Renowned litigator Faisal Moideen shares insights on his court victories for Luno.

by Edmund Yong


These are interesting times for digital asset exchanges (DAX) in Malaysia. The Securities Commission has put in place a licensing framework to regulate operators. Parliament may enact specific statutes to govern this new area where necessary. Eventually a body of case law will take shape based on judgments handed down by the Courts.

As a young teething industry based on novel technology, it is only a matter of time before tough disputes emerge and are brought before the Court to decide. This came in a lawsuit initiated by Luno regarding the mistaken transfer of bitcoins. Billed as Malaysia’s first ever Court ruling on cryptocurrency, it creates an important precedent and has implications beyond DAX for other related industries.

Legal certainty is important, it is part of a healthy development process so that the industry can come to its own. The communities in Access Blockchain Association and Bitcoin Malaysia have been following this space closely and have reacted to the Court findings with excitement.

Note: We are indebted to Foong Cheng Leong for his excellent annotation of this case first published in Digital News Asia on Dec 17, 2019 and the feedback he gave us. Here are the full citations: Luno Pte Ltd & Anor v Robert Ong Thien Cheng (Sessions Court Civil Suit No. BA-B52NCVC-389-12/2017) (Unreported); and Shah Alam High Court Civil Appeal No. 12BNCVC-91-10/2018.

To gain further insights on this, we sat down with Faisal Moideen, the litigator representing Luno who won the case at the Sessions Court and on appeal at the High Court. Formerly from Shook Lin & Bok, Faisal started his private practice Messrs Moideen & Max in 2011 and is the managing partner. He is on the A-List of Malaysia’s Top 100 lawyers as compiled by the Asia Legal Business Journal.

A. FACTS OF THE CASE

(To give our readers some context, this case happened during the historic crypto rally which began around Sep 2017. Luno was one of the most popular exchanges for Malaysian traders then as it is today. Bitcoin price was cresting into record highs towards the year end. Around this time, the market was also widely anticipating a ‘hard fork’ event known as SegWit2X scheduled for mid-Nov that would have major impact on the bitcoin network.)

On Oct 30, 2017 Robert deposited RM300,000 into Luno’s bank account in Malaysia. Luno processed this and allocated it to Robert’s trading account.

The next day, Robert converted his ringgit balance into bitcoin, which came up to about 11.3 BTC. He then transferred this from Luno to his other account in Bitfinex. Luno and Bitfinex are unrelated exchanges and registered in different jurisdictions.

Luno executed the transfer successfully. However, due to a technical glitch, an additional 11.3 BTC was transferred to Robert’s Bitfinex account on the same day. In other words, there were double transfers.

Luno immediately realized this and notified Robert on Nov 2, 2017 via email. Robert acknowledged and admitted that he is required to return the 11.3 BTC. The transfer cannot be reversed by Luno and had to be returned via a separate instruction by Robert to Bitfinex.

According to the case, Robert had used up all his BTC to trade on Bitfinex including the additional ones that were mistakenly transferred to him i.e. 22.6 BTC in total. (Back in Oct 2017, Bitfinex had launched a new futures product called Chain Split Tokens (CST) for the ‘hard fork’ event mentioned above. However, the ‘hard fork’ failed and was suspended shortly after.) Robert stated that he had converted all 22.6 BTC to CST futures, which did not materialize and is now valued close to nil as a result.

Ultimately Robert did not return the 11.3 BTC. Instead he offered to pay Luno RM300,000 at the end of Nov 2017, about a month after the fact. But by then, BTC prices have changed. Luno went on to sue Robert to recover the 11.3 BTC or its equivalent fiat value of RM810,837 at the time of filing.

The plaintiff in this case is Luno and involves two of their entities in particular: (1) one which holds the master bank account to accept ringgit deposits from Luno customers in Malaysia, and (2) another which assigns the deposited funds to respective customer wallets for buying and selling crypto.

The defendant is Robert, a customer of Luno.

The action was filed in the Sessions Court in Malaysia which ruled in the plaintiff’s favor. This was upheld by the High Court. The matter is currently pending appeal in the Court of Appeal.

B. KEY ISSUES RAISED

Several arguments were put forth by the defence during trial. We picked out the most consequential ones in our opinion for the purpose of this article:

  1. Bitcoin is intangible and not a “thing” that is capable of being returned. Contract law doctrine allows for mistakes. In particular, section 73 of Contracts Act 1950 Malaysia provides that “a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.” But if the Court is persuaded that bitcoin does not constitute a “thing”, then this statutory provision does not apply and Luno’s claim cannot be granted.
  1. The trading of cryptocurrencies is an illegal activity in Malaysia. If this argument is accepted, then plaintiff’s exchange platform and operations would be considered illegal. The Court will not enforce any obligation that will further the continuance of an illegal activity. This is based on an established legal rule “ex turpi causa non oritur actio” which states that the plaintiffwill be unable to pursue legal remedy if it arises in connection with its own illegal act.
  1. There is no right of action as the bitcoins did not belong to the plaintiff. This is an interesting point because the plaintiff must have “locus standi” or the right to bring a legal action of recovery to Court. In order to do so, the argument is that the plaintiff must show it has legal and beneficial ownership of the 11.3 BTC mistakenly transferred: The plaintiff cannot ask for recovery of something it did not own as the bitcoins were stored in the defendant’s wallet.

C. THE COURT RULINGS

In summary, the Sessions Court held that:

  1. Cryptocurrency falls within the ambit of “anything” under s. 73 of Contracts Act 1950. Even though it is not money in the legal sense, it is a form of commodity (albeit in intangible form) as real money is used to purchase the cryptocurrency. There is value attached to bitcoin in the same way as shares do. As such, the defendant is under a duty to return the mistakenly transferred 11.3 BTC.
  1. Cryptocurrency trading is not illegal as Bank Negara Malaysia has issued guidelines to register DAX operators as reporting institutions, which the plaintiff complied with (before Securities Commission took over as the main regulating body). If the plaintiff had been deemed illegal by BNM, then it would not have reasonably been registered. Just because cryptocurrency is not legal tender does not mean that it is deemed illegal.
  1. Plaintiff has the locus to commence action for recovery, akin to a banking relationship. The Court was not persuaded by the argument that the plaintiff was merely “holding” the cryptocurrency and applied the fact situation to banking. When customers deposit their money with the bank, it is settled law that the bank has the right to recover the monies in the event of a mistaken transfer.

This judgment was upheld by the High Court.

It pointed out that the new Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 has classified cryptocurrency as a form of “security”. Thus, the comparison of a bitcoin to a share security is valid. While the Contracts Act was drafted in 1950, it should be construed to reflect changes in modern tech advances. In plain reading, the term ‘anything’ in s. 73 is wide enough to cover bitcoins. This was the crux of the appeal.

It also dismissed the illegality defense as there was no evidence shown that the plaintiff’s operations were illegal and contravened public policy.

As for the third point, the learned High Court Judge held that up until the point the bitcoins are assigned to a specified user, it was a commingled pool of bitcoins that Luno had full custody and control of. Luno was the legal owner of the bank account which the defendant had deposited into, before his funds were converted into bitcoins and recorded in his trading account.

[Click here for Part 2]