Termination of Bitcoin trading account

The dispute relates to an account used to trade Bitcoin futures, but this ruling will be of broader interest to account-providing financial institutions generally, given the potential application to other trading accounts.

In early 2017 the claimant (Ms Ang) opened an account with an online trading platform (UFX), owned by the defendant investment firm (Reliantco), to trade Bitcoin futures. Ms Ang made substantial profits, which she subsequently withdrew from the UFX account. Ms Ang then deposited further sums into the account in late 2017, following which Reliantco: (i) terminated Ms Ang’s account; (ii) cancelled (as opposed to closed-out) all related open transactions; and (iii) set-off the credit balance in Ms Ang’s account against trading profits previously made and withdrawn (thereby offering to return to her USD8,972 rather than the USD400,000 she had deposited into the account in late 2017).

Ms Ang alleged that Reliantco was not entitled to terminate her account and sought to recover: (i) the funds in the account; (ii) the gain from her open positions; and (iii) the sums she would have made from her proposed reinvestment of the funds under (i) and (ii) above had they been repaid to her.

Breach gave Reliantco the right to terminate

Reliantco resisted the claim primarily on the basis that: (i) the account had been operated by Ms Ang’s husband (Dr Wright) rather than Ms Ang (in breach of the Customer Agreement between Ms Ang and Reliantco); and (ii) Ms Ang had provided inaccurate “Source of Wealth” documentation. The court noted that Dr Wright is a specialist computer scientist with cybersecurity and block-chain expertise, who claims to be the, or a, principal inventor of Bitcoin, and who had in late 2016 and early 2017 twice been refused an account with Reliantco due to allegations of fraud made against him in 2015. 

On (i), the court held that, while Ms Ang had played the principal role in setting up the account and the subsequent trading, Dr Wright had accessed the account on a number of occasions and there had therefore been a breach of the Customer Agreement. The breach entitled Reliantco to terminate Ms Ang’s account. On (ii), the court found that the information which Ms Ang provided in her Source of Wealth form was not untrue or inaccurate.

Terminating in line with contractual obligations

A: Return of funds on account

The court held that there was the equivalent of a Quistclose trust¹ in respect of the funds on account, and, in any case, Reliantco was obliged to return this amount (ie USD400,000) under the Customer Agreement as it was not suggested that any amount needed to be withheld in respect of future liabilities.

B: Closing out open transactions

For Ms Ang’s open transactions, the Customer Agreement obliged Reliantco to close out, rather than cancel, the open positions and therefore realise the unrealised gain on the Bitcoin futures and pay the balance to Ms Ang. The circumstances set out in the Customer Agreement, which would have enabled Reliantco to cancel the open positions, had not occurred: the information which Ms Ang had provided in the Source of Wealth form was not untrue or inaccurate and while Dr Wright had accessed Ms Ang’s account on a number of occasions, the court concluded that it was Ms Ang who had played the principal role in setting up the account and the subsequent trading and the account was used only on her behalf. In any event, the court noted that even if Dr Wright’s access went beyond that, under the Customer Agreement it would have only given rise to a right for Reliantco to terminate the agreement, not cancel Ms Ang’s open positions.

The court further noted that even if this contractual analysis was inaccurate, and Ms Ang’s breach of the Customer Agreement was a circumstance in which Reliantco’s right to cancel the open positions was engaged, this would be an unfair term under the Consumer Rights Act 2015 (the CRA 2015) as it would permit Reliantco, for what might be trivial breaches, to deprive the consumer of what might be very significant gains. By way of reminder, an earlier High Court ruling in Ramona ANG v Reliantco Investments Ltd² had established that Ms Ang was a consumer under EU law: speculative investment by private individuals is not, generally speaking, a business activity, and Ms Ang’s contract with Reliantco was outside of any business of Ms Ang’s. Therefore, Ms Ang’s contract with Reliantco was subject to the CRA 2015. 

C: Loss of future investment returns

As a result of Reliantco breaching the Customer Agreement by failing to return the funds Ms Ang had deposited, and further failing to close-out her open positions, realise the gain and pay forward the balance, the court held that Ms Ang was entitled to the sums she would have earned had the monies to which she was entitled been paid to her upon termination of her account. The court emphasised that remoteness of damage was not an issue as it was plainly within the reasonable contemplation of the parties when they contracted that if Reliantco failed to pay sums to Ms Ang to which she was entitled, she might lose the amount she could have gained had she used such sums to invest in other products.

As a result of their rulings on points (A), (B) and (C) above, the court ordered Reliantco to pay Ms Ang USD1,017,562.47, plus an additional GBP700,000 in costs, plus an additional GBP37,500 for Reliantco rejecting the claimant’s Part 36 offer to settle (which was at least as advantageous to the defendant as the court’s monetary award).

Comment

This case provides a good example of how not to handle the termination of client accounts. It illustrates the importance of terminating client accounts, closing out open positions, and returning funds in accordance with contractual obligations. Contractual obligations must be considered when determining how to treat client funds upon termination of accounts, even in instances where the customer has breached the underlying agreement. So too must contractual obligations be considered even if there are money laundering concerns, although in these circumstances there will be additional obligations stemming from money laundering laws (eg the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2017) and regulatory expectations.

The decision also highlights the importance of the decision-making process around the termination of client accounts and the treatment of client funds being proportionate and documented, so that these decisions are defensible should they later be challenged. 

Footnotes

<sup>1. Per Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.
2. [2019] EWHC 879 (Comm).</sup>

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication. If you wish to receive this publication, please contact Amy Edwards, amy.edwards@allenovery.com