High Court Rules 2016 – Trusts Act 2019 – cryptocurrency –insolvency – jurisdiction to make appointments
Houchens v Ruscoe  NZHC 2969 per Powell J.
This judgment relates to an application in the Cryptopia saga, which began when its cryptocurrency exchange was hacked in January 2019, resulting in a loss of $30 million of cryptocurrency holdings.
The application, by several Cryptopia accountholders and filed under the first applicant’s name, Ryan Houchens, asked the court to appoint independent counsel or a special trust adviser to represent them.
It follows a move by Cryptopia’s shareholders in May 2019 to appoint David Ruscoe and Malcolm Moore of Grant Thonrton as liquidators. Their work involves unwinding complex arrangements relating to 370 functioning cryptocurrencies owned by 960,000 holders in 180 countries.
On 9 August 2023, Powell J, on application by the liquidators and by consent, appointed counsel to represent unsecured creditors and another lawyer to help the court by providing arguments for and against the liquidators’ preferred approach to their work.
In the Houchens case, the applicants relied on rule 4.27(b) of the High Court Rules 2016 and ss 74 and 75 of the Trusts Act 2019. Rule 4.27(b) allows the court, upon application, to appoint counsel to represent unrepresented persons.
Section 74 of the Trusts Act permits the court, upon application, to appoint a special trust adviser who can advise the trustee on trust-related matters but does not have trustee powers or duties. Section 75 states that if a special trust adviser is appointed, the trustee may seek his or her advice but is not obligated to follow it.
In this case, intermediaries were sought to address concerns about the accountholders’ trustee duties.
Opposing the application, Grant Thornton’s Ruscoe argued there was no legal basis for the appointment and the accountholders already had sufficient legal protection. Making such appointments would be impractical and costly, he said.
Powell J said the proposed appointment was not practical because of the complex and diverse nature of the accountholders’ interests. Counsel already appointed to help the court was a more effective means of safeguarding their interests and that if accountholders had significant issues, they could apply to the court.
Moreover, Powell J held the identified High Court Rules and relevant sections of the Trusts Act did not grant the court jurisdiction to make the appointments sought.
Applicable principles: whether High Court Rules and or Trusts Act gave court jurisdiction to make appointments sought – independent counsel – trustee powers and special adviser – inherent equitable jurisdiction of the court – judicial discretion.
Held: The application to appoint independent counsel or a special trust adviser to represent account holders of Cryptopia Ltd was dismissed.
The court did not have jurisdiction to make the appointment under the High Court Rules or Trusts Act. In any case, there was no ground to make the appointment.
Jamie Dierick is a law clerk working for an Auckland criminal defence barrister.