NICO CONSTANTIJN ANTONIUS SAMARA v. STIVE JEAN PAUL DAN also known as STEVE JEAN PAUL DAN, STIVE JEAN PAUL DAN and STEVE JEAN PAUL DAN

HCA 902/2018 and
HCA 2332/2018
(Consolidated)

[2022] HKCFI 1254

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS 902 AND 2332 OF 2018

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J U D G M E N T

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A. INTRODUCTION

1.  This is the trial of the plaintiff’s claim against the defendant.  In a nutshell, the plaintiff’s case is that the defendant, as his sales agent, has failed to:

(1)  account for:

(a)  the 465.287 bitcoins transferred by the plaintiff to the defendant in respect of the sales through Gatecoin Limited (the “Gatecoin Sales”);

(b)  the sale proceeds of the Gatecoin Sales and the sales through TD Ameritrade (the “TD Ameritrade Sales”); and

(2)  repay 2 loans extended by the plaintiff to the defendant in the respective sums of US$180,000 and US$11,032.

2.  There is no dispute that the plaintiff transferred to the defendant at least 275 bitcoins in respect of the Gatecoin Sales and 387.2 bitcoins in respect of the TD Ameritrade Sales.  The only issues are:

(1)  whether the plaintiff also transferred the remaining 190.287 bitcoins to the defendant in respect of the Gatecoin Sales;

(2)  whether the defendant acted as principal or agent, and his rate of commission; and

(3)  whether the plaintiff extended the loans totalling US$191,032 to the defendant.

3.  The defendant’s pleaded case is essentially that he is a bitcoin trader, and his relationship with the plaintiff was one of seller and buyer dealing directly with each other; all trades between them were concluded on the spot with payment being made in cash there and then or by wire transfer.  The defendant denies that he ever acted or agreed to act as agent for the plaintiff.  He also denies to have owed to the plaintiff loans totalling US$191,032.

4.  The defendant’s pleaded case and evidence were subject to extensive judicial scrutiny by Deputy High Court Judge Le Pichon in the Decision dated 1 November 2019 granting a Mareva injunction (the “Mareva Injunction”) against the defendant, and by Mr Recorder Houghton SC in the Reasons for Decision dated 27 April 2021 granting a proprietary injunction against the defendant.

5.  Despite the judicial criticisms against him the defendant has chosen not to file any witness statement.  He has been absent in these proceedings shortly after his former solicitors were granted leave to cease to act for him on 28 January 2021.  Pursuant to the Order of Master S H Lee dated 17 May 2021, notice of this trial has been duly served on the defendant’s Colombian address as stipulated in the order.

B.      THE FACTUAL BACKGROUND

B1.    The Agency Agreement

6.  The plaintiff is a Dutch citizen.  He lived in Curaçao at all material times.  On 1 June 2017, he came to Hong Kong where he met the defendant.  It is the plaintiff’s case and evidence that they orally agreed that the defendant would sell the plaintiff’s 1,000 bitcoins as sales agent for a 3% commission (the “Agency Agreement”).

7.  The Agency Agreement, although not reduced into writing by the parties at the time of the agreement, is evidenced by:

(1)  the defendant’s contemporaneous communications via WhatsApp with Mr Gabriel Sukenik (“Mr Sukenik”), an independent bitcoin broker, on 31 July 2017 in respect of the TD Ameritrade Sales, where the defendant referred to the plaintiff as “my hk seller” (at 11:29 am) and stated that “you, myself, and mike were all brokers in this deal” (at 11:34 am) while the plaintiff is the “seller” (at 11:36 am); and

(2)  the plaintiff’s email to the defendant dated 22 January 2018, in which he stated that “you sold my btc for me, i expect you to pay me the money you owe me and communicate”.

8.  As noted above, the defendant has not adduced any evidence in support of his pleaded defence that the relationship between himself and the plaintiff was one of direct buyer and seller.

9.  As for the rate of commission, apart from the plaintiff’s oral evidence, the plaintiff’s case is supported by:

(1)  the WhatsApp communications between the defendant and Mr Sukenik on 31 July 2017, stating that “with 3 brokers, we each earned 1.33% not a full 2%” (at 11:24 am); and

(2)  an article from a website reporting bitcoin news which stated that public brokers settle for a fee between 1% to 5% for which “high net worth individuals and others get privacy and security”.

10.  The defendant’s claim that he charged a 40% “Transaction Fee” in respect of both the Gatecoin Sales and the TD Ameritrade Sales is a bare assertion which is neither substantiated by any supporting evidence nor accords with commercial sense, given that the plaintiff could have resorted to public brokers who ordinarily charge a fee of 1% to 5% only.

B2.    The Citibank transfers

11.  The plaintiff’s evidence is that, as he (being a non-resident) could not open a Hong Kong bank account to handle the sale proceeds, he agreed with the defendant that they should be deposited into the defendant’s account no 0083972323 in Hong Kong maintained with Citibank (Hong Kong) Limited (the “Citibank Account”).  The defendant gave the plaintiff access to the Citibank Account by providing him with the login details and security token, thus allowing the plaintiff to make transfers of funds from the Citibank Account to his bank account in Germany.

(1)  Citibank has confirmed that the security token in the plaintiff’s possession was assigned to the defendant.

(2)  The plaintiff was evidently able to log into the Citibank Account up till at least mid-October 2017 and made transfers to his own bank account in Germany.

12.  The defendant denies ever having given the plaintiff access rights to his Citibank Account.  He deals with the Citibank transfers by way of a table in the Consolidated Defence.  As Deputy High Court Judge Le Pichon observed at §43 of her Decision:

“On closer consideration, an inexplicable and troubling feature emerged: three of the transaction references appears to have been used twice for different trades effected on different dates, albeit involving the same amount.”

13.  As the learned Judge further held at §45 of her Decision:

“There can be no rational or innocent explanation for that state of affairs. It suggests that there is something seriously awry with the evidence presented. The inference is compelling that the table was concocted to correlate with the outgoing transfers shown on the printout, undermining the defendant’s truthfulness. Necessarily, the other tables produced (§§17 and 29 above) must suffer the same fate.”

14.  Notwithstanding the above judicial criticism, the defendant has chosen not to proffer any explanation for his pleaded defence.

B3.    The Gatecoin Sales

15.  As stated above, there is no dispute that the plaintiff transferred to the defendant 275 bitcoins between 8 August 2017 and 6 September 2017 in respect of the Gatecoin Sales.  The issue is whether the plaintiff also transferred the remaining 190.287 bitcoins to the defendant as alleged.

16.  The plaintiff’s case in this regard has been summarised in the table at the Amended Consolidated Statement of Claim §24A.  In short, between 25 July 2017 and 15 September 2017, the plaintiff transferred a total of 480.487 bitcoins to the defendant’s Gatecoin Account:

(1)  Between 25 July 2017 and 31 July 2017, 194 bitcoins were transferred to the defendant’s 1^st Wallet Address,^[1] out of which 15.2 bitcoins were subsequently transferred back to the plaintiff on 27 July 2017, leaving a net balance of 178.8 bitcoins.

(2)  Between 8 August 2017 and 6 September 2017, 275 bitcoins were transferred to the defendant’s 2^nd Wallet Address^[2]. These transfers are not in dispute.

(3)  On 15 September 2017, 11.487 bitcoins were transferred to the defendant’s 3^rd Wallet Address^[3].

17.  As explained in the plaintiff’s witness statement, which was adopted as his examination-in-chief, the transaction records contained in the Gatecoin Report, when read together with the public bitcoin ledger, clearly show that the 194 bitcoins transferred to the defendant’s 1^st Wallet Address in July 2017 came from the plaintiff.

18.  As for the transfer of 11.487 bitcoins on 15 September 2017, the plaintiff has produced the transfer record from his wallet, showing that the recipient address belongs to the defendant’s Gatecoin Account.

19.  Based on the above, the court finds that the plaintiff transferred 465.287 bitcoins (ie 194 - 15.2 + 275 + 11.487) between 25 July 2017 and 15 September 2017 to the defendant’s Gatecoin Account and entrusted him to sell the same on his behalf as his sales agent.

B4.    The TD Ameritrade Sales

20.  As stated above, there is no dispute that the plaintiff transferred to the defendant 387.2 bitcoins in respect of the TD Ameritrade Sales.  These transfers were effected from the plaintiff’s Copay wallet.

21.  The defendant’s case is that those bitcoins were sold by the plaintiff to him, who then paid for them immediately, partly by SWIFT transfers and partly in cash as particularised in the table at §12(3) of the Consolidated Defence.  However, as noted above, the defendant has not adduced any evidence in support of his pleaded defence.

22.  Based on the above, the court finds that the plaintiff transferred 387.2 bitcoins between 27 June 2017 and 1 August 2017 pursuant to the defendant’s instructions as his sales agent in respect of the TD Ameritrade Sales.

B5.    Loans to the defendant

23.  It is the plaintiff’s case and evidence that he extended 2 loans in the sums of US$180,000 and US$11,032 to the defendant.

24.  The first loan of US$180,000 is evidenced by a written loan agreement dated 5 June 2017, which was exhibited to a statutory declaration made by the defendant on 6 June 2017.  Under the agreement, the defendant stated that he owed a sum of US$180,000, which would be repaid with 5% interest within 13 months from the date of the agreement.  On 7 June 2017, the defendant acknowledged receipt of the principal sum.

25.  The defendant’s pleaded defence is that the written loan agreement was a “sham document created by the plaintiff who wished to receive some of the proceeds of sale from future bitcoin transactions”.  However, he has not produced any evidence to substantiate his serious allegation that the loan agreement was a “sham document”.  His defence must be rejected.

26.  According to the plaintiff’s case, the second sum of US$11,032 was a cash loan which he extended to the defendant on around 13 July 2017 in Panama, such that the total amount owed by the defendant to the plaintiff up to 11 July 2017 (then at US$528,968) would be US$540,000 as stated in the “Declaration of Gift”, which was executed by the plaintiff in reliance upon the defendant’s representations.

27.  This loan agreement was not reduced into writing.  Nonetheless, I accept that the plaintiff’s explanation as to how this cash loan came about has been consistent and is inherently probable in the light of the state of affairs up to 11 July 2017:

(1)  The first sum then liable to be paid by the defendant to the plaintiff was US$290,515, being the sale proceeds of the OSL Sales (ie US$299,500) minus 3% commission (ie US$8,985).  The defendant accepts that OSL paid him US$299,500 for bitcoin sales in June and July 2017.  It is also common ground that the plaintiff has since received US$290,515 paid out of the defendant’s Citibank Account.

(2)  The second sum then liable to be paid by the defendant to the plaintiff was US$54,953, being the sale proceeds of the Provenzal Sale minus a bank charge of US$47.  The defendant accepts that Mr Provenzal paid him a sum of US$55,000, but claims that it was the purchase price paid by Mr Provenzal for Transcom Ltd CA, a Panama company owned by the defendant.  The documentary evidence produced by the defendant in this regard does not support his assertion, and should be rejected.^[4] It is common ground that the plaintiff has since received US$54,953 paid out of the defendant’s Citibank Account.

(3)  The third sum then liable to be paid by the defendant to the plaintiff was US$194,000, being the first tranche of sale proceeds in respect of the TD Ameritrade Sales (ie US$200,000) minus 3% commission (ie US$6,000).

(4)  It is common ground that the defendant paid 2 sums of US$500 and US$10,000 to the plaintiff on 3 July 2017.

(5)  In summary, the defendant then owed a total sum of US$528,968 (ie US$290,515 + US$54,953 + US$194,000 - US$500 - US$10,000) to the plaintiff.  Adding this sum to the loan amount of US$11,032 would become US$540,000.

C.      THE DEFENDANT’S LIABILITY

C1.    The defendant’s breach of duties as agent

28.  It is well established that the relationship of principal and agent may be constituted by the conferring of authority by the principal on the agent: Bowstead and Reynolds on Agency (22^nd ed, 2021), §2-001.  Agency relationships have traditionally been accepted as fiduciary in nature: Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681, §§53, 60, per Ribeiro PJ.

29.  In Bristol and West Building Society v Mothew [1998] Ch 1, 18AB-C, Millett LJ (as he then was) held that:

“… A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977), p 2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary.”

30.  Thus, the defendant, when dealing with the plaintiff’s bitcoins and sale proceeds as his sales agent, owed to the plaintiff, among other things, duties to avoid conflicts of interest, not to profit from his position as agent, and not to use the plaintiff’s property to acquire secret profits: Bowstead and Reynolds on Agency, §§6-046, 6-073 to 6-076.

31.  Further, the defendant was and is obliged as an agent to keep an accurate account of all transactions entered into on behalf of the plaintiff, to produce to the plaintiff all books, correspondence and documents relating to the plaintiff’s affairs, to account for profits, and to pay over and account for the money he has held or received for the plaintiff: Bowstead and Reynolds on Agency, §§6-090 to 6-100.

32.  It is the plaintiff’s case, supported by evidence, that the defendant has been in breach of his fiduciary duties as agent, for failing to account to the plaintiff for his bitcoins and sale proceeds in respect of the Gatecoin Sales and the TD Ameritrade Sales since around mid-September 2017, and becoming incommunicado shortly thereafter.

33.  The defendant has not adduced any evidence in rebuttal.  In the premises, the court finds that the defendant was and is in breach of his fiduciary duties to account for the plaintiff’s bitcoins, the sale proceeds, and any income or profits derived therefrom.

34.  For completeness, by reason of the defendant’s blatant breaches of his fiduciary duties as agent, which amounted to repudiatory breaches of the Agency Agreement, he is not entitled to any commission in respect of the Gatecoin Sales and the TD Ameritrade Sales: Bowstead and Reynolds on Agency, §§7-048, 7-050.  Thus, all sale proceeds and fruits thereof found due shall be ordered to be paid over to the plaintiff.^[5]

C2.    The defendant’s failure to repay loans

35.  The defendant has failed to repay any part of the loans totalling US$191,032 to the plaintiff.   No evidence has been adduced by the defendant in rebuttal.  In the premises, the court finds that the defendant is liable to repay the sum of US$191,032 plus interest thereon to the plaintiff.

C3.    Relief granted against the defendant

36.  It is well established that the principal can claim proprietary remedies against the agent in respect of the latter’s breach of fiduciary duties: Bowstead and Reynolds on Agency, §6-040.  Money and property which has been specifically entrusted to the agent by the principal to hold for his benefit or to use for a specific purpose, as well as assets derived from the misapplication of money or property belonging to the principal, are held on trust by the agent for the principal: Bowstead and Reynolds on Agency, §§6-041 to 6-042.

37.  In the present case, based on the documents produced by Citibank and the Gatecoin Liquidators pursuant to the discovery order made by Deputy High Court Judge Le Pichon, the plaintiff has been able to identify the following assets in Hong Kong under the defendant’s name which represent part of the fruits of his bitcoins and the sale proceeds, and are now subject to the proprietary injunction:

(1)  the following balances (as of 25 May 2018) in the defendant’s Citibank accounts:

(a)  the cash balance in account no 86682554 at HK$31,452.61 equivalent;

(b)  the cash balance in account no 48448869 at HK$1,779.53;

(c)  the fund units in account no 35320230 with a total net asset value of HK$3,686,030;

(d)  the securities in account no 32303912 with a total market value of HK$4,322,042.24;

(2)  the interests and sums due to the defendant under insurance policies no B816061961 and B816086807 underwritten by AIA International Limited; and

(3)  45.08883459 bitcoins and US$0.007 in the Gatecoin Account.

38.  Further, based on the same documents, the plaintiff has been able to identify the following assets which represent part of the fruits of his bitcoins and the sale proceeds, and have been disposed of by the defendant for his own use or benefit:

(1)  14.7555 bitcoins in the Gatecoin Account which were disposed of by the defendant on 29 July 2017 and 24 August 2017 for his own benefit;

(2)  a total of 34.73506 bitcoin cash transferred out of the Gatecoin Account between 4 August 2017 and 1 November 2017;

(3)  a sum of US$800,000 transferred from the Gatecoin Account on 11 September 2017 and credited to the defendant’s Citibank account on 21 December 2017;

(4)  67.16482249 bitcoins sold or withdrawn by the defendant from the Gatecoin Account between 13 September 2017 and 7 March 2018; and

(5)  sums of US$200,000, US$400,000 and US$30,829 transferred from the defendant’s Citibank account in Hong Kong to his account with Citibank Colombia and the account of one May S Zona Libre in Panama in February and March 2018.

39.  In the premises, I grant the following relief against the defendant:

(1)  a Declaration that the 465.287 bitcoins transferred by the plaintiff to the defendant’s Gatecoin Account, the sale proceeds and the fruits thereof, including but not limited to those referred to at paragraph 37 above, were at all material times and are held by the defendant on trust for the plaintiff absolutely;

(2)  a Declaration that the 387.18422 bitcoins transferred by the plaintiff pursuant to the defendant’s instructions in respect of the TD Ameritrade Sales, the sale proceeds and the fruits thereof, including but not limited to those referred to at paragraph 37 above, were at all material times and are held by the defendant on trust for the plaintiff absolutely;

(3)  an Order that the defendant do forthwith procure Citibank (Hong Kong) Limited and AIA International Limited to transfer the sums and properties referred to at paragraph 37(1) and (2) above to the plaintiff;

(4)  an Order that the defendant shall pay equitable compensation to the plaintiff in the event that the plaintiff is unable to recover the 45.08883459 bitcoins and US$0.007 referred to at paragraph 37(3) above, or any part thereof, in specie in the Gatecoin Liquidation, with quantum to be assessed;

(5)  an Order for all necessary accounts, inquiry and directions as to what is due to the plaintiff, including but not limited to those sums and properties referred to at paragraph 38 above;

(6)  an Order that the defendant do transfer the property and/or pay the amount found due to the plaintiff upon taking the aforesaid accounts, inquiry and directions;

(7)  subject to sub-paragraph (3) above, the Mareva Injunction be extended up to and including the taking of the aforesaid accounts, inquiry and directions;

(8)  an Order that the defendant do pay sums of US$180,000 and US$11,032 as outstanding loans;

(9)  the defendant do pay interest on the sum of US$180,000 at the contractual rate of 5% per annum from 5 June 2017 to 5 July 2018, and thereafter at the same rate of 5% per annum until full payment;

(10)  the defendant do pay interest on the sum of US$11,032 at 1% above the HSBC prime rate per annum from 13 July 2017 to the date of judgment, and thereafter at the Judgment Rate until full payment; and

(11)  there be liberty to apply.

40.  I would grant leave for the plaintiff’s payments into court in these proceedings, in the total sum of HK$1,700,000 together with any interest accrued, to be released to his solicitors forthwith.

41.  As regard costs, as submitted by the plaintiff, this is a case where the defendant has been in blatant breach of his fiduciary duties owed as agent.  The defendant’s conduct in these proceedings has been evasive. He has made various serious allegations against the plaintiff in his Defence which are not backed up by adducing evidence at trial.  Despite the judicial criticism against him (see: paragraphs 4, 12 and 13 above), the defendant has chosen not to file any evidence.  I am of the preliminary view that, in the circumstances, it is “appropriate” to award indemnity costs against the defendant.

42.  Accordingly, I order that the costs of these proceedings (including all costs reserved, if any) be paid by the defendant to the plaintiff, such costs are to be taxed if not agreed on the indemnity basis.

43.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

44.  Lastly, I express my gratitude to counsel for her helpful assistance in this matter.