THE Singapore High Court has dismissed Three Arrows Capital’s application to set aside the court order that approved DeFiance Capital’s Arthur Cheong to pursue legal action against the collapsed hedge fund.

Three Arrows’ application followed the High Court’s approval on Jan 25, 2023, for Cheong to commence action in connection with a portfolio of assets in Three Arrows that he managed.

Cheong subsequently filed an originating claim on Apr 18, 2023, claiming that the managed assets constituted a standalone fund, known as DeFiance Capital, and the assets in the fund, or DC assets, were held on trust by Three Arrows “for the benefit of the DC investors”, including himself.

On May 10, 2023, the High Court gave its approval for Cheong to “effect service of the court papers in this suit” on Three Arrows and its liquidators in the British Virgin Islands (BVI).

After the papers were served between May 12 and 16 last year, Three Arrows filed the application to dismiss the suit and the service of the court papers. This was turned down by the court in its judgment released last Friday (Jan 26).

The judgment was made as Cheong proved that the claim had sufficient nexus to Singapore. He also showed that the Republic was the forum conveniens – or most appropriate jurisdiction for the decision to be made – and that there was a serious question to be tried on the merits of the claim.

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Justice Chua Lee Ming highlighted that the key point of the judgment pertained to how the location of a crypto asset is best determined. He noted that it should be based on where it is controlled, adding that the residence of the person who controls the private key should be considered as the location of the crypto asset.

He further noted that Cheong controls the private key to the DC assets, and is a resident in Singapore.

Cheong incorporated DeFiance Capital in Singapore in May 2022, following Three Arrows’ relocation to Dubai, as he wanted to continue operating the DC fund in the Republic.

Before that, by November 2019, he was managing about US$900,000 worth of investments held in cryptocurrency wallets and accounts which belonged to him. He then discussed an independent fund arrangement with Three Arrows’ founders Zhu Su and Kyle Livingston Davies, and set up DC fund on the 3AC Group platform. (*see amendment note)

Justice Chua said that, despite the formalities of the fund structure, a course of action that gave rise to the claim, including the creation of the sub-accounts by Three Arrows for Cheong within the company’s main accounts on Binance and FTX, happened in Singapore.

Three Arrows was put under liquidation on Jun 27, 2022, by a BVI court. The Singapore High Court recognised the liquidation proceedings as a foreign main proceeding upon the liquidators’ application in July 2022.

On Nov 4, 2022, Cheong filed an application for permission to commence proceedings against Three Arrows in relation to the DC assets. On that same day, the liquidators filed an application in the BVI liquidation proceedings seeking orders that the DC assets were beneficially owned by Three Arrows instead.

As at Dec 18 last year, some US$1.1 billion worth of assets of Three Arrows’ founders and relevant family have been issued a worldwide freezing order by the court in the BVI. On Dec 20, 2023, the Singapore court granted a domestic freezing order over the involved assets in the Republic.

*Amendment note: An earlier version of this article incorrectly indicated the US$900,000 worth of investments were managed by Cheong on behalf of Three Arrows.