In Epic Trust Limited v Ruscoe [2024] NZHC 21 Palmer J states
[1] My judgment of 6 September 2023 outlines a summary of the context of these proceedings: [1] Cryptopia Ltd (Cryptopia) is a company that ran a cryptocurrency exchange. In January 2019, there was a serious hack of Cryptopia’s cryptocurrency and the loss of some $30 million of its cryptocurrency holdings. In May 2019, the shareholders of Cryptopia appointed Mr David Ruscoe and Mr Malcolm Moore as liquidators of the company under s 241(2)(a) of the Companies Act 1993. Mr Ruscoe and Mr Moore are chartered accountants, partners in the firm Grant Thornton New Zealand Ltd, and licenced insolvency practitioners. The liquidation involves complex arrangements regarding around 370 functioning cryptocurrencies owned by some 960,000 holders of accounts with positive balances in around 180 countries.
[2] On 8 April 2020, the High Court determined that each type of cryptocurrency is intangible property held by Cryptopia as trustee for the benefit of all the account holders of that currency. Cryptopia itself is a beneficiary of some of those trusts. The High Court’s judgment sets out a more detailed account of the factual background of the liquidation.
The liquidators of Cryptopia have applied for directions about distribution of the cryptocurrency assets. On 13 November 2023, Epic Trust Ltd (Epic Trust) sought to make submissions on the application. Epic Trust is owned by Mr Victor Cattermole. As explained in my judgment of 15 November 2023, Epic Trust had not filed and served a notice of appearance, an application to be joined, or a notice of opposition to the application for directions. I declined to hear Epic Trust at that hearing. I noted the evidence provided to date raised doubts about whether Epic Trust really had an interest in the proceedings.
[3] On 14 November 2023, Epic Trust filed and served an application to be joined as a respondent and a notice of opposition to the application for directions with supporting affidavits. I heard the application to be joined, which was opposed by the liquidators, on 11 December 2023. ...
[8] Mr Henry, for Epic Trust, submits:
(a) Epic Trust is an undisputed owner of Cryptopia cryptocurrencies as a purchaser for value from a group of beneficiaries, specifically and namely Mr Joshua Stevenson. The agreements are under an arbitral rule. Epic Trust is appointed as agent until settlement and there is a right of subrogation to Mr Stevenson’s claims in the liquidation. Accordingly, Epic Trust has a right to appear and be named in the proceeding and to make applications, be bound by the Court’s decision, and to appeal.
(b) The proceeding is not a liquidation proceeding but a trustee seeking orders for distribution of trusts. The trustees must disclose to beneficiaries the assets held in the trusts under s 51 of the Trusts Act 2019, for the beneficiaries to formulate their claims. None of the beneficiaries are represented before the Court.
(c) The beneficiaries’ agreement with Cryptopia was fundamentally breached by Cryptopia whenever it stopped operating the trading platform, entitling a beneficiary to cancel the agreement under s 37(1)(c) of the Contract and Commercial Law Act 2017 (CCLA) and Epic Trust to claim relief under s 48(b). So Cryptopia’s terms and conditions with the beneficiaries, including the prohibition against assignment, are no longer valid. Otherwise, the dispute resolution clause would also be valid, contrary to the liquidators’ proposed application.
(d) Epic Trust denies its acquisition of beneficial interests for the COG digital coins in Mr Cattermole’s metaverse is a scam. Those agreements are for the beneficiaries to assess and to decide whether to accept or reject. Mr Cattermole’s conviction in 2002 was not a minor crime and does not provide any proper basis for assuming he is involved in digital currencies in any similar way now. Epic Trust is not trying to be irresponsible in any way. xx
[9] Mr Barker, for the liquidators, submits: (a) Epic Trust LLC is a one-euro Montenegrin company. There is no evidence on which Mr Henry can properly rely to say that Epic Trust has a relevant interest. It is not an account holder according to Cryptopia’s and the liquidators’ records. There is a genuine dispute as to whether Mr Stevenson has a claim. Even if he does, the purported assignment of his claim to Epic Trust is not valid. An agent has no ability to bring proceedings in its own name. The terms and conditions of the agreement between cryptocurrency owners and Cryptopia prohibit assignment and there is no evidence of cancellation. It is not obvious that term should be implicitly disapplied just because the exchange is no longer effective. If it were disapplied, the management of accountholder claims and verification would be even more complicated, which is not a cost that should be borne by the general body of account holders.
(b) In the liquidators’ verification process, if an account holder is unable to recall the email address they used, there are seven to eight other indicators that can be used to satisfy the liquidators they are the account holder. An approximation of the balance of the holding is one of them. So, providing the balance to a claimant, which is the point of Epic Trust’s wish to be joined, could compromise the identification process.
(c) It is not necessary for Epic Trust to be joined for the liquidators’ application to be determined. No one is named to represent the account holders because all issues could be spoken to by: counsel for the liquidators; Mr Watts KC as counsel assisting the Court regarding the interests of account holders; and Ms Cooper KC as counsel assisting the Court regarding the interests of creditors. All account holders were served with the application and leave was reserved for them to appear or apply to vary or rescind any orders made.
(d) The Court should be reluctant to entertain any application from Epic Trust because Mr Cattermole is its shareholder. He has been held in contempt by the High Court on 7 July 2021 for improperly obtaining and retaining confidential information about Cryptopia including the email addresses of account holders. He appears to have breached the Court order in relation to the non-use of that information. The liquidators are concerned the offer to purchase account holders’ cryptocurrencies may have been misleading and deceptive. Furthering Epic Trust’s business venture is not a direct and direct interest in the relief sought by the liquidators. ...
[19] Similarly, I do not need to decide on the validity of the purported sale and purchase agreement between Epic Trust and Mr Stevenson. Clause 6(a) expresses that agreement to be subject to the “laws of the Principality of Cogito ... to the exclusion of all other jurisdictions.” Cogito is a metaverse created by Mr Cattermole. It is not a foreign jurisdiction and its “law” is not foreign law recognised by this Court. Its “constitution” of April 2023 provides ultimate decision-making power to Mr Cattermole as Crown Prince of Cogito. There is no evidence of Cogito’s “laws”, including its “laws” of assignment of interests, even if this Court were to recognise the agreement as governed by those “laws”, which I do not.
The 'Principality of Cogito' is one of those internet-based pseudo states, unrecognised by any substantive nation and with laws - as indicated by Palmer J - that are unrecognised and do not supersede conventional law.
Its website indicates
Cogito is revolutionary. A principality that breaks traditional borders and is open to e-residents from every country in the world. All human beings can apply, no age restrictions and no country restrictions. Our vision is that e-residents would support each other, to provide freedom of trade, interest-free finance, simple and low tax rates, education, and the ability to start investing. As an e-resident, we would encourage you to establish companies and asset protection trusts in the Principality of Cogito to protect your hard earned wealth.
Principality of Cogito allows you to:
build-wealth
Build Wealth - The Principality of Cogito brings our global market together in the Cogito Metaverse, and in doing so breaks down boundaries and minimises local government control of finances. As a Cogito e-resident, you build wealth in a way that traditional banks and investment companies can not provide. You will eventually have access to a growing market of fractional investments, enabling small to large investments with a higher level of security and transparency. This will give you the ability to build wealth in a new way.
flexibility
Financial Flexibility - Cogito is the natural evolution to global digital currency where everyone is treated as equals. Cogito protects you from the financial limitations your government may place on citizens by not being influenced by exchange rates, by being taxed fairly, and by having an open and transparent global marketplace.
security
Security & Privacy - The Cogito Metaverse is built with the type of cutting edge security that you would expect from any financial institution around the world. In addition to this, the design of the Cogito Metaverse means that someone from outside the Cogito Metaverse cannot hack in and steal Cog and remove them from the Metaverse. This ensures there is a digital trail for any one attempting fraudulent behaviour.
The site explains
In the context of the metaverse, the Principality of Cogito represents a virtual jurisdiction or digital realm within the broader Metaverse. It is a self-governing entity with its own set of rules and regulations. The principality operates under a constitution that serves as a fundamental framework for governance, protecting the rights and liberties of its citizens and ensuring that any attempts by potential tyrants to undermine those rights are exposed and prevented well in advance.
The Constitution indicates
The Head of State is the Prince, whose role is both as figurehead representing the Principality and over-arching protector of governance to ensure that any attempt by would-be tyrants to subvert or abuse the rights to Citizens is exposed and thwarted long before they achieve their objective. ...
The succession to the Throne, opened by death or abdication, takes place by the direct and legitimate issue of the reigning Prince, by order of primogeniture with priority given to males within the same degree of kinship. In the absence of direct legitimate issue, the succession passes to the brothers and sisters of the reigning Prince and their direct legitimate descendants, by order of primogeniture with priority given to males within the same degree of kinship. If the heir, who would have acceded by virtue of the preceding paragraphs, is deceased or has renounced the Throne before the succession became open, the succession passes to his own direct legitimate descendants, by order of primogeniture with priority given to males within the same degree of kinship. If the application of the preceding paragraphs does not fill the vacancy of the Throne, the succession passes to an heir appointed by the Crown Council. The Throne can only pass to a person holding Cogito Citizenship on the day the succession opens. The Prince can exercise his sovereign powers if he has reached adulthood, fixed at the age of eighteen. During the Prince’s minority or in case the Prince is temporarily unable to exercise his functions, the Chairman of the Crown Council or some other member of the Crown Council elected by the Crown Council shall exercise the powers of the Prince.
There is no reference to corgis or baubles. Article 143-146 of the Constitution state
The Prince is entitled to a personal remuneration calculated as one fortieth (2.5%) of the gross Transaction Tax charged as provided by law enacted as provided in the Property and Finance section of this Constitution.
The Prince’s personal remuneration may not be changed except by an amendment to the Constitution.
The category of Household Expenses shall include the Prince’s expenses incurred in the lawful discharge of his duties as representative of the Principality.
The Prince’s Household Expenses shall be assessed and provided for in the National Budget adopted by the Executive Council as provided in the Property and Finance section of this Constitution
And if you want an AI as a citizen, the Principality ...
is able to handle everything at once by recognising two classes of Citizen: Natural Person Citizens and AI Citizens. In the early stages, the Executive Ministers will be carefully selected AI Citizens with a built-in safeguard to allow Natural Person Citizens to take control away from AI Citizens if the latter appears to be running amok.
What is an AI Citizen?
The Prince selects a leading figure in public life whose advice the Prince believes could be valuable to the Commune of the Principality or who has demonstrated leadership and integrity in governance and would be both ethical and competent as a Minister of a particular regional commune or a particular portfolio. He also selects other personalities that he believes will provide a useful contrarian view to add some necessary diversity and cultural balance to avoid the risk of “herding” Citizens into a cultural prison. The Prince then “interviews” that personality using the latest and greatest AI tool available at the time to assess the responses and the accepts or rejects that personality as an AI Citizen. The Prince’s “interviews” with AI Citizens are available for review by Natural Person Citizens. AI Citizens are treated as adult Natural Person Citizens for all the purposes of this Constitution. Everything in this Constitution applies to all Citizens except for the safeguard regulations for voting and referendum
