– The latest in a line of interim application judgments demonstrates the flexibility and innovation of the English courts when it comes to disputes concerning digital assets.
– The factual matrix may sound familiar: the Claimant was duped into transferring stablecoins (USDT and USDC) into digital wallets of persons unknown believing he was depositing them into a bona fide online trading platform.
– Months later, the stablecoins had disappeared and his account was empty.
– The Claimant engaged a blockchain intelligence expert to trace the stablecoins into digital wallets held on a number of crypto exchanges.
– The High Court proceedings mark the tangible start of the Claimants journey to try to recover them.
– The Claimant relies on a number of causes of action in the proceedings:
– Against the scammers (Persons Unknown): claims in fraudulent misrepresentation, deceit, unlawful means conspiracy, unjust enrichment, and constructive trust; and
– Against the crypto exchanges: claims in constructive trust – on the basis that the Claimant has proprietary rights in crypto assets held in digital wallets controlled by the exchanges.
– There are serious issues to be tried against: (i) the persons unknown, on the basis they misappropriated the Claimants crypto assets; and (ii) the crypto exchanges, since they control the wallets into which the stolen assets have been traced and, once on notice of the Courts Orders, may be subject to the duties of a constructive trustee in respect of those assets.
– The English Court has jurisdiction, on the basis that:
– Per the decision in Ion Science v Persons Unknown there is a good arguable case that the lex situs of a crypto asset is the place of domicile of its owner;
– The Claimant is domiciled in England, and the stablecoins misappropriated from him were thus located in England; and
– The damage occurred in England, when the assets were misappropriated.
– All of the Defendants appear to be located outside of England and Wales.
– The relevant crypto exchanges are located in Panama, Cayman Islands, Seychelles and Thailand and, although the Claimant does not know the location of the Persons Unknown, it is likely they too are outside the jurisdiction.
– England is the most appropriate jurisdiction on the basis that the Claimant is domiciled in England, the assets were located in England at the relevant time, and the Claimant was defrauded in England.
– There are a number of gateways available under Practice Direction 6B to the Civil Procedure Rules, enabling the English Court to exercise jurisdiction over foreign defendants where the dispute has a sufficient connection with England, including:
– Gateway 9 (claims in tort), satisfied in this case because damage was caused by an act in the jurisdiction;