Background
Crypto asset exchanges regularly face requests for information and assistance from alleged victims of fraud. More rarely, they become subject to ex parte (“without notice”) applications to freeze assets.
Some applications are brought not against a user’s account maintained by the exchange on an off-chain ledger, but rather against the exchange’s own omnibus wallets1 containing crypto assets used to conduct its day-to-day business.
However, in Hong Kong, as in other jurisdictions, a party making an ex parte application has the duty to make full and frank disclosure. This extends to prospective defences by the absent party. In the English case of Piroozzadeh v. Persons Unknown & Ors [2023] EWHC 1024, the applicant’s failure to disclose defences arising from the omnibus nature of the wallets was sufficient reason to set aside the proprietary injunction against that wallet.
Under these omnibus arrangements, when a user deposits crypto assets onto a platform, the platform assigns a wallet address to that user’s account, known as a deposit wallet. However, the assets do not remain in the deposit wallet; instead, they are periodically swept into omnibus wallets, and the value of the deposited assets is credited to the user’s exchange account. This accounting system is not recorded on any blockchain, but rather on the exchange’s internal ledger. Subsequently, a user’s entitlement to conduct transactions and transfers is tracked by reference to the user’s off-chain ledger account.
On this basis, an exchange might contend that, even if assets transferred to the exchange are subject to proprietary claims, once they are transferred into the omnibus account, the exchange operator becomes a bona fide purchaser for value without notice. In this regard, it is also increasingly common for major crypto exchanges to stipulate in their terms of use that crypto assets become the exchange’s property once swept into omnibus wallets.
Courts have also been reluctant to grant worldwide freezing injunctions which are too extensive. In Fetch.AI Ltd & Anr v. Persons Unknown Category A & Ors [2021] EWHC 2254 (Comm), HH Judge Pelling QC (as he then was) noted that the freezing injunction sought (against persons unknown operating wallets on the Binance exchange) would be “too wide ranging” as it would freeze assets belonging to potentially innocent receivers who did not know, or had no reasonable grounds to believe, that they had received assets belonging to the claimant in that case.
Facts
In Wang Weiqing v. Zhuo Yihao & Others [2025] HKCFI 4941, the plaintiff, an alleged victim of crypto theft, traced certain crypto assets to a wallet address on the Binance platform (the Wallet). There appears to be no dispute as to the validity of the tracing exercise itself.
The Wallet was identified only by address prefix TV6, associated with the TRON blockchain.2 It was said at that time that the address contained almost US$6 million in stolen assets, being Tether’s stablecoin, USDT.
From November 2022, the plaintiff’s Singapore lawyers corresponded with the crypto exchange, which agreed to a temporary seven-day courtesy hold on the identified user account but insisted upon either the involvement of law enforcement or commencement of legal proceedings if it was to extend the freeze beyond that period. More importantly, Binance took the position that freezing the Wallet was not possible as it corresponded to the exchange’s TRX (TRON) hot wallet address containing pooled funds from numerous users.
On 25 November 2022, the plaintiff made an ex parte application to the Hong Kong Court of First Instance and obtained a worldwide Mareva injunction and proprietary injunction in respect of the USDT, among other assets. On the return date, the plaintiff sought to extend the injunctions.
Decision
The court (a) set aside the proprietary injunction for material non-disclosure; (b) refused to exercise its discretion to re-grant the proprietary injunction; and (c) found there to be no justification for the worldwide Mareva injunction against the omnibus wallet.
First, with respect to the ex parte proprietary injunction, the court stated the test for granting a proprietary injunction in Hong Kong, namely that the applicant must show that there is a serious issue to be tried in respect of his proprietary claim, that the balance of convenience favours the grant of an injunction, and that it is just and convenient to grant the injunction.3 The court agreed that there were serious issues to be tried, namely whether the plaintiff was entitled to follow or trace its assets into the Wallet, or whether the exchange could rely on the defence of bona fide purchaser for value without notice. However, the court expressed concerns in relation to the ex parte nature of the application. Ex parte applications are reserved for only extreme and urgent circumstances. The court was not convinced by the plaintiff’s arguments that there was urgency or a need for secrecy in this case that would justify an ex parte application. Even if there were a perceived risk of “tipping off”, the court endorsed the view of Trower J in Piroozzadeh that an application can be made against the fraudsters in the first instance, and any order can be served upon the crypto exchange as a non-respondent. Further, the plaintiff could not justify making the application ex parte when he had already engaged in pre-application correspondence with the exchange, requesting a temporary courtesy freeze.
Turning to the issue of full and frank disclosure, the court found that the duty extends to both the factual and legal aspects of a case. It further requires positively drawing the court’s attention to the pertinent materials, as opposed to presenting the court with large amounts of exhibits with no signposting or elaboration. In Piroozzadeh, the court held that an ex parte applicant must show the utmost good faith by disclosing their case fully and fairly. In the present case, the plaintiff had failed to properly disclose the pre-injunction correspondence, the nature of the Wallet as an omnibus wallet, and the exchange operator’s possible legal defence that it was a bona fide purchaser for value without notice.
Second, in considering whether to re-grant the proprietary injunction, the court found its discretion to do so should be exercised sparingly. The court examined whether the plaintiff’s material non-disclosure was innocent and decided it was not. The court was not convinced that the plaintiff was unaware of the need for disclosure in the Hong Kong proceedings of correspondence involving his Singapore lawyers. There was no indication that the plaintiff was not properly advised on disclosure issues. The fact that the plaintiff made a reference to the pre-application correspondence did not assist him but was, in fact, a point against him, since the underlying documents referenced were not produced. Rather, the plaintiff’s affirmation evidence was “coy and silent” on this crucial issue.4 The plaintiff was also a foreign plaintiff, and there was no evidence of his assets and means to demonstrate he was good for his undertaking as to damages.
Third, with respect to the worldwide Mareva injunction, the court adopted the reasoning in Fetch.AI Ltd, namely that the worldwide freezing injunction sought would be too wide-ranging and would freeze assets of innocent receivers with no notice. The court further noted that the plaintiff had not advanced any arguments as to why the ex parte worldwide Mareva injunction should be continued against the Wallet, and further found no evidence showing real risk of dissipation of assets. Upon reconsideration, the plaintiff withdrew this part of his application.
Finally, notwithstanding its decision to discharge the proprietary injunction, the court granted a disclosure order sought against the exchange operator on the basis of the undertaking of the plaintiff to indemnify the exchange operator in respect of its costs and subject to the stipulation that the exchange operator need only use best endeavours and disclose information to the extent it was available.
Comment
This decision of the Hong Kong court will hopefully encourage cooperation and communication between claimants and exchanges. In this sense, it follows the Piroozzadeh decision in which, as the court in Wang Weiqing noted, the applicant was criticised for failing to draw sufficient distinction between, on the one hand, the defendants who misappropriated the crypto assets and, on the other hand, the exchanges which merely received those assets. The danger is that it would be easy for a court to wrongly allow all the defendants to be lumped into the same box.5
In principle, responsible crypto exchanges are often willing to assist genuine victims of crypto fraud or theft, subject to the protection of the exchange’s users. This case further illustrates that for victims of fraud, it may often be more conducive to work with an exchange, rather than proceed with a without notice application. For crypto asset exchanges, the decision is a helpful indication that the Hong Kong courts will not uphold relief granted to alleged victims who abuse the "without notice" procedure.
- Omnibus wallets are also “hot wallets” because they are connected to the internet. However, a hot wallet need not be an omnibus wallet.
- Judgment, para. 25.
- Judgment, para. 85. Zhang Yan & Ors v. ASA Bullion Ltd & Ors [2019] HKCFI 179 at para. 11, per Recorder Fung SC (as he then was).
- Judgment, para. 127.
- Judgment, para. 114, citing Piroozzadeh at paras. 26-37.
In-depth 2025-262
