In Danisz v Persons Unknown and Huobi Global, the High Court granted the claimant (a Bitcoin-holder) an interim proprietary injunction against persons unknown and a cryptocurrency exchange, a worldwide freezing order against persons unknown, and a banker’s trust order against the cryptocurrency exchange, following a suspected cryptocurrency fraud.
The case is similar to Ion Science Ltd v Persons Unknown (unreported, 21 December 2020), which also involved fraudsters operating with what appeared to be a crypto investment company and absconding with the invested funds. Analysis of that decision and the key recent crypto cases can be found in RPC’s blog: Cryptocurrencies: basic legal principles and their future in English law.
Danisz further demonstrates the court’s willingness to provide swift injunctive relief to combat cryptocurrency fraud, and the ease with which English law continues to be applied successfully to cryptocurrency claims.
Background
The claimant discovered a website known as Matic Markets Ltd and was encouraged to invest in bitcoin through the website. Between 31 October and 19 November 2021, the claimant invested approximately £27,000 in bitcoin.
The claimant was led to believe that her bitcoin investments were accruing in value. However, in December 2021, Matic refused the claimant’s request to withdraw the bitcoin and any growth on it. This was despite Matic previously telling the claimant that she could withdraw both on demand.
The claimant instructed an expert to investigate her investment into Matic. The expert concluded that the claimant’s investment had mostly been misappropriated by persons unknown and traced the bitcoin to a cryptocurrency end-wallet at Huobi Global Ltd’s cryptocurrency exchange. The expert also opined that Matic was likely a fraudulent enterprise run by organised criminals, designed to misappropriate investors’ funds, and having means to interfere with banking and other online transactions.
The claimant made an ex parte application seeking:
- An interim proprietary injunction against persons unknown and Huobi to restrain them from dealing with the claimant’s bitcoin directly or indirectly;
- A worldwide freezing order to prohibit the persons unknown from disposing of or otherwise dealing with the claimant’s bitcoin in the end-wallet; and
- A banker’s trust disclosure order against Huobi to compel it to disclose certain payment-related information about the account holders of the end-wallet.
Interim proprietary injunction
The court was satisfied that it was the appropriate forum for the application. Furthermore, the case merited “exceptional urgency” as only a small proportion of the claimant’s bitcoin was likely still under Huobi’s control and could be dissipated “at the click of a mouse” (paragraph 11, judgment).
The court agreed with the previous decision in AA v Persons Unknown that cryptocurrency is “property capable of being the subject of a proprietary injunction” and proceeded to apply the American Cyanamid Co (No 1) v Ethicon Ltd test.
The court was satisfied that:
- There was a serious issue to be tried based on the claimant’s expert evidence that Matic is “highly problematic” and more likely than not to be “thoroughly fraudulent”;
- The balance of convenience lay in granting the interim injunction as the expert believed that much of the claimant’s bitcoin had already been dissipated and therefore it was necessary to stop any further dissipation; and
- Damages would not be an adequate remedy.
Worldwide freezing order
As to the worldwide freezing order, the court was satisfied that there was a strong underlying cause of action and it had jurisdiction to hear the substantive claim. The court followed Ion Science, which held that the “lex situs of a crypto asset is determined by the place where the person who owns it is domiciled in the present case”. In Danisz, the claimant was domiciled in England and Wales and provided the funds to Matic from a bank account located in England and Wales.
It should be noted that Danisz was handed down prior to the judgment in Tulip Trading Limited v Bitcoin Association for BSV and others, which highlights (albeit obiter) that residence rather than domicile is the key criterion (paragraphs 142 to 158, judgment). That judgment involved a corporate claimant but the analysis would apply to an individual too. There is no suggestion that the claimant in the present case was not resident in England and Wales so this distinction is unlikely to have been material to the outcome.
The court also found that the application was not defeated by Huobi having control of the bitcoin. The court cited JSC BTA Bank v Ablyazov as authority that the definition of “assets” includes all the assets that are held or controlled by a third party. This is the first cryptocurrency judgment where this point has been expressly raised as prior judgments have simply proceeded on that basis.
The court also found that there was a real risk of dissipation and that a cross-undertaking in damages given by the claimant would not be appropriate. In particular, the court referenced the claimant’s swift action in commissioning an expert report and making the application.
Banker’s trust disclosure order
The court found that it was appropriate, and indeed necessary, to grant this order to compel Huobi to disclose certain payment-related information about the account holders of the end-wallet. The court was satisfied that there was a real prospect – in circumstances indicating “an arguable case that fraud has taken place” – that the bitcoin could be located or preserved if Huobi shared such information with the claimant.
The claimant provided an undertaking to use the information supplied by Huobi only for the purpose of trying to recover the bitcoin.
Service outside the jurisdiction
The court permitted service outside the jurisdiction pursuant to CPR 6.36 and PD 6B.3.1. This was on the grounds that: interim relief was sought, the cause of action amounted to a claim in tort, damage was suffered within the jurisdiction, and there was a good arguable case with reasonable prospects of success.
The court held that the requirement, set out in Ion Science, for exceptional circumstances to be present to permit service outside the jurisdiction was met by the need for “hot pursuit” to try and recover the claimant’s bitcoin.
Alternative service
The court found it necessary to permit alternative service under CPR 6.15 and CPR 6.27 by email on persons unknown. This was ordered in the context of suspected fraud by Matic, uncertainty that the contact information supplied by Matic was reliable, and difficulty locating any other information about where Matic could be served. Given the urgent nature of the relief sought, the court also found it appropriate to permit alternative service on Huobi.
Comment
The case confirms various points of law already established in prior cryptocurrency cases. Additionally, it confirms, for the first time in a cryptocurrency case, the (uncontroversial) JSC BTA Bank issue noted above. The lack of any particularly novel point is perhaps an indication that crypto litigation is maturing, at least insofar as interim injunctions are concerned, in the sense that the key issues in what is typically a fairly standard suite of relief are reasonably settled.
The facts of this case are also a salutary reminder of the need for cryptocurrency holders to be wary of potential fraudsters that operate in the crypto space taking advantage of investors’ hopes of making a large and quick return on cryptocurrency investments. If something seems too good to be true, it probably is.
The judgment also emphasises on more than one occasion that victims of cryptocurrency fraud must act swiftly. In this case, although the claimant was commended for having acted swiftly, regrettably a significant amount of the misappropriated bitcoin appears already to have been dissipated by the time of the hearing.
