GATECOIN LTD v. BD MULTIMEDIA HK LTD

HCMP 810/2019

[2019] HKCFI 2025

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 810 OF 2019

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REASONS FOR DECISION

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1.  These are the Reasons for Decision in respect of an Order made by me on 6 June 2019 upon the Plaintiff’s application for a MarevaInjunction against the Defendant pursuant to section 21M of the High CourtOrdinance (Cap 4) in aid of legal proceedings before the Commercial Court sitting in Paris.

2.  Miss Eva Sit appeared on behalf of the Plaintiff and Mr Joey Chan appeared on behalf of the Defendant.

PROCEDURAL ISSUE

3.  The power of the High Court to grant injunctive relief has now been spelt out in section 21L of the High Court Ordinance (Cap 4).  In particular, the common law relief by way of Mareva injunction now finds expression in section 21L(3). 

4.  Further, by virtue of section 21M, Mareva injunction is now available as an interim relief in aid of foreign proceedings.  It reads as follows:

“ 21M. Interim relief in the absence of substantive proceedings

(1) Without prejudice to section 21L(1), the Court of First Instance may by order … grant other interim relief in relation to proceedings which—

(a) have been or are to be commenced in a place outside Hong Kong; and

(b) are capable of giving rise to a judgment which may be enforced in Hong Kong under any Ordinance or at common law.

…

(3) Subsection (1) applies notwithstanding that—

(a) the subject matter of those proceedings would not, apart from this section, give rise to a cause of action over which the Court of First Instance would have jurisdiction; or

(b) … the interim relief sought is not ancillary or incidental to any proceedings in Hong Kong.

(4) The Court of First Instance may refuse an application for … interim relief under subsection (1) if, in the opinion of the Court, the fact that the Court has no jurisdiction apart from this section in relation to the subject matter of the proceedings concerned makes it unjust or inconvenient for the Court to grant the application.

(5) The power to make rules of court under section 54 includes power to make rules of court for—

(a) the making of an application for … interim relief under subsection (1); and

(b) the service out of the jurisdiction of an application or order for … interim relief.

(6) Any rules made by virtue of this section may include such incidental, supplementary and consequential provisions as the Rules Committee considers necessary or expedient.

(7) In this section, interim relief (臨時濟助) includes an interlocutory injunction referred to in section 21L(3).”

5.  Pursuant to section 21M(5), new rules of the High Court have been added.  In particular, Order 29, rule 8A provides as follows:

“ 8A. Application for interim relief under section 21M(1) of the Ordinance (O. 29, r. 8A)

(1) An application for interim relief under section 21M(1) of the Ordinance must be made by originating summons in Form No. 10 in Appendix A.

(2) Rules 1, 2, 3, 4, 7(1), 7A and 8 of this Order apply with any necessary modifications to the application as they apply to an application for interlocutory relief in an action or proceeding in the High Court.

(3) Upon hearing of the originating summons, the Court may direct that all or any part of the hearing be conducted in open court.”

6.  The originating summons herein was issued on 3 June 2019 and was forthwith served on the Defendant.  This was followed by the Plaintiff’s skeleton submission served on 4 June 2019.  Those instructing Mr Chan was only retained by the Defendant on 5 June 2019.

7.  The first point taken by Mr Chan was a procedural one.  He contended that Order 29, rule 8A of the Rules of the High Court (“RHC”) incorporated the rules and procedure under RHC Order 28 concerning originating summons.  Hence, the Plaintiff had failed to give “not less than 4 clear days” notice for the hearing as stipulated in RHC Order 28, rule 3(2).  While this argument was disarmingly attractive, I rejected it on a closer reading of RHC Order 29, rule 8A(2).

8.  RHC Order 29, rule 8A(2) adopts rule 1 thereunder with the necessary modification.  RHC Order 29, rule 1 provides as follows:

“ (2) Where the applicant is the plaintiff and the case is one of urgency such application may be made ex parte on affidavitbut, except as aforesaid, such application must be made by summons.” (emphasis added)

9.  In turn, RHC Order 32, rule 3 provides as follows:

“ … unless the Court otherwise orders or any of these rules otherwise provides, a summons must be served on every other party not less than 2 clear days before the date so specified.”

 ( emphasis added)

10.  The Plaintiff’s application before me was in the nature of an interlocutory application for an injunction pending final determination of the “interim relief” under the originating summons issued pursuant to section 21M. Hence, it ought to be proceeded with either ex parte on affidavit or by way of a summons with at least two clear days’ notice.  However, no such summons had been issued.

11.  Taking into account the fact that the Defendant was served with the originating summons on 3 June 2019 (ie effectively with two clear days’ notice), I proceed to hear the application upon the Plaintiff’s undertaking to issue a summons as soon as practicable.  This was duly done and I granted abridgement of time accordingly.

FACTUAL BACKGROUND

12.  The Plaintiff is a company incorporated in Hong Kong and now in liquidation.  Prior to its liquidation, it operated a crypto-assets exchange platform, whereby its customers would deposit funds for the purpose of buying or selling crypto-assets, such as Bitcoin and Ethereum.

13.  Reading the Terms and Conditions of the Plaintiff’s customer contract in its context, the funds deposited by customers into their respective accounts with the Plaintiff on the platform (ie legal tender described as fiat currency) were within the power and control of the Plaintiff (see Clause 10.1 as read with Clause 13.1 of the Terms and Conditions).  It can be likened to a customer depositing money into a bank account, which is a debt owed by the bank to the customer.

14.  Prior to 2017, the Plaintiff operated its business using its own bank accounts with various licensed banks in Hong Kong.  Since 2017, due to the tightening of regulatory control over crypto-asset business, it became impossible for the Plaintiff to maintain and operate bank accounts in its own name for the purpose of the exchange platform. Further, a certain bank account maintained by the Plaintiff with China CITIC Bank (“CITIC”) had been frozen by the relevant authority.

15.  On 17 October 2017, a special resolution was passed at the general meeting of the Plaintiff to authorize the transfer of monies belonging to the Plaintiff to the personal account of Mr Aurélien Menant, a substantial owner and director of the Plaintiff.  It is specified in the resolution that “The funds will be deposited on behalf of [the Plaintiff] and will remain its property.” 

16.  Between November 2017 and March 2018, Mr Menant together with Mr William Piquard (Chief Operating Officer of the Plaintiff),both acting for the Plaintiff, were in contact with BD Multimedia SA (“BDM”), a French company, with a view to engaging it (along with the Defendant, BDM’s subsidiary in Hong Kong) as a payment services provider.

17.  BDM was approved by the French regulator Autorité de Contrôle Prudentiel et de Résolution (the “French Regulator”) as a payment service provider and listed on the Euronext.  BDM was also the holding company of the Defendant of which Mr Jim Dorra was a director.

18.  It was intended that funds to the tune of about US$5,600,000 belonging to the Plaintiff, either held in the personal bank account of Mr Menant maintained with Industrial and Commercial Bank of China (Asia) Limited (“ICBC”) or in the Plaintiff’s own CITIC account would be transferred to the Defendant’s bank account for the purpose of the Plaintiff’s business (see emails from Mr Piquard to Mr Jim Dorra dated 29 and 30 January 2018).

19.  Correspondingly, a Current Account Agreement was entered into between MrMenant in his own name on the face of it and the Defendant (acting on behalf of BDM) dated 22 January 2018. Article 2 ofCurrent Account Agreement referred to an initial deposit of US$5,600,000to be made into this current account and provided for increasing the amount of deposit by way of new transfer.

20.  The bank statement of Mr Menant’s account with ICBC showed that a sum of US$2,063,296.37 was deposited on 7 February 2018. Apparently, this deposit represented the fund unblocked from the Plaintiff’saccount with CITIC (ie US$2,063,306.86) with minor deduction due to bank charges (see the said email from Mr Piquard to Mr Jim Dorra dated 29 January 2018).  The same bank statement showed that two sums of US$100,025 and US$3,000,025 were remitted out respectively on 8 and 15 February 2018. 

21.  The transfers of these two sums totalling US$3,100,000 were acknowledged by Mr Jim Dorra in his email to Mr Menant dated 13 March 2018.  It would appear that a sum of US$25.00 was debited to the ICBC account of Mr Menant in respect of each of the two transfers representing the relevant banking charges.

22.  In the same email of Mr Jim Dorra, it was suggested that a further transfer of US$2,792,374.39 (making a total of US$5,892,374.39,taking into account the earlier transfers of US$3,100,000) was expected. Correspondingly, an outward remittance in the sum of US$2,792,399.39 was made on 22 March 2018 as shown in the ICBC bank statement of Mr Menant.  Again, the difference of US$25.00 was likely to be bank charges.

23.  In summary, by 22 March 2018, a total of (US$3,100,000 + US$2,792,374.39) = US$5,892,374.39 was transferred through the ICBC account of Mr Menant to BDM for the purpose of the Plaintiff’s business as contemplated by the parties and evidenced in the series of emails identified hereinbefore.  The sum of US$5,892,374.39 was slightly larger than US$5,600,000 set out in Article 2 of the Current Account Agreement,representing an increase as provided therein.

24.  In the circumstances, since about 22 March 2018, the Plaintiff’s customers started to deposit fiat currency into the Defendant’s account(s) maintained with Hong Kong Bank.  The deposit slips or entries were invariably marked “GTCN”, an acronym meaning “Gatecoin”, denoting that such deposits made by the customers were for the account of the Plaintiff.

25.  Notably, there was no service agreement signed between the Plaintiff and the Defendant.  The terms and condition for the provision of payment services by BDM and the Defendant (the “BDM Group”) were to be inferred from the following documents:

 (a) a Commercial Proposal dated 13 November 2017;

 (b) the exchange of emails between late January 2018 and early February 2018 between Mr Menant (along with Mr Piquard) for the Plaintiff and Mr Jim Dorra for the BDM Group.

 (c) a document entitled “Funds Protection Introduction” prepared by BDM Group for the information of the Plaintiff’s customers, which expressly referred to payment services being provided by the BDM Group.

26.  By about June 2018, the Defendant found the payment services provided by the BDM Group unsatisfactory.  By various emails issued by Mr Michael Chan of the Plaintiff to Mr Jim Dorra (copied to Mr Menant) since 19 June 2018, the Plaintiff demanded the return of the balance of the deposits placed with the BDM Group. 

27.  An exchange of emails then ensured which culminated in a reply from Mr Jim Dorra dated 24 September 2018 acknowledging an outstanding balance of US$1,702,934.57, subject to deduction of a “holding fee” in the sum of US$14,698.47, being US$7,349,233.26 (ie the total of all deposits since 22 March 2018) × 0.2% (ie the rate as prescribed in the said email (dated 30 January 2018) from Mr Jim Dorra to Mr Piquard at the inception of the payment services).

28.  In effect, subject to any issue pertinent to the “holding fee”, Mr Jim Dorra acknowledged that a sum of US$1,702,934.57 was due and owing (the “Admitted Sum”).  Mr Chan, for the Defendant, confirmed that the Defendant was not seeking to dispute the Admitted Sum, without prejudice to its contention as to the correct party to whom such debt was owed. 

29.  Since the Current Account Agreement was signed in the personal name of Mr Menant, it was suggested that the money be repatriated through Mr Menant’s bank account for regulatory reasons, which was however never forthcoming.

30.  In due course, a formal notification of termination of the service agreement was issued by the Plaintiff on 9 October 2018, demandingreturn of the Admitted Sum by 12 October 2018.  The Defendant respondedby issuing a letter dated 18 October 2018 purporting to terminate the service agreement.

31.  This triggered off an exchange by telephone and/or WhatsAppmessages from 12 to 25 October 2018 between Mr Menant and Mr Daniel Dorra, the founder of BDM and the father of Mr Jim Dorra.  

32.  During the exchange, Mr Daniel Dorra intimated that BDM had €580,000 stolen from it whereupon Mr Menant requested Mr Daniel Dorra to put it down in writing (message dated 19 October 2018) and proposed a repayment schedule over a period of 6 to 12 months (message dated 24 October 2018).  There was some suggestion that the alleged loss was caused by the Plaintiff’s customers who were “bandits” conducting “monkey business”, presumably using the exchange platform but no details were given.

33.  Meanwhile, in the said letter dated 18 October 2018, the Defendant alleged that it had suffered loss to the tune of €600,000 due to the “chaotic situation” created by the breach of contract on the part of the Plaintiff. 

34.  In light of the failure or refusal on the part of BDM Group to return the Admitted Sum, the Plaintiff took out proceedings against BDM and the Defendant in the Commercial Court in Paris in late November 2018 (the “French Proceedings”).

35.  On 20 November 2018, the Plaintiff succeeded in obtaining an injunction freezing the bank accounts of BDM Group in five named French banks.  A total sum equivalent to US$405,117.77 was frozen and put under the control of the French bailiff. 

36.  However, at the instance of BDM Group, the injunction has since been discharged by a release order dated 28 January 2019 (the “Release Order”) on the grounds that:

 (a) Mr Menant (as opposed to the Defendant) was the counterpartyto the Current Account Agreement; and

 (b) funds paid into the account of the Defendant since 22 March 2018 were paid directly by the Defendant’s customers without passing through the Defendant.

37.  Meanwhile, upon the petition of Gate Digital Services Limited,apparently the 100% shareholder of the Plaintiff, the Plaintiff was wound up by Order of Master H Au-Yeung dated 13 March 2019.  Thereafter, the current joint liquidators were appointed by Order of Mr Justice Harris dated 20 March 2019.  The joint liquidators, acting for the Plaintiff, have since taken over the French Proceedings and an appeal against the Release Order has been lodged, which is now pending before the Court of Appeal in Paris.

38.  On 4 April 2019, the Defendant filed a proof of debt in the liquidation of the Plaintiff asserting a total claim for €1,386,100 comprising of:

 (a) additional costs of carrying out services performed by the Defendant notwithstanding the termination of payment service in June 2018 or by 9 October 2018 at the latest;

 (b) loss due to closure of the Defendant’s bank account as a result of the “Know Your Client” (KYC) failure;

 (c) loss of opportunity due to closure of bank account as a result of KYC failure;

 (d) damages to image and moral rights; and

 (e) legal costs in French Proceedings.

39.  Suffice it to say that, the alleged debt in respect of which the Defendant sought to put in a proof is in fact for an unliquidated sum sounding in damages arising from the alleged cross-claims against the Plaintiff. 

40.  Despite the knowledge on the part of the Defendant upon advice from its lawyer that that “the liquidator’s mission is to sell the Company’s [the Plaintiff’s] assets in order to best satisfy the creditors” under the supervision of the court (see the Defendant’s letter to the joint liquidators dated 4 April 2019) and the effort of the joint liquidators (by letter dated 21 May 2019) inviting the Defendant to place the Admitted Sum in an escrow account pending the outcome of the French Proceedings or other court order, the Defendant did not reply.

41.  In the premises, the Defendant issued the Originating Summons herein and applied for an interlocutory injunction pending the substantive hearing for determination of the Originating Summons.

THE LAW

42.  The relevant legal principles are not in dispute.  The court’s approach towards an application under section 21M is authoritatively set out by the Court of Final Appeal in Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Ltd (2016) 19 HKCFAR 586 (the “CSAV Case”).

43.  As a pre-condition, the jurisdiction will only arise where the Court is satisfied that “if the proceeding that have been…commenced in theforeign court result in a judgment, that judgment is one that the Hong Kong court may enforce” (per Lord Phillips NPJ in the CSAV Case at para 47).

44.  Further, Lord Phillips explained in the CSAV Case that:

“ 49. Next the court should ask itself the same questions as it would if a Mareva were sought in support of an action proceeding in the Hong Kong court, namely (i) has the plaintiff a good arguable case; and (ii) is there a real risk that the defendant will dissipate his assets if the Mareva is not granted? It is this, no more and no less, that Morritt LJ had in mind in the passage of his judgment in Refco Inc [v Eastern Trading Co [1999] 1 Lloyd’s Rep 159] …. This is apparent from the passage in his judgment that immediately followed:

Accordingly, the first issue is whether if the substantive proceedings were pending in this Court the conditions for the grant of the Mareva relief sought have been satisfied. There is no dispute that there is a properly arguable case … The crucial question is, therefore, whether there is sufficient evidence of a risk of dissipation of assets so that any judgment obtained by Refco will go unsatisfied.

50. The Court of Appeal in [32] of its judgment … misinterpreted Morritt LJ’s judgment in Refco Inc in postulating that it was necessary to consider the strength of the substantive claim under the law of Hong Kong. As Lord Nicholls observed in Mercedes-Benz AG v Leiduck the underlying cause of action has little significance. Foreign judgments will be enforced in Hong Kong even though the claim is one that would not have succeeded under the law of Hong Kong. There is no reason in principle why the prospect of such a judgment should not receive the protection of a Mareva injunction.

…

52. … A Mareva injunction can have serious consequences for a defendant. It is a remedy that is open to abuse. A court must always exercise caution before granting this relief. But as s.21N(1)(b) states, the object of the exercise is to facilitate the process of the foreign court that has primary jurisdiction. The question that the Hong Kong Court has to consider is whether the plaintiff has a good arguable case in the foreign court. Section 21M relief can be sought in a wide variety of circumstances‌ — sometimes before proceedings have even been commenced in the primary jurisdiction, often when they have been commenced but where that court has not considered the strength of the plaintiff’s case. Where the court of primary jurisdiction has carried out that exercise, however, its conclusions will normally carry weight with the Hong Kong court. Indeed, this was recognised by the Court of Appeal in Motorola Credit Corp v Uzan (No 2)[[2004] 1 WLR 113], for it stated:

Where there is available to the judge on an application under section 25 a reasoned judgment of a foreign court at an interlocutory stage upon the merits or arguability of the defendant’s [sic] claim, that judgment will inevitably form the judge’s starting point in relation to the question of ‘good arguable case’ and, depending upon the apparent cogency of the reasoning and the force of any arguments raised by the defendant, is likely to prove conclusive.

53. In summary, in s.21M proceedings the court has first to consider whether, if the plaintiff succeeds in the primary jurisdiction the resultant judgment is one that the Hong Kong court will enforce. If the answer to that is yes, the court has to form a view, on all the available material, including any findings of the foreign court itself, whether the plaintiff has a good arguable case before the foreign court and whether there is a real risk that the defendant will dissipate his assets if the Mareva is not granted.” (emphasis added)

45.  As to the approach towards assessing risk of dissipation, it is trite that:

 (a) the test is an objective one as to whether the refusal of a Mareva injunction would involve a risk that a judgment in favour of the plaintiff would remain unsatisfied because of a risk of an unjustified dealing with assets (see Deputy High Court Judge Keith Yeung SC (as he then was) in ChinaCITICBank Corp Ltd (Quanzhou Branch) v Li Kwai Chun [2018] HKCFI 1800 (HCMP 1408/2017, unreported, 3 August 2018);at paragraph 24).

 (b) It is not necessary for the plaintiff to show any subjective or nefarious intent on the part of the defendant to dissipate or remove assets from the jurisdiction to defeat any judgment (see China CITIC Bank (supra) at paragraphs 19 – 25 and Kerr LJin Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH& Co KG [1984] 1 All ER 398 (at 419f–h).

 (c) The burden of showing real risk of dissipation of assets is very often discharged by means of “inferential evidence” (China CITIC Bank (supra) at paragraph 36(d)).

 (d) The court may take into account the “unacceptably low standard of commercial morality” exhibited by the defendant so that an inference can be drawn that “there is a danger that if the defendant thought it was in its best interests to do it, it would not shrink from attempting to defeat the interests of the plaintiff under any judgment the plaintiff might obtain” (see Godfrey J (as he then was) in Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235 (at 240H)). 

 (e) However, the court should examine with care allegations that a defendant has acted dishonestly and should not too readily infer a real risk of dissipation from the conduct of commercialmorality of a defendant (see Chu J (as she then was) in Hornor Resources (International) Co Ltd v Savvy Resources Ltd [2010] 4 HKC 50 at paragraphs 27 – 28).

DISCUSSION

Jurisdiction — condition precedent

46.  France is one of the countries in respect of which the Foreign Judgments (Reciprocal Enforcement) Ordinance, Cap 319, applies (see Schedule 2 to the Foreign Judgments (Reciprocal Enforcement) Order (Cap 319A). Section 3 of Cap 319 reads as follows:

“ (2) Any judgment of a superior court of any foreign country to which the provisions of this Ordinance extend, other than a judgment of such a court given on appeal from a court which is not a superior court, shall be a judgment to which the provisions of this Ordinance apply, if—

(a) it is final and conclusive as between the parties thereto;and

(b) there is payable thereunder a sum of money, not beinga sum payable in respect of taxes or other charges of alike nature or in respect of a fine or other penalty; and

(c) it is given after the coming into operation of the order directing that the provisions of this Ordinance shall extend to that foreign country” [ie 4 October 1968].
(emphasis added)

47.  According to the opinion on French law commissioned by the Plaintiff and rendered by Maxime de La Morinerie (the “French Law Opinion”), the Commercial Court in Paris has jurisdiction over commercial disputes of any amount and its decision, subject to there being no appeal or the result of any appeal, is binding in the sense of res judicata and is enforceable. However, it does not have any criminal jurisdiction.

48.  Miss Sit drew my attention to the fact that the Commercial Court may not qualify as a “superior court” which is defined under section 4(b) of Cap 319A as a court having unlimited jurisdiction in civil and criminal matters.

49.  By analogy, Miss Sit prayed in aid the decision of Keith J (as he then was) in Biard Laboratoires SA v Rosumi Ltd., HCMP 252/1997(unreported, 4 February 1999), in which the Hong Kong Court registered forthe purpose of enforcement a judgment of the Bourg en Bresse Commercial Court, which had been upheld on appeal to the Court of Appeal of Lyon.The learned judge considered therein the effect of the foreign judgment in respect of two dishonoured cheques obtained by way of a procedure pursuant to Articles 484 and 488 of the New Code of Civil Procedure (known as “ordonnance de référé”).

50.  This procedure was akin to an application for summary judgment before the Hong Kong Courts.  In dismissing the appeal of the defendant, Keith J concluded that the judgment was “final and conclusive”within the meaning of section 3(2) of Cap 319.  The issue of whether the Commercial Court was a “superior court” was not raised but I would be slow to read the definition of “superior court” in such a stringent manner so that in order for a judgment to be recognized and enforced, the foreign court concerned has to have both unlimited civil and criminal jurisdiction even though the matter in question is purely civil in nature. 

51.  In any event, I accept Miss Sit’s alternative argument that any judgment that may be obtained by the Plaintiff before the Commercial Court in Paris will be enforceable under common law.

52.  On the foregoing analysis, the pre-condition identified by Lord Phillips in the CASV Case has been satisfied.

Good arguable case

53.  All along, the Defendant has adopted the stance that it is a party to the service agreement, which is allegedly breached by the Plaintiff.  That is also the basis for the Defendant’s counterclaim before the Commercial Court in Paris.  The Defendant’s stance is evidenced in itsletter to the Plaintiff dated 18 October 2018, its proof of debt dated 4 April 2019 in the Plaintiff’s liquidation and its letter to the joint liquidators dated 17 May 2019.

54.  Likewise, the Plaintiff’s claim against the Defendant before the Commercial Court is founded on the service agreement as well as the Current Account Agreement.  Despite the Release Order, the Plaintiff’s action in the French Proceedings is still on foot and will be proceeded with. To this end, the equivalent of a direction hearing was held on 19 February 2019, which culminated in an order handed down on 27 March 2019 giving directions for further conduct of the case. 

55.  Further, the Plaintiff’s appeal against the Release Order will be heard on 30 October 2019.  In essence, the Release Order was primarily grounded on:

 (a) the Plaintiff’s lack of locus standi in suing under the Current Account Agreement to which the Plaintiff is not a named party; and

 (b) the numerous deposits put into the Defendant’s Hong Kong Bank account since 22 March 2018 were made directly by the Plaintiff’s customers, who may each have a claim against the Defendant and hence it would not be proper to pay over the balance the Plaintiff.  

56.  But for the above arguments, I would have no doubt that subject to any counterclaim that the Defendant may be able to establish, the Plaintiff has a cast-iron case against the Defendant for the return of the Admitted Sum.

57.  In the circumstances, Mr Chan submitted that given the decision of the Commercial Court in granting the Release Order, no good arguable case can be established against the Defendant under French law. However, that is only the “starting position” and does not dispense with an analysis by the Hong Kong Court as whether or not there is a “good arguable case” taking account of the decision of the Commercial Court and all other evidence before the court (see paragraph 44 above).

Locus standi

58.  With respect, the brevity of the reasons given in the Released Order dated 28 January 2019 does not lend itself to any detailed analysis.  On the face of it, the Commercial Court accepted the Defendant’s argument on the issue of lack of locus standi in that:

 (a) Mr Menant entered into the Current Account Agreement without indicating that he did so in his capacity as a representative of the Plaintiff;

 (b) the resolution of the annual general meeting held on 17 October 2017 was not referred to.

59.  However, no reference was made to the series of contemporaneous emails exchange between Mr Menant and Mr Jim Dorra,which clearly demonstrated that Mr Menant was acting as a representative of the Plaintiff in its dealing with Mr Jim Dorra, acting for the Defendant.

60.  Further, even if the resolution was not referred to at the time when the Current Account Agreement was executed, it affords compellingevidence that Mr Menant acknowledged he was essentially hold the monies in the account on trust for the Plaintiff.  I would imagine the result of the French Proceedings would ultimately turn on the facts of the case and the cogency of the evidence adduced by the Plaintiff.  The granting of the Release Order is therefore not determinative of the issue as to the role of Mr Menant.

61.  In this connection, the Plaintiff has furnished the French Law Opinion advising on the good prospects of the pending appeal against the Release Order.  It is explained therein that the funds transferred from Mr Menant’s ICBC account apparently to the Defendant’s account with Banque Delubac (see judgment handed down in the French Proceeding dated 27 March 2019) was clearly coming from the Plaintiff in respect whereof Mr Menant acknowledged in the special resolution dated 17 October 2017 that the money would remain the property of the Plaintiff.  This is borne out by the contemporaneous documents identified in paragraphs 18 to 23 hereinabove.

Contract between the Plaintiff and its customers

62.  In granting the Release Order, the Commercial Court emphasized on the fact that the deposits were made directly by the Plaintiff’scustomers, without passing through the hand of the Plaintiff.  Apparently,it was on that basis that the Commercial Court accepted the Defendant’s argument that the customers might have recourse against the Defendant.

63.  In the French Law Opinion, it is explained that there are specific rules under French law governing the proof of contracts which require an assessment on the totality of evidence.  This would include the circumstances under which the crypto-currency exchange platform, as evidenced in, inter alia, the Commercial Proposal, were to operate.  It was contemplated that the customers would contract with the Plaintiff (as opposed to the Defendant against whom the customers would have no recourse).

64.  In essence, the French Law Opinion is that the Commercial Court failed to taken into account:

 (a) the mass of undisputed contemporaneous documentary evidence, whereby the Defendant was treated as a party to theservice agreement with the Plaintiff and carried out duties pursuant thereto;

 (b) the undisputed documentary evidence that all payments made by the Plaintiff’s customers into the Defendant’s Hong Kong Bank account were specifically designated to be for the Plaintiff account (with acronym “GTCN”) in the various forms of payment orders.

65.  On the basis of the French Law Opinion, it is clearly arguable that the Plaintiff’s customers who traded on the crypto-assets exchange platform operated by the Plaintiff would have no recourse against the Defendant in respect of the fiat currency standing to the credit of the Plaintiff’s account maintained with the Defendant.  In particular, I observe that:

 (a) The Terms and Conditions governing the use of the crypto-assets exchange platform operated by the Plaintiff do not refer to the Defendant as a party at all.

 (b) Quite to the contrary, in Clause 28, it is provided that:

“ 5. These Terms, or your rights and obligations hereunder, may not be transferred or assigned by you [the customer]. However, Gatecoin [the Plaintiff] shall be entitled to freely assign its right and the benefit of these Terms as it see[s] fits [sic] … These Terms shall be binding and inure to the benefit of the parties hereto, our successors and permitted assigns.”

 (c) “Fiat Account” is defined thereunder as “a User’s fiat account containing Fiat Currency held by Gatecoin [the Plaintiff] pursuant to the services” (emphasis added).

 (d) Lastly, under Clause 27(3), the Plaintiff has the power to dispose of the any “unclaimed funds” upon notification being given to the relevant customer.

66.  At the substantive hearing of the French Proceedings, I would imagine (a) the effect of the appointment of joint liquidators in respect of the Plaintiff; and (b) the duties and powers of the liquidators, who are officers of the Court, would be fully explored and explained so that the Commercial Court might take the view that there was in fact no risk of the customers seeking recourse against the Defendant.

67.  On the foregoing analysis, despite the Release Order, which is under appeal, I am of the view that the Plaintiff has established a good arguable case, which is now pending before the Commercial Court.

Risk of dissipation

68.  There is no dispute that the Defendant has assets within jurisdiction including total credit balance equivalent to €4,230,452.08 in its account(s) with the Hong Kong Bank (ie including a sum of US$1,873,546.01).

69.  For the reasons set out hereinbelow, I accept the submission of Miss Sit that there is a real risk of dissipation in that the Defendant is of unacceptably low commercial morality:

 (a) The asset in question is liquid cash and liable to be dissipated or removed with ease.

 (b) The Defendant did not take steps to remit back to Mr Menant the Admitted Sum upon receiving the notice of termination of the service agreement by 9 October 2018 (ie before the commencement of the French Proceedings).

 (c) As of 24 September 2018, only the deduction of a “holding fee”in the sum of US$14,698.47 was raised.  Along the way, the Defendant has proffered various excuses in procrastinating the return of the Admitted Sum:

 (i) In the WhatsApp messages exchanged between Mr Menant and Mr Daniel Dorra, it was alleged that some €580,000 was stolen from the Defendant, presumably by the Plaintiff’s customer(s) or party(ies) related to the Plaintiff,but Mr Daniel Dorra failed or refused to document the same despite request of Mr Menant.

 (ii) By its letter dated 18 October 2018, the Defendant asserted a claim for €600,000 by way damages arising from the alleged breach of contract on the part of the Plaintiff.

 (iii) By 4 April 2018, the Defendant sought to assert a claim of €1,386,100 by way of proof of debt in the Plaintiff’s liquidation, which included damages for breach of contract and legal costs, etc.

 (d) None of the Defendant’s claims referred to hereinabove were properly particularized or quantified. At best, it is a bare assertion of an unliquidated cross-claim.

 (e) Notably, the concern that the return the funds to the Plaintiff may expose the Defendant to claims from the Plaintiff’s customers was only raised for the first time in Defendant’s reply to the joint liquidators in the letter dated 17 May 2019. This is not credible given the advice that the Defendant had received from its own lawyer as to the role of the joint liquidators.

 (f) The Defendant has unreasonably failed or refused to respond to the joint liquidators request to put the Admitted Sum in an escrow account.

 (g) It would appear that the Defendant was retaining the AdmittedSum merely to enhance its bargaining position in its intended negotiation with the Plaintiff.

 (h) The Defendant was not subject to the regulatory regime of the French authority.

70.  By the same token, I am of the view that “there is a danger that if the defendant thought it was in its best interests to do it, it would not shrink from attempting to defeat the interests of the plaintiff under any judgment the plaintiff might obtain” (see Honsaico Trading Ltd v Hong Yiah Seng Co Ltd, supra).

71.  Accordingly, I am of the view that the “risk of dissipation” is established.

Balance of convenience

72.  The peculiar facts of this case can be likened to that of a scenario under an interpleader summons.  The Admitted Sum has been acknowledged by the Defendant to be due and owing regardless of the its argument as to the rightful owner(s) (ie Mr Menant, the Plaintiff or its customers).

73.  The Plaintiff cannot benefit from the guarantee issued by Euler Hermes (an insurer), as required under the French regulatory regime,since it only covers the liability of BDM (as opposed to the Defendant). In any event, the guarantee was only up to the amount of €1,200,000.

74.  The sum of US$405,117.77 frozen under the French Injunction, which is different to the asset in question under the present application, is likely to be released to BDM Group in due course upon fulfillment of the administrative formalities (ie before the hearing of the appeal against the Release Order).

75.  Without the relief by way of a Mareva injunction, it is quite likely that any judgment obtained by the Plaintiff against the Defendant would be rendered ineffectual in the recovery of the Admitted Sum.

76.  Whichever way one looks at it, the Defendant has no entitlement to Admitted Sum and hence any loss that may be occasioned by the Mareva injunction is minimal.

77.  It seems that the Defendant is seeking to hang onto the Admitted Sum as security for its alleged cross-claim against the Plaintiff. This is tantamount to unjustifiably affording itself priority over the other creditors in the liquidation of the Plaintiff.  There is no lawful basis for such priority.

78.  On the foregoing considerations, the balance of convenience clearly militates in favour of granting of the Mareva injunction.

DISPOSAL

79.  In the Originating Summons, a Mareva injunction up to the value of US$1,962,103.92 is sought.  This is more than the Admitted Sum and is arrived at after reconciliation of accounts performed by the joint liquidators, without any admission on the part of the Defendant. 

80.  In order to avoid any unnecessary arguments, I am only prepared to grant a Mareva injunction up to the value of US$1,688,236.10 (ie the Admitted Sum less the alleged “holding fee” of US$14,698.47).

81.  Accordingly, I granted a Mareva injunction in terms of the draft order (as amended) with costs reserved.

82.  The ancillary order for disclosure of assets therein was granted upon the concession, very sensibly made by Mr Chan on behalf of the Defendant. 

83.  It remains for me to thank both counsel for their able assistance.