The recent case of Danisz v Persons Unknown and Huobi Global Ltd (T/A Huobi)  is another example of the English Court being willing to support the victims of cryptocurrency fraud and is the latest in a growing body of caselaw showing the High Court’s willingness to enable victims to act in "hot pursuit" (as the English Court has described it) of cryptocurrency fraud. That agility and speed is positioning the English High Court as a global leader in responding to the legal issues arising from cryptocurrency fraud.
Ms Danisz invested approximately £27,000 via a cryptocurrency platform called Matic Markets Ltd (Matic). When she attempted later to withdraw her funds and her profits, her request was refused by Matic. Growing in suspicion, Ms Danisz commissioned an expert report which concluded that – in the words of the Judge – there was “a good arguable case that the Matic operation…is wholly fraudulent and, it seems, run by organised criminals”. Ms Danisz’s expert traced a proportion of her investment to an end wallet on the cryptocurrency exchange Huobi, but was not able to trace the balance of the investment (making recovery of those untraced assets very difficult).
The High Court's Response
The High Court ordered that Ms Danisz should be granted:
- an injunction against both Huobi and persons unknown to prohibit the removal or disposal of the cryptocurrency which had been traced;
- a worldwide freezing injunction against both Huobi and persons unknown to prohibit the disposable or dealing with the traced cryptocurrency;
- a Bankers Trust disclosure order to compel Huobi to disclose payment-related information about the account holders of the end wallet to which Ms Danisz’s cryptocurrency was traced (to enable Ms Danisz to use such information to allow the tracing of the balance of her missing assets); and
- permission to serve the Court’s orders on parties based outside the UK and by email (rather than the other, more formal, methods normally prescribed by the Court) so as to enable swifter service of the Court’s orders to further the need for "hot pursuit".
In terms of practical implications, the Danisz case illustrates that:
- The English Court will (pursuant to the earlier English case of AA v Persons Unknown) treat cryptocurrency as property, capable of being the subject of an injunction;
- Speed is of the essence in cases of cryptocurrency fraud. Where possible, prospective claimants should act quickly to take steps to trace the assets and to take legal action to recover those assets;
- The judge relied on an expert report commissioned by the claimant to help trace the crypto asset, which seems to have been instrumental in demonstrating the mechanics of the fraud and securing the relief granted;
- The English Courts are willing to apply an "old" tool ("Bankers Trust" disclosure orders) to aid victims of "new" type of fraud (ie cryptocurrency fraud), where disclosure can be very helpful in enabling victims to attempt to trace the assets; and
- The English Court is likely to allow Court documents to be served quickly by email where appropriate and expedient, rather than becoming bogged down in the (much slower) more traditional service methods such as post or personal delivery. That seems increasingly likely where, as in this case, there is evidence that the fraudsters are based abroad and there is no certainty that the physical addresses they may have given will actually exist.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, April 2022