HDR Global Trading Ltd v Georgi Shulev
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henshaw |
| Judgment Date | 01 July 2022 |
| Neutral Citation | [2022] EWHC 1685 (Comm) |
| Docket Number | Case No: CL-2020-000392 |
| Court | Queen's Bench Division (Commercial Court) |
[2022] EWHC 1685 (Comm)
THE HONOURABLE Mr Justice Henshaw
Case No: CL-2020-000392
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane,
London, EC4A 1NL
The First Defendant appeared in person
David Quest QC (instructed by Eversheds Sutherland (International) LLP) for the Second Defendant
The Claimant did not appear and was not represented
Hearing date: 5 April 2022
Draft judgement circulated to the parties: 8 June 2022
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
| (A) INTRODUCTION AND BACKGROUND | 2 |
| (B) FACTS | 3 |
| (C) TERMS AND VALIDITY OF THE SETTLEMENT AGREEMENT | 7 |
| (1) Terms of the Settlement Agreement | 7 |
| (2) Validity and effect of Settlement Agreement | 10 |
| (a) Duress and misrepresentation | 10 |
| (b) Clause 3 | 14 |
| (c) Clause 4 | 17 |
| (d) Clause 8 | 18 |
| (e) Clause 11 | 20 |
| (D) PERFORMANCE OF THE SETTLEMENT AGREEMENT | 21 |
| (E) ENTITLEMENT TO THE ACCOUNT/ASSETS | 29 |
| (1) Principles | 29 |
| (2) Application | 31 |
| (F) RELEASE AND CONFIDENTIALITY AGREEMENTS | 34 |
| (G) CONCLUSIONS | 35 |
(A) INTRODUCTION AND BACKGROUND
These are stakeholder proceedings brought by the Claimant (“ HDR”) under CPR Part 86 in relation to an account (“ the Account”) opened on HDR's cryptocurrency derivatives exchange and trading platform in the name of the First Defendant (“ Mr Shulev”).
HDR is a company incorporated in the Republic of Seychelles. It operates a cryptocurrency derivatives exchange and trading platform under the name BitMEX (“ Bitmex”).
The Second Defendant (“ Nexo”), a Cayman Islands company, is part of the Nexo group of legal entities which operate the cryptocurrency-backed lending platform “ nexo.io”, cryptocurrency exchange and wallets.
Mr Shulev was co-founder of the Nexo group, a former Managing Partner of Nexo and claims to be one of its beneficial owners.
This judgment deals with certain issues which have arisen between Mr Shulev and Nexo about entitlement to the Account and its contents, and a settlement agreement they made on 1 July 2021 (“ the Settlement Agreement”).
HDR commenced these proceedings as stakeholder proceedings in order to resolve Mr Shulev's and Nexo's competing claims to the Account. The Account had been opened by Mr Shulev while he was a director of Nexo, and Nexo's position (in summary) was that it was a corporate account used for corporate purposes into which corporate assets had been transferred. Mr Shulev's position was that he had opened the account in a personal capacity and some of the cryptoassets in it belonged to him. The balance on the account is approximately 880 bitcoin, equivalent to approximately £30 million at current prices.
HGR is no longer substantively involved in the case, and did not take part in the hearing before me.
The essential issues to be determined were the enforceability of the Settlement Agreement, and (if the Agreement is not enforceable or does not dispose of the matter) the underlying question of entitlement to the Account and contents. In the event, it became common ground that the Settlement Agreement is binding.
I have read evidence in the form of three witness statements from Mr Shulev, five witness statements from Nexo's Managing Director Mr Trenchev, and one from Mr Yates on behalf of HDR. I have received detailed skeleton arguments and heard oral submissions from Mr Shulev in person and counsel for Nexo.
In response to the usual invitation to submit a list of suggested typing corrections or other obvious errors, Mr Shulev filed a noted 13 June 2022. This consisted mainly of substantive submissions, and I gave Nexo the opportunity to submit a short note in response, which was done on 27 June 2022. To the extent that I consider it appropriate to address Mr Shulev's points, I have done so at the appropriate places in this judgment.
As set out further below, I have concluded that, under the terms of the Settlement Agreement, further steps remain to be completed by Mr Shulev in order to become entitled to the first instalment payable by Nexo under the Agreement.
(B) FACTS
Nexo is in the business of trading cryptoassets and lending against them. Mr Shulev was a director and senior employee of Nexo until he was removed from those positions by the board in September 2019.
Nexo holds and operates cryptocurrency trading accounts with several other exchanges apart from Bitmex, including Kraken, Binance and Huobi. On Nexo's case, some of those accounts were opened in the name of Nexo itself and some in the names of individual employees, including Mr Shulev, but they were and are all treated by Nexo and its employees as corporate accounts and used to hold and trade corporate assets.
The genesis of the Account appears to have been as follows. On 16 May 2019, Mr Shulev had a text conversation with a Nexo trader, Mr Vasil Stoilov, in which they discussed how the rates offered by Kraken for bitcoin/US dollar exchange contracts compared with those offered by Bitmex. At the time, Nexo held an account, in its corporate name, at Kraken containing a large quantity of bitcoin. It appeared from the information provided by Mr Stoilov in the conversation that Bitmex's rates were slightly better than Kraken's.
Later that day, and presumably as a result of the conversation with Mr Stoilov, Mr Shulev opened the Account with HDR, providing his name and the email address “ georgi@nexo.io”. Mr Shulev opened the account by completing an electronic form on HDR's website. The only information required to open the Account was a name and email address.
Over the next two days, a total of 261 bitcoin were transferred into the Account. That was done by transferring them to a specific network address (“ the Account network address”) maintained by HDR and associated with the Account. All bitcoin are associated with an address identifier in the Bitcoin network, and transfers are effected between network addresses.
Evidence from an analysis obtained by Nexo from industry consultants Chainalysis, and public Bitcoin blockchain records, indicates that the 261 bitcoin derived ultimately from Nexo's Kraken, Huobi and Binance accounts:
i) 51 bitcoin were transferred directly from Nexo's Huobi account; and
ii) three transfers totalling 210 bitcoin were made from Nexo's Kraken account, via an intermediate address which Mr Shulev had created on 11 May 2019. All of the bitcoin received into that account in May 2019 came from the Kraken account.
On 17 May 2019, Mr Shulev told Mr Kantchev, another Nexo director, that “ [a]t Bitmex we have put 261 BTC and have opened positions for 1,988,375”. (The positions opened were the futures trades referred to below.) Mr Shulev also stated that Mr Kantchev would “ probably have to open a new position in Bitmex and sell BTC for Eur”; and that, because a Nexo counterparty called Genesis had decided to discontinue a swap, “ more positions will have to be opened at Bitmex most likely”.
Further bitcoin deposits in the Account were made later in May 2019 by transfer from other Nexo accounts:
i) on 20 May 2019, 890 bitcoin were transferred from the Kraken account via the intermediate address referred to above;
ii) on 27 May 2019, 50.99 bitcoin were transferred directly from the Binance account and 49.03 bitcoin directly from the Huobi account; and
iii) on 31 May 2019, 200 bitcoin were transferred directly from the Kraken account.
Altogether 1,451.028 bitcoin were transferred into the Account in May 2019.
Between May and July 2019, a large number of futures contracts were traded on the Account. Two types of contract were traded: XBTUSD, a perpetual contract for the exchange of bitcoin and US dollars; and XBTZ19, a bitcoin future maturing on 27 December 2019.
The trades on the Account were placed by Kalin Metodiev, Nexo's head of trading and chief financial officer. On Nexo's evidence, that was possible because the login credentials for the Account were known to Mr Metodiev and generally within Nexo, as indicated by (i) numerous logins to the Account from IP addresses at Nexo's offices, (ii) a message from Mr Metodiev to Mr Shulev on 24 July 2019 asking whether Mr Shulev had made any changes to the access and (c) an email from Mr Trenchev to Bitmex on 27 September stating “ The OTC Desk of the Nexo Group has always had access to both the email addresses and the accounts at Bitmex.” Nexo's evidence suggests that all successful logins to the Account were by Nexo traders and risk managers, or at any rate that there were many logins by such persons.
Mr Shulev submits that Nexo's evidence that Mr Metodiev had operated the Account is false and that no conclusive evidence proving it has been provided. Nexo's evidence is, he says, based only on IP logs which correspond with the ordinary place where Mr Shulev himself spent most of his day.
This submission by Mr Shulev appears to be a new one, not foreshadowed in any of his witness evidence. Mr Trenchev said in his first witness statement that:
“All trading activity on the Accounts was executed by Mr Metodiev of Nexo, using IP address 94.155.137.134 (pages 57 to 66). Furthermore, all IP addresses logging into the Accounts relate to IP addresses of the traders and risk managers employed by Nexo”
Mr Trenchev also referred to Mr Shulev's home IP address, a different address, from which an unsuccessful attempt had been made on 14 September 2019 to access the Account. Mr Shulev did not respond to any of this evidence in his...
To continue reading
Request your trial