Charles Russell Speechlys successful in landmark DIFC Courts case for the digital assets industry

Charles Russell Speechlys announced that their clients have been successful on appeal in a case described by the DIFC Courts as “a landmark case” for the digital assets industry. The lead judgment in the case, which centres on the loss of 300 Bitcoin, was given by the Head of the Digital Economy Court, Justice Michael Black KC and was handed down on June 13, 2024. The judgment itself, which the Court of Appeal acknowledges will attract international attention, is essential reading for anyone wanting to understand how various aspects of the law apply to cryptocurrencies in the DIFC. It includes:

• A summary explanation of how the DIFC jurisdiction was created and has evolved, and how it develops and applies its common law (including by reference to other leading jurisdictions around the word);
• A helpful primer on key terminology, including what is meant by the terms “Bitcoin”, “Wallet”, “Addresses”, “Public and Private Keys” and “Seed phrases or Mnemonics” and how they work;

A comprehensive analysis of legal issues including:

• “Are cryptocurrencies property?” (Answer: Yes, a third class of property, now confirmed in the Digital Assets Law).
• “Are cryptocurrencies capable of being owned and transferred (when they exist on the blockchain and value transfer happens through the creation and destruction of informational entities as opposed to the movement of an asset from person to person or place to place)?” (Answer: Yes, and to find otherwise would be contrary to consumer expectations and commercial common sense).
• “If cryptocurrencies attract property rights, is it more appropriate to speak in terms of “control” of the asset (as opposed to possession)?” (Answer: Yes, and control over the cryptocurrencies, for example by possession of a private key, may amount to factual control, which is equivalent to possession).
• “How the application of the principles of “control” apply to custodians of digital assets and whom the confidential information in a Seed Phrase or Mnemonic belongs to in circumstances where the same is disclosed to a third party.”

The judgment orders a retrial on a subset of the points ventilated at first instance. Accordingly, the judgment leaves open certain questions including whether or not damages are payable in cryptocurrencies and the appropriate time to value cryptocurrencies (whether at the time of loss, the time of judgment or the time of enforcement).

The Charles Russell Speechlys team comprised Sara Sheffield (partner), Max Davis (legal director), Peter Smith (legal director), James Colautti (associate), Reem Faqihi (associate) and the counsel team comprised Andrew Spink KC and Justina Stewart of Outer Temple Chambers.

Sara Sheffield, partner and head of offshore litigation (DIFC & ADGM) at Charles Russell Speechlys commented, “I am delighted for our clients, whose determination and perseverance has paved the way for this important judgment, which offers clarity not only as to the law in the DIFC, but to the wider digital assets community.”

Max Davies, legal director at Charles Russell Speechlys commented, “It is very rare to have the opportunity to work on a case that establishes the answers to important legal questions that will reverberate around the world. It is a privilege to have been part of the team grappling with these issues and to have worked alongside our clients to achieve this result for them.”