Insights 26/04/2022
It has been widely reported that cyber fraud is on the rise, particularly as the increase in employees working from home provides opportunities for new forms of data theft. All businesses, even those which do not encounter cryptocurrency in their day-to-day operations, can be the victim of cyber fraud involving cryptocurrency; for example, cybercriminals who carry out ransomware attacks nowadays tend to request their ransom in cryptocurrency, due to its anonymous nature.
Victims of cyber-crime involving cryptocurrency have turned to the English courts to assist them in recovering stolen funds. There is a growing trend, both globally and in England, to develop the common law so as to enable the courts to assist such victims. For example, English courts have endorsed the UK Jurisdiction Taskforce's legal statement on cryptoassets which reasoned that cryptoassets should be treated as "property"; this was first considered in AA v Persons Unknown [2019] EWHC 3556 (Comm), and was common ground in the more recent case of Wang v Darby [2021] EWHC 3054 (Comm). Accordingly, it now seems relatively uncontroversial that proprietary freezing injunctions can be granted in relation to cryptoassets (see, e.g., AA v Persons Unknown), and cryptoassets can (at least in principle) be held on trust (Wang v Darby).
However, one area of significant legal uncertainty surrounds the extent to which Bankers Trust and Norwich Pharmacal orders can be granted against cryptocurrency exchanges. Such exchanges, being online platforms on which users can buy and sell cryptocurrency, often hold information that could be used by victims of cybercrime to assist in tracing the location of their misappropriated assets, and/or identifying the wrongdoers involved in the fraud. However, exchanges are generally based outside of this jurisdiction and, due to their own confidentiality obligations, are generally unwilling to disclose information about their accountholders and the movement of funds to/from accounts in the absence of a court order.
There is conflicting case law on the availability of third-party disclosure orders in such scenarios. The line of cases started with AA v Persons Unknown, in which Mr Justice Bryan doubted (in obiter comments) that Norwich Pharmacal or Bankers Trust orders could be granted and served out of the jurisdiction on a foreign entity. In so doing, he referred to the case of AB Bank Ltd v Abu Dhabi Commercial Bank PJSC [2016] EWHC 2082 (Comm), where Teare J had concluded that there was no jurisdictional gateway under Practice Direction 6B through which a Norwich Pharmacal application could pass. Bryan J was, however, willing to make an order for a proprietary injunction against the exchange, and to order ancillary relief, requiring the exchange to provide information. Although this approach conveniently circumvented the need for a Norwich Pharmacal or Bankers Trust order, it was only possible because Bryan J believed that the exchange itself still held Bitcoin that belonged to the claimant. This avenue of obtaining information is therefore unrealistic where the funds have already been dissipated out of the exchange.
Following in the footsteps of AA v Persons Unknown, there were then two cases where High Court judges (Butcher J and Pelling J) similarly refused to grant Norwich Pharmacal relief: Ion Science v Persons Unknown (unreported) (21 December 2020) and Fetch.AI Ltd v Persons Unknown [2021] EWHC 2254 (Comm). However, in relation to the application for Bankers Trust relief, the High Court was willing to distinguish from the AB Bank case on the basis that it only related to Norwich Pharmacal orders, and granted the order sought. The jurisdictional gateway relied on in both cases was paragraph 3.1(3)(b), which applies where the person to be served is a necessary or proper party to the anchor claim, and the case of MacKinnon v Donaldson, Lufkin and Jenrette Securities Corporation [1986] Ch 482 where it was envisaged that a Bankers Trust order might be one where there can be service out of the jurisdiction in exceptional circumstances, including "cases of hot pursuit".
Most recently, in the November 2021 case of Mr Dollar Bill Limited v Persons Unknown [2021] EWHC 2718, the High Court granted both Norwich Pharmacal and Bankers Trust relief against the two cryptocurrency exchanges, Binance and Huobi. The decision to grant permission to serve the Norwich Pharmacal order out of the jurisdiction stood in contrast to the previous authority set out above.
Taking these recent cases together, the preponderance of case law suggests that it should be possible to obtain Bankers Trust relief against exchanges resident outside of the jurisdiction, but there is still some residual uncertainty about this in light of the obiter comments in AA v Persons Unknown, and the position in relation to Norwich Pharmacal relief is more uncertain still.
Perhaps in light of this uncertainty, the Master of the Rolls, Sir Geoffrey Vos, revealed in a speech on 24 February 2022 that he had set up a sub-committee of the Civil Procedure Rules Committee to investigate amending or expanding the grounds on which proceedings can be served out of the jurisdiction, in order to make it easier to litigate issues that arise in relation to on-chain transactions and the tracing of cryptoassets. Although the Mr Dollar Bill case is a promising indication that the English courts are keen to assist claimants in crypto-disputes, given the need to act swiftly, it would be preferable if claimants could rely on a simpler and more certain set of rules.
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