What was decided in Cheong Jun Yoong v Three Arrows Capital Ltd [2024] SGHC 21?

In [2024] SGHC 21, Chua Lee Ming J heard the defendants' application to set aside an order granting Mr Cheong Jun Yoong approval to serve an Originating Claim out of Singapore on Three Arrows Capital Ltd and its liquidators, raising where cryptoassets are situated.

Who were the parties in Three Arrows Capital Ltd [2024] SGHC 21?

The claimant was Mr Cheong Jun Yoong. The defendants were Three Arrows Capital Ltd, a BVI investment fund in cryptocurrency trading placed under liquidation on 27 June 2022, and its appointed liquidators Mr Christopher Farmer and Mr Russell Crumpler.

[2024] SGHC 21, CHEONG JUN YOONG v THREE ARROWS CAPITAL LTD & 2 Ors - Judgment, Outcome & Holding

Court	High Court (General Division)
Decided	26 January 2024
Judge	Chua Lee Ming
Charges / claim	Civil Procedure, Conflict of Laws
Counsel	Drew & Napier LLC, WongPartnership LLP, Blossom Hing Shan Shan, Claire Neoh Kai Xin, Daniel Liu Zhao Xiang, Joshua Chin Tian Hui, Kwong Kai Sheng, Lionel Leo Zhen Wei, T Abirami

SUPREME COURT OF SINGAPORE

[26 January 2024]

Case summary

Cheong Jun Yoong v Three Arrows Capital Ltd and others

Originating Claim No 231 of 2023 (Summons No 2078 of 2023)

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Decision of the General Division of the High Court (delivered by Justice Chua Lee Ming):

Outcome: The General Division of the High Court dismissed the defendants’ application to set aside: (a) an order of court granting the claimant approval to serve the Originating Claim out of Singapore on the defendants; and (b) the service of the Originating Claim that was effected on the defendants pursuant to the order of court.

Pertinent and significant points of the judgment

• The location of a cryptoasset is best determined by looking at where it is controlled, and the residence of the person who controls the private key should be treated as the situs of the cryptoasset linked to that private key (at [50] to [65]).

Background

1 The first defendant, Three Arrows Capital Ltd (the “Company”) was incorporated in the British Virgin Islands (“BVI”) in 2012. The Company was placed under liquidation on 27 June 2022 by a BVI court, and the second and third defendants were its liquidators (the “Liquidators”). The claimant managed a portfolio of assets in the Company.

2 The Company’s investment manager was Three Arrows Capital Pte Ltd (“TACPL”), a Singapore company, until ThreeAC Ltd (“3ACL”), a BVI company, took over as the investment manager in September 2021. The Company operated a master-feeder fund structure. The Company was the master fund. It had an offshore feeder fund, Three Arrows Fund Ltd (“TAF Ltd”), a BVI company, and an onshore feeder fund, Three Arrows Fund, LP (“TAF LP”), a Delaware limited partnership. Investors would invest in the master fund by subscribing for shares of various classes offered by TAF Ltd or limited partner interests offered by TAF LP, which would in turn invest substantially all their assets by subscribing for shares of the Company. TAF Ltd was placed into voluntary liquidation in the BVI by TACPL, its sole member on 27 January 2023. TAF Ltd, TAF LP, TACPL, and 3ACL are referred to as the “3AC Group”.

3 The claimant was managing about US$900,000 worth of investments by November 2019 and wanted to formally set up a fund. Between November 2019 and early 2020, the claimant discussed an arrangement with the founders of TACPL, Mr Su Zhu (“SZ”) and Mr Kyle Livingston Davies (“KD”), whereby the claimant would use the assets managed by him to launch an independent and standalone fund (the “DC Fund”) on the 3AC Group platform, which would be owned and controlled by the claimant (the “Independent Fund Arrangement”).

4 The Company created sub-accounts for the claimant within the Company’s main accounts on two cryptocurrency exchanges (the “DC Sub-Accounts”). TAF Ltd created a class of shares, “Class Defiance Shares”, and TAF LP created a class of interests, “Class Defiance Interests”. The claimant and the investors in the separate fund set up by the claimant (“DC Investors”) subscribed for the Class Defiance Shares and Class Defiance Interests by entering into subscription agreements with TAF Ltd and TAF LP respectively (the “Subscription Agreements”). The DC Investors paid for them by transferring cryptocurrencies and fiat currencies into the DC Sub-Accounts, which were then used to purchase other assets (collectively, the “DC Assets”). These assets included simple agreements for future equities (“SAFEs”) and simple agreements for future tokens (“SAFTs”).

5 The claimant had sole discretion and control over the management of the DC Fund. Only the claimant and his employees knew the password to access the DC Sub-Accounts. The claimant sourced a co-working space for himself and his employees. The DC Assets were earmarked for Class Defiance Shares and Class Defiance Interests, and any increase in the value of the DC Assets thus accrued solely to the claimant and DC Investors as holders of the Class Defiance Shares and Class Defiance Interests. The Company also set up a workspace on a platform (the “DC FB Workplace”) which stored cryptocurrency tokens to store the cryptocurrency tokens forming part of the DC Assets, and only the claimant and his representatives could access it. Part of the DC Assets were also stored in cold wallets which belonged to the claimant.

6 In February 2022, SZ and KD told the claimant that they intended to relocate the 3AC Group’s operations to Dubai. The claimant decided to continue operating the DC Fund from Singapore, and incorporated DeFiance Ventures Pte Ltd (“DVPL”) on 9 May 2022, and DeFiance Capital Pte Ltd (“DCPL”) on 14 May 2022. On 14 June 2022, the Company transferred all its rights and interests in the DC FB Workplace and all the DC Assets in the DC Sub-Accounts to DCPL. Some DC Assets were not transferred to the claimant and/or DCPL, including rights and interests in various SAFTs and SAFEs, and shares issued to the Company pursuant to certain SAFEs. DCPL subsequently novated the DC FB Workspace to DVPL on 20 June 2023.

7 The Company was placed under liquidation on 27 June 2022 by a BVI court. Upon the Liquidators’ application on 9 July 2022, the Singapore High Court recognised the BVI liquidation proceedings as a foreign main proceeding. On 4 November 2022, the claimant filed an application in the Singapore High Court seeking permission to commence proceedings against the Company in relation to the DC Assets. Thereafter, on that same day, the Liquidators filed an application in the BVI liquidation proceedings seeking orders that the DC Assets were beneficially owned by the Company (“Parallel BVI Proceedings”).

8 The Singapore High Court granted the claimant leave to commence action against the Company on 25 January 2023. On 18 April 2023, the claimant filed this Originating Claim claiming that the DC Assets were held on trust by the Company for the benefit of the DC Investors.

9 On 3 February 2023, the claimant filed an application to set aside the BVI court order in the BVI granting the Liquidators permission to serve the Parallel BVI Proceedings on the claimant in Singapore. Judgment was reserved.

10 On 10 May 2023, the Singapore High Court gave its approval for the claimant to effect service of the court papers in this suit on the defendants in the BVI (“ORC 2117”). Service was effected on the defendants between 12 May 2023 and 16 May 2023. The defendants filed the present application to set aside ORC 2117 and the service of the court papers on the defendants.

Decision

11 The claimant had to show that: (a) there is a good arguable case that there is sufficient nexus to Singapore; sufficient nexus may be shown by reference to any of the non-exhaustive list of factors set out in para 63(3) of the Supreme Court Practice Directions 2021 (“SCPD”); (b) Singapore is the forum conveniens; and (c) there is a serious question to be tried on the merits of the claim (at [37]).

Sufficient nexus to Singapore

12 The claimant relied on three grounds in the SCPD to establish a good arguable case of a sufficient nexus to Singapore. First, relief was sought against the Company which was ordinarily resident or carrying on business in Singapore. Second, the claim was made to assert, declare or determine proprietary rights in or over movable property, or to obtain authority to dispose of movable property, situated in Singapore. Third, the claim was founded on a cause of action arising in Singapore (at [42]).

13 The first ground was not satisfied. Where an application for approval for service out of jurisdiction is grounded on the defendant being ordinarily resident or carrying on business in Singapore, in principle, the ground relied upon ought to be satisfied at the time when the application is filed or heard. By the time the claimant filed his application to serve out of jurisdiction, the Company had been placed under liquidation. It was no longer carrying on business and the central management and control of the Company was no longer being exercised in Singapore (at [43] to [49]).

14 The second ground was satisfied. The location of a cryptoasset is best determined by looking at where it is controlled, and the residence of the person who controls the private key should be treated as the situs of the cryptoasset linked to that private key. DVPL (and by extension, the claimant) controlled the private key to the assets, and they were both resident in Singapore (at [50] to [65]).

15 The third ground was satisfied. Despite the formalities of the fund structure, the creation of the DC Sub-Accounts, the initial transfer of cryptocurrencies and fiat currencies to the DC Sub-Accounts, and the issuance of the Class Defiance Shares and Class Defiance Interests took place when the Company was headquartered and operating in Singapore. In addition, TACPL (the Company’s investment manager then) is a Singapore company and both the Company and TACPL had common directors (at [66] to [70]).

Whether Singapore was the more appropriate forum

16 The relevant factors pointed to Singapore being the more appropriate forum (at [71]).

17 First, most of the relevant witnesses are in Singapore. The Independent Fund Agreement was key to the claimant’s case. The witnesses, the claimant, SZ and KD were also resident in Singapore at the material time. Ningxin, a trader of the 3AC Group whom the claimant dealt with, was believed to be based in Singapore. The fund administrator for the DC Fund and the 3AC Group (“Ascent”) is incorporated in Singapore, and its employees handling the DC Fund and 3AC Group were understood to be in Singapore. The auditors of the Company (“Oakfield”) is a public accounting firm registered in Singapore, and their representatives could give evidence on instructions by SZ and KD as to the DC Fund (at [72] to [76]).

18 Second, relevant documents in the possession of Ascent and Oakfield would be in Singapore. There is no evidence that a BVI court would be able to compel production of the relevant documents (at [77]).

19 Third, that the transactions were implemented through a BVI investment structure was a neutral factor, since the substance of the claimant’s case was that there was a trust notwithstanding that the master-feeder fund structure was used. In any event, the applicability of BVI law was not sufficient to outweigh the factors in favour of Singapore being the more appropriate forum (at [78] to [79]).

20 Fourth, that the Company’s creditors’ committee had approved the dispute with the claimant being resolved by the BVI court as part of the BVI Liquidation Proceedings was an irrelevant factor. The dispute over the DC Assets was between the Company and the claimant, and it was not clear how the creditors could intervene in this dispute. Further, the fact that the creditors might prefer to intervene in proceedings in the BVI was also irrelevant (at [80] to [81]).

21 The Parallel BVI Proceedings were not significant given the early stage of the proceedings (at [82]).

Whether there was a serious question to be tried

22 The evidence of the claimant’s discussion with SZ and KD, the segregation of the DC Assets and the extent to which the claimant had control over these assets to the exclusion of the 3AC Group supported the claimant’s trust claim. The defendants’ argument that the trust claim was inconsistent with the master-feeder investment structure and the Subscription Agreements was not a strong argument because a trust could be found to exist even if it contradicts the relevant legal documents (at [83] to [85]).

Whether there was failure to make full and frank disclosure

23 There was no failure to make full and frank disclosure of material facts. The claimant had disclosed the Liquidators’ position that they disagreed that the DC Assets were held on trust and reproduced the Liquidators’ reasons, which referred to the terms of investment into TAF Ltd and the master-feeder investment structure (at [86] to [87]).

Conclusion

24 The General Division of the High Court dismissed the defendant’s application and ordered costs to be paid to the claimant fixed at $15,000 plus disbursements to be fixed if not agreed (at [90]).

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.

CHEONG JUN YOONG v THREE ARROWS CAPITAL LTD & 2 Ors

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What was decided in Cheong Jun Yoong v Three Arrows Capital Ltd [2024] SGHC 21?

Who were the parties in Three Arrows Capital Ltd [2024] SGHC 21?

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