The English Court: A Fraudster’s Crypto-nite

26 April 2022

The English High Court, in Mr Dollar Bill Limited v Persons Unknown and Others [2021] EWHC 2718 (Ch), has once again come to the rescue for victims of fraud – this time armed with a Norwich Pharmacal Order to be served outside the jurisdiction.
 
The “Crypto Fraud”
Following its investment of Bitcoin via a trading platform called “bittrust.net” (“BitTrust”), the Claimant, suspecting that it was a victim of a fraud perpetrated by those behind BitTrust, commissioned a report by blockchain analysts which evidenced what the Court described as “chaotic” movement of Bitcoin across several intermediary accounts.
 
Mr Justice Trower held that the report was sufficient to show that there was at least “a good arguable case” that the Bitcoin identified in another wallet held in the name of Huobi Global Limited (“Huobi”) represented Bitcoin that rightly belonged to the Claimant.
 
The Claimant successfully applied for:
  1. A proprietary injunction to restrain the Defendants (consisting of those behind the BitTrust website account whose identity was unknown, and the two exchanges holding the wallets into which the Bitcoin had been traced, Binance Holdings Limited (“Binance”) and Huobi) from further dissipating the Claimant’s Bitcoin; and
  2. Norwich Pharmacal and Bankers Trust relief against Binance and Huobi in order to facilitate any further tracing exercise as required and to determine what happened to the Bitcoin.
The Court ordered a proprietary injunction, noting that:
  1. there was a serious issued to be tried; 
  2. Bitcoin is a form of property in respect of which a proprietary injunction would lie; and 
  3. damages would not be an adequate remedy should injunctive relief freezing the assets not be granted.
The “Weapons of Choice”
  1. Bankers Trust Orders (“BTOs”) – a BTO is a type of third party disclosure order which is available in circumstances where there is a clear case of fraud and the applicant seeks disclosure of confidential information and/or documentation to assist a proprietary claim to trace assets.
  2. Norwich Pharmacal Orders (“NPOs”) – NPOs are often used in fraud cases where information is sought about the identity of the fraudster and/or the location of assets.
The following conditions must be satisfied (as was the case here) for the Court to order Norwich Pharmacal relief:
 
(a) a wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer;
(b) there must be the need for an order to enable action to be brought against the ultimate wrongdoer; and
(c) the person against whom the order is sought must (i) be mixed up in so as to have facilitated the wrongdoing; and (ii) be able or likely to be able to provide the information necessary to enable the wrongdoer to be sued.
 
In this particular case, it is notable that the English Court ordered Norwich Pharmacal relief against two crypto exchanges based out of the jurisdiction.
 
In doing so the Court departed from two earlier judgments (Fetch.ai Limited v Persons Unknown [2021] EWHC 2254 (Comm) and AB Bank Limited, Off-shore Banking Unit v Abu Dhabi Commercial Bank PJSC [2016] EWHC 2082 (Comm)), which held that Norwich Pharmacal relief could not be obtained against an entity based out the jurisdiction – albeit Mr Justice Trower did not refer to these decisions in his judgment.
 
The Court has to date been more willing to grant service out of the jurisdiction in respect of BTOs. In Ion Science Ltd v Persons Unknown and others (unreported), 21 December 2020 (Commercial Court), Mr Justice Butcher considered that the decision in AB Bank Limited v Abu Dhabi was distinguishable on the basis that it dealt with NPOs whilst the case before him was in respect of a BTO. 
 
Jurisdiction 
The Court also made the following orders:
  1. Order for alternative service on the email addresses with which the Claimant corresponded during its relationship with BitTrust; and
  2. Order for service out of the jurisdiction in respect of two of the Defendants, Binance and Huobi.
As to the former, the Court held there was good reason for alternative service on the basis that (a) it was an inherently urgent application (and the sooner the claim and Order was drawn to the attention of the relevant Defendants, the better); (b) the very nature of Bitcoin is that they can be moved “at the click of a mouse”; (c) it was a proprietary claim and it was important that the injunction be in place as soon as practicable.
 
As to the latter, the Court granted permission to serve out of the jurisdiction as it was satisfied that the damage sustained within the jurisdiction (in this case, England) is the loss of the Claimant’s (who is based in England) original investment.
 
Comment
The English Court has proven once more to be willing to grant injunctive relief in order to assist victims of fraud, further demonstrating its status as a leading jurisdiction for the resolution of international disputes and recovery of crypto assets.
 
The fact the Court is willing to grant Norwich Pharmacal Orders against crypto exchanges based out of the jurisdiction will be a welcome development for victims of fraud who are able to trace their crypto assets into wallets held with exchanges outside the UK.
 

ABOUT THE AUTHOR

Francesca advises on a variety of commercial disputes, including contract and shareholder disputes, professional negligence, civil fraud and insolvency, acting for both claimants and defendants.

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