As the digital bites settle on a turbulent 2022, Roman Kubiak discusses what he sees as the top five legal cases in the crypto and digital asset space of 2022.
High Court recognises existence of constructive trust as between cryptocurrency platform and victim of crypto scam
Hot off the heels of D’Aloia came Jones v. Persons Unknown where the court went beyond merely suggesting that there may be a constructive trust which would permit use of a service “gateway” to formally declaring that a constructive trust existed and ordering the crypto trading platform to transfer the stolen assets.
In this case the claimant, Gary Jones, was conned into “investing” c.£450,000 to fund the purchase of Bitcoin with what turned out to be a fraudulent cryptocurrency investment website, ExTick Pro.
Those investments amounted to nearly 90 Bitcoin, worth approximately £1.5m by the time Mr Jones discovered he had been the victim of a scam when he attempted to withdraw his Bitcoin.
After a number of failed attempts to withdraw his investment, Mr Jones issued proceedings against the so-called persons unknown for deceit and unjust enrichment, and against Huobi Global Limited, the Seychelles based crypto exchange to which a wallet holding the stolen Bitcoin was traced, on the basis that, he argued, it held the stolen Bitcoin as “constructive trustee” for him. In relation to this point, Mr Jones also relied on the now well-settled authority first laid out in AA v. Persons Unknown  EWHC 3556 (Comm) that cryptocurrency is a form of property and so can be subject to appropriate proprietary remedies.
While Mr Jones successfully obtained freezing injunctions against both the persons unknown and Huobi, neither engaged with the litigation and so he sought, and obtained, summary judgment. The High Court permitted service of the subsequent order by NFT.
In finding for Mr Jones, the High Court therefore held that:
- Huobi held the Bitcoin as constructive trustee for Mr Jones;
- that Bitcoin should be delivered up to Mr Jones; and
- a further 8 Bitcoin should be transferred from the wallet to Mr Jones in relation to Mr Jones’s legal costs in recovering the Bitcoin.
The case marks a significant turning point in crypto litigation, highlighting that victims of crypto fraud can not only pursue claims though the courts of England and Wales but, crucially, can recover their stolen crypto assets as well as their legal costs.
That, however, was not the last time that Huobi would hit the legal headlines as we turn to a case where a cryptocurrency exchange was also the one suing.
The fourth case I will talk about is LMN v. Bitflyer Holdings Inc. and others  EWHC 2954 (Comm), where the Court permits service out of jurisdiction under new service gateway and clarifies position of Norwich Pharmacal orders when serving abroad.