Out-Law News | 04 Aug 2022 | 3:06 pm | 2 min. read
The English courts have adapted quickly to increasingly complex disputes involving crypto assets, a legal expert has said, following a recent ruling in a dispute over the ownership of an account worth roughly £30 million.
Jennifer Craven of Pinsent Masons said that, in the years since the government's UK Jurisdiction Taskforce published its legal statement (64 pages / 2.07MB PDF) on crypto-assets and smart contracts, English courts have seen a “flurry” of cases. She added: “Many of those cases relate to freezing injunctions and disclosure orders obtained in support of the tracing and recovery of crypto stolen by fraudsters.”
“That English court leads the way in adjudicating on crypto-related disputes and other technological matters in an international context proves that English common law is well able to adapt to litigants’ needs. The case also shows the increasing use of settlement agreements involving crypto or tech related issues, and the requirement for those in dispute to seek the right legal and technological expertise to drive forward litigation and get the right result,” Craven said.
It comes after HDR Global Trading Ltd asked the High Court to determine whether an account opened on HDR’s trading platform, BitMEX, belonged to Nexo Capital Inc or its former director, Georgi Shulev. A dispute arose over control of the account when Nexo’s board removed Shulev as a director, prompting HDR to freeze the account.
That English courts lead the way in adjudicating on crypto-related disputes and other technological matters in an international context proves that English common law is well able to adapt to litigants’ needs
The court heard how Shulev opened the account, which contained over 800 bitcoin currently worth around £30m, using his company email address. While Nexo argued that the account was a corporate trading account and that all the assets it contained belonged to the company, Shulev said he opened it in a personal capacity and that some of the crypto assets it contained were his.
Shulev and Nexo entered into a settlement agreement prior to the High Court hearing, but a further dispute arose over what effect it had on the proceedings. Under the terms of the agreement, Shulev was to release access, control and ownership of the HDR account to Nexo, and receive instalments of currency and crypto assets totalling roughly $1m in return. But Shulev argued before the court that the definition of ‘assets’ in the settlement agreement was too broad and uncertain to be binding – and allowed Nexo to continually add to what he was required to provide in order to justify refusing to pay him.
The court found that Shulev had yet to perform his side of the settlement agreement and had waived any rights to Nexo’s corporate trading account. The judge ruled that Shulev must transfer roughly $10m in crypto assets before Nexo was obliged to pay the $1m in instalments. The judge also ruled that both Shulev and Nexo were jointly obliged to inform HDR that the account will be released to Nexo.
Hinesh Shah of Pinsent Masons said: “This case highlights the importance of segregating personal and corporate crypto-assets so a clear distinction can be made. Similar to traditional financial assets, where one can create multiple accounts or portfolios, the individual could and probably should have opened separate wallets for any personal crypto he claimed he was entitled to.”
Shah added: “Notwithstanding the agency principle and the need to justify how such crypto-assets were obtained, separate accounts would at least have allowed the individual to quantify the value of his personal crypto-assets, so as to streamline a potential claim before the UK courts.”
The court also decided the definition of the term ‘assets’ was sufficiently certain as between the parties and there was no evidence that the broad sense of ‘assets’ was being abused. Sanita Heer of Pinsent Masons said: “This case is a useful reminder of the need to ensure the term ‘assets’ in a settlement agreement is clearly defined and encompasses all known assets, be they crypto assets or not.”
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