CHAN WING YAN AND ANOTHER v. JP-EX CRYPTO ASSET PLATFORM PTY LTD AND OTHERS

DCCJ 2977/2024

[2024] HKDC 1628

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2977 OF 2024

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BETWEEN

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JUDGMENT

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A. Introduction

1.  By Inter Partes Summons dated 30 July 2024 (“the Summons”), the 1^st Plaintiff (“P1”) and 2^nd Plaintiff (“P2”) (collectively, “Ps”) apply for default judgment against the 2^nd Defendant (“D2”) pursuant to O 19, r 7 of the Rules of the District Court, Cap 336H (“RDC”).

2.  According to Ps, they were registered users of a cryptocurrency exchange and investment platform operated by the 1^st Defendant (“D1”) and D2 under the name “JPEX” (“the Platform”). They claim to be victims in that they were led to deposit crypto-assets into what they believed were their crypto-asset wallets on the Platform but ultimately could not retrieve any of their crypto-assets.

3.  Since 13 September 2023, the Securities and Futures Commission (“SFC”) identified JPEX as operating an unlicensed virtual asset trading platform (“VATP”).

4.  As reported in the local media, as of 18 April 2024, the Police received reports from 2,636 victims against JPEX, involving about HK$1.6 billion. The Police has commenced criminal investigation and arrested over 70 individuals.

5.  However, as stressed by Mr Tam, counsel (together with Mr Joshua Chu, solicitor advocate) who appears for Ps, no case of fraud is relied upon in the present action (in contrast with what may be happening on the criminal investigation end). Rather, Ps’ primary case against D2 is based on the breach of an express trust. Alternatively, it is claimed that the relationship between Ps and D2 was that of a creditor and debtor, analogous to a bank and customer. Accordingly, the alternative claim is one for recovery of a debt.

B. Service of process and non-appearance of D2

6.  I am satisfied from the affirmation of service filed on behalf of Ps that the Amended Writ specifically endorsed with the Amended Statement of Claim (“ASOC”) issued on 5 June 2024 was served on D2 by leaving the same at, and sending by post to, D2’s registered office. I accept that this amounts to proper service on D2 under s 827 of the Companies Ordinance, Cap 622.

7.  Furthermore, given that a notice of intention to enter judgment and the Summons were served on D2, by leaving them at, and sending by post to, D2’s registered office, I was of the view that it was expedient to proceed with the hearing of the Summons under O 32, r 5 of RDC notwithstanding the absence of D2 at the hearing before me.

C. No notice of intention to defend and no defence filed by D2

8.  As declaratory relief is sought by Ps, not being within O 13, rr 1-4 of RDC, Ps must proceed, and have proceeded, as if D2 has given notice of intention to defend under O 13, r 6(1) of RDC, notwithstanding that D2 has never filed any acknowledgement of service of the Amended Writ.

9.  As no defence has ever been filed by D2, I am satisfied that Ps are entitled to make this application pursuant to O 19, r 7 of RDC.

D. The Applicable Principles

10.  The applicable principles for default judgment under O 19, r 7 of RDC are well-settled. The power to grant judgment under O 19, r 7 is discretionary. The court is required to scrutinize whether the matters pleaded in the Statement of Claim entitle the plaintiff to the judgment sought. The court’s decision is made on the basis of pleaded facts, rather than on evidence. See Hong Kong Civil Procedure 2024, Vol 1, §§19/7/11 and 19/7/14.

11.  Furthermore, the basis upon which default judgment can be obtained in circumstances where no defence is filed is that the court will assume that the Statement of Claim has been impliedly admitted by the defendant. This is why, in an application for default judgment, the court will only consider the Statement of Claim without admitting any evidence: see ibid at §19/2/1 and Feng Bo v Dela Cruz Anabelle-Gamoso [2024] HKCFI 1819, §3 per DHCJ Kent Yee.

12.  As for declaratory relief, the rule of the court that a declaration will not be granted when giving judgment by consent or in default without a trial is a rule of practice and not of law, and will give way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled. The court will consider whether the declaratory relief is properly made out on the pleadings and whether it is appropriate in the overall exercise of discretion for such relief to be granted without trial. The declaratory reliefs to be granted should not be in terms wider than what the plaintiffs are entitled to and what is necessary to do justice to them. See Hong Kong Civil Procedure 2024, Vol 1, §§19/7/14 and 19/7/20.

13.  Importantly, merely because of the nature of a default judgment application is uncontested, the court does not act as a “rubber-stamp”. It is necessary in each and every application for default judgment to consider whether the declaratory relief is properly made out on the pleadings and whether it is appropriate in the overall exercise of discretion for such relief to be granted without a trial. In the exercise of the court’s discretion, the court will consider all relevant factors, including whether the plaintiff has established a strong and obvious case for proprietary relief on the face of its pleadings, and where the claim is proprietary, whether there will be any prejudice to the plaintiff’s property and rights. The importance of a claim to proprietary relief arises because of the distinction from a merely personal claim which would only put a plaintiff in a position of an unsecured judgment creditor. On the other hand, a declaration of proprietary interest will secure that interest. See Cheung Sai Lon v Cheung Sai Ha [2020] HKCFI 2551 per Coleman J at §§32-33.

14.  As for injunctive relief, the court has jurisdiction to grant injunctions in default judgment applications: see Hong Kong Civil Procedure 2024, Vol 1, §19/7/17 and Biostime International Investment Ltd v France Heson Paper (Hong Kong) Co Ltd [2015] 2 HKLRD 658, §§12-13.

E. Ps’ pleaded case

15.  The following facts are pleaded in the ASOC:

(1) D2 is a company incorporated in Hong Kong;

(2) D1 and D2 (and/or with other unknown entities) carried on business as a virtual asset service provider under the name “JPEX” and operated the Platform which was accessible by users through their website (https://jp-ex.io/) and mobile application named “JPEX Wallet”;

(3) The 6^th Defendant (“D6”) was the general manager of “Coingaroo”, an over-the-counter virtual asset spot brokerage or money changer owned and operated by Kangarooss Gallery Limited and/or Kangarooss Limited. He was also one of the influencers and promoters actively promoting JPEX through social media;

(4) JPEX Coin (“JPC”) was a platform token created by JPEX. Before cessation of trading operations of JPEX, only less than 20% of total JPC was released by JPEX and circulated and tradeable on the Platform and a limited number of small online cryptocurrency exchanges;

(5) Since about mid to late 2021, JPEX began extensively promoting their platform and services in Hong Kong through advertisements and engaging or partnering with local key opinion leaders and social media influencers (“the Promoters”), including Mr Joseph Lam (“JL”);

(6) P1 attended some of JL’s seminars, followed his social media account on Instagram and was a member of JL’s private Telegram and Whatsapp messaging groups which advocated for the credibility, stability and profitability of JPEX, the Platform and JPC;

(7) JPEX has also, through its website and the Promoters, represented to the public that investments placed in JPEX would be safe and profit making;

(8) Upon attending the seminars and reading the posts and message of JL, P1 was led to believe that JPEX was a licensed, genuine and secured cryptocurrency exchange and investment platform and as a result:

(a) On 13 July 2023, P1 registered an account on the Platform (“the 1^st Account”). The 1^st Account was purportedly assigned with a newly created crypto-asset wallet bearing public address TNCxvfB7aW4JjgyLph91Mj8FBWHnD77DM8 (“the 1^st Wallet”);

(b) On 3 August 2023, P1 registered an account on the Platform (“the 2^nd Account”). The 2^nd Account was purportedly assigned with a newly created crypto-asset wallet bearing public address TM6tdiP77qsyfTWegZ9sULzwmiev41‌ySNT (“the 2^nd Wallet”); and

(c) On 11 August 2023, P1 registered, in the name of P2, an account on the Platform (“the 3^rd Account”). The 3^rd Account was purportedly assigned with a newly created crypto-asset wallet bearing public address TM6ezzj72Hyi92‌g4fDyRXPqF8Y93KMe87L (“the 3^rd Wallet”);

(9) At the time of the creation of each of the 1^st Account, the 2^nd Account and the 3^rd Account (collectively, “the Accounts”), Ps had agreed to a set of “Users Terms of Service” of D1 and D2 which is found in an announcement dated 29 January 2019 on JPEX’s website titled “User Agreement”;

(10) Whilst a person who had registered on JPEX and had access to an account on the Platform is referred to as “User”, the person in actual ownership and control of a crypto-asset wallet is referred to as “Wallet Holder”. Notwithstanding Ps had access to the Accounts, neither of them were given the private key to each of the Wallets which were at all material times retained by D1, D2 and/or D6 and/or the unknown real wallet holder(s). On a blockchain, a private key to a crypto-asset wallet is exclusively used to authorize transactions, controls and prove ownership of the wallet and the assets therein. Crypto-assets in a wallet cannot be removed without the use of the private key. In case the private key is lost, the corresponding wallet would become inaccessible and the crypto-assets in the wallets irretrievable;

(11) On 16 July 2023, P1 transferred a total of 6219.556164 USDT from her other crypto-asset wallet held with Binance Holdings Ltd into the 1^st Wallet. The same was then recorded in the balance of the 1^st Account on the Platform;

(12) Further, on the recommendation of JL and with the use of some referral codes he provided to benefit from preferential exchange rates, on about 19 July 2023, P1 attended Coingaroo’s office. D6 recommended P1 to participate in a programme called “JPP Launchpad” which required the deposit of USDT into wallets and to use the same to subscribe JPP, another platform token created by JPEX, for rewards after a specified period of being locked up. On D6’s instructions, P1 transferred a sum of HK$300,000 from her Standard Chartered Bank account (“SCB Account”) to D6’s account with Airstar Bank Limited (“D6’s Airstar Account”). In return, 39,311.17 USDT was deposited into the 1^st Wallet and recorded in the balance of the 1^st Account on the Platform;

(13) On about 22 July 2023, on instructions of D6 to acquire more USDT, P1 transferred another HK$50,000 from the SCB Account to D6’s Airstar Account. In return, 6,468.49 USDT was deposited into the 1^st Wallet and recorded in the balance of the 1^st Account on the Platform;

(14) On about 4 August 2023, as per the instructions of D6, HK$1,000,000 in cash (as D6 has represented that only cash deposits would entitle P1 to bonus rewards), and HK$500,000 from the SCB Account, were transferred to D6’s account with Livi Bank Limited. A total of 195,499.092079 USDT was deposited into the 2^nd Wallet and recorded in the balance of the 2^nd Account on the Platform;

(15) As a result of the new deposit/staking reward promotion advertised through the Promoters, between 13 and 31 August 2023, P1 gave instructions on the Platform to transfer 200,015 USDT from the 1^st and 2^nd Accounts to the 3^rd Account. The same was purportedly recorded in the balance of the 3^rd Account on the Platform;

(16) On 13 September 2023, SFC published a warning statement. It identified JPEX as an unlicensed VATP operating in Hong Kong and warned the public that some of the products offered by JPEX were not allowed under the SFC’s regime;

(17) On 14 September 2023, JPEX published an announcement that it had increased the fees chargeable against Users for withdrawing USDT. Any Users having urgent withdrawal needs could apply by completing an online Google form for priority withdrawal sequencing;

(18) As of about 15 September 2023, the Platform displayed the following balances in the Accounts, purporting to show the amount of cryptocurrencies held in each of the Wallets:

(a) The 1^st Account:

Cryptocurrency	Purported value in USD
399,611.19 JPC	15,815.64
62,500 JPP	1,250
0.00052452 bitcoin (“BTC”)	13.83
39,301.19062932 USDT	39,301.19062932
Total value in USD/USDT	56,380.67

(b) The 2^nd Account:

Cryptocurrency	Purported value in USD
39.74 USDT	39.74

(c) The 3^rd Account:

Cryptocurrency	Purported value in USD
130,231.76 JPC	5,047.39
250,000 JPP	5,000
0.41296110BTC	10,926.95
186,672.68163085 USDT	186,672.68163085
Total value in USD/USDT	207,647.03

(19) Whilst P1 and P2 had submitted to D1 and D2 applications for urgent withdrawals on 15 and 27 September 2023 respectively, neither were successful in making withdrawals;

(20) On 14 September 2023, by use of a legitimate online blockchain explorers, contrary to the transactions and balance of the Accounts displayed on the Platform, it was revealed that wrongfully and without Ps’ knowledge, consent or authorization:

(a) D1, D2, the 3^rd Defendant, the 4^th Defendant and/or the 7^th Defendant (“D7”) transferred away nearly all of the 51,999.216164 + 195,499.092079 = 247,498.308243 USDT deposited into the 1^st Wallet and 2^nd Wallet within 5 minutes after each of the deposits were made. They were first transferred to an unknown hot wallet and further transferred onwards to other wallets of unknown holders (instead of to some cold wallets as JPEX had claimed in its announcements on its website);

(b) There was never any transfer from the 1^st Wallet and 2^nd Wallet to the 3^rd Wallet;

(c) There was never any BTC, JPC or JPP existed in the Wallets; and

(d) The 1^st Wallet and the 3^rd Wallet had zero balances and the 2^nd Wallet had a balance of 0.013219 USDT;

(21) On 20 September 2023, SFC issued another statement reiterating that JPEX was operating the Platform as an unregulated VATP and no entity was licensed or had applied to be licensed under the SFC to operate as a VATP;

(22) On the same day, JPEX purported to launch a “DAO Stakeholders Dividend Plan” giving Users the right to convert their crypto-assets on the Platform to “DAO Stakeholder dividends” at 1:1 ratio. JPEX claimed that it would begin repurchase of all the “dividends” by stages after a lapse of 1 year at various discounted prices of the original conversion value and would distribute 49% of the DAO Stakeholder dividends for the said subscription and conversion;

(23) On 23 September 2023, JPC was delisted from all other cryptocurrency exchanges and JPEX suspended all trading which up to the time of the writ remains suspended and no User could withdraw any crypto-assets from their wallets;

(24) On about 4 October 2023, JPEX claimed to have received majority votes from Users in favour of the “DAO Stakeholders Dividend Plan” and without the knowledge, consent or authorization of Ps, all their BTC and USDT in the Accounts as displayed on the Platform (which was false and untrue by reason of (20) above) were converted into JPC;

(25) Up to the time of the Writ, the Accounts as displayed on the Platform showed the following balances:

(a) The 1^st Account: 10,353.80 JPC and 5,163,650.608288 JPP;

(b) The 2^nd Account: 1,324.68 JPC; and

(c) The 3^rd Account: 6,765,399.04 JPC and 250,000 JPP.

(26) As a result of JPEX’s suspension and the lack of circulation of JPC in other cryptocurrency exchanges, all JPC and JPP had become untradeable and practically worthless.

16.  In the ASOC, Ps have pleaded the following causes of action against D2:

(1) Breach of trust; and

(2) Alternatively, reconstitution and repayment of debt.

17.  In respect of the cause of action based on trust, at the hearing, Mr Tam clarified that Ps’ primary case was that there was an express trust over the USDT deposits that were originally deposited in the 1^st and 2^nd Wallets. It is only if the court does not accept there was an express trust, alternatively, it is claimed that there was a Quistclose trust[1].

18.  As for relief, in the event that the court accepts that there was a breach of trust, Mr Tam has also clarified that Ps only seek the following relief as pleaded in the ASOC:

(1) A declaration that D2 was and is holding 51,999.216164 USDT received in the 1^st Wallet and 195,499.092079 USDT received in the 2^nd Wallet (together “the USDT Deposits”) on trust for P1;

(2) An injunction to restrain D2, whether by its servants or agents or otherwise howsoever, from parting with or dealing with the USDT Deposits otherwise than with the consent of P1;

(3) An order that D2 do account to P1 for the USDT Deposits, including all necessary accounts and inquiries to enable P1 to trace and recover the same including their fruits, substitutes and/or proceeds;

(4) Delivery up of the USDT Deposits held on trust to P1; and

(5) To the extent the USDT Deposits, and the fruits, substitutes and the proceeds thereof are untraceable, D2 do pay P1 equitable compensation to be assessed.

19.  In the event the court does not accept Ps’ primary case on express trust but accepts Ps’ alternative case on debt, Mr Tam confirmed that only the following pleaded relief are sought:

(1) D2 do pay, transfer or deliver up:

(a) to P1 0.00052452 BTC and 39,340.9306293 USDT;

(b) to P2 0.41296110 BTC and 186,672.68163085 USDT; or

(2) Alternatively, common law damages to be assessed.

F. Analysis and Disposition

20.  It is now accepted by the courts of many common law jurisdictions, including Hong Kong, that cryptocurrency is “property” and is capable of forming the subject matter of a trust.

21.  Re Gatecoin Ltd (in Liq) [2023] 2 HKLRD 1079 was a case where a company which operated a cryptocurrency exchange platform was wound up and the liquidators applied for directions on inter alia whether certain cryptocurrencies and fiat currencies were held on trust for the company’s customers. In that case, Linda Chan J comprehensively reviewed and outlined the academic debate and jurisprudence including those overseas. The learned judge took the view that it was appropriate to apply and follow the reasoning and conclusions of the UK Jurisdiction Task Force in Legal Statement on Cryptoassets and Smart Contracts (November 2019) and Gendall J in Ruscoe v Cryptopia [2020] NZHC 728, and accordingly held that cryptocurrency is property which is capable of forming the subject matter of a trust. See §§47-59.

22.  In Feng Bo, following Re Gatecoin Ltd (In Liq) and other more recent authorities, DHCJ Kent Yee held that Tether, a type of cryptocurrency common known as USDT, is property capable of forming the subject matter of a trust. In that case, the learned judge granted default judgment and relief which included a declaration that 172,151.86 USDT transferred by the plaintiff to the defendant’s account maintained with Binance were held on constructive trust by the defendant for the plaintiff. See §§9, 10 and 17(1).

23.  Accordingly, I am satisfied that USDT is property capable of forming the subject matter of a trust.

24.  The real question is whether on the pleaded facts, the USDT Deposits are or were held on express trust by D2 as trustee (or one of the trustees) for P1.

25.  As regards the circumstances in which an express trust will be found, the guiding principles were summarized by Briggs J (as he then was) in Re Lehman Brothers International (Europe) (In Administration) [2010] EWHC 2914 (Ch). At §225, principles (i) to (x) were stated as follows:

(i) The recognition of a proprietary interest of B in property where A has the legal or superior title necessarily assumes the existence of a trust as between A and B;

(ii) There can be no such proprietary interest if the necessary trust would fail for uncertainty;

(iii) A trust of part of a fungible mass without the appropriation of any specific part of it for the beneficiary does not fail for uncertainty of subject matter, provided that the mass itself is sufficiently identified and provided also that the beneficiary’s proportionate share of it is not itself uncertain;

(iv) A trust does not fail for want of certainty merely because its subject matter is at present uncertain, if the terms of the trust are sufficient to identify its subject matter in the future;

(v) Subject to the issue of certainty, the question whether B has a proprietary interest in the property acquired by A for B’s account depends upon their mutual intention, to be ascertained by an objective assessment of the terms of the agreement or relationship between A and B with reference to that property;

(vi) The words used by the parties such as “trust, “custody”, “belonging”, “ownership”, “title”, may be persuasive, but they are not conclusive in favour of the recognition of B’s proprietary interest in the property, if the terms of the agreement or relationship, viewed objectively, compels a different conclusion;

(vii) The identification of a relationship in which A is B’s agent or broker is not conclusive of a conclusion that A is, in relation to that property, B’s trustee, although it may be a pointer towards that conclusion;

(viii) A relationship which absolves A from one or more of the basic duties of trusteeship towards B is not thereby rendered incapable of being a trustee beneficiary relationship, but may be a pointer towards a conclusion that it is not;

(ix) Special care is needed in a business or commercial context. Thus:

(a) The law should not confine the recognition and operation of a trust to circumstances which resemble a traditional family trust, where the fulfilment of the parties’ commercial objectives calls for the recognition of a proprietary interest in B;

(b) The law should not unthinkingly impose a trust where purely personal rights between A and B sufficiently achieve their commercial objective;

(x) There is, at least at the margin, an element of policy. For example, what appears to be A’s property should not lightly be made unavailable for distribution to its unsecured creditors in its insolvency, by the recognition of a proprietary interest in favour of B. Conversely, the clients of intermediaries which acquire property for them should be appropriately protected from the intermediary’s insolvency.

26.  In Re Gatecoin Ltd (In Liq), Linda Chan J also held that to create an express trust, there must be the “three certainties”. The “three certainties” are: (a) certainty of subject matter; (b) certainty of object; and (c) certainty of intention. See §§60-65. Furthermore, the learned judge held that question is to determine not just the express arrangements as to how the property is to be held but whether it is held on trust. See §60.

27.  In the present case, I am satisfied of the “three certainties” to create an express trust based on Ps’ pleaded case.

28.  Firstly, there is sufficient certainty of subject matter:

(1) As I have found above, USDT, a cryptocurrency, is property which is able to form the subject of a trust;

(2) D1 and D2 held themselves out to be creating and operating a cryptocurrency exchange platform for Users to transact with each other for crypto-assets;

(3) As a cryptocurrency exchange, the Platform recorded and documented all the balance and transactions of crypto-assets in each account;

(4) In any event, given a blockchain is a decentralized ledger, by conducting a scan using online blockchain explorers, the location and movement of crypto-assets in the Wallets is publicly available information[2];

(5) The USDT Deposits were clearly segregated and contained in the 1^st Wallet and 2^nd Wallet before they were withdrawn and transferred out of the Wallets;

(6) In any event, even if the USDT Deposits were transferred out and stored in JPEX’s cold wallets as claimed, a trust of part of a fungible mass without appropriation of any specific part does not fail for uncertainty of subject matter provided the beneficiary’s proportionate share is not uncertain (see Re Gatecoin (In Liq), §§61-62 and Re Lehman Brothers Intl (Europe), principle (iii)). Where the amounts of crypto-assets was recorded, on the basis that there can be a trust over a proportionate share of all crypto-assets, the subject matter of the trust vis-à-vis each User is sufficiently certain.

29.  Secondly, I am also satisfied there was certainty of object as the beneficiaries of the trust is certain and the extent of Ps’ claim can be readily seen from the balance of the Accounts recorded on the Platform. See Re Gatecoin (In Liq), §§63-64.

30.  Thirdly, I am further satisfied that there was certainty of intention based on an objective assessment of the terms of the parties’ agreement or relationship:

(1) JPEX through its conduct in creating the exchange without allocating to Users the private keys manifested its intent to hold crypto-assets deposited by its Users on trust;

(2) D1, D2 and/or D7 and/or other unknown individuals/entities have retained the private keys to the exclusion of Ps;

(3) JPEX had made the following representations through public announcement published on its website and the words used (such as “client funds”, “customer funds”, “user’s property”, “all users’ assets”, “customers’ assets” and “your account’s security and assets”), properly construed, acknowledged the beneficial ownership of crypto-assets deposited in wallets belonged to the Users:

(a) In an announcement dated 24 July 2020:

“[JPEX] use the hot and cold wallet isolation mechanism, store 95% of the currency value in the cold wallet, we will only reserve 5% of the currency for withdrawal and recharge… Collaboration on audits, multi-signature wallets, and two-step verification. Ensure that sensitive personal information of users will not be disclosed.”

(b) In an announcement dated 18 August 2020:

“… Most of JPEX’s client funds are stored in multi-signature cold wallets. To ensure the security of assets, we will store customer funds in a multi-signature cold wallet first … JPEX’s cold wallet must be signed twice by three professional auditors in the operation team … We believe that the user’s property most important, so the most time and resources are spent on the structure of the entire platform … to ensure that the assets of all our accounts are safe and accurate.”

(c) In an announcement dated 26 October 2020:

“JPEX has always been committed to providing the most secure protection for all customers’ assets, and the platform will regularly update the security system… Recently, in order to prevent hacking activity, we has updated the storage and all wallet deposit addresses will also be changed.”

(d) In an announcement dated 16 November 2020:

“The multi-signature cold wallet technology is set up on the security system, and all users’ assets are very safe.”

(e) In an announcement dated 7 April 2023:

“… To protect the security of our users’ assets and accounts, JPEX has establish multiple protection mechanisms… Through multi-step verification, your account’s security and assets will be better protected.”

(4) The absence of the word “trust” in the announcements or in the Users Terms of Service is not conclusive;

(5) JPEX held itself out to be a cryptocurrency exchange to provide a platform where the users can transact with each other for crypto-assets as opposed to JPEX being in the business of selling cryptocurrency for profit;

(6) It was represented that Users’ cryptocurrencies (95%) are stored in “cold wallets” which suggest that they were not for free disposable by JPEX. The remaining (5%) were for the specific purpose of withdrawal by Users; and

(7) By depositing 51,999.216164 USDT and 195,499.092079 USDT into the 1^st Wallet and 2^nd Wallet respectively, P1 intended to entrust, and entrusted, the same to D2 for the special purpose of depositing, trading and investing in cryptocurrencies for profit.

31.  I therefore take the view that Ps have pleaded a viable case of express trust. As operators of the Platform, D2 (together with D1) held the USDT Deposits on express trust for Ps.

32.  As held in Ruscoe v Cryptopia (where the court likewise was satisfied the cryptocurrencies were held on express trust for the account holders), essentially, the principle role of the exchange, as bare trustee, was to hold the assets as trustee for the accountholders, to follow their instructions, and let individual accountholders then to increase or reduce their beneficial interest in the trusts in accordance with the system that the exchange had created for that purpose. See §196.

33.  See also Lewin on Trusts, Vol 1, §§1-037, 1-040, 1-041, 34-026 and 34-050, where the learned editors are of the view that generally a trustee has: (a) a duty to transfer the property to or at the direction of the beneficiary; (b) a duty to take proper care of trust property; and (c) a duty to preserve and manage trust property for the benefit of the beneficiaries.

34.  I am therefore satisfied that D2, as one of the trustees, acted in breach of its duties as trustee as pleaded by:

(1) wrongfully and without authorization transferring away the USDT Deposits to other unknown wallets; and

(2) failing to and/or refusing to pay over to P1 the whole or any part of the USDT Deposits despite Ps’ request.

35.  Accordingly, I am further satisfied that P1 is entitled to the relief as pleaded on her primary case.

36.  In particular, I am satisfied that the declaration sought is properly made out on the pleadings and that I ought to exercise my discretion to grant the declaration without trial. It seems to me that P1 has a strong and obvious case for seeking proprietary relief. Otherwise, she remains in a position of an unsecured judgment creditor. There is a genuine need to grant the declarations sought to do fullest justice to P1.

37.  As for the injunction sought against D2, I am also satisfied that it is necessary and ancillary to assist in the recovery of the USDT Deposits, which I have held on the Ps’ pleaded case were held on trust by D2 (together with D1) for P1.

38.  Given my acceptance of Ps’ primary case, without intending any disrespect to the submissions of Mr Tam on his alternative claims based on Quistclose trust and debt, which admittedly are quite novel, I do not consider it necessary to go on to decide whether those alternative claims are viable and entitle Ps to the alternative relief sought.

G. Orders and Costs

39.  Accordingly, I would grant default judgment against D2 and order the relief sought by Ps on their primary case.

40.  Costs should follow the event. I therefore order that D2 pay to Ps the costs of and occasioned by the Summons as summarily assessed by me on paper.

41.  Having considered the Statement of Costs submitted at the hearing, adopting a broad-brush approach, I have summarily assessed Ps’ costs at HK$120,000.00.