Funds have disappeared from cryptocurrency accounts, but where to, and who can be sued? This decision shows the English courts' willingness to assist claimants seeking to obtain information to particularise claims for misappropriated funds. Bankers Trust Orders (BTOs) in particular are a powerful tool in a claimant's search for the perpetrators of cryptocurrency fraud internationally. A BTO is a type of third party disclosure order, potentially available in claims for fraud where a claimant seeks confidential documents (usually) from a bank to support a proprietary claim to trace assets.
In Fetch, the Court granted wide ranging remedies to the applicants, two ''Fetch.ai'' companies, against (1) unidentified fraudsters who had accessed and transferred funds from their cryptocurrency accounts, (2) two Binance entities, who managed the accounts and exchange, and (3) the recipients, innocent or otherwise, of the misappropriated cryptocurrency.
It is well known that the anonymity and accessibility of the internet can be a double-edged sword, creating opportunities for investors and fraudsters alike.
In this case, unknown fraudsters traded $2.6 million of the claimants' cryptocurrency to an anonymous third party buyer without permission. The claimants applied to the English court for remedy seeking the following forms of relief in support of a claim for breach of confidence, an equitable proprietary claim and a claim in unjust enrichment:
- a proprietary injunction, worldwide freezing order (WFO) and ancillary information disclosure against ''Persons Unknown'' (as discussed below) primarily to either freeze the assets moved from the accounts or restrain third parties from dealing with the traceable proceeds;
- a BTO and a Norwich Pharmacal Order (NPO) against the Binance entities to assist the claimants to trace the assets;
- permission to serve the proceedings out of the jurisdiction and by alternative means.
KEY LEGAL POINTS
Pelling J allowed the applications. It was a broad ranging decision, the key elements of which are discussed below.
However, it is worth noting that the claimants only had to demonstrate, and the court found, that there was a ''good arguable case'' on each of the issues below.
1. Relief against ''Persons Unknown''
The applicants' formulation of this category of respondent was considered ''too wide ranging'' by Pelling J. Particular concern was the potential for the WFO to capture individuals within this category ''who, at least potentially, were innocent in the sense of not knowing or having reason to believe, or reasonable grounds to believe, that assets belonging to the claimant had been credited to their account''.
Consequently, Pelling J therefore divided ''Persons Unknown'' into three classes:
- “those who were involved in the fraud'';
- ''those who have received assets … without having paid the full price for them'';
- ''innocent receivers''.
And he limited proprietary relief limited to ''those assets which the third category of persons unknown either knew, or ought reasonably to have known, belong to the claimant or did not belong to them.''
2. Relief against Binance
BTOs and NPOs are both third party disclosure orders available in limited circumstances where an applicant seeks disclosure of:
• confidential documents from the potential defendant's bank (usually) to assist a proprietary claim to trace assets (BTO); or
• more broadly, certain documents or information – typically to identify the proper defendant or gather sufficient information to particularise a claim (NPO).
It is well established law that NPOs cannot be served out of jurisdiction by the English courts and therefore in this instance an NPO was only awarded against the English Binance entity responsible for managing the applicants' accounts.
However, there are conflicting authorities as to whether the English courts have jurisdiction to make a BTO against a party outside the jurisdiction. In this case, Pelling J was prepared to grant permission to serve a BTO against both Binance companies, including the administrator of the cryptocurrency exchange incorporated in the Cayman Islands.
As one of few authorities on service of a BTO against a cryptocurrency exchange out of jurisdiction this will be a welcome decision to potential claimants – particularly given the inherent cross jurisdictional nature of cryptocurrency fraud.
3. Jurisdiction and procedural issues
In considering whether the Court was willing to grant permission for the claimants to serve out of the jurisdiction, Pelling J was satisfied there was a serious issue to be tried that:
- cryptocurrency is 'property' (or a chose in action) for the purpose of English law; and
- the ''lex situs [i.e. the law of the place where an object is situated] of a cryptoasset is the place where the person or company who owns it is domiciled'' (Ion Science v Persons Unknown (unreported) (21 December 2020) applied).
As the accounts' owner and first applicant was domiciled in England, the English courts had jurisdiction. This is a welcome, though not conclusive, confirmation of an emerging point of law - particularly given the potential for misappropriated cryptocurrency to be rapidly dissipated to a myriad of jurisdictions.
The applicants also sought an order for service by alternative means (limited to exceptional circumstances) against the Binance Cayman-registered entity. The Court granted this relief. In doing so Pelling J cited ''an increasing body of case law'' exhibiting the courts' increasing willingness to forego traditional means of service in cases involving prohibitory injunctions or mandatory orders if the alternative means proposed ''is the only means by which the orders can be drawn speedily to the attention of the respondent concerned''. Once more this demonstrates the English courts' readiness to ensure the purpose of an order is not defeated by circumstance.