Plaintiffs’ fears justified, court rules in €35 million garnishee over Bitcoin theft

Court upholds €35.5 million garnishee order filed by UK Bitcoin dealer against Malta-registered payment processor

Dooga’s Chinese clients had filed letters seeking reimbursement from Dooga
Dooga’s Chinese clients had filed letters seeking reimbursement from Dooga

A Maltese court upheld a €35.5 million garnishee order filed by a UK Bitcoin dealer against a Malta-registered payment processor in a case in which the two companies accused each other of defrauding the other.

Dooga Limited, an English company, had filed the precautionary warrant against the Maltese company Pay Secure Online Ltd (PaySec), over a dispute that arose following an alleged hack and theft of Bitcoins from three of Dooga ’s clients’ virtual wallets.

Arbitration proceedings were instituted, as required by a merchant agreement, after which Dooga requested a garnishee order against Pay Secure.

In January 2018, three Chinese clients opened individual accounts with Dooga on its online platform called “Cubits”, to buy Bitcoins. PaySec was to be the payment channel for the processing of the payments for the Bitcoins.

Dooga suggested that the three Chinese clients – who it said, know each other – had colluded to acquire the Bitcoins by apparently transferring money through PaySec and China Union Pay, a Shanghai-based payment service provider.

Dooga denied ever being the victim of a security breach. “The circumstances of the hack are dubious but point towards collusion between the three clients and PaySec,” the company told the court. 

Dooga insisted that the hack never occured on its systems, but by apparent leakage of passwords and log-ins by the Chinese customers themselves to their own account, so that the Bitcoin could be transferred out by the so called “hacker”, which the company claimed is associated through business and social contacts, to the owners of Pay Secure Online.

On its part, PaySec has denied having been involved in the ‘hack’ or that the ‘hacker’ has any business or social association with the owners of PaySec.

In the meantime Dooga’s clients had asked their respective Chinese banks to recover the money they had paid out, with the banks duly blocking the funds, which amounted to €29 million.

PaySec has insisted it had no access to the funds and could not pass them on to Dooga Ltd. It said the the remaining €6.7 million were withheld under the Merchant Agreement until it was allowed to carry out an audit to determine whether there had been fraudulent activity on the part of Dooga Ltd. The company claimed that Dooga had refused to cooperate with the audit.

In arbitration proceedings, PaySec denied responsibility, saying it had no control over the actions of third parties and claimed Dooga Ltd was not cooperating to resolve the issue.

In its application to the court, PaySec insisted that the garnishee order was solely intended to harm its interests.

However, Dooga alleged that PaySec had created "an absolute invention" of claiming that a hack had taken place, to seize the Bitcoins for itself.

Dooga’s lawyers argued that PaySec had plotted the hack to receive the money and steal the Bitcoins. “Dooga’s right to receive these monies is clearly evident from the terms of the merchant agreement… To this day, PaySec, probably because it is in collusion with the hackers and/or because it probably orchestrated the fiction that it hadn’t received the money in order to steal Bitcoins, is now holding on to the money which was the price of the Bitcoin.”

PaySec denied having staged a hack to seize the Bitcoiins for itself.

Dooga said PaySec ought to have shown its good faith by placing the money in escrow with an independent institution of good repute or deposit them in court until the matter was settled.

The court noted that PaySec had brought no evidence to sustain its fraud allegation, while Dooga had a prima facie right to safeguard its interests. The court observed that the plaintiff company had not asked for a further amount to protect its claim for damages. “This fact, in the opinion of the Court, shows that the allegation of the defendant company, that the warrant was filed spitefully and maliciously, is entirely unfounded.”

The absence of documents to back up the claim of the supposed €29 million held in Chinese bank accounts was a determining factor, as was the fact that despite admitting it was holding €6.7 million, the defendant company didn’t deposit it in court. “This shows that the plaintiffs’ fears were justified,” ruled the judge, upholding the warrant.​

The Court also addressed PaySec’s request for damages, saying it was unconvinced that the garnishee order had been issued maliciously or frivolously and did not liquidate any damages with respect to Dooga Limited.

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