Cryptocurrency fraud and Norwich Pharmacal and Bankers Trust relief

Syed Rahman of Rahman Ravelli details a cryptocurrency fraud case that was notable for a UK court granting permission for Norwich Pharmacal and Bankers Trust relief to be served outside of the jurisdiction. 

The case of Mr Dollar Bill Limited v Persons Unknown [2021] EWHC 2718 saw an individual succeed in his application for Norwich Pharmacal and Bankers Trust relief to be served out of the jurisdiction; requiring an exchange to provide disclosure to the applicant.

The applicant had converted £105,000 to Bitcoin using the trading platform Bittrust. The Bitcoin was transferred into a trading account with Bittrust and then reached in excess of a million pounds in fiat currency value, which is alleged to have been a scam. The applicant began correspondence with the Bittrust account handler and requested the withdrawal of money from the account. But Bittrust denied the request, saying the applicant needed to invest more money for various reasons. The applicant was then asked to pay a fee to access funds.

Tracing reports commissioned by the applicant showed that the Bitcoin was transferred between various wallets. Some of these wallets were found to be empty or contain small amounts of cryptocurrency. One traced wallet contained over three Bitcoin, which the applicant argued was his original investment.

Application

An application was made for a proprietary injunction to prevent further dissipation of the Bitcoin, with the applicant saying he had been the victim of fraud by Bittrust. Norwich Pharmacal and Bankers Trust relief were sought to assist in the tracing exercise.

For Norwich Pharmacal relief, an applicant seeks an order to require the third-party exchanges to disclose information as to the identity of the wrongdoer. The applicable legal principles regarding such relief are:

1. A wrong must have been carried out.
2. There must be the need for an order to enable action to be brought against the party that carried out the wrong.
3. The person against whom the order is sought must be involved in or have facilitated the wrongdoing (even innocently) and be able to provide the information necessary to enable the wrongdoer to be identified or sued.

Bankers Trust orders are usually sought against banks holding misappropriated funds or that have had such funds pass through them.  The case of Bankers Trust v Shapira [1980] 1 WLR 1274 (CA) concerned a defrauded claimant’s equitable right to trace their original assets into either the proceeds of sale of the assets or new substituted assets. It was held that the court had the jurisdiction to order a bank to disclose the state of – as well as documents and correspondence relating to - the account of a customer who was, on the face of it, guilty of fraud. It did not matter that the bank itself had not incurred any liability for the fraud. It also does not matter that the bank or platform holds the asset on trust and is not the beneficial owner. 

Distinction

On hearing the application in this latest case, the court drew a distinction between the applicant having mere personal rights against Bittrust - as with a normal banking relationship - and the arguable case that the Bitcoin in the wallet remained the property of the applicant. 

The court considered:

1. If there was a serious issue to be tried in respect of a proprietary injunction.
2. Whether the Bitcoin was a form of property in which a proprietary injunction would lie.
3. Whether damages were an adequate remedy if the injunctive relief was not granted.

The court concluded that:

1. The applicant may have been a victim of Bitcoin fraud and so there was a serious issue to be considered.
2. It had been adequately proved that the Bitcoin was a form of property.
3. Damages would not be an adequate remedy, as it was unclear against whom a damages claim should be brought and there was a real risk of continued dissipation of the Bitcoin if an injunction were not granted.

The court granted the orders against the two exchanges holding the wallets to which the Bitcoin was traced.  Both these exchanges were based outside of the jurisdiction. This meant the court had to consider whether there was good reason for service out of the jurisdiction. The court considered the case of AA v Persons Unknown [2019], where three reasons were provided to justify service outside of the jurisdiction:

• The application is inherently urgent
• The nature of Bitcoin
• The claim is a proprietary claim 

The court found that there was a clear urgency to the application due to the nature of claim and that Bitcoin itself is easily moveable and easily dissipated. The claim itself is also one where an injunction is practicable in that the applicant asserted that he still owned the Bitcoin in question. As a result, the court allowed for service out of the jurisdiction.

Conclusion

The fact that this case saw a successful application made for Norwich Pharmacal and Bankers Trust relief to be served out of the jurisdiction may be of great assistance to others who may, in the future, be seeking information in order to regain what they have lost through cryptocurrency-related wrongdoing.