In a groundbreaking decision of Mantra Dao Inc. and Another v John Patrick Mullin and Others [2024] HKCFI 2099, Mr Justice Lok of the Court of First Instance issued an order mandating the disclosure of financial records and books related to a decentralised autonomous organization (DAO) finance platform in the cryptocurrency industry. This decision highlights not only the critical need for financial transparency in the management of cryptocurrency platforms but also that new legal entities such as DAOs are not beyond the reach of the courts to ensure that legitimate interests of stakeholders are protected.
The Plaintiffs, two companies in cryptocurrency, had established a DAO finance platform project (the “Project”) in conjunction with the Defendants. A dispute subsequently arose between them regarding control and ownership of the Project. As part of their interim relief application, the Plaintiffs sought an order compelling the Defendants to preserve and disclose the Project’s financial records in their possession dating back to January 2021.
The Court granted the disclosure order, accepting the Plaintiffs’ arguments there were serious issues to be tried and that the balance of convenience plainly lay in favour of disclosure. Given the fast-paced nature of the cryptocurrency industry and the anonymity inherent in cryptocurrency transactions, the Court recognised that assessing damages could be challenging without clear financial transparency in the Project’s management.
The Defendants argued that the disclosure order would impose undue hardship. However, the Court dismissed this argument, stressing that the Defendants were already under a “duty to keep proper accounts of the cryptocurrency trading business under the Project.” Additionally, the Court rejected concerns about delays and the potential risk of disclosing trade secrets to the Plaintiffs.
This ruling underscores the importance of transparency and governance in the rapidly evolving blockchain space, as well as the complex legal issues surrounding decentralised finance.
The full judgment is available at: [Hong Kong Judiciary] (https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=161933&currpage=T).
Mr. Douglas Lam SC and Mr. Charlie Liu represented the Plaintiffs.
