In HDR v Shulev and Nexo, the High Court considered the entitlement to a cryptocurrency trading account, and the ownership of its contents, as part of stakeholder proceedings brought under CPR 86 by the operator of a cryptocurrency exchange.1

Stakeholder Applications

Stakeholder applications (made under CPR 86) are used as a means of determining entitlement to money or goods held by an entity that does not itself have a claim to the money or goods. Among other things, it permits a stakeholder to apply to the court for a direction as to whom it should pay a debt or money to, in circumstances where competing claims are made, or are expected to be made, in respect of that debt or money by two or more persons. Such proceedings are typically brought by financial institutions where multiple claims are made for a sum of money which they hold. 

In this case, stakeholder proceedings were commenced by HDR Global Trading Limited (“HDR“), a company incorporated in the Republic of Seychelles, which operates BitMEX, a cryptocurrency-exchange platform, in order to resolve a dispute over the control and ownership of the contents of a cryptocurrency trading account opened in the name of the First Defendant (“Mr Shulev“). 

Background

The Second Defendant, Nexo Capital Inc. (“Nexo“) is a Cayman Islands company, which operates a cryptocurrency-backed lending platform, cryptocurrency exchange and wallets. In May 2019, Mr Shulev (co-founder of the Nexo group, and then a director of Nexo), opened an account on BitMEX (the “Account”) using his Nexo email address. Thousands of bitcoin were subsequently transferred into the Account from other Nexo accounts, and various futures contracts were traded on the Account. As at the judgment date, the total value of the Account was approximately £30 million. In September 2019, Mr Shulev’s appointment as a director was terminated and his access to the Account was withdrawn. 

A dispute then arose between Nexo and Mr Shulev as to the ownership of the assets held in the Account. Mr Shulev claimed that he had opened the Account in his personal capacity, and that some of the crypto-assets held there belonged to him. Nexo, however, argued that the Account was opened by Mr Shulev solely in his capacity as a director of Nexo; it was considered by Nexo to be a corporate trading account used for corporate purposes, and it held corporate assets.

In response to the competing claims, HDR froze the Account and in 2020 commenced stakeholder proceedings under CPR 86 against both Mr Shulev and Nexo.

Entitlement to the Account

On the day of the hearing of HDR’s stakeholder application, Mr Shulev and Nexo entered into a settlement agreement (the “Agreement“), which purported to resolve the question of ownership of the Account. However, almost immediately the parties fell into a further dispute over the Agreement, disagreeing as to whether it had been complied with, and what effect it had on the stakeholder proceedings.2 After discussing with the parties, the Court allowed HDR to exit the proceedings by ordering HDR to hold the balance on the Account as stakeholder and directing it to transfer the balance (after deducting its costs) to such address as the Court ordered. 

While His Honour Judge Henshaw ultimately determined that the question of entitlement to the Account and ownership of its contents had already properly been resolved by the Agreement, the judgment contains an interesting discussion as to how English law approaches these issues. 

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Source: https://www.jdsupra.com/legalnews/offshore-cryptocurrency-exchange-1571601/

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