In its recent decision in Boonyaem v. Persons Unknown Category A, Persons Unknown Category B and INGFX Limited,[1] the High Court of England and Wales addressed some of the key issues that have frequently arisen in cases of digital asset fraud. Notably, while the judge granted summary judgment against ‘persons unknown’ who were currently anonymous but identifiable, he refused to enter judgment against ‘persons unknown’ who were both anonymous and unidentifiable.
Background
Tippawan Boonyaem claimed she had been fraudulently induced to invest her fiat currency in Tether tokens (USDT) and then to transfer 425,836.62 USDT to various wallets under the control of the defendants.
Boonyaem asserted that an individual calling himself Suthep Chansudarat had claimed he had set up an account for her on an online investment platform – INGFX – so that she could trade cryptocurrency. Under his direction, Boonyaem first converted Thai bhat to USDT and then transferred the USDT from her wallet to various wallet addresses given to her by Chansudarat, believing she was depositing her USDT into INGFX wallets for purposes of trading. She then carried out trades under Chansudarat’s instruction.
While the INGFX online platform indicated that Boonyaem’s trades had been very profitable, when she sought to withdraw her USDT, she was unable to do so. INGFX’s ‘customer services’ first required Boonyaem to make significant further transfers purportedly in respect of tax, transfer fees and insurance (which she did), and then made a series of implausible excuses for why the funds could not be transferred.
Realising the fraud, Boonyaem instructed cybersecurity experts, who traced 383,557 USDT of the tokens transferred to identifiable wallet addresses on various cryptocurrency exchanges.[2]
Boonyaem issued proceedings, asserting a proprietary claim against the 383,557 USDT that had been traced and a non-proprietary claim against the balance of tokens that had not been traced. She immediately sought and secured a worldwide proprietary and nonproprietary freezing order and permission for substituted service on the defendants (by Facebook messenger, text and WhatsApp message, and by transferring a non-fungible token to the relevant wallet addresses).
None of the defendants responded to the service of the proceedings. Boonyaem therefore sought summary judgment in respect of her proprietary claims to the traceable proceeds and her claims for deceit, fraudulent misrepresentation and/or unlawful means conspiracy. She also applied for an order continuing the worldwide non-proprietary freezing injunction in support of her non-proprietary claims.
The High Court’s decision
To grant summary judgment in respect of a claim, a court must be satisfied that the defendant has no real prospect of successfully defending that claim. In this case, the court had to be satisfied that:
- Boonyaem had been the subject of a fraudulent scheme to deprive her of her USDT.
- The USDT was property and therefore was subject to equitable rules regarding tracing and recovery of property obtained by fraud.
- The USDT had been correctly traced into the identified wallets.
- Orders sought could properly be made against the defendants.
As to the first point, the judge was satisfied that Boonyaem had been a victim of a fraudulent scheme to deprive her of her USDT.
As to the second point, while the judge acknowledged the ongoing academic dispute as to whether cryptoassets are to be treated as property, he was in no doubt that USDT should be so treated for the following reasons:
- The UK Jurisdiction Taskforce “Legal statement on cryptoassets and smart contracts” concluded that “cryptoassets are … to be treated in principle as property”
- The Law Commissions “Digital Assets: Final Report” concluded that the law of England and Wales treats digital assets “as capable of being things to which personal property rights can relate”
- There is an unbroken line of decisions (albeit on an interim or otherwise uncontested basis) to the effect that cryptoassets are property
- It would be a reproach to the common law were it not capable of affording a remedy to persons in Boonyaem’s position.
The judge noted that USDT, unlike Bitcoin or Ether, is what is known as a “stablecoin”, which is “pegged” to the US Dollar on the basis that Tether promises to redeem USDT on a 1 for 1 basis for US Dollars. In the judge’s view, this made it likely that USDT was properly to be considered as “a thing in action”, i.e., a property right that can be enforced by legal action, rather than by taking physical possession.
As to the third point, the judge held that the reports prepared by the cybersecurity experts provided sufficient evidence to trace the tokens into the identified wallets.
On the basis of the above findings in respect of points one to three, Boonyaem was entitled to orders for delivery up in principle. The final question, therefore, was whether such an order could be made against all the defendants. There was no issue in respect of the third defendant, INGFX Limited, as it was a UK-registered company, which could clearly be the subject of such an order. The issue arose in respect of the first defendants, Persons Unknown Category A (those involved in the scheme to induce the transfer of USDT) and the second defendants, Persons Unknown Category B (those who owned or controlled the identified wallets into which the USDT had been traced).
The judge noted that while English law allows for proceedings to be brought against ‘persons unknown’, they cannot be brought against persons who are not only anonymous but also cannot be identified, such as hit-and-run drivers. This category is in contrast with those who are identifiable but whose names are not known, such as squatters.
The judge went on to note that in fraud cases involving digital assets, the courts have generally taken a pragmatic approach, permitting such actions to be begun against ‘persons unknown’ and then granting freezing and disclosure order to assist in the identification of the fraudsters and location of the stolen assets. This is what happened in this case. However, the disclosure order produced no useful information to assist with the identification of the second defendants – i.e., those involved in the fraudulent scheme to induce Boonyaem to transfer her USDT. This category remained both unknown and unidentifiable.
In contrast, although the second defendants remained unidentified, the judge considered that they fell squarely within the second category – i.e., those who are identifiable – as they were the specific persons or entities who owned or controlled the identified wallets. Notably, the judge stated that he was at first inclined to the view that the claimant should have used the processes of the court to obtain disclosure of the names of those persons or entities but was persuaded that it would not have been reasonable to require the claimant to incur the additional cost of this exercise in light of the comparatively limited amount at issue.
The judge was therefore willing to grant judgment against the second defendants (as identifiable ‘persons unknown’) in respect of Boonyaem’s proprietary claim but was not prepared to grant judgment or continue the freezing injunction against the first defendants as long as they remained unidentifiable. Despite finding that the first defendants were unidentifiable at the time, the judge did not strike out the claim against them but adjourned the balance of the application until such time as the first defendants could be properly identified and the claimant could particularise her loss after the enforcement of her proprietary claim.
Takeaways
This judgment may seem to represent a departure from the line of decision in which the courts have demonstrated a flexibility and willingness to innovate to assist victims of cyber fraud. However, it should not be seen as such: It is legally coherent and entirely practical. A judgment against an unidentifiable category of persons would, of course, have no hope of being enforced and would therefore be entirely meaningless – a waste of both the claimant and court’s time.
The judgment sits comfortably in the line of previous authorities: As well as confirming the treatment of digital assets as property and therefore subject to tracing, the judge showed a degree of flexibility when determining that Boonyaem was not required to undertake an expensive exercise to establish the identities of the entity (or entities) that made up the second defendants prior to applying for judgment. It should be noted, however, that that determination was specific to the facts and the relatively low value of the claim in particular.
[1] [2023] EWHC 3180 (Comm).
[2] None of these exchanges were party to the proceedings.
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