Wang v Darby [2022] WTLR 327

Analysis

The parties entered into contracts whereby they exchanged specified quantities of cryptocurrencies, namely Tezos and Bitcoin, on terms of reciprocal restoration of the same amounts of each currency upon or after an agreed period of two years. The claimant applied to continue a worldwide freezing order and proprietary injunction. The defendant applied to strike out/enter summary judgment on the proprietary claims.

Held – applications granted in part

1. 1) Principles:
   1. a) Fungible and non-identifiable digital assets constitute property that is capable of being bought, sold and held on trust as a matter of English law. Assuming the foundational requirements of certainty are met, the guiding principle for the circumstances in which an express trust will be found to exist in a commercial transaction or relationship is the common intention of the parties. The parties’ language is not determinative: it is a matter of substance, not form. Although the court will impose a trust where the parties’ commercial objective calls for it, the law should not unthinkingly impose a trust where purely personal rights are sufficient to achieve their commercial objective (Re Lehman Brothers International (Europe) (In Administration) [2010] applied) (paras [51]-[56]), and the court should not rush to pigeonhole a transaction into a familiar category if that does not give optimum or proper effect to the parties’ commercial objectives (para [61]).
   2. b) In respect of a Quistclose trust, the touchstone is the objective intention of the parties, and specifically the intention that the relevant money should not become part of the general assets of the recipient, but should be used exclusively to effect certain payments only. The effect of such a trust is that the beneficial interest in the money remains with the transferor who mandates the transferee to apply the monies paid for a particular purpose identifiable with sufficient certainty (Bieber v Teathers Ltd (In Liquidation) [2012] considered). No case had been identified where a Quistclose trust had arisen in the context of a transaction involving reciprocal exchange and re-exchange of assets or economic value (paras [57]-[59]).
   3. c) A constructive trust can arise when a specifically enforceable contract of sale is concluded, such that the beneficial ownership passes to the buyer, and the seller is constituted trustee on behalf of the buyer pending completion. An example is the sale of land, but the principle applies to pieces or parcels of personal property such as unquoted shares or volumes of quoted shares that are not readily obtainable in the market. No constructive trust arises if the relevant sale contract is conditional, or a mere option as yet not exercised (para [60]).
   4. d) It is possible for non-trustee or independent fiduciary duties to arise on a party to a commercial contract where there is a relationship of trust and confidence that justifies equitable duties in conjunction with and consistent with the contractual framework. The precise scope of any fiduciary duties must be moulded to the nature of the particular relationship and the facts of the case to ensure consistency with non-fiduciary duties (para [62]).
2. 2) Application: summary judgment was granted to the defendant on the proprietary claims. The economic reciprocity precluded a constructive trust and a Quistclose trust. There was no real prospect of establishing an express trust. It was difficult to see how a constructive trust could arise in respect of entirely fungible and non-identifiable digital assets. There was no obvious analogy to a specifically enforceable contract for the sale of land or a unique or rare piece or parcel of property. There was no identified case where a beneficiary under a trust was obliged to transfer or re-transfer economic value to the trustee in order to obtain trust property. If the claimant had defaulted on his own restoration obligation the defendant would have been entitled to keep the Tezos, which was not consistent with a trust. A trust was not necessary to give effect to the parties’ legitimate expectations or commercial interests as they were sufficiently served by the existence of personal rights and obligations. The proprietary language used did not dislodge the legal characterisation of the transactions (paras [77]-[78], [81], [85]-[86], [88], [90]-[92], [109]).
3. 3) The worldwide freezing order: the claimant deserved protection in respect of his personal claims. The key issue was the existence of a real risk of dissipation of assets that might render enforcement of any future judgment against the defendant more difficult or less effective. Such a risk existed: the defendant had given inconsistent and incomplete asset disclosure, his evidence had conspicuous omissions, and he was an experienced and sophisticated cryptocurrency trader with current or potential means of control over many digital wallets and access to different trading exchanges and platforms. There was no manifest injustice or inconvenience to the defendant in continuing the worldwide freezing order. The proprietary injunction was set aside (paras [101]-[102], [108]-[109]).

JUDGMENT STEPHEN HOUSEMAN QC: Indroduction [1] The present dispute concerns two related contracts entered into by the Claimant (‘Mr Wang’) and the Defendant (‘Mr Darby’): the first on 28 December 2018 as allegedly varied on or about 10 January 2019 (‘First Contract’) and the second on 24-25 January 2019 (‘Second Contract’) coinciding with or comprising …

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