In Danisz v Persons Unknown and Huobi Global Ltd ([2022] All ER (D) 107 (Jan)), the English High Court granted a package of interim remedies to a victim of cryptocurrency fraud (an interim proprietary injunction, a worldwide freezing order and a Bankers Trust disclosure order). This case demonstrates the value of acting quickly and obtaining an expert report to trace any misappropriated cryptocurrency at the outset of a potential claim.

Background

The claimant invested in Bitcoin through a website known as Matic Markets Ltd (“Matic”) (£4,999.09 on 31 October 2021, £4,979.13 on 2 November 2021 and £17,010.66 on 19 November 2021).

In December 2021, the claimant sought to withdraw the Bitcoin and any profit, but her request was refused by the representative of Matic (even though she had been earlier told that she could do both on demand).

The Bitcoin was said to have been misappropriated by “persons unknown” but had been traced by an expert instructed by the claimant. The Bitcoin was said to have been transferred to a cryptocurrency end-wallet (ending 4932), at the exchange of the second defendant (Huobi Global Ltd, a cryptocurrency trading platform). Following a review of the expert report, the court held there was a “good arguable case” that Matic was “wholly fraudulent” and “run by organised criminals” (paragraph 10).

Ex parte application

The claimant made an ex parte application for the following:

  • An interim proprietary injunction against both defendants, which would restrain “persons unknown” and the second defendant (Huobi Global Ltd, the cryptocurrency exchange) from dealing with the applicant’s property directly or indirectly.
  • A worldwide freezing order against “persons unknown”, which would prohibit the persons unknown from unjustifiably disposing of or otherwise dealing with the Bitcoin contained in the end-wallet (ending 4932).
  • A Bankers Trust disclosure order against the second defendant (Huobi Global Ltd, the cryptocurrency exchange) (this form of disclosure order was first established in Bankers Trust Company v Shapira [1980] 1 WLR 1274). This would compel the second defendant to disclose certain payment-related information about the account holders of the end-wallet.

The court granted the application. The judgment is examined in further detail below.

The interim proprietary injunction

When considering the application for a proprietary injunction, the court confirmed that cryptocurrency such as Bitcoin is a form of property capable of being the subject of a proprietary injunction (paragraph 13) (referring to AA v Persons Unknown, Re Bitcoin [2019] EWHC 3556).

The court granted the interim proprietary injunction against both defendants, on the basis that (in accordance with American Cyanamid Co (No 1) v Ethicon Ltd [1975] UKHL 1):

  • There was a serious issue to be tried. The court was “fully satisfied from the evidence” that Matic was “to put it at its mildest, highly problematic” and was “more likely [than] not to be thoroughly fraudulent” (paragraph 14).
  • The balance of convenience “clearly favour[ed]” the granting of interim relief, given that dissipation appeared to have already occurred “to a substantial degree” (paragraph 15).
  • Damages would not be an adequate remedy (paragraph 16).

Worldwide freezing order

The court also granted a worldwide freezing order against “persons unknown”.

The court held that there was a “strong underlying cause of action” (paragraph 17). Additionally, the court (being the High Court of England and Wales) was satisfied that it had jurisdiction to hear the substantive claim. This was on the basis of the reasons given by Butcher J in the case of Ion Science Ltd v Persons Unknown (unreported, 21 December 2020). There, Butcher J 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”.

Applying this reasoning, the court held there was no question that the claimant (Danisz) was domiciled in England and Wales. The claimant also provided funds to Matic from a bank account in England and Wales (paragraph 18).

Bankers Trust disclosure order

The court also granted a Bankers Trust disclosure order which would compel the second defendant (Huobi Global Ltd, the cryptocurrency exchange) to disclose certain payment-related information about account holders of the end-wallet.

Such orders are potentially available where (as set out in Bankers Trust Company v Shapira):

  • There is a clear-cut case of fraud or wrongdoing.
  • The claimant seeks disclosure of confidential documents or information from the defendant’s bank in order to locate assets to which the claimant has a proprietary claim.

The court held that the expert report disclosed an “arguable case” that fraud had taken place and there was a “real prospect, in all the circumstances” that the supply of information by the second defendant would lead to “the location or preservation of Bitcoin” (paragraph 21).