English High Court grants summary judgment in cryptoasset fraud claim

08.12.2022

Background

Mr Jones was the victim of a large-scale cyber fraud perpetrated by a group of online cyber criminals located overseas. The fraudsters targeted inpiduals through a fake crypto investment company promising high returns and persuading clients to set up cryptocurrency accounts and to transfer cryptocurrency to this fake online trading platform.

Having responded to an online advertisement, Mr Jones opened an account on the fake platform and invested a total of £480,206 purchasing Bitcoin from three exchanges between 22 January 2019 and 10 January 2020, which he transferred to the fake platform. These funds were subsequently dissipated across the blockchain by the fraudsters.

The High Court had earlier this year granted a worldwide freezing injunction against the First Defendant and Second Defendant and a proprietary injunction against the First Defendant, Second Defendant, and Huobi, was included as a party to ensure it could freeze the relevant accounts.

Claims against the First Defendant and Second Defendant were then brought (with Huobi included as a defendant) and, following the deadline having passed for any defendant to file a Defence, Mr Jones applied for summary judgment and for an order for Huobi, as a constructive trustee, to deliver up the Bitcoin which was in an account with Huobi.

Mr Jones also sought to extend the freezing injunctions and proprietary injunctions which had previously been granted, in order to prevent further dissipation of his funds.

Permission was also sought to serve the order out of the jurisdiction on the First Defendant, Second Defendant and Huobi. Mr Jones also sought permission to serve the order by way of air-dropping a non-fungible token (“NFT”) into the wallet contained on the Huobi Exchange that was held by the inpiduals connected with the fraud.

Summary Judgment

As none of the defendants had sought to enter any evidence before the Court in rebuttal of the evidence provided by Mr Jones, the Court held that:

  • Mr Jones was entitled to summary judgment against the First and Second Defendant for deceit an unjust enrichment, such that he was entitled to the return of the Bitcoin that he had previously transferred to the First Defendant.
  • Huobi were to be considered a constructive trustee against Mr Jones, as it was Huobi who was the controller of the wallet into which the Bitcoin was apparently paid.
  • Mr Jones was entitled to an order for delivery up of his Bitcoin.
  • Mr Jones was entitled to a continuation of the proprietary injunction and worldwide freezing order on a final basis. In doing so, the Court held that there was sufficient authority under English case law that the Bitcoin was to be treated as property. For further information on the Court treating cryptocurrency as property, please click here.

Service

Permission was provided by the Court for Mr Jones to serve the order overseas. In giving his judgment, the judge outlined that he was satisfied that Gateways 9 (tort) and 16 (unjust enrichment) were available to Mr Jones to serve on the First and Second Defendants. Separately, the court also held that Gateway 15 was available to Mr Jones for service on Huobi, as the claim was brought against Huobi as a constructive trustee.

Finally, the Court also granted permission for service by way of email and NFT airdrop, following the judgment provided in D’Aloia v Persons Unknown & Others (for our article on this case, please click here).

Comment

The decision helps establish that victims of crypto fraud will be able to get final determinative decisions from the English court.

Case reference: Gary Jones v Persons Unknown & Ors [2022] EWHC 2543 (Comm)