When it comes to crypto claims, victims will have a proprietary right to chase their stolen property and, as such, relief will almost certainly not be limited to damages.
This sphere is evolving rapidly and it is probable that aspects of these developments in common law will be refined in legislation in this jurisdiction and elsewhere in the coming years.
Cryptocurrency Regulation Overview
The volume of crypto transactions grew by 550% in 2021, which is indicative of the rapid expansion of the market. However, alongside this, the level of crypto crime hit $14 billion according to a report by Chainanalysis. It is, therefore, unsurprising that the Financial Conduct Authority has labelled cryptoassets as ‘very high risk, speculative investments’. This is undoubtedly due to the fact that regulation in this area is still in its infancy.
However, the need for robust protection by law is paramount and the recent proactivity of the courts is evidence of this. Indeed, more recent developments underscore that important progress is being made for victims of crypto crime.
Crypto assets as a form of property in the UK
In 2018, Mr Justice Birss granted the world’s first freezing order on cryptoassets. Yet, two more recent cases evidence the courts’ likely line of attack and highlight other remedies available to victims of cryptocurrency fraud: Fetch.ai Ltd and another v Persons Unknown and others [2021] EWHC 2254 (Comm) and Ion Science Limited and another v (1) Persons Unknown, (2) Binance Holdings Limited and (3) Payment Ventures Inc (unreported) 21 December 2020 (Commercial Court).
Their judgments boast three key takeaways. Firstly, the courts’ recognition of cryptoassets as a form of property under English law, following the decision in AA v Persons Unknown [2019] EWHC 3556. Secondly, the courts’ demonstrable willingness to grant remedies against ‘persons unknown’. Thirdly, the willingness of the courts to grant information orders against cryptocurrency exchanges, even when they are located outside of the jurisdiction. This means that a cryptocurrency exchange would be required to disclose certain confidential information relating to the cryptoassets in question.
The practical implications on Crypto Claims
The use of injunctive orders against ‘persons unknown’ has allowed for relief for victims who are chasing a defendant whose anonymity remains intact; this is a common problem with stolen cryptoassets and, therefore, a huge development.
In Fetch.ai Ltd, the court’s narrow definition of ‘persons unknown’ highlighted its cautious and scrupulous approach.
The definition was split into three categories:
- Persons directly involved in the fraud;
- Persons who were in receipt of assets but who had not paid their full market value; and
- Innocent receivers.
The third and final category serves to limit the scope and protect those receivers who did not know or could not reasonably have known that the assets belonged to the claimants.
In Ion Science, a proprietary injunction was sought to stop fraudsters dealing with the assets until resolution at trial. Additionally, a worldwide freezing order was granted in light of the significant risk of dissipation.
However, the court also granted a Bankers Trust order against the crypto exchanges; this disclosure order compelled the exchanges to disclose confidential information to help with the identification of the alleged fraudsters.
It is, therefore, clear that the English courts are becoming well versed in crypto claims and are effective in their application of current legal frameworks in order to assist victims in their recovery of cryptoassets.
This article first appeared on Lexology. You can find the original version here.
