Resolving Web3 Compliance Legal Advisory Disputes Effectively
Including the dispute clauses that still name an arbitration centre abolished in 2021.
Web3 advisory disputes in the UAE begin with the dispute clause, which in many engagement letters still names an arbitration centre abolished in 2021. This covers that fix, the scope and dating of the advice, expert determination for technical questions, and professional indemnity cover.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
Start at the end. When a Web3 project and the firm that advised it on compliance fall out, the first thing anyone reaches for is the dispute clause in the engagement letter, and in a striking number of these matters that clause points at an institution that no longer exists. Before anything else in this article is useful, that is the sentence worth acting on.
The clause that names an abolished institution
Dubai Decree No. 34 of 2021 abolished the DIFC-LCIA Arbitration Centre and transferred its caseload to the Dubai International Arbitration Centre. Engagement letters, token sale documents and shareholder agreements drafted before that decree still name the old institution, and so do the many templates copied from them since. The DIFC remains available as a seat; it is the administering institution that changed.
Arbitration in the UAE otherwise runs under Federal Law No. 6 of 2018, as amended in 2023. Reviewing the dispute clauses across a group's documents is an afternoon's work, and it prevents a preliminary fight about where a claim belongs before anyone has argued the merits of it.
Related: Where no valid arbitration agreement exists, the claim belongs in court proceedings, and the right court is rarely obvious in a cross-border digital asset matter.
What the parties are actually fighting about
Once the forum is settled, the substance turns out to be narrower than either side expected. A token issue has to be restructured, a licence application stalls, a banking relationship is withdrawn, and the business asks the firm that told it the arrangement worked what exactly it was paying for. The answer is in the retainer.
Related: Our legal consultation services in Dubai cover scoping and reviewing advisory engagements before the work begins.
Scope
Very few of these disputes turn on whether the adviser understood the technology. They turn on what the adviser was retained to do. Was the firm asked to classify the token, or to incorporate the entity that would issue it? Did the retainer cover the jurisdictions where the users are, or only the one where the company is registered? Was anyone asked about the marketing, the custody arrangement, or the treasury?
An engagement letter that describes the work as advice on regulatory compliance in connection with the project can be read two ways with equal sincerity, which is why it produces litigation. The alternative is dull and effective: name the deliverable, list the jurisdictions covered and, more importantly, the ones that are not, identify who is providing the technical facts, and set out the assumptions the advice rests on.
The date on the advice
Regulatory positions on digital assets in the UAE have moved considerably, and an opinion is a statement about the position as the adviser understood it at the time it was given. Whether the retainer included a duty to come back when things changed is one of the most common questions in these disputes, and it is one the parties can settle in advance by writing it down.
The same applies to the facts. Record the version of the product the advice was given about: what the token entitles a holder to, where the keys sit, who can change the code once it is live, whether there is a redemption right. If the product was altered after the opinion was issued, that record is usually the answer to the whole complaint.
Which questions belong to a court, and which to an expert
The DIFC and the ADGM are common-law jurisdictions with their own courts and their own financial services regulators, and both have published guidance addressing token offerings and digital securities. For a business established in either, the local courts or an arbitration seated there are the natural starting points, and the judges are accustomed to commercial and financial disputes.
Not every question in these cases is legal. Whether a smart contract did what the documentation said it would do, whether a wallet was controlled by the party that claimed to control it, whether a transaction sequence is what the chain records suggest — these are technical findings, and they are resolved faster and more cheaply by expert determination than by a court hearing competing expert reports. A well-drafted clause can send technical questions to an expert and legal questions to arbitration, rather than sending everything to the same place.
The claim is often a claim against a policy
Where an advisory claim succeeds, the money usually comes from professional indemnity cover rather than the adviser's own balance sheet. That makes the insurance position part of the dispute from the first day. Policies frequently treat digital asset work differently from conventional advisory work, and notification obligations are strict enough that late notice can be the reason a covered claim goes unpaid.
Related: We act in insurance and coverage disputes, including professional indemnity claims and declined notifications.
Tokenised assets do not escape the law that governs the asset
Where a token represents an interest in something outside the chain — a share, a receivable, a building — the rules governing that underlying thing continue to apply. Property in the UAE is registered, and recording an interest on a distributed ledger does not substitute for the registration the emirate requires. Advice that addresses the token and stops there leaves the more consequential half of the arrangement unexamined, and that gap is a recurring source of claims.
Related: Our real estate advisory team works alongside our digital asset practice on tokenised property structures.
What a business can do before there is anything to argue about
Get the scope in writing and read it as though you were the other side. Keep a dated file of what was disclosed to the adviser and when, because the most damaging finding in these disputes is that the client did not tell the adviser something material. Maintain a schedule of the assumptions the advice rests on and review it whenever the product changes. Check the dispute clause. And where the project spans several entities in several jurisdictions, make sure the same adviser is looking at all of them, rather than each entity holding a correct answer to a question nobody asked in the round.
Related Services: Speak to our Web3 compliance advisory team about engagement scoping, regulatory review and digital asset compliance in the DIFC and ADGM.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.
Nour Attorneys Team
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