The London Circuit Commercial Court has handed down a significant judgment regarding the recovery of cryptoassets held on cryptocurrency exchanges and the practicalities of the enforcement of judgments against ‘persons unknown’ located outside the jurisdiction of England and Wales.
The court’s decision in Law v. Persons Unknown and Huobi Global Limited[1] paves the way for future claimants to recover cryptoassets that have been transferred out of the jurisdiction with greater ease and highlights the English courts’ practical approach to the resolution of cryptoasset disputes.
Background
The claimant brought a fraud claim against persons unknown (the first three defendants) seeking the recovery of cryptocurrency held in two accounts controlled by the persons unknown and maintained by Huobi Global (the fourth defendant) outside the jurisdiction.
As the persons unknown failed to file a defence (or respond materially in any way at all), the claimant successfully applied for default judgment against them. Following that, the claimant obtained a worldwide freezing order in relation to the cryptocurrency in the wallets.
The claimant then sought to enforce the judgment. Given that the court could not enforce the judgment debt directly against the funds in the accounts that were outside the jurisdiction, the claimant made an application for the cryptocurrency to be converted to fiat currency and transferred to England. By having the funds transferred to this jurisdiction, the claimant would then be able to make a subsequent application against those funds for payment of the judgment.
Huobi Global, though not participating in the present proceedings, indicated its intention to cooperate with any order made by the English court.
The High Court’s decision
The judge noted that the circumstances in which an order to transfer funds subject to a worldwide freezing order into England and Wales are generally limited, because there is usually an assumption that defendants will comply with the freezing order.
However, in an exceptional decision, the judge ruled in this case that the funds in the wallets should be transferred to England. Although Huobi Global was currently preventing the other defendants from accessing their wallets, that situation could change, and the court had no control over the ‘persons unknown’, all of whom were based exclusively outside the jurisdiction.
Accordingly, the judge ordered that the cryptocurrency be converted into fiat currency in one of two ways: Either Huobi would transfer the cryptocurrency to the claimant’s solicitors, who would then convert it into fiat currency, or Huobi would convert the cryptocurrency to fiat currency and transfer that to the claimant’s solicitors. The route used was left to the claimant and Huobi to decide between themselves.
The judge ordered that the cryptocurrency, or its fiat equivalent, either be transferred to the claimant’s solicitors to then be paid into the court funds office in accordance with the directions set out in the order proposed by the claimant or directly transferred to the court funds office. He did not consider it appropriate for the money to be held by the claimant’s solicitors outright or for a receiver to be appointed, which would incur unnecessary professional fees.
Finally, the judge set out provisions for the claimant’s application for pay out of the funds. On the basis that it was possible the application could be unsuccessful and the funds may need to be transferred back, the claimant was required to give a cross undertaking in damages to cover any costs that may be incurred in that process.
Takeaways
This judgment highlights the court’s ability to adapt to emerging challenges in the digital era and facilitate the recovery of stolen cryptoassets, which usually will be transferred out of the jurisdiction with a view to getting them beyond the reach of the courts. By taking this pragmatic approach and ordering the conversion and transfer of cryptocurrency back into this jurisdiction, the court provided the claimant with an efficient and cost-effective enforcement of judgments.
[1] [2023] 1 WLUK 577
Contributors
Victoria Barlow