High Court affirms the availability of existing interim and final remedies in the context of cryptocurrency cases

Introduction

In this briefing we considered the practical implications arising from two recent court cases involving cryptocurrencies.

Danisz - Facts of the Case

• C was encouraged by persons unknown (“D1”) further to a website known as Matic Markets Ltd (“Matic”) to make certain investments in the form of Bitcoins.
• The Bitcoins were transferred to Matic and C was led to believe that these investments had accrued in value.  However when C sought to withdraw the Bitcoins and any profit, C’s request was refused despite C having previously been told that she could do both.
• C instructed an expert to investigate the matter, who traced the Bitcoins to an e-wallet held with cryptocurrency exchange Huobi Global Ltd (“D2”).
• C sought various orders including an interim prohibitory injunction against both D1 and D2, a worldwide freezing order against D1 and a banker’s trust disclosure order against D2.

Danisz - the Decision

Despite evidence that “a significant amount” of the Bitcoin held by D2 had likely already been dissipated, the High Court (Mr Justice Lane) granted:

1. the prohibitory injunction following AA v Persons Unknown[1], in which Bryan J had found that cryptocurrency such as Bitcoin is a form of property capable of being the subject of a proprietary injunction
2. the freezing order inter alia on the basis that (i) the court had jurisdiction to hear the substantive claim because the lex situs of a crypto asset is determined by the place where the person who owns it is domiciled (Ion Science[2]) and (ii) the definition of “asset” includes all assets that are held by or controlled by a third party, such as an exchange for the end-wallet (JSC BTA Bank[3])
3. the bankers trust order finding there was a real prospect that the supply of the information by D2 would lead to the location or preservation of the Bitcoin and that there was an arguable case of fraud

• Service out of the jurisdiction was granted on the basis of the gateways in PD 6B 3.1, namely that interim relief was sought (paragraph 5) and the cause of action amounted to a claim in tort where the damages was sustained in the jurisdiction (paragraph 9).  The court also granted permission for alternative service by email

Ion Science - Facts of the Case

• this is the latest judgment in this long running litigation relating to an allegedly fraudulent cryptocurrency initial coin offering, pursuant to which the claimants (“Cs”) had transferred substantial sums to persons unknown
• in this application, the Cs sought a third party debt order against a cryptocurrency exchange, Payward Ltd (which trades under the Kraken name), and which held the accounts into which the misappropriated funds had ended up

Ion Science - the Decision

• in a private hearing, Master Cook, having previously granted an interim third party debt order against Payward, made the order final, following a failure by the judgment debtor to respond and Payward not raising any objections

Analysis & Practical Advice

The Danisz and Ion Science cases further illustrate the readiness of the court to take a pragmatic approach to the development of the rules in relation to the preservation and tracing of assets, identification of wrongdoers and enforcement of judgments, so as to facilitate recourse to such remedies in the particular context of frauds involving new asset classes, such as cryptocurrency.The Ion Science case is, for example, believed to be the first instance of a third party debt order being granted in these circumstances, and in the Danisz case the court:

• granted freezing order relief despite evidence that only a relatively small part of what was transferred remained under the control of the party against whom the order was sought, in so doing recognising that only by means of a freezing order was C likely to recovery anything more
• ordered alternative service by email, given time was of the essence because of the risk of dissipation “at the click of a mouse” and despite, as regards Matic, there being no certainty that the names of the persons with whom C had corresponded and spoken were real ones

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[1]                 AA v Persons Unknown, Re Bitcoin [2019] EWHC 3556

[2]                 Ion Science Ltd v Persons Unknown [2019] (unreported, 21 December 2020)

[3]                 JSC BTA Bank v Albyazov [2015] UKSC 64