Court declines to tread crypto’s slippery slope

To stake or to un-stake? That is the cryptic crypto dilemma causing consternation for three McGrathNicol partners in their roles as receivers of the digital currency assets of NGS Crypto Pty Ltd (NGS).

“Staking” digital currency is, the internet tells iNO, a way for the currency’s owner to earn more crypto by using the staked amount as a type of security deposit to validate blockchain transactions. Simple.

“…. this is a case where the Receivers have a feeling of apprehension or unease about possible business decisions open to them in respect of the relevant Digital Currency Assets. It is not for the Court to make the choice of which decision the Receivers should make”.

But for Andrew Connelly, Kathy Sozou and Jamie Harris there is great consternation because they, or more to the point their lawyers – those good men, women and non-binary others of HopgoodGanim – have so far failed to persuade two judges of the Federal Court to join the receivers on the treacherous path to a commercial decision about how to deal with NGS’s crypto currency assets.

That a decision needs to be made is incontestable.

The three were appointed by the Federal Court on April 10 after ASIC made an urgent ex-parte application, in which it also sought and obtained disclosure and freezing orders as well as orders preventing the individual defendants from departing the jurisdiction.

Then on May 27 the third defendant, NGS Group Ltd, and its director, fifth defendant Mark James Ten Caten, brought an interlocutory application for the discharge the freezing orders and the removal of the receivers.

On June 11, the day before she was to hear Ten Caten’s dismissal application, Justice Berna Collier refused the receivers first attempt at obtaining judicial guidance, explaining in her judgment that: “The Receivers, in substance, ask the Court to choose which action they should take.

“However, as Mr Connelly explained in his affidavits, either of the actions the Receivers propose involve some form of risk,” she said.

Now judges one would hope are in the main sharp enough to know when what’s being asked is over the top and Justice Collier, presented with limited material from one side, was not going to affirm an action the receivers were themselves unwilling to execute without the court’s imprimatur.

“This is not a case where the receivers have made a decision and have come to Court seeking judicial advice as to whether they would be justified in giving effect to it, as was the case for example in Kelly, in the Matter of Halifax Investment Services Pty Ltd (in liq) (No 8) [2020] FCA 533,” she said.

“Rather – this is a case where, to paraphrase comments of Goldberg J in Ansett at [65], the Receivers have a feeling of apprehension or unease about possible business decisions open to them in respect of the relevant Digital Currency Assets.

“It is not for the Court to make the choice of which decision the Receivers should make.”

In denying the judicial advice application Justice Collier however also declined to order that the receivers’ costs of their judicial application be payable out of the assets they control.

The following day Justice Collier heard Ten Caten’s application for dismissal of the freezing and other orders and for removal of the receivers. Judgment was reserved and remains pending. But the McGrathNicol trio returned to court almost immediately.

Commercial decision making’s important. But imperilling indemnification is altogether something else, as can be seen from the judgment of Justice Fiona Meagher in Connelly as Receiver and Manager of “Digital Currency Assets” v NGS Crypto Pty Ltd (No 2) [2024] FCA 697.

In an interlocutory process dated June 14 the receivers urgently sought judicial advice that they would be “would be justified in un-staking the digital currency assets in their control before the determination of the Discharge Application by applying the ‘Proposed Approach’, as defined in the affidavit of Anthony Norman Connelly sworn on 10 June 2024.”

The Receivers also sought suppression orders in respect of various materials and and an order that their costs be payable from the digital currency assets, the latter being necessary because making no order as to costs as Justice Collier had done in the initial proceedings “could lead the defendants to argue that the Receivers are denied indemnity in relation to the judicial advice application” and that as there had been no finding that they’d acted improperly they shouldn’t be denied indemnification.

Justice Meagher however was no more inclined to hazard a foot on the slippery slope of commercial decision making as was her colleague, denying the receivers’ second judicial advice attempt partly at least because it was made ex-parte, thereby preventing the defendants or any interested parties from being heard.

She was however mindful of the receivers’ concern for their indemnity and made the appropriate order as to costs.