DANISZ V (1) PERSONS UNKNOWN (2) HUOBI GLOBAL LTD (TRADING AS HUOBI)  EWHC 280 (QB)
A victim of an alleged Bitcoin fraud has been granted a proprietary injunction, worldwide freezing order, a Bankers Trust order and other ancillary orders in order to trace and prevent further dissipation of the stolen assets.
The claimant (SD) invested Bitcoin to the value of £27,000 in a cryptocurrency investment vehicle called "Matic Markets" after the company was advertised on social media. The Bitcoin quickly appreciated in value, so SD requested to withdraw her investment but was refused, despite having been assured that it was repayable on demand. She subsequently commissioned an expert report which found that, unbeknownst to SD, her Bitcoin had been transferred out of Matic Markets' wallet. As was the case in Mr Dollar Bill v Persons Unknown and Others, some of the Bitcoin could be traced to an end wallet under the control of the Huobi exchange. The remaining assets were untraceable.
SD sought interim relief by way of (i) a proprietary injunction preventing the defendants from further dissipating the remaining original Bitcoin; (ii) a worldwide freezing order preventing the dealing in the remaining Bitcoin in the end wallet and freezing assets up to its value in fiat currency; (iii) a Bankers Trust disclosure order to compel Huobi to disclose payment-related information regarding the account holders of the end wallet which could lead to the recovery of the Bitcoin; and (iv) permission to serve proceedings out of the jurisdiction and by alternative means to overcome difficulties in identifying the defendants.
KEY LEGAL POINTS
- Proprietary injunction: Lane J held that the requirements of American Cyanamid were fulfilled as:
- there is a serious issue to be tried given the evidence of fraudulent activity by Matic Markets, which appears to be run by organised criminals;
- the case was of "exceptional urgency" given that a substantial portion of the Bitcoin had already been dissipated;
- Lane J agreed with the decision of Bryan J in AA v Persons Unknown, Re Bitcoin  EWHC 3556 that "Bitcoin is a form of property capable of being the subject of a proprietary injunction";
- damages would not be an adequate remedy; and
- the balance of convenience therefore lay in granting the injunction.
- Worldwide freezing order: Lane J granted SD a worldwide freezing order. Following the judgment of Butcher J in Ion Science v Persons Unknown (unreported, 21 December 2020), where it was held that the relevant jurisdiction is the location where the owner of the crypto asset is domiciled, the English High Court had jurisdiction to hear the claim. SD is resident in England and transferred funds to Matic Markets from an English bank account. Huobi's control over the end wallet did not defeat the application as "the definition of "assets" includes all the assets that are held or controlled by a third party" (following JSC BTA Bank v Ablyazov  UKSC 64).
- Bankers Trust disclosure order: A Banker’s Trust disclosure order differs from a standard third party disclosure order as it is only available in narrow circumstances where: (i) there is a clear cut case of fraud and (ii) the claimant seeks disclosure of confidential documents from the defendant’s bank to support a proprietary claim to trace assets. SD was granted such an order against Huobi to assist in tracing the Bitcoin. Lane J held that "there is a real prospect that, in all the circumstances, that the supply of the information by [Huobi] will lead to the location or preservation of the Bitcoin". There was also an arguable case that a fraud had taken place based on the expert report which found that Matic was a "wholly fraudulent operation" run by organised criminals which is capable of misappropriating funds from investors as well as interfering with banking and other online transactions.
- Permission to serve out of the jurisdiction and by alternative means: Lane J granted permission for service outside of the jurisdiction as there was a good arguable case that a tort had been committed within the jurisdiction, thereby satisfying one of the gateways for service out. There were also "exceptional circumstances" which warranted a "hot pursuit" of the fraudsters in order to recover the Bitcoin, which has a reasonable chance of success. The email addresses of the Matic representatives could be used to effect service given the inherent difficulties in identifying the individuals and the urgency of the case.
As with Mr Dollar Bill, this decision illustrates the courts' increasing willingness to act urgently to limit the impact of cryptocurrency fraud, particularly, as the judge noted, because assets can be rendered untraceable via a cross-border transaction "at the click of a mouse".
This decision is also interesting in light of the remarks by Rt Hon Sir Geoffrey Vos at the launch of the Lawtech UK Smarter Contracts report on 24 February 2022 regarding the difficulty in securing permission to serve third party disclosure orders out of the jurisdiction. Vos commented that the current regime is hampering efforts to trace cryptocurrency assets where there are allegations of fraud. Therefore, the criteria for serving out of the jurisdiction is being reviewed by the Civil Procedure Rules Committee in order to streamline these types of claims.
This judgment shows, as Sir Geoffrey Vos also confirmed, that the courts are, in principle, amenable to granting permission to serve a Bankers Trust disclosure order out of the jurisdiction and by alternative means where there is extreme urgency and a strong prima facie case. Nevertheless, questions will remain as to the enforceability of any such order.
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