "unrealistic to argue that there was no intention to enter into legal relations". Critically, Justice Black found that when Mr Ahmadi allowed Trezor Wallet to be stored in his safe, he must have realized he was "facilitating the Transaction during its execution in which Tabarak had an intermediary role for reward", such that an objective observer would have been likely to conclude that Mr Ahmadi approved the transaction taking place.
2. Contract Terms: Reasonable Care, Not Strict Liability
The pivotal finding of the judgment concerned the nature of Tabarak's contractual obligations. The Claimants argued that Tabarak owed an absolute duty to return the 300 BTC if the purchase money was not received, highlighting a "duty to achieve a specific result" under Articles 59 and 60 of the DIFC Contract Law. They relied on, among other things, the UK Supreme Court decision in Philipp v Barclays Bank UK plc [2024] AC 346, in which a bank's duty to comply with payment instructions was held to be strict.
Tabarak countered that it was a simple middleman acting on Huobi's directions, akin to a bailee for reward whose core duty was one of reasonable care, not strict liability. It pointed to the findings of the judge at first instance, that its role was "straightforward and uncomplicated", that it was not under any obligation to advise on the modalities of the transaction, and that the transaction modalities were agreed by Huobi and the buyer with Tabarak merely "going along with their judgment".
Justice Black sided with Tabarak on this critical issue, holding that the contract imposed an obligation of reasonable care rather than strict liability.
Justice Black reasoned as follows:
The relationship between Huobi and Tabarak was not that of creditor and debtor (as between a bank and its customer), but closer to that of a custodian. Property in the BTC was never intended to pass to Tabarak; Tabarak was to hold the BTC on behalf of Huobi only to release it to the buyer on receipt of payment. The bank analogy relied upon by Huobi, particularly Philipp v Barclays, was therefore "looking through the wrong end of the telescope".
The Judge's findings pointed to a "simple contract" in which Tabarak was to provide a wallet to hold the BTC and a bank account for the sale proceeds, to maintain control of both, and only release the BTC once purchase monies arrived. The modalities were not devised by Tabarak but agreed between Huobi and the buyer, with Tabarak acting on their directions. In those circumstances, "reasonable persons of the same kind as the parties" would not have contemplated that Tabarak would bear any greater liability than for a failure to comply with instructions or for failing to act with reasonable care and skill.
Because the judge at first instance had already made a binding finding that Tabarak's care of the BTC was "reasonable", this finding on the Contract Terms Issue was dispositive. The claim was dismissed.
3. Unresolved Issues: Is BTC "Money"?
An important issue left unresolved by the judgment was whether BTC satisfies the threshold characteristics to be considered "money" or "currency" for the purposes of the DIFC Damages Law. Both parties adduced extensive expert evidence from distinguished economists on whether BTC functions as a unit of account, a medium of exchange, and a store of value. Post-hearing submissions addressed the features of IMF Special Drawing Rights and their analogous functions to crypto assets, and the Singaporean decision in Kalen & Ors v World Exchange Services Pte Ltd [2026] SGHC 31. Justice Black acknowledged that these issues are "complex and of general importance" but, because the claim failed on the Contract Terms Issue, their resolution "must await another occasion when they arise on the facts of the case".
Application of DIFC Digital Assets Law
This decision is of particular significance for its engagement with DIFC law as it applies to digital assets, even though certain questions were ultimately left open.
- Crypto Assets as Property
The Court of Appeal's prior finding, which formed part of the framework for the retrial, confirmed that crypto assets are "capable of being owned and transferred" and constitute "property" within the meaning of the DIFC Personal Property Law 2005 and the DIFC Law of Obligations 2005. This is consistent with international common law developments, notably the UK Law Commission's treatment of crypto assets as a distinct category of personal property, and provides welcome certainty for market participants operating within the DIFC.
- Bailment and Digital Asset Custody
The Court of Appeal also raised the intriguing possibility that the definition of bailment under Article 66(1) of the DIFC Law of Obligations could extend to "the factual control of crypto assets, if factual control is to be regarded as, or equivalent to, possession". While Justice Black did not need to determine this question definitively at retrial, he nonetheless observed that Tabarak's position was "closer to that of a custodian than that of banker". He also considered the analogy with a warehouseman as raised by Tabarak, the classic common law bailee, noting that it was "not wholly satisfactory" because Tabarak was not just acting as a custodian but was also intended to act as the recipient of purchase monies and to transfer the BTC to a third party. The analogy was, however, "helpful in informing the capacity in which Tabarak held the BTC".
These observations strongly suggest that DIFC law will recognise the custody of crypto assets as a form of bailment, with the attendant duty of reasonable care applying to custodians. This is a significant development for the growing number of digital asset custodians operating in or through the DIFC.
- The DIFC Contract Law's Distinctive Framework
The judgment also highlights the ways in which DIFC contract law differs from English common law in ways that are relevant to digital asset disputes. Justice Black applied Articles 49 to 51 of the DIFC Contract Law, which provide for the interpretation of contracts according to the common intention of the parties, with regard to all the circumstances, including preliminary negotiations and subsequent conduct. He also engaged with Articles 59 and 60, drawn from the UNIDROIT Principles, which draw a civil-law-influenced distinction between a "duty to achieve a specific result" and a "duty of best efforts". This framework, which has no direct analogue in English common law, may provide a more nuanced tool for determining the obligations of parties in novel digital asset arrangements, and practitioners should be conscious of it when structuring transactions under DIFC law.
Implications for Digital Assets in the UAE
1. Custodians and Intermediaries Must Consider Their Standard of Care
The most immediate practical takeaway is that intermediaries and custodians who handle digital assets under informal or ad hoc arrangements should not assume they are merely conduits with no liability, but nor should they assume they are underwriting the outcome of every transaction. Justice Black's analysis makes clear that where an intermediary is acting on the directions of a counterparty, performing a "straightforward and uncomplicated" role without devising or advising on the transaction modalities, its obligation will ordinarily be one of reasonable care rather than strict liability. However, where an intermediary assumes greater responsibility, for example by advising on security protocols, designing custody arrangements, or holding itself out as offering specialist custodial services, a court may well reach a different conclusion under Articles 59 and 60 of the DIFC Contract Law.
2. The Need for Clear Contractual Documentation
The case serves as a stark illustration of the risks inherent in conducting high-value cryptocurrency transactions on the basis of oral agreements or informal understandings. The entire dispute arose in the context of a transaction worth approximately USD 2.8 million that was governed by arrangements agreed orally at a single meeting, with key terms left unclear or unaddressed. The parties only later attempted to document the commercial terms by WhatsApp message.
Businesses operating in the digital assets space, whether as exchanges, over-the-counter desks, custodians, or intermediaries, should ensure that their arrangements are documented in writing and address, at a minimum, the allocation of risk in the event of fraud or theft; the standard of care to be exercised; the security protocols to be followed; and the consequences of deviation from those protocols.
3. The Unresolved Question of BTC as "Money"
The Court's express acknowledgment that the question of whether BTC is "money" or "currency" under DIFC law is "complex and of general importance" signals that this issue will inevitably arise again. The significance is not merely academic, if BTC were classified as "money", damages could be awarded in BTC under Article 121 of the DIFC Contract Law and Article 20 of the DIFC Damages Law, potentially yielding dramatically different outcomes given the appreciation of BTC since early 2020. Both sides adduced distinguished expert evidence on the point, and the parties also submitted a compendium of decisions of the UAE courts dealing with crypto assets as well as analysis of the analogous features of IMF Special Drawing Rights. The next case in which this issue is squarely raised will be closely watched by digital assets practitioners across the region.
4. The Digital Economy Court as a Forum for Crypto Disputes
It is noteworthy that this case was heard in the DIFC's Digital Economy Court, a specialist forum established to adjudicate technology and digital economy disputes. The existence of this court, and the quality and depth of the jurisprudence being developed within it, reinforces the DIFC's position as a leading jurisdiction for the resolution of digital asset disputes in the Middle East and beyond. Market participants can take some comfort from the fact that their disputes will be determined by judges with a growing familiarity with the technical and commercial realities of the digital asset industry.
5. Broader UAE Regulatory Landscape
While this decision concerned the DIFC's own legal framework, it sits within a rapidly evolving broader regulatory environment. The UAE has established itself as one of the most progressive jurisdictions globally for digital assets, with comprehensive regulatory frameworks in both the DIFC (under the DFSA) and Abu Dhabi Global Market (under the FSRA), as well as the federal-level Virtual Assets Regulatory Authority (VARA) in Dubai. The recognition of crypto assets as property, and the application of established legal principles such as bailment and the duty of care to their custody, provides a critical legal foundation upon which these regulatory frameworks operate. As the UAE continues to attract significant digital asset businesses and investment, decisions such as Gate MENA v Tabarak will be instrumental in shaping the common law framework underpinning this rapidly growing sector.
Conclusion
Gate MENA DMCC v Tabarak Investment Capital Limited is a significant decision for the DIFC and the UAE more broadly. It confirms that a contract can arise by performance in a cryptocurrency transaction, even where formal conditions precedent have not been satisfied. It provides important guidance on the standard of care applicable to intermediaries who hold digital assets, affirming that where an intermediary acts on the instructions of the asset holder in a "straightforward and uncomplicated" role, it will owe a duty of reasonable care rather than strict liability for the outcome. It reinforces the treatment of crypto assets as property under DIFC law and the applicability of bailment principles to their custody. And it leaves open the question of whether BTC constitutes "money" for the purposes of DIFC damages law, a question that the Court acknowledged is of "general importance" and that will undoubtedly be revisited in a future case.
For practitioners and businesses operating in the UAE's digital asset ecosystem, the decision underscores the importance of clearly documenting custody and intermediary arrangements, expressly allocating risk, and understanding the distinction between a duty to achieve a specific result and a duty of best efforts under DIFC law. In an industry that prides itself on innovation and speed, this case is a reminder that the legal fundamentals, contract formation, the standard of care, and the proper allocation of risk, remain as critical as ever.
A link to the full judgment can be found here.
