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Legal news, views and insight from LexisNexis Hong Kong
13 March 2020 | by LexisNexis Hong Kong
In Nico Constantijn Antonius Samara v Stive Jean Paul Dan  HKCFI 2718, the court granted an injunction freezing the assets of a cryptocurrency trader in a dispute regarding what happened to bitcoins held in an insolvent trading platform. The court concluded that the plaintiff had made out a compelling case of fraud and dishonesty.
The plaintiff was a Dutch citizen from Curaçao and he had 1,000 bitcoins (the “Bitcoins”). In June 2017, he came to Hong Kong so the defendant could help sell the Bitcoins for him at 3% commission. As the plaintiff could not open a Hong Kong bank account to handle the sale proceeds, he agreed the sale proceeds should be deposited into the defendant’s bank account from where the funds would be transferred to the plaintiff’s German bank account. The plaintiff could transfer the funds to his German bank account as the defendant gave him the login details and the security token.
The plaintiff transferred some of the Bitcoins from his personal bitcoin wallet to the defendant’s bitcoin wallet at Gatecoin, so they could then be traded by the defendant. The agreed arrangement was that the proceeds of sale would be transferred to the defendant’s bank account.
Around 14 September 2017, the plaintiff noticed the money in the defendant’s bank account had been placed on time deposits and could not be transferred. He was unable to locate or communicate with the defendant since late October 2017. From around early November 2017, the plaintiff could not gain online access to the bank account at all. The plaintiff claimed the defendant owed him US$2,597,639.
The plaintiff then asked Gatecoin to block the defendant from accessing his Gatecoin account. Gatecoin’s CEO agreed to block the defendant from withdrawing 40 bitcoins remaining in the wallet but he would need a legal basis to block the account for any extended period of time.
The plaintiff submitted a renewed injunction application arguing that the defendant was a fraud. The fact that the defendant was using multiple passports and different names was a significant factor as only someone who had something to hide would resort to having different identities. Without an injunction, the defendant would be able to dissipate monies in the bank account as well as those in the Gatecoin account in the event of any distribution by the liquidator. As the defendant was the account holder, the liquidator would be more likely to accept his claim rather than the plaintiff’s.
For a Mareva injunction to be granted, the applicant has to satisfy that:
- he has a good arguable case on his claim;
- there are assets within the jurisdiction;
- there is a real risk of dissipation of assets so as to render any judgment that may be made in his favour nugatory; and
- the balance of convenience is in favour of grant.
The court considered that the plaintiff did have a good arguable case of fraud and dishonesty after taking an overall view of the evidence. The court criticized various arguments made by the defendant, such as the rate of commission (consequently affected the amounts payable shown in the defendant’s table of records) and the misgivings that arose from the defendant’s use of bank transaction reference numbers for wire transfers.
According to the facts, no mention was made of the commission charged for the bitcoin transactions. That being said, the defendant claimed his average commission fee was 40%. The defendant referred to a Richfund website (said to be one of the largest OTC bitcoin traders) that showed the rate of his commission fell within the range of 50%, but adduced no documentary evidence in support. In contrast, the plaintiff exhibited an article from a website reporting Bitcoin news which stated that public brokers, including Richfund and OTC’s, settle for a fee between 1% to 5%. Therefore, the court found such evidence in favour of the plaintiff.
With regards to the wired bank transactions to the plaintiff’s bank account, the defendant submitted evidence of the transactions by way of a table. On a closer look by the court, there were duplicated transaction reference numbers for three of those transactions, which were used for different trades effected on different dates. The court suggested that there was something “seriously awry” to the evidence presented by the defendant, which undermined his truthfulness. The court did not believe the defendant’s calculations of the amounts payable in the table. Further, the defendant provided no evidence regarding cash payments made to the plaintiff as well.
The court established that since there was a good arguable case of fraud and dishonesty against the defendant, the court may conclude that there was a real risk of dissipation of assets and cited CAC Brake Co Ltd Zhuhai v Bene Manufacturing Co Ltd & Others.
In terms of balance of convenience, the defendant had not put forward reasons why the granting of a Mareva injunction would cause him real hardship. Therefore, the court granted the injunction application in favour of the plaintiff.
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