In Ion Science Ltd. v Persons Unknown and others (unreported), the Commercial Court granted a proprietary injunction and a worldwide freezing order in respect of Bitcoin that had been dissipated by the wrongdoers due to cyber-fraud. The Commercial Court also granted permission to serve disclosure orders against the coin exchanges that processed the transactions in order to help locate the missing assets and wrongdoers. This judgment further solidifies Bitcoin’s status as property, but also shows that it may be possible to protect Bitcoin with injunctions when both the asset and wrongdoers cannot be located or identified.
Background
Ion Science, a manufacturer of gas and leak detectors, and its owner, Duncan Johns, invested 64.35 Bitcoin ((valued at £577,000 at the date of the case) into initial coin offerings for what they considered to be real cryptocurrency products, namely Uvexo and Oileum. Johns alleged that he had been induced to make these investments by a supposed Swiss investment firm called Neo Capital. Johns had been approached by “Ms Black” at Neo Capital, who convinced Johns to grant her remote access to his computer in order to execute the transactions over coin exchanges; after initially watching her make successful small investments into two genuine cryptocurrencies, Johns allowed Ms Black to make further investments in Uvexo and Oileum through remote access to his computer.
Ms Black subsequently informed Johns that his investments in Oileum had made significant profits that would be released to him once he had made certain commission payments in the form of Bitcoin. Johns allowed Ms Black to make these payments through remote access to his computer, but never received the alleged profits. When Johns attempted to locate his money, it transpired that all but £8,471 in the form of transaction fees had been transferred away.
Johns attempted to track down Neo Capital, but the firm had not been registered with the Swiss commercial register. In fact, it had no presence at all except for an online website and a prior warning from the Swiss financial services regulator (FINMA) that the firm had been engaged in providing unauthorised services. Ms Black and the other contact points at the firm had all used aliases and could not be traced.
The Application
Ion Science made various applications to the Commercial Court in order to track down and recover the lost Bitcoin, including:
- a proprietary injunction and worldwide freezing order against persons unknown to prevent the Bitcoin from being further dissipated; and
- a disclosure order under the Banker’s Trust jurisdiction against the coin exchanges involved in the transactions in order to locate the wrongdoers and secure the Bitcoin.
Bitcoin’s Proprietary Status
Proprietary injunctions can only be granted over assets that are proprietary in nature. The court was satisfied in this case that Bitcoin is proprietary in nature. This was due to:
- several previous interim applications which had ruled that Bitcoin and other cryptoassets can be proprietary nature, such as the case of AA v Persons Unknown [2019] EWHC 3556 (Comm) (you can read our earlier post about this case here);
- the analysis of the UK Jurisdiction Taskforce on cryptoassets (you can read our earlier post about this guidance here); and
- decisions from other common law jurisdictions which considered the proprietary nature of cryptoassets, such as the New Zealand decision of Ruscoe v Cryptopia Ltd (in liquidation) [2020] NZHC 782.
Did the Court have Jurisdiction to grant an order over Persons Unknown?
However, the more challenging issue for the court was whether it had jurisdiction to grant an order over persons unknown. Butcher J had to consider whether any grounds under Rome II applied in order to allow service out of the jurisdiction. This involved consideration of the lex situs of the cryptoassets (i.e., the location of assets), which can be rather difficult because cryptoassets are digital in nature, easily transferred between jurisdictions and often decentralised.
In handling this difficulty, Butcher J considered guidance from Professor Andrew Dickinson in David Fox and Sarah Green, Cryptocurrencies in Public and Private Law (OUP Oxford, 2019) and was satisfied that there was a serious issue to be tried under English law pursuant to Article 4.1 of Rome II as the damage had occurred in England because:
- the bank account which funded the Coinbase accounts was an English account, or the Bitcoin was taken from the Johns’ control in England and Wales when he allowed Ms Black to remotely access his systems; or, alternatively
- the Bitcoin was located in England and Wales prior to the transfer, on the basis that the lex situs of a cryptoasset is the place where the person or company who owns it is domiciled, an argument which Butcher J found particularly persuasive.
Butcher J also noted that it was difficult to identify another forum which could hear the case, simply because persons unknown could not be located.
Injunctive Relief
Butcher J granted both the proprietary injunction and the worldwide freezing order.
In respect of the proprietary injunction, Butcher J considered that the balance of convenience was in favour of granting the injunction as there was a prima facie case of wrongdoing and no evidence that the individuals in question would be able to satisfy a monetary judgement. Granting of an injunction was also just because the Applicants had been the victims of cyber-fraud.
In respect of the worldwide freezing order, there was a real risk that the assets could be dissipated due to the underlying claim, persons unknown’s use of aliases, the use of false documents and the fact that Neo Capital had not been registered. Moreover, the fact that there were no assets which could be caught by the order was not a bar to granting a worldwide freezing order in this case, as this was the typical feature of a case against persons unknown.
Banker’s Trust Order
A Banker’s Trust Order is a type of disclosure order designed to help claimants trace stolen money and property. They are often made against banks and other organisations which may either hold the stolen property or had the stolen the property pass through them. They are only available in very narrow circumstances, such as when there are clear-cut cases of fraud or that the information could enable the claimant to track down the stolen property.
Butcher J granted the Banker’s Trust order against the coin exchanges, even though no positive remedy was sought other than information. The court was satisfied that the Bitcoin belonged to the Applicants and that there was a real prospect that the information could lead to the location and preservation of such Bitcoin. The order was also unlikely to pose much detriment to the coin exchanges, as the only costs and intrusion involved would be related to information from the wrongdoers, and information related to third parties could be protected by undertakings.
Practical Impact and Significance
This case is the latest in a series of cases where injunctive relief has been granted over Bitcoin, further solidifying that cryptoassets can be property under the common law definition. Therefore, those involved in cryptoasset trading activities will have recourse should they fall victim to any cyber frauds involving their cryptoasset holdings through the award of injunctions and freezing orders.
More significantly, this is the first decided case in which the lex situs of a cryptoasset is considered, and determined to be the place where the person or company who owns it is domiciled. As a consequence, provided that England and Wales is the correct forum for the dispute, injunctions and freezing orders may be granted where the wrongdoers and property cannot be located, offering even greater protection to those involved in trading activities. Due to the volatile nature of cryptoassets and how easily they can be transferred between jurisdictions, this should provide those engaged in trading activities with more comfort.
However, coin exchanges may now become subject to disclosure orders to help applicants locate their assets and identify the wrongdoers. Coin exchanges should be prepared to develop policies and procedures to deal with such orders and to minimise the impact on potential third parties.
