English High Court Provides Further Support for Victims of Crypto Fraud in the UK
The High Court recently handed down summary judgment which may provide further comfort for the victims of digital asset fraud.
Factual Background
In the case of ππ°π―π¦π΄ π· ππ¦π³π΄π°π―π΄ ππ―π¬π―π°πΈπ― [2022] EWHC 2543 (Comm), Mr. Jones was the victim of a large-scale crypto fraud. He was persuaded by an online advertisement to set up an account with a website called Extick Pro (EP), which fraudulently claimed to be a cryptocurrency trading platform. Mr. Jones was induced to invest 89.61616088 Bitcoin between January 2019 and January 2020. This cryptocurrency was transferred to the fake website, and subsequently dissipated across the blockchain.
Mr. Jones did not operate the funds on the EP platform himself - a representative of the platform made trades on Mr Jones' behalf while on a phone call with Mr Jones and using a remote desktop. These trades were fictional and did not actually take place.
At the date of the judgment, the value of the stolen Bitcoin was approximately Β£1.536m.
Legal Background
Following the instruction of an investigations firm to trace Mr. Jones' stolen Bitcoin, it was determined that the cryptocurrency had been transferred by the EP platform to a wallet associated with Huobi Global Limited's crypto exchange, Huobi Exchange, based in the Seychelles.
In order to prevent further dissipation of the misappropriated coins, Mr. Jones had obtained a worldwide freezing injunction against persons who transferred his Bitcoin and those who controlled the accounts to which the Bitcoin was transferred ('Persons Unknown'). He had also obtained a freezing order against Huobi.
Mr. Jones issued claims against the Persons Unknown for deceit and unjust enrichment, and Huobi as constructive trustee of the misappropriated Bitcoin.
No party responded to, or engaged with the proceedings. Mr Jones therefore sought summary judgment in respect of his claims.
Mr. Jones was domiciled within the English jurisdiction and so the claim was heard by the English courts.
Judgment
After thorough analysis of the relevant facts and legal issues, as well as precedent from other cases, the court held that Mr. Jones be granted summary judgment for all claims as well as a costs order.
The court held the following:
- Huobi was a constructive trustee and Mr. Jones' claim for the return of the Bitcoin should succeed. The court decided that Huobi was a constructive trustee based on the fact that it was the controller of the wallet that the Bitcoin was apparently paid to. There was no evidence that any other party had a proprietary interest to the Bitcoin which would override Mr. Jones'.
- Mr. Jones was entitled to judgment against the Persons Unknown for unjust enrichment and deceit.
- Bitcoin should be treated as property and Mr. Jones was entitled to a proprietary injunction.
- Mr. Jones was entitled to a continuation of the freezing injunction.
- The stolen Bitcoin must be delivered up (or returned) to Mr. Jones by all the defendants.
The court granted permission for service of proceedings overseas and made an order to serve out as against all defendants. The court also granted permission for to serve by alternate means, including by email, WhatsApp or by way of NFT.
Analysis
This judgment has the potential to be a landmark case in the area of crypto fraud litigation.
The case solidifies the finding in D'Aloia v Persons Unknown [2022] EWHC 1723 that crypto-fraud victims have a good arguable case that misappropriated cryptocurrencies can be held on constructive trust. The case provides that victims can recover their misappropriated cryptocurrencies from the receiving exchange itself. This is especially useful where the fraudsters are unknown and uncontactable, as in most crypto-fraud cases.
However, victims should moderate their optimism; while the judgment was favourable, the proceedings were uncontested and no evidence was submitted by the defendants, which means that the precedential weight of the decision is reduced.
At the very least, this judgment provides further evidence that the English courts are taking a robust, victim-first approach when tackling crypto-fraud. This suggests that they will be among the leading tribunals deciding claims of crypto fraud, as preliminary litigation of these cases moves towards trial.
Written by James Piper and Frankie Bristow of VWV Blockbusters - VWV's Crypto-Asset Special Interest Group.