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Ruscoe v Cryptopia Ltd (in liq)

Ruscoe v Cryptopia Ltd (in liq)

Case [2020] NZHC 728 8 April 2020

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IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2019-409-000544

[2020] NZHC 728

BETWEEN
DAVID IAN RUSCOE AND MALCOLM RUSSELL MOORE

Applicants

AND

CRYPTOPIA LIMITED (IN LIQUIDATION)

Defendant

Hearing:
Memoranda Filed:

11 – 14 February 2020

02 March 2020 – J S Cooper QC for the Creditors

04 March 2020 – P G Watts QC for the Accountholders 10 March 2020 – S A Barker for the Applicant Liquidators

Appearances:

S A Barker, M A Harris and A E Cao for the Applicant Liquidators J S Cooper QC and J A R Barrow for the Creditors

P G Watts QC and S C I Jeffs for the Accountholders

Judgment:

8 April 2020

JUDGMENT OF GENDALL J

This judgment was delivered by me on 8 April 2020 at 3:30 p.m. pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

RUSCOE v CRYPTOPIA LTD (IN LIQUIDATION) [2020] NZHC 728 [8 April 2020]

Table of Contents

Introduction [1]

Background facts [5]

(a) General [5]

(b) What is cryptocurrency? [21]

(c) How Cryptopia operated [22]

(d) Cryptopia’s terms and conditions [23]

(e) Cryptopia’s financial accounts [32]

(f) SQL database and how Cryptopia generated income [34]

(g) The hack [38]

(h) Advertising and promotion [41]

The law – s 284 Companies Act 1993 [43]

The liquidator’s application [46]

Issue 1 – the property issue [50]

-     An aside – what are the implications? [50]

-     What is “property” and why does it matter here? [63]

-     The authorities [70]

·     B2C2 Ltd v Quoine Pte Ltd [77]

·     Other authorities [85]

-     The four requirements for a “property” interest [102]

(a) Identifiable subject matter [104]

(b) Identifiable by third parties [109]

(c) Capable of assumption by third parties [114]

(d) Some degree of permanence or stability [117]

-     Conclusion on the four criteria [120]

-     Possible arguments against cryptocurrency being property [122]

-     Public policy arguments [129]

-     Conclusion [133]

Issue 2 – The trusts issue [134]

A. The primary issue – are the digital assets held on trust for

accountholders?
[135]

Application to the facts of present case [140]

·     Certainty of subject matter [141]

·     Certainty of objects [148]

·     Certainty of intention [151]

Additional matters [167]

B. The remaining issues before the Court [188]

-     Question (c) What happens if there is no trust or cryptocoins

are not property?
[189]

-     Question (d) What are the terms of the trust(s) and when did the trust(s) come into existence? [192]

-     Question (e) Inability to identify individual shareholders? [199]

-     Question (f) Recovery of stolen digital assets [203]

-     Potential relevance of any fault of Cryptopia relating to the

lost digital assets
[206]

Result [209]

Costs [210]

Introduction

[1] Cryptopia Ltd (in liquidation) (Cryptopia) was formed in 2014 as a cryptocurrency trading exchange. It had a short but tumultuous history. It was placed into liquidation in May 2019 after suffering a serious hack and the loss of some
$30 million of cryptocurrency…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Ruscoe v Cryptopia Ltd (in liq)

Details

AGLC: Ruscoe v Cryptopia Ltd (in liq) [2020] NZHC 728
Case: [2020] NZHC 728
Decision Date: 8 April 2020

CaseChat Overview and Summary

The High Court of New Zealand considered the legal issues arising from the liquidation of Cryptopia Limited, a cryptocurrency exchange. The Court was asked to determine whether cryptocurrencies held by the liquidators constituted property and whether they were held on trust for accountholders. The Court concluded that cryptocurrencies were a form of intangible personal property, capable of being the subject matter of a trust. The Court found that Cryptopia held the cryptocurrencies on express trusts for the accountholders, with separate trusts for each type of cryptocurrency. The Court further determined that if the liquidators were unable to identify certain accountholders, the digital assets associated with those accounts should be dealt with under the Trustee Act 1956. The Court also ruled that any recovered stolen digital assets should be distributed pro rata among the affected accountholders. The Court's decision provided clarity on the legal status of cryptocurrencies in the context of insolvency and trust law, ensuring that accountholders' interests were protected.

Orders