NICO CONSTANTIJN ANTONIUS SAMARA v. STIVE JEAN PAUL DAN also known as STEVE JEAN PAUL DAN, STIVE JEAN PAUL DAN and STEVE JEAN PAUL DAN

HCA 902/2018 and
HCA 2332/2018
(Consolidated)

[2022] HKCFI 1254

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS 902 AND 2332 OF 2018

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________________________

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J U D G M E N T

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A. INTRODUCTION

1.  This is the trial of the plaintiff’s claim against the defendant.  In a nutshell, the plaintiff’s case is that the defendant, as his sales agent, has failed to:

(1)  account for:

(a)  the 465.287 bitcoins transferred by the plaintiff to the defendant in respect of the sales through Gatecoin Limited (the “Gatecoin Sales”);

(b)  the sale proceeds of the Gatecoin Sales and the sales through TD Ameritrade (the “TD Ameritrade Sales”); and

(2)  repay 2 loans extended by the plaintiff to the defendant in the respective sums of US$180,000 and US$11,032.

2.  There is no dispute that the plaintiff transferred to the defendant at least 275 bitcoins in respect of the Gatecoin Sales and 387.2 bitcoins in respect of the TD Ameritrade Sales.  The only issues are:

(1)  whether the plaintiff also transferred the remaining 190.287 bitcoins to the defendant in respect of the Gatecoin Sales;

(2)  whether the defendant acted as principal or agent, and his rate of commission; and

(3)  whether the plaintiff extended the loans totalling US$191,032 to the defendant.

3.  The defendant’s pleaded case is essentially that he is a bitcoin trader, and his relationship with the plaintiff was one of seller and buyer dealing directly with each other; all trades between them were concluded on the spot with payment being made in cash there and then or by wire transfer.  The defendant denies that he ever acted or agreed to act as agent for the plaintiff.  He also denies to have owed to the plaintiff loans totalling US$191,032.

4.  The defendant’s pleaded case and evidence were subject to extensive judicial scrutiny by Deputy High Court Judge Le Pichon in the Decision dated 1 November 2019 granting a Mareva injunction (the “Mareva Injunction”) against the defendant, and by Mr Recorder Houghton SC in the Reasons for Decision dated 27 April 2021 granting a proprietary injunction against the defendant.

5.  Despite the judicial criticisms against him the defendant has chosen not to file any witness statement.  He has been absent in these proceedings shortly after his former solicitors were granted leave to cease to act for him on 28 January 2021.  Pursuant to the Order of Master S H Lee dated 17 May 2021, notice of this trial has been duly served on the defendant’s Colombian address as stipulated in the order.

B.     THE FACTUAL BACKGROUND

B1.   The Agency Agreement

6.  The plaintiff is a Dutch citizen.  He lived in Curaçao at all material times.  On 1 June 2017, he came to Hong Kong where he met the defendant.  It is the plaintiff’s case and evidence that they orally agreed that the defendant would sell the plaintiff’s 1,000 bitcoins as sales agent for a 3% commission (the “Agency Agreement”).

7.  The Agency Agreement, although not reduced into writing by the parties at the time of the agreement, is evidenced by:

(1)  the defendant’s contemporaneous communications via WhatsApp with Mr Gabriel Sukenik (“Mr Sukenik”), an independent bitcoin broker, on 31 July 2017 in respect of the TD Ameritrade Sales, where the defendant referred to the plaintiff as “my hk seller” (at 11:29 am) and stated that “you, myself, and mike were all brokers in this deal” (at 11:34 am) while the plaintiff is the “seller” (at 11:36 am); and

(2)  the plaintiff’s email to the defendant dated 22 January 2018, in which he stated that “you sold my btc for me, i expect you to pay me the money you owe me and communicate”.

8.  As noted above, the defendant has not adduced any evidence in support of his pleaded defence that the relationship between himself and the plaintiff was one of direct buyer and seller.

9.  As for the rate of commission, apart from the plaintiff’s oral evidence, the plaintiff’s case is supported by:

(1)  the WhatsApp communications between the defendant and Mr Sukenik on 31 July 2017, stating that “with 3 brokers, we each earned 1.33% not a full 2%” (at 11:24 am); and

(2)  an article from a website reporting bitcoin news which stated that public brokers settle for a fee between 1% to 5% for which “high net worth individuals and others get privacy and security”.

10.  The defendant’s claim that he charged a 40% “Transaction Fee” in respect of both the Gatecoin Sales and the TD Ameritrade Sales is a bare assertion which is neither substantiated by any supporting evidence nor accords with commercial sense, given that the plaintiff could have resorted to public brokers who ordinarily charge a fee of 1% to 5% only.

B2.   The Citibank transfers

11.  The plaintiff’s evidence is that, as he (being a non-resident) could not open a Hong Kong bank account to handle the sale proceeds, he agreed with the defendant that they should be deposited into the defendant’s account no 0083972323 in Hong Kong maintained with Citibank (Hong Kong) Limited (the “Citibank Account”).  The defendant gave the plaintiff access to the Citibank Account by providing him with the login details and security token, thus allowing the plaintiff to make transfers of funds from the Citibank Account to his bank account in Germany.

(1)  Citibank has confirmed that the security token in the plaintiff’s possession was assigned to the defendant.

(2)  The plaintiff was evidently able to log into the Citibank Account up till at least mid-October 2017 and made transfers to his own bank account in Germany.

12.  The defendant denies ever having given the plaintiff access rights to his Citibank Account.  He deals with the Citibank transfers by way of a table in the Consolidated Defence.  As Deputy High Court Judge Le Pichon observed at §43 of her Decision:

“On closer consideration, an inexplicable and troubling feature emerged: three of the transaction references appears to have been used twice for different trades effected on different dates, albeit involving the same amount.”

13.  As the learned Judge further held at §45 of her Decision:

“There can be no rational or innocent explanation for that state of affairs. It suggests that there is something seriously awry with the evidence presented. The inference is compelling that the table was concocted to correlate with the outgoing transfers shown on the printout, undermining the defendant’s truthfulness. Necessarily, the other tables produced (§§17 and 29 above) must suffer the same fate.”

14.  Notwithstanding the above judicial criticism, the defendant has chosen not to proffer any explanation for his pleaded defence.

B3.   The Gatecoin Sales

15.  As stated above, there is no dispute that the plaintiff transferred to the defendant 275 bitcoins between 8 August 2017 and 6 September 2017 in respect of the Gatecoin Sales.  The issue is whether the plaintiff also transferred the remaining 190.287 bitcoins to the defendant as alleged.

16.  The plaintiff’s case in this regard has been summarised in the table at the Amended Consolidated Statement of Claim §24A.  In short, between 25 July 2017 and 15 September 2017, the plaintiff transferred a total of 480.487 bitcoins to the defendant’s Gatecoin Account:

(1)  Between 25 July 2017 and 31 July 2017, 194 bitcoins were transferred to the defendant’s 1^st Wallet Address,^[1] out of which 15.2 bitcoins were subsequently transferred back to the plaintiff on 27 July 2017, leaving a net balance of 178.8 bitcoins.

(2)  Between 8 August 2017 and 6 September 2017, 275 bitcoins were transferred to the defendant’s 2^nd Wallet Address^[2]. These transfers are not in dispute.

(3)  On 15 September 2017, 11.487 bitcoins were transferred to the defendant’s 3^rd Wallet Address^[3].

17.  As explained in the plaintiff’s witness statement, which was adopted as his examination-in-chief, the transaction records contained in the Gatecoin Report, when read together with the public bitcoin ledger, clearly show that the 194 bitcoins transferred to the defendant’s 1^st Wallet Address in July 2017 came from the plaintiff.

18.  As for the transfer of 11.487 bitcoins on 15 September 2017, the plaintiff has produced the transfer record from his wallet, showing that the recipient address belongs to the defendant’s Gatecoin Account.

19.  Based on the above, the court finds that the plaintiff transferred 465.287 bitcoins (ie 194 - 15.2 + 275 + 11.487) between 25 July 2017 and 15 September 2017 to the defendant’s Gatecoin Account and entrusted him to sell the same on his behalf as his sales agent.

B4.   The TD Ameritrade Sales

20.  As stated above, there is no dispute that the plaintiff transferred to the defendant 387.2 bitcoins in respect of the TD Ameritrade Sales.  These transfers were effected from the plaintiff’s Copay wallet.

21.  The defendant’s case is that those bitcoins were sold by the plaintiff to him, who then paid for them immediately, partly by SWIFT transfers and partly in cash as particularised in the table at §12(3) of the Consolidated Defence.  However, as noted above, the defendant has not adduced any evidence in support of his pleaded defence.

22.  Based on the above, the court finds that the plaintiff transferred 387.2 bitcoins between 27 June 2017 and 1 August 2017 pursuant to the defendant’s instructions as his sales agent in respect of the TD Ameritrade Sales.

B5.   Loans to the defendant

23.  It is the plaintiff’s case and evidence that he extended 2 loans in the sums of US$180,000 and US$11,032 to the defendant.

24.  The first loan of US$180,000 is evidenced by a written loan agreement dated 5 June 2017, which was exhibited to a statutory declaration made by the defendant on 6 June 2017.  Under the agreement, the defendant stated that he owed a sum of US$180,000, which would be repaid with 5% interest within 13 months from the date of the agreement.  On 7 June 2017, the defendant acknowledged receipt of the principal sum.

25.  The defendant’s pleaded defence is that the written loan agreement was a “sham document created by the plaintiff who wished to receive some of the proceeds of sale from future bitcoin transactions”.  However, he has not produced any evidence to substantiate his serious allegation that the loan agreement was a “sham document”.  His defence must be rejected.

26.  According to the plaintiff’s case, the second sum of US$11,032 was a cash loan which he extended to the defendant on around 13 July 2017 in Panama, such that the total amount owed by the defendant to the plaintiff up to 11 July 2017 (then at US$528,968) would be US$540,000 as stated in the “Declaration of Gift”, which was executed by the plaintiff in reliance upon the defendant’s representations.

27.  This loan agreement was not reduced into writing.  Nonetheless, I accept that the plaintiff’s explanation as to how this cash loan came about has been consistent and is inherently probable in the light of the state of affairs up to 11 July 2017:

(1)  The first sum then liable to be paid by the defendant to the plaintiff was US$290,515, being the sale proceeds of the OSL Sales (ie US$299,500) minus 3% commission (ie US$8,985).  The defendant accepts that OSL paid him US$299,500 for bitcoin sales in June and July 2017.  It is also common ground that the plaintiff has since received US$290,515 paid out of the defendant’s Citibank Account.

(2)  The second sum then liable to be paid by the defendant to the plaintiff was US$54,953, being the sale proceeds of the Provenzal Sale minus a bank charge of US$47.  The defendant accepts that Mr Provenzal paid him a sum of US$55,000, but claims that it was the purchase price paid by Mr Provenzal for Transcom Ltd CA, a Panama company owned by the defendant.  The documentary evidence produced by the defendant in this regard does not support his assertion, and should be rejected.^[4] It is common ground that the plaintiff has since received US$54,953 paid out of the defendant’s Citibank Account.

(3)  The third sum then liable to be paid by the defendant to the plaintiff was US$194,000, being the first tranche of sale proceeds in respect of the TD Ameritrade Sales (ie US$200,000) minus 3% commission (ie US$6,000).

(4)  It is common ground that the defendant paid 2 sums of US$500 and US$10,000 to the plaintiff on 3 July 2017.

(5)  In summary, the defendant then owed a total sum of US$528,968 (ie US$290,515 + US$54,953 + US$194,000 - US$500 - US$10,000) to the plaintiff.  Adding this sum to the loan amount of US$11,032 would become US$540,000.

C.     THE DEFENDANT’S LIABILITY

C1.   The defendant’s breach of duties as agent

28.  It is well established that the relationship of principal and agent may be constituted by the conferring of authority by the principal on the agent: Bowstead and Reynolds on Agency (22^nd ed, 2021), §2-001.  Agency relationships have traditionally been accepted as fiduciary in nature: Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681, §§53, 60, per Ribeiro PJ.

29.  In Bristol and West Building Society v Mothew [1998] Ch 1, 18AB-C, Millett LJ (as he then was) held that:

“… A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977), p 2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary.”

30.  Thus, the defendant, when dealing with the plaintiff’s bitcoins and sale proceeds as his sales agent, owed to the plaintiff, among other things, duties to avoid conflicts of interest, not to profit from his position as agent, and not to use the plaintiff’s property to acquire secret profits: Bowstead and Reynolds on Agency, §§6-046, 6-073 to 6-076.

31.  Further, the defendant was and is obliged as an agent to keep an accurate account of all transactions entered into on behalf of the plaintiff, to produce to the plaintiff all books, correspondence and documents relating to the plaintiff’s affairs, to account for profits, and to pay over and account for the money he has held or received for the plaintiff: Bowstead and Reynolds on Agency, §§6-090 to 6-100.

32.  It is the plaintiff’s case, supported by evidence, that the defendant has been in breach of his fiduciary duties as agent, for failing to account to the plaintiff for his bitcoins and sale proceeds in respect of the Gatecoin Sales and the TD Ameritrade Sales since around mid-September 2017, and becoming incommunicado shortly thereafter.

33.  The defendant has not adduced any evidence in rebuttal.  In the premises, the court finds that the defendant was and is in breach of his fiduciary duties to account for the plaintiff’s bitcoins, the sale proceeds, and any income or profits derived therefrom.

34.  For completeness, by reason of the defendant’s blatant breaches of his fiduciary duties as agent, which amounted to repudiatory breaches of the Agency Agreement, he is not entitled to any commission in respect of the Gatecoin Sales and the TD Ameritrade Sales: Bowstead and Reynolds on Agency, §§7-048, 7-050.  Thus, all sale proceeds and fruits thereof found due shall be ordered to be paid over to the plaintiff.^[5]

C2.   The defendant’s failure to repay loans

35.  The defendant has failed to repay any part of the loans totalling US$191,032 to the plaintiff.   No evidence has been adduced by the defendant in rebuttal.  In the premises, the court finds that the defendant is liable to repay the sum of US$191,032 plus interest thereon to the plaintiff.

C3.   Relief granted against the defendant

36.  It is well established that the principal can claim proprietary remedies against the agent in respect of the latter’s breach of fiduciary duties: Bowstead and Reynolds on Agency, §6-040.  Money and property which has been specifically entrusted to the agent by the principal to hold for his benefit or to use for a specific purpose, as well as assets derived from the misapplication of money or property belonging to the principal, are held on trust by the agent for the principal: Bowstead and Reynolds on Agency, §§6-041 to 6-042.

37.  In the present case, based on the documents produced by Citibank and the Gatecoin Liquidators pursuant to the discovery order made by Deputy High Court Judge Le Pichon, the plaintiff has been able to identify the following assets in Hong Kong under the defendant’s name which represent part of the fruits of his bitcoins and the sale proceeds, and are now subject to the proprietary injunction:

(1)  the following balances (as of 25 May 2018) in the defendant’s Citibank accounts:

(a)  the cash balance in account no 86682554 at HK$31,452.61 equivalent;

(b)  the cash balance in account no 48448869 at HK$1,779.53;

(c)  the fund units in account no 35320230 with a total net asset value of HK$3,686,030;

(d)  the securities in account no 32303912 with a total market value of HK$4,322,042.24;

(2)  the interests and sums due to the defendant under insurance policies no B816061961 and B816086807 underwritten by AIA International Limited; and

(3)  45.08883459 bitcoins and US$0.007 in the Gatecoin Account.

38.  Further, based on the same documents, the plaintiff has been able to identify the following assets which represent part of the fruits of his bitcoins and the sale proceeds, and have been disposed of by the defendant for his own use or benefit:

(1)  14.7555 bitcoins in the Gatecoin Account which were disposed of by the defendant on 29 July 2017 and 24 August 2017 for his own benefit;

(2)  a total of 34.73506 bitcoin cash transferred out of the Gatecoin Account between 4 August 2017 and 1 November 2017;

(3)  a sum of US$800,000 transferred from the Gatecoin Account on 11 September 2017 and credited to the defendant’s Citibank account on 21 December 2017;

(4)  67.16482249 bitcoins sold or withdrawn by the defendant from the Gatecoin Account between 13 September 2017 and 7 March 2018; and

(5)  sums of US$200,000, US$400,000 and US$30,829 transferred from the defendant’s Citibank account in Hong Kong to his account with Citibank Colombia and the account of one May S Zona Libre in Panama in February and March 2018.

39.  In the premises, I grant the following relief against the defendant:

(1)  a Declaration that the 465.287 bitcoins transferred by the plaintiff to the defendant’s Gatecoin Account, the sale proceeds and the fruits thereof, including but not limited to those referred to at paragraph 37 above, were at all material times and are held by the defendant on trust for the plaintiff absolutely;

(2)  a Declaration that the 387.18422 bitcoins transferred by the plaintiff pursuant to the defendant’s instructions in respect of the TD Ameritrade Sales, the sale proceeds and the fruits thereof, including but not limited to those referred to at paragraph 37 above, were at all material times and are held by the defendant on trust for the plaintiff absolutely;

(3)  an Order that the defendant do forthwith procure Citibank (Hong Kong) Limited and AIA International Limited to transfer the sums and properties referred to at paragraph 37(1) and (2) above to the plaintiff;

(4)  an Order that the defendant shall pay equitable compensation to the plaintiff in the event that the plaintiff is unable to recover the 45.08883459 bitcoins and US$0.007 referred to at paragraph 37(3) above, or any part thereof, in specie in the Gatecoin Liquidation, with quantum to be assessed;

(5)  an Order for all necessary accounts, inquiry and directions as to what is due to the plaintiff, including but not limited to those sums and properties referred to at paragraph 38 above;

(6)  an Order that the defendant do transfer the property and/or pay the amount found due to the plaintiff upon taking the aforesaid accounts, inquiry and directions;

(7)  subject to sub-paragraph (3) above, the Mareva Injunction be extended up to and including the taking of the aforesaid accounts, inquiry and directions;

(8)  an Order that the defendant do pay sums of US$180,000 and US$11,032 as outstanding loans;

(9)  the defendant do pay interest on the sum of US$180,000 at the contractual rate of 5% per annum from 5 June 2017 to 5 July 2018, and thereafter at the same rate of 5% per annum until full payment;

(10)  the defendant do pay interest on the sum of US$11,032 at 1% above the HSBC prime rate per annum from 13 July 2017 to the date of judgment, and thereafter at the Judgment Rate until full payment; and

(11)  there be liberty to apply.

40.  I would grant leave for the plaintiff’s payments into court in these proceedings, in the total sum of HK$1,700,000 together with any interest accrued, to be released to his solicitors forthwith.

41.  As regard costs, as submitted by the plaintiff, this is a case where the defendant has been in blatant breach of his fiduciary duties owed as agent.  The defendant’s conduct in these proceedings has been evasive. He has made various serious allegations against the plaintiff in his Defence which are not backed up by adducing evidence at trial.  Despite the judicial criticism against him (see: paragraphs 4, 12 and 13 above), the defendant has chosen not to file any evidence.  I am of the preliminary view that, in the circumstances, it is “appropriate” to award indemnity costs against the defendant.

42.  Accordingly, I order that the costs of these proceedings (including all costs reserved, if any) be paid by the defendant to the plaintiff, such costs are to be taxed if not agreed on the indemnity basis.

43.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

44.  Lastly, I express my gratitude to counsel for her helpful assistance in this matter.

HCA 902/2018 & HCA 2332/2018

[2021] HKCFI 1078

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 902 AND 2332 OF 2018

________________________

________________________

________________________

REASONS FOR DECISION

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1.  There were two applications before the court. The plaintiff applied by summons dated 24 September 2020 for a proprietary injunction over certain assets (“the proprietary injunction summons”) while the other summons was taken out on behalf of the defendant seeking leave to withdraw monies from a bank account allegedly to meet living and legal expenses (“the withdrawal summons”).

2.  After hearing the parties, I indicated that an order in terms of the proprietary injunction summons, but not one in terms of the withdrawal summons, would be made.  The summary of my reasons is now given.

3.  The background to the dispute between the parties has been set out in paragraph 6 of the decision of Deputy High Court Judge Le Pichon dated 1 November 2019, and I do not think it necessary to repeat that background in any detail.  The essential elements of the dispute are that plaintiff is a Dutch citizen living in Curaçao, who came to Hong Kong in June 2017 for the purpose of engaging the defendant to sell bitcoins for him.  The plaintiff says that the defendant was to be paid a commission for doing so.  He says further that it was agreed between the plaintiff and the defendant that the sale proceeds would be deposited in the first instance into a nominated bank account of the defendant in Hong Kong from which they would be paid onwards to the plaintiff.  The plaintiff was given access to the bank account login details and security token.

4.  The defendant contends that the nature of the agreement, and therefore of the subsequent transactions was different to that alleged by the plaintiff, being a sale by the plaintiff to the defendant of the bitcoins.  The defendant denies that he acted as agent in making the sale of the bitcoins and says that he was acting as principal, having bought the bitcoins from the plaintiff for consideration paid in cash. The payments alleged to have been made by him are summarised in tables in his pleaded defence.

5.  In any event transfers of bitcoins were made by the plaintiff to the defendant’s account with one Gatecoin Ltd., (a company now in liquidation), following which sales were made of bitcoins to third parties, and proceeds received which, according to the plaintiff amounted to approximately US$3.1 million.  A portion of that money was transferred to the plaintiff’s bank account in Germany, but after mid-September 2017 no further transfers were made.  It appears that the money held in the (relevant) defendant’s account was placed on time deposit, and was therefore “locked in”.

6.  The plaintiff seeks to assert a proprietary interest over the remaining bitcoins (held by Gatecoin) and the sale proceeds, and seeks a declaration that the sale proceeds were and are held on trust for the plaintiff.

7.  A Mareva injunction was granted by the court on 1 November 2019, and documentary disclosure subsequent to that injunction order has been given by, inter alia, the bank of the defendant.  It is the plaintiff’s contention that, based on those documents, it has been able to trace the sale proceeds and the result of that tracing exercise is the proprietary injunction application.  In addition, the plaintiff had filed an amended consolidated statement of claim including details of the fund flows alleged.

8.  On 15 May 2020 Solicitors then acting for the defendant requested the consent of the plaintiff to a variation of the Mareva injunction so as to provide funds to pay an existing legal bill.  The letter included the suggestion that the defendant had no other source of funds to settle that legal bill.  The plaintiff did not agree to the proposal.  No application was made to court by the defendant however until 18 September 2020.

The Proprietary Injunction

9.  There is no significant dispute between the parties as to the nature of this, nor as to the essential requirements.  Such a proprietary injunction will be granted where necessary to preserve assets which are the subject of a proprietary claim and an applicant is expected to show that there is a serious issue to be tried on the merits; that the balance of convenience favours the grant of the injunction and, that it will be just and convenient to do so.

10.  Those matters were considered by the judge in deciding to grant the Mareva injunction, and the plaintiff relies, it appears, on largely the same points in making the application for the proprietary injunction.  Perhaps understandably, the defendant offered little by way of submissions as to why no such injunction should be granted.  There can be no argument that there is not a serious issue to be tried between the parties as to the nature of their business relationship, and no real argument that the discretionary considerations favour maintaining all the status quo so far as possible in regard to the assets of the defendant which have been identified in Hong Kong.

11.  The judge, in granting the Mareva injunction was critical of the explanations and evidence which had been provided by the defendant in relation to these transactions, and the disposition of the funds received in respect of the sale of the bitcoins.  In submissions, the plaintiff is further critical of the evidence which has been supplied on behalf of the defendant to explain his available assets.  The defendant’s contention is that he requires access to the Citibank account in order to be able to pay for his living and legal expenses.  On the other hand, a further affirmation of the defendant’s solicitor dated 18 November 2019 describes his assets (and as summarised by his counsel in submissions) as amounting to some HK$31 million, albeit that much of this is the subject of the injunction, and certain assets are of restricted access (including bitcoin held by Gatecoin Ltd).

12.  It is also the defendant’s case that he has bank accounts in Colombia, and has been the owner of properties in Colombia which he has used as collateral for an alleged loan, seemingly from a company that may be associated with the defendant himself.  There is undoubtedly a lack of clarity as to the defendant’s position, putting matters at the very lowest.

13.  Furthermore, in support of the withdrawal summons the defendant filed only an affirmation made by his solicitor which gave no further particulars of the defendants financial means or assets.  The defendant himself made (but did not affirm) a draft affirmation containing what is described by the plaintiff (understandably, in my view) as “piecemeal, incorrect, and potentially misleading evidence as to his assets”.  That affirmation contained various assertions as to what had happened to the substantial sums which were withdrawn by the defendant from the Citibank account, and which funds seem to have been transferred to the defendant’s own accounts in Colombia.

14.  It is clear on a perusal of the evidence that the defendant has given limited and selective disclosure of his assets, and has apparently, (at least without the benefit of further explanation from him) been engaged in attempts to remove assets out of the reach of the plaintiff.  There is no clear evidence available as to his assets overall, or as to the business expenses on which he says some of the funds have been spent.

15.  Overall it is clear on the present evidence that the defendant’s evidence is highly unsatisfactory and raises far more questions as to his assets and resources than are answered.  For those reasons it appeared to me entirely appropriate both to allow the extension of the injunction as sought by the plaintiff, and to refuse the application of the defendant to be allowed to use his Hong Kong bank account for the payment of living expenses and legal fees.  Orders were made in terms of the plaintiff’s summons.  The defendant’s summons was dismissed.

Costs

16.  The plaintiff asked for the costs of both its summons, and of the defendant’s summons, and further that there be a summary assessment of those costs.  The defendant’s primary position was that the costs of the plaintiff’s summons should be costs in the cause; that taxation of costs should be ordered rather than a summary assessment made; but nevertheless submissions were made as to the reasonableness of the plaintiff’s Statement of Costs in the event that a summary assessment was to be made.

17.  Having considered those submissions, I make orders that the costs of each summons be to the plaintiff.  Having considered the submissions of the parties as to the amount of costs, I consider that a summary assessment of the relevant costs is appropriate, and having considered the submissions made, make a summary assessment of the plaintiff’s costs at $520,000.00.

HCA 902/2018 and
HCA 2332/2018
(Consolidated)

[2019] HKCFI 2718

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS 902 AND 2332 OF 2018

___________

BETWEEN

___________

(Consolidated)

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DECISION

_____________

1.  This was the substantive hearing of (1) a renewed Mareva application by Nico Constantijn Antonius Samara (“the plaintiff”) by summons dated 11 June 2018 (“the injunction summons”) on the ground that there is evidence that justifies reconsideration or constitutes a material change of circumstances; and (2) the plaintiff’s summons dated 24 April 2018 for an order to inspect and take copies of bankers records used and kept by Citibank (Hong Kong) Limited, and the defendant or Gatecoin Ltd (“Gatecoin”) to provide copies of certain information and documents (“the discovery summons”).

2.  The injunction is sought to restrain Stive Jean-Paul Dan also known as Steve Jean-Paul Dan, Stive Jean Paul Dan and Steve Jean Paul Dan (“the defendant”) from disposing of assets in Hong Kong up to a value of US$2,603,639.  At the conclusion of the hearing, the Decision on both summonses was reserved which I now give.

PROCEDURAL HISTORY

3.  On 20 April 2018, the plaintiff made an ex parte application on an urgent basis and obtained an injunction. At the subsequent inter partes hearing on 27 April 2018, it was discharged by Madam Recorder Yvonne Cheng SC (“the Recorder”) on grounds of material non-disclosure and abuse of process. The plaintiff had failed to disclose that both the Citibank account and the Gatecoin account, being the main accounts he was seeking to target with the injunction order had already been frozen independently of any court order.

4.  The plaintiff then applied for a re-grant of the injunction which was refused. As the plaintiff had given no information as to his financial means, lives in Curaçao with no assets in Hong Kong and has no Hong Kong connection, he was unable to satisfy the court that his undertaking was a meaningful one. The Recorder’s Reasons for Decision (“the 2018 Decision”) were handed down on 15 May 2018 to which reference should be made.

5.  At the call over hearing of the injunction summons on 15 June 2018, the defendant gave an undertaking pending the determination of the injunction summons not to remove from Hong Kong any of his assets up to a value of US$2,337,279.83.

BACKGROUND

6.  The relevant background to these proceedings is set out in §§4 – 10 of the 2018 Decision which I gratefully adopt. For ease of reference, they are set out below:

“ 4. The Plaintiff made an affirmation dated 20 April 2018 (“the Plaintiff’s 1^st Affirmation”) in support of his exparte application. He is a citizen of the Kingdom of Netherlands living in Curaçao. He says that he had 1,000 bitcoins (‘the Bitcoins’) and came to Hong Kong during part of June 2017 so that the Defendant could help sell the Bitcoins for him, for a 3% commission.

5. As the Plaintiff (being a non-resident) could not open a Hong Kong bank account to handle the sale proceeds, he agreed that they should be deposited into the Defendant’s account in Hong Kong with Citibank, from whence the funds would be transferred to the Plaintiff’s bank account in Germany. The Defendant gave the Plaintiff access to the Citibank account by providing him with the login details and security token. The Plaintiff could then make transfers of funds to his account in Germany.

6. The Plaintiff says that between June and September 2017 some of the Bitcoins were traded. A main way in which this was done was through the Defendant’s nominated bitcoin wallet at Gatecoin. The Plaintiff transferred some bitcoins from his personal bitcoin wallets into the Defendant’s bitcoin wallet at Gatecoin so that they could be traded by the Defendant. The agreed arrangement was that the proceeds of sale would be transferred to the Citibank account.

7. The Plaintiff says that the total amount payable by the Defendant to him for the trading of the Bitcoins was US$3,118,139. Between 3 July 2017 and 6th September 2017, the Plaintiff transferred US$520,500 from the Defendant’s Citibank account to his bank account in Germany.

8. The Plaintiff says that from around 14 September 2017, he noticed that the money in the Citibank account had been placed on time deposits and could not be transferred. From around the beginning of November 2017, the Plaintiff has been unable to gain online access to the account at all. The Plaintiff says that the Defendant therefore owes him US$2,597,639.

9. The Plaintiff says that he has not been able to locate or communicate with the Defendant since 27 or 28 October 2017.

10. In February 2018, the Plaintiff contacted Gatecoin to notify it of his concerns regarding the Defendant and to ask that Gatecoin block the Defendant from accessing his Gatecoin account.  On 23 February 2018, the Plaintiff was informed by Aurelien Menant, the CEO of Gatecoin, that 40 bitcoins remained in the Defendant’s Gatecoin wallet. Mr Menant agreed to block the Defendant from withdrawing the bitcoins from the wallet, but said that he would need a legal basis to block the account for any extended period of time.”

THE PLAINTIFF’S RENEWED APPLICATION

7.  To justify the plaintiff’s renewed application, the plaintiff’s counsel, Ms Seto, relied on the following ‘new’ evidence:

(a) An official certificate issued by the relevant French authorities, recording a decision of 21 April 2018 of the registrar of births, marriages and deaths that the defendant is called “Steve, Jacob, DAN”.

(b) Evidence from the defendant’s former assistant to the effect that he had been told by the defendant that the defendant had recently acquired a new passport[1] under yet a different name[2] “Stephane Jean-jacque Dan”.

(c) Citibank: (i) an apologia from the plaintiff[3] to address the adverse comments made in the 2018 Decision to show that the underlying assumption he had made that the account had been blocked was not an established fact; (ii) Citibank’s letter dated 16 October 2019 stating its inability to provide further information regarding the defendant’s account (if any) absent a court order ordering disclosure.

(d) Gatecoin’s insolvency and the appointment of liquidators on 20 March 2019 with the plaintiff and the defendant lodging proofs of debt asserting competing proprietary claims over 45.08883 Bitcoins in the Gatecoin account.

(e) The serial number appearing on the Citibank’s security token, a photograph of which is part of exhibit NCAS 6 to the plaintiff’s 1^st affirmation dated 20 April 2018 (“P 1^st”).

8.  The plaintiff submitted that as the present case involves fraud, the fact that the defendant has multiple passports and names[4] is a significant factor.  It was suggested that only someone who has something to hide would resort to having different identities.  It was further submitted that without an injunction, the defendant will be in a position to dissipate monies in his Citibank account as well as those in the Gatecoin account in the event of any distribution by the liquidator.  As the defendant is the account holder, it was said that the liquidator will likely accept his claim rather than the plaintiff’s.

9.  At the hearing, the defendant made no oral submissions to the effect that the court should not entertain the renewed application.  It is to be noted that at the hearing before the Recorder, the court did not have to consider the substantive merits of the plaintiff’s case because of issues of material non-disclosure and abuse of process. On the plaintiff’s renewed application, the focus was on the defendant’s objection regarding the absence of evidence of the plaintiff’s ability to make good his undertaking and the absence of an offer of fortification.

THE RELEVANT LEGAL PRINCIPLES

10.  It is common ground and well established that for a Mareva injunction to be granted, the applicant has to satisfy the court that (a) he has a good arguable case on his claim; (b) there are assets within the jurisdiction; (c) there is a real risk of dissipation of assets so as to render any judgment that may be made in his favour nugatory, and (d) the balance of convenience is in favour of grant.

WHETHER THE PLAINTIFF HAS A GOOD ARGUABLE CASE

(1) The trades

11.  The plaintiff’s case is that he entered into an oral agreement with the defendant in Hong Kong on 1 June 2017 who agreed to sell the plaintiff’s 1,000 Bitcoins as agent in return for a commission of 3%.  Between June and September 2017, the plaintiff transferred Bitcoins to the defendant for trading with, inter alia, Gatecoin and TD Ameritrade (“TDA”).

12.  The relevant evidence concerning these two accounts[5] is set out below.

(a) Gatecoin

13.  The plaintiff claims to have transferred 450 Bitcoins to the defendant’s nominated wallet at Gatecoin.  However, he was only able to produce contemporaneous records showing the transfer of 275 Bitcoins from his Electrum wallet to the defendant’s Gatecoin wallet on various dates between 8 August and 6 September 2017.  The relevant transfer dates and the quantity of Bitcoins transferred are set out in §41 of P 1^st.  That much is common ground.

14.  It is the plaintiff’s case that between July and August 2017, he had also transferred a further 175 Bitcoins to the defendant’s Gatecoin wallet (“the disputed Gatecoin transfers”) from another of his Bitcoin wallets but is unable to provide documentary evidence because he no longer has the Bitcoin wallet containing the relevant record “as the same has been emptied”.

15.  He went on to explain[6] that:

“ a bitcoin wallet can only be accessed by inserting a seed (which is a random 12-word phrase), which is only known to the owner. Thus, the ownership of the bitcoin wallet is asserted by possession of the seed. By not keeping the empty bitcoin wallet, it means that I no longer keep or remember the seed which is vital in accessing or restoring the old or empty bitcoin wallets.”

16.  The plaintiff acknowledged that Bitcoin transactions including those relevant to “lost” Bitcoin wallets can be traced in the public domain “by experts” but that he (the plaintiff) did not have the requisite knowledge or skills to do so.

17.  Based on information that the defendant had “provided” the plaintiff between 28 July 2017 and 6 September 2017, the plaintiff set out in the table to §45 of P 1^st (reproduced below) 7 trades of Bitcoins via his Gatecoin account that the defendant had facilitated:

Date	BTC quantity	BTC unit price	Total price	Transaction type
28 July 2017	25 BTC	US$ 2,683.92	US$ 67,098	OTC
31 July 2017	145.265 BTC	US$ 2,692.00	US$ 391,054	Exchange
8 August 2017	29.735 BTC	US$ 3,344.82	US$ 99,458	OTC
14 August 2017	25 BTC	US$ 3,955.15	US$ 98,878	OTC
25 August 2017	25 BTC	US$ 4,109.44	US$ 102,736	OTC / Exchange
6 September 2017	100 BTC	US$ 4,202.88	US$ 420,288	Exchange
6 September 2017	100 BTC	US$ 4,491.27	US$ 449,127	OTC
Total:	450 BTC		US$ 1,628,639

18.  The 2^nd and 3^rd transactions listed involved the disputed Gatecoin transfers as to which the plaintiff is unable to provide documentary evidence to prove the transfers.

19.  What is not known is the basis upon which the plaintiff was able to make the entries for the 2^nd and 3^rd transactions shown in §17 above. The plaintiff did not explain how the defendant provided the relevant information to him, what form it took and why it is no longer available.   

20.  For his part, the defendant does not accept the plaintiff’s explanation for his inability to produce transfer records.  He maintains that even if a seller’s own wallets (or public/private keys) are lost, a public record of the transaction is still searchable, if he is in possession of any of the following: (1) the seller’s public key to his Bitcoins wallet, (2) the buyer’s public key to his Bitcoins wallet, (3) the transaction hash, (4) time, volume, quantity of the Bitcoins transacted.[7]

21.  Whether Bitcoin transaction records are susceptible to public searches and, if so, how that is to be done, are not matters about which any preliminary view can usefully be formed given the state of the evidence on this issue and must be a matter for resolution at trial.

22.  The issue concerning the 275 Bitcoins is different.  There is no dispute that they were transferred to the defendant.  The issue is whether the defendant acted as principal or agent, and his rate of commission. 

23.  The defendant’s case is that he is a Bitcoin trader who had traded with the plaintiff prior to the matters in issue in these proceedings. His relationship with the plaintiff was exclusively that of seller and buyer dealing directly with each other; all trades between them were concluded on the spot with payment being made in cash there and then or by wire transfer. However, it is noted that no mention was made of the fee/commission charged for those transactions.  The defendant denied that he ever acted or agreed to act as agent for the plaintiff.

24.  The defendant stated that the plaintiff approached him in 2016 wanting to sell his 1000 Bitcoins, the defendant stated he could no longer continue to trade with the plaintiff as the defendant did not have sufficient liquidity to absorb that amount of Bitcoins, “as [the plaintiff] did not wish to receive funds by bank transfer any more” [8].

25.  The defendant stated that the plaintiff did not want to register or trade on soybit.com which was an online Bitcoin trading exchange the defendant started in Curaçao in November 2015.  Trading on soybit.com would have required the customer/client to register on the website and provide a copy of their passport, ID and proof of address.  In other words, the plaintiff wished to trade anonymously. 

26.  Ms Cheung, counsel for the defendant, explained that there was a price to be paid for privacy and the average commission or fee rate for OTC trades in cash for clients who wished to trade anonymously ranged from 12% to 50%.  In the defendant’s case, where the trade was to be anonymous, his average commission/fee rate is 40% and falls within the range.

27.  The defendant referred to the website http://richfund.pe (said to be one of the largest OTC Bitcoin traders) which allegedly shows a 50% fee for conducting cash transactions in the Caribbean and Latin American region but adduced no documentary evidence in support. According to the plaintiff, the site given is defunct[9].

28.  In reply, the plaintiff exhibited an article from a website reporting Bitcoin news which stated that public brokers including Richfund (whose website the defendant had relied on) and OTC’s settle for a fee between 1% to 5% for which “high net worth individuals and others get privacy and security”. 

29.  In his Consolidated Defence dated 13 March 2019 (“CD”) §11(3) (reproduced below) the defendant summarised the payments he made to the plaintiff as follows:

	Date (2017)	Bitcoin bought	BTC price (USD)	Total (USD)	D’s fee (40%)	Total payout (USD)	Paid to P by Citibank SWIFT transfer (Transaction #)	Paid to P in cash (USD equivalent)
1.	7 August	25	3,340	83,500	33,400	50,100	50,000 (8071235065)
2.	13 August	25	3,923	98,075	39,230	58,845	50,000 (8151237626)	9,000
3.	23 August	25	4,000	100,000	40,000	60,000	50,000 (8221239538)	10,000
4.	3 September	50	4,100	205,000	82,000	123,000	50,000 (8251240538)	50,000
5.	4 September	50	4,230	205,000	82,000	123,000	50,000 (8311242611)	50,000
6.	5 September	50	4,230	211,500	84,600	126,900	50,000 (9051244213)	100,000
7.	6 September	50	4,230	211,500	84,600	126,900	50,000 (9061244680)	100,000
	Total:					668,745	350,000	319,000

30.  What is immediately striking is that all of the SWIFT transfers were for amounts of US $50,000 each and what is even more striking is that the amounts involved all happen to be expressed in neat sums ending with three zeros.

31.  It will be seen from the table that payment was said to have been effected in part by SWIFT transfers and the balance in cash at either defendant’s office in Curaçao or at a location of the plaintiff’s choosing[10]. Pausing there, it is to be noted that bank transfers were made to the plaintiff, despite the defendant’s evidence referred to in §24 above.

32.  The SWIFT transfers show the amount paid to the plaintiff and the transaction number for each of the transfers[11]. It is to be noted that for each of trades 4 and 5, when according to the defendant a sum of US $123,000 was due, only US $100,000 is shown to have been paid without accounting for the outstanding balance of US $23,000.

33.  At the hearing, the court was informed that cash deliveries were made by messenger but other than the defendant’s bare assertion, there is no independent evidence corroborating such payments.  There are also no particulars given (as to when, where and in what currency they were made) and no evidence as to how the plaintiff’s instructions were communicated to the defendant. 

(b) TDA

34.  It is the plaintiff’s case that between 27 June 2017 and 5 August 2017, the defendant acted as the plaintiff’s agent in five trades totalling 387.18422 Bitcoins to TDA, a US listed brokerage firm for a total price of US $950,000.  There is a supporting affirmation from Mr Sukenik who, according to the plaintiff, had brokered those transactions and provided the plaintiff with the WhatsApp messages exhibited as NCAS 32. 

35.  Mr Sukenik’s evidence is to the effect that in his Bitcoin dealings with the defendant in June and July 2017, the defendant had represented to him that one “Nick” (ie the plaintiff) was the seller of the Bitcoins and that as brokers, the defendant and Mr Sukenik together would charge a commission fee of no more than 5% of the sales price of the plaintiff’s Bitcoins sold to TDA. 

36.  It is common ground that 387.2 Bitcoins were transferred by the plaintiff into a co-pay account.  The defendant maintained[12] that he purchased those Bitcoins and that he paid the plaintiff immediately from the Citibank account and in cash delivered to the plaintiff [13] via an employee of the defendant.

37.  As pleaded in CD §12, the defendant’s case is that he sold those Bitcoins to his client (“TD client”) who used a TDA bank account (but who was not in any way affiliated with TDA).  The defendant had asked the plaintiff to directly transfer the Bitcoins into a wallet nominated by TD client known as the co-pay wallet.  TD client used a broker, Mr Sukenik, whose signature was also required by the co-pay wallet. Once the Bitcoins had been transferred into the co-pay wallet, the defendant would initiate payment and upon receipt of the payment, the plaintiff would give instructions to release the Bitcoins from the wallet.

38.  A table was produced setting out the five trades with the relevant information and in particular Citibank SWIFT transfers with transaction numbers evidencing payments.  It is the defendant’s case that all transactions were settled by bank transfer to the plaintiff’s account or/and in cash. 

	Date (2017)	Bitcoin purchased	BTC price (USD)	Total (USD)	D’s fee (USD)	Total payout (USD)	Paid by Citibank transfer (Transaction #)	Paid in cash (USD equivalent)
1.	28 June*	85.106	2,164	184,169.38	73,667.75	110,502	500 (7032068080) 10,000 (7031224133)	100,000
2.	9 July	42.553	2,350	99,999.55	39,999.82	60,000		60,000
3.	18 July	68.027	2,205	149,999.54	59,999.81	90,000		90,000
4.	25 July	97.352	2,568	249,999.94	99,999.97	150,000	10,000 (7251231017) 50,000 (8071235065)	90,000
5.	28 July	94.162	2,655	250,000.11	100,000.04	150,000	50,000 (8151237626) 50,000 (8221239538)	50,000
	Total:	387.2		934,168.52	373,667.39	560,502	170,500	390,000

*The wire transfer of the two sums of US$500 and 10,000 were initiated on 28 June 2017 but left the defendant’s bank account on Monday 3 July 2017

39.  The relevant extracts[14] from the WhatsApp messages in NCAS 32 exchanged on 31 July 2017 appear to relate to trades 4 and 5 and lend support to the plaintiff’s case that the defendant acted as broker. Significantly, one of the messages from the defendant stated that “[the defendant], [Sukenik] and Mike[15] were all brokers in this deal” [16] and the commission involved for the brokers was no more than 5%.  

(2) The Citibank transfers

40.  The plaintiff’s case is that as he had no Hong Kong bank account and as a visitor without a Hong Kong address and identity card he was unable to open one.  In those circumstances, the defendant gave him access to the defendant’s Citibank account which would be used only for the purposes of receiving the sale proceeds of the plaintiff’s Bitcoins and transferring them to the plaintiff’s account with the authorisation of the defendant and the defendant would not make any transfers from that account without first obtaining the plaintiff’s approval[17].  On that basis, the defendant provided the plaintiff with the login details and security token.

41.  The plaintiff claims to have made 11 online transfers from the defendant’s account to the plaintiff’s personal account in Germany between 25 July 2017 and 6 September 2017.  Those transfers are set out in §30(3)(a) – (k) of the Consolidated Statement of Claim (“CSOC”) and it seems they were made under the defendant’s instructions[18].

42.  The defendant denies ever having given the plaintiff access rights to his Citibank account.  In response to §30(3) of the CSOC, the defendant dealt with those Citibank transfers by way of a table in CD §19 reproduced below:

	Transfer date(2017)	Amount (USD)	Relevant trade	Citibank transaction reference
(a)	25 July *	10,000	TD #4	7251231017
(b)	26 July	50,000	TD #4	8071235065
(c)	28 July	50,000	TD #5	8151237626
(d)	4 August	50,000	TD #5	8221239538
(e)	7 August	50,000	Gatecoin #1	8071235065
(f)	15 August	50,000	Gatecoin #2	8151237626
(g)	22 August	50,000	Gatecoin #3	8221239538
(h)	25 August	50,000	Gatecoin #4	8251240538
(i)	31 August	50,000	Gatecoin #5	8311242611
(j)	5 September	50,000	Gatecoin #6	9051244213
(k)	6 September	50,000	Gatecoin #7	9061244680

*   additionally, on 3 July 2017, [the defendant] had transferred US$500 and 10,000 to [the plaintiff]

43.  On closer consideration, an inexplicable and troubling feature emerged: three of the transaction references appears to have been used twice for different trades effected on different dates, albeit involving the same amount.

44.  Take for example, the Citibank transaction reference number 8071235065. It not only evidenced a transfer made on 26 July for TD #4 but also a transfer made on 7 August for Gatecoin #1.  The other transaction reference numbers used twice are 8151237626 and 8221239538.

45.  There can be no rational or innocent explanation for that state of affairs.  It suggests that there is something seriously awry with the evidence presented.  The inference is compelling that the table was concocted to correlate with the outgoing transfers shown on the printout, undermining the defendant’s truthfulness. Necessarily, the other tables produced (§§17 and 29 above) must suffer the same fate.

(3) Absence of contemporaneous supporting evidence

46.  The main criticism of the plaintiff’s case of agency is that it rests on a bare assertion of an oral agreement.  It was said that there is a total absence of contemporaneous material: there are no confirmatory texts, emails or other communications at the time of the trades, no account or running account of the amounts due have been produced.

47.  The same criticism may be made of the defendant who has also not given supporting evidence of cash payments he made to the plaintiff which, on his own evidence, involving no less than US$669,000, made over a period of approximately two months.

48.  The defendant submitted that the only piece of evidence tendered in support of trades said to have occurred is a printout of incoming and outgoing transactions of the Citibank account from 30 November 2016 to 16 October 2017 (“the printout”).

49.  That of course is not quite true since the WhatsApp messages exhibited are contemporaneous documents containing messages sent by the defendant at the time of the TDA trades relating to the capacity in which the defendant was acting and the rate of brokerage commission. 

50.  As regards the printout, it was said that the plaintiff has conducted a “reverse engineering” exercise claiming that various incoming sums are from trades and various outgoing sums were transfers of sales proceeds made to his account.  In my view, both parties have made use of the Citibank printout and indulged in a bit of “reverse engineering”.

(4) Conclusion

51.  As earlier noted, there is no issue over the transfer of 662.2 Bitcoins (comprising 275 Gatecoin Bitcoins and the 387.2 TDA Bitcoins) from the plaintiff to the defendant.  The only questions are the amounts payable and whether they were paid. 

52.  As to the rate of commission, such evidence as is before the court supports the plaintiff’s case.  The necessary consequence is that the defendant’s calculations of the amounts payable shown in the tables he has compiled cannot be believed.

53.  When that is coupled with the misgivings that arise from his use of bank transaction reference numbers for wire transfers (as to which see §§42 – 45 above), and taking an overall view of the evidence, I am satisfied that the plaintiff has met the threshold of making out a good arguable case of fraud and dishonesty.

DELAY

54.  By 1 November 2017, the plaintiff could no longer gain online access to the Citibank account.  He made attempts but could not locate the defendant.  It was not until 22 January 2018 that he sent a written demand by way of email to the defendant.  He then contacted both Citibank and Gatecoin but did not make a report to the police until 18 April 2018, two days prior to his ex parte application.

55.  That there has been some delay is undeniable but considering the material involved in the present case, the paucity of written documentation, I do not consider it inexcusable.

RISK OF DISSIPATION

56.  I do not consider it appropriate to rely on the evidence of third parties (namely, the defendant’s former employee and his former wife) to show that the defendant’s behaviour in the past discloses an “unacceptably low standard of commercial morality”.  Their evidence is nothing more than hearsay from persons who may possibly entertain a grudge against the defendant.

57.  However, where a good arguable case of fraud and dishonesty against a defendant has been established, the court may conclude that there is a real risk of dissipation of assets, citing CAC Brake Co Ltd Zhuhai v Bene Manufacturing Co Ltd & Others CACV 94/1998 (30 April 1998).  I would so conclude the present case.

BALANCE OF CONVENIENCE

58.  The known assets of the defendant comprise the Citibank account, any distribution by the liquidator that may be made in respect of the 45 Bitcoins in the defendant’s Gatecoin account and the defendant’s insurance policies with AIA International Limited.

59.  At the directions hearing in June 2018, the defendant voluntarily provided an undertaking pending determination of the injunction summons.  The defendant has not put forward reasons why the grant of a Mareva injunction which would preserve the status quo until trial would cause him real hardship.

60.  Exhibited to P 3^rd are the plaintiff’s the latest available bank statements (as at the date of that affirmation) from two bank accounts which show a total balance of some €660,000. That was of course the position in June 2018 rather than what the situation is currently which may be very different. Nevertheless, one would expect that an update would have been provided to the court if any significant changes had occurred.

61.  Apart from offering the usual undertaking as to damages, the plaintiff has offered to provide a fortification of such undertaking in the sum of HK$1 million to be paid into court within 14 days upon grant of an order in terms of the injunction summons.

62.  The defendant submitted that, as matters stand, this amount is inadequate.  Given the fact of Gatecoin’s insolvency and having regard to its statement that a large part of their funds has been retained by a payment service provider, it was submitted that the liquidators are unlikely to recover those funds in full.  It was said that, potentially, the defendant will stand to lose more than HK $2.52 million which, “arguably”, he could have withdrawn from Gatecoin but for the injunction.

63.  The Gatecoin statement gave no specifics.  In any event, as the defendant himself acknowledged, whether the injunction would necessarily be the cause of that loss is “arguable”.

64.  Taking all relevant factors into account, I remain of the view that on the balance of convenience, the Mareva injunction sought should be granted.

ORDER

65.  A draft order was attached to the summons.  The defendant objected to the order for discovery against Citibank in (3) and Gatecoin in (4) extending to account opening documents on the ground that no explanation has been given as to why the account opening documents are relevant.  The defendant’s evidence is that he has had a relationship with Citibank since 2008.  The plaintiff did not explain why such documents are relevant.

66.  In the circumstances, there will be an order in terms save that (i) the sum of US$2,603,639 be substituted for the sum of US$2,597,639 wherever it appears, and (ii) paragraphs (3) and (4) be amended to omit any reference to account opening documents.

67.  There is to be an order nisi of costs with certificate for counsel in favour of the plaintiff.

THE DISCOVERY SUMMONS

68.  The discovery sought by this summons is against Citibank and Gatecoin who have no objection to the summons being made.  At the hearing, the court intimated that the discovery summons should stand or fall with the injunction summons.

69.  As the court is granting the injunction in relation to claims that are proprietary in nature, the approach must be whether the exercise of the power to order discovery is required in order to ensure that the Mareva jurisdiction is properly exercised and to secure its objective. 

70.  While the defendant has raised numerous objections to discovery on the grounds that the material sought contain confidential and commercial material involving the privacy of other individuals with whom the defendant trades and are private to the defendant in his capacity as a client of Citibank and/or Gatecoin, they would have more relevance had the discovery sought not been in the context of and in aid of a Mareva injunction.

71.  The information is relevant to the plaintiff’s proprietary claims and would reveal what has become of the Bitcoins and the fund flow of the sale proceeds.  That will enable steps to be taken for their recovery.  It is evident that such discovery would be in aid of the Mareva jurisdiction and should be granted.

72.  Accordingly, there will be an order for discovery in terms of the discovery summons.  There is to be an order nisi of costs with certificate for counsel of the discovery summons in favour of the plaintiff.