Crypto fraud victim
wins court order against exchange
In Jones v (1) Persons Unknown(note 1), (2) Persons Unknow (note 2), (3) Persons Unknown(note 3), and (4) Huobi Global Limited, a summary judgment was entered in favour of a victim of a large-scale cyber fraud who had been persuaded to transfer 89.61616088 Bitcoins to a fake crypto investment platform. A delivery-up order was made against Huobi Global Limited, a cryptocurrency trading exchange as a constructive trustee of the claimant’s Bitcoins. Further, the High Court of England held that it was appropriate to serve the order granting summary judgment by way of an airdrop of a NFT into Huobi Global Limited’s wallet.
The claimant made various applications as a victim of a large-scale cyber fraud perpetrated by a group online cyber criminals located outside England. The fraud targeted individuals through a website, which is a fake crypto investment company promising high returns and persuading clients to set up cryptocurrency accounts on Extick Pro, a platform and to transfer cryptocurrency to the online trading platform (“EP platform”). In January 2019, the claimant responded to an online advertisement on the trading platform and opened an online account with the platform subsequently.
The claimant acquired 89.61616088 Bitcoins from three cryptocurrency exchanges and then transferred to the EP platform. Trades were made on the EP platform, but the claimant did not operate the funds, and the trades were made by so-called representative of the EP platform. The EP platform shown that the trade had occurred and appeared to show large profits accruing in the claimant’s account. However, it appeared that none of the trades actually took place.
The claimant attempted to, but failed to withdraw funds from his account at the EP platform. The persons operated the EP platform subsequently took control of the Bitcoins and dissipated the funds across the Bitcoin blockchain.
Actions taken by the claimant
Through his advisers, the claimant was able to able to identify the wallet deposit address for the wallet with Huobi Global Limited, a cryptocurrency trading exchange registered in the Seychelles.
The claimant previously obtained a without notice worldwide freezing injunction against the first and second defendants as the unknown fraudsters, and a proprietary injunction against the fraudsters and the fourth defendant.
The claimant brought proceedings against the first and second defendants for deceit and unjust enrichment, and against the fourth defendant as constructive trustee of his Bitcoin. Neither the first and second defendants nor the fourth defendant had engaged in the litigation. The claimant applied for summary judgment against the first and second defendants, and the fourth defendant, an order for delivery-up of his Bitcoins against the fourth defendant, continuation of the interim proprietary and non-proprietary injunctions, and a final proprietary injunction preventing the disposal of his Bitcoin. He sought permission to serve the order out of the jurisdiction on the fraudsters and the fourth defendant on the basis that his causes of action were sufficient to establish that the relevant gateways had been satisfied. He also sought permission for service by alternative means against the fraudsters and the fourth defendant, by way of an air-drop of a non-fungible token into the fourth defendant’s wallet.
The Court held that the claimant was entitled to judgment against the first and second defendants for deceit and unjust enrichment, such that he was entitled to the return of the Bitcoin or their equivalent. The claims against the Huobi Global Limited as constructive trustee was also held in favour of the claimant: it was the controller of the wallet into which the Bitcoin was paid and there was no evidence that either the fourth defendant or any other party had any proprietary interest in respect of the claimant’s Bitcoin which would override his own interest in it.
This judgment from the High Court of England and Wales serves as a good reference that in exceptional circumstances (in particular, where it is not known where or who the fraudsters were, and no jurisdiction was able to be identified), one should consider arguing that traditional means of service would be ineffective, and hence an order should be sought for alternative services, such as service by email, by whatsapp, or by way of the NFT. Furthermore, if service via traditional means would be too slow to protect one’s interests (in this case, service to Huobi Global Limited pursuant to Hague Convention was considered to be too slow), an order for alternative services should be considered.
Let us know if you have any questions about the issues raised in this article.
Alfred Leung, partner (email@example.com)
- being the individuals or companies who obtained access to the applicant’s BTC accounts and carried out the transactions, as a result of which the crypto currencies held in those accounts were transferred to other accounts.
- being the individuals or companies who own or control the accounts into which the BTC were transferred other than purchasers for full value.
- being the individuals or companies who are innocent receivers who have no reasonable grounds for thinking that what has happened in their account belongs to the claimant.