High Court orders transfer of cryptoassets into England and Wales to allow for enforcement of judgment against fraudsters

The High Court of England and Wales has ordered Huobi Global Limited (“Huobi”), the operator of the cryptocurrency exchange involved in the litigation, to transfer into England and Wales cryptoassets held by Defendants based outside of the jurisdiction to allow the Claimant to enforce judgments it had obtained against those assets.

The judgment of Judge Pelling KC in the High Court case of Joseph Keen Shing Law v Persons Unknown & Huobi Global Limited (unreported, 26 January 2023) was initially the subject of reporting restrictions. Those restrictions have now been lifted and we provide our commentary on the judgment below.

Background

The claim involved an application for orders related to freezing relief and the transfer of funds held in two cryptocurrency accounts. The funds held in these accounts were offshore and were maintained by the fourth Defendant, Huobi.

A worldwide freezing order had previously been granted offshore against the first three Defendants in relation to the two accounts and the Claimant had also obtained default judgments for his claims against the first three Defendants. Accordingly, the Claimant sought an order to transfer the cryptoassets into the jurisdiction of England and Wales to allow the enforcement of those judgments.

The Defendants, except for Huobi, did not appear or participate in the litigation. Huobi, was aware of the application and had cooperated to some extent, although they neither consented nor opposed the proposed order.

There was overwhelming evidence that suggested that funds credited to the first account had been derived from fraud against the Claimant. The Claimant asserted a proprietary claim to those funds. It was clear to the Court that, save for extraterritorial aspects, no real issue arose in relation to that proprietary claim as the first three Defendants had not participated in the litigation. As the funds in this account were held by Huobi, who had signalled an intention to cooperate with any order the English Court made, there was no need for the Court to consider the claim in relation to the first account any further.

The second account held a significantly larger sum of cryptocurrency, believed to be the proceeds of the fraud. While maintaining a proprietary claim to these funds was acknowledged as being challenging, the Claimant had obtained default judgments related to the losses suffered. Therefore, as the second account was evidently controlled by the Defendants responsible for the fraud, it was held that the Claimant would have an ability to enforce a monetary order if the accounts were maintained in England.

Claimant’s Counsel therefore sought an order from the High Court which fundamentally involved three stages:

1. Converting the cryptocurrency held in the relevant account to fiat currency;
2. Transferring that fiat currency to England and Wales; and
3. Paying into the Court Funds Office either directly or through the Claimant’s solicitors.

Should this be granted, the Claimant would then be able to apply under CPR 72.10 for an order that the money be transferred to him.

Decision

Judge Pelling KC granted the order sought by Claimant’s counsel, in principle, making a number of minor amendments.

Transfer of funds to England and Wales:

The Court acknowledged that the circumstances in which a Court will order the transfer of funds the subject of a worldwide freezing order into England and Wales are generally limited because the assumption which underlies the making of a worldwide freezing order is that the Defendants concerned will comply with the order. Here however, whilst Huobi was currently denying the other Defendants access to the account, there was no guarantee that this situation would not change. The Court also noted its lack of control over any of the Defendants as they were based outside of the jurisdiction. Accordingly, the Court was satisfied that this claim merited an exception to be made and that it was appropriate to transfer the funds in the account to England and Wales.

How to deal with the funds:

The Court then turned to considering how to deal with the funds and held that the most satisfactory solution would be for the funds to be paid into the Court Funds Office to enable an application by the Claimant for an order to be made under CPR 72.10 for execution against those sums.

In arriving at this conclusion, Judge Pelling referred to a series of principles identified in Gee on Commercial Injunctions to be applied when considering whether to make an order involving the transfer of assets which are otherwise the subject of a worldwide freezing order into the control of the Court:

1. Likelihood of disposal or dealing with assets: The Claimant must provide clear evidence that the Defendant is likely to dispose or deal with the assets to deprive the Claimant of the fruits of any judgment that may be obtained. This principle primarily applies to pre-judgment freezing orders and emphasizes the need to establish a risk of dissipation. Here, the Court noted the strong policy of English Law to enforce judgments entered by the Court in favour of Claimants, as was the case in this claim.
2. Acquisition of property through alleged wrongdoing: The Court should be cautious in making a delivery-up order unless there is evidence or inference that the property in question was acquired by the Defendant as a result of alleged wrongdoing. This principle was considered again to be more concerned with pre-judgment rather than post-judgment orders and therefore it was held that the principle could not seriously be in dispute in the present claim as judgment had already been entered in favour of the Claimant.
3. What is being transferred is to be clearly specified: In this instance, the Court was satisfied that this limb had been clearly complied with.
4. Delivery-up to Claimant's solicitor or receiver: Generally, an order for delivery-up should be made to the Claimant's solicitor or a receiver appointed by the High Court. Here, Judge Pelling held that he was satisfied that the proposed payment more than adequately protected the fund because the Claimant’s solicitors had undertaken to receive the cryptocurrency or its fiat equivalent and hold those funds to the order of the Court, save for the purpose of paying the sums into the Court funds office. The Court also considered that the appointment of a receiver would be disproportionate to the modest sums involved in the claim.
5. Delivery up of cash may be paid into blocked account or Court: Here, the Court held that payment into Court was likely to be far more straightforward than payment into the blocked account, particularly as the Defendants had not engaged in the litigation in any way.

The Court was therefore satisfied that the order sought by Claimant’s counsel was appropriate and that the cryptocurrency held in the relevant account should be converted to fiat currency by one of two routes:

1. By Huobi, who would then be required to credit the sums to the Claimant’s solicitors.
2. By Huobi crediting the cryptocurrency to a cryptocurrency account held by the Claimant’s solicitors, who will then convert it into fiat currency and transfer the fiat currency to the client account or directly to the Court Funds Office.

What happens if the CPR 72.10 application were to fail:

As the order involved the transfer of assets belonging to, at least on the face of it, the Defendants, there remains a possibility that any application under CPR 72.10 would fail. As such, the Court considered the likely impact of such a failure and outlined that, if this were to occur, the funds would need to be transferred back to the Defendants. Here, the Claimant would need to cover the costs of converting the fiat currency back to crypto as well as any “other additional and incidental costs”. Finally, Judge Pelling ordered that the Claimant provide a cross-undertaking in damages in case any part of the order were to unravel.

Comment

This case underlines the Court’s continued willingness to assist victims of crypto-asset fraud where possible.