Author: Syedur Rahman
25 February 2022
2 min read
Having secured the first-ever third party debt order for cryptocurrency, Syed Rahman of Rahman Ravelli outlines the case.
In Ion Science Ltd and Duncan Johns v Persons Unknown, Binance Holdings Limited, Payward Limited and Mirriam Corp LP, the first-ever third party debt order was granted in relation to cryptocurrency.
Third party debt orders are generally a method of enforcement for judgements involving money, as opposed to cryptocurrencies. The granting of the third party debt order in this case – to the value of £2.9 million - enabled victims of crypto-related fraud to recover what is rightfully theirs.
The case was brought after the first claimant was the victim of a cyber-fraud in 2020. This involved the persons unknown transferring a large amount of the cryptocurrency Bitcoin out of the first claimant’s account.
The claimants successfully applied for a proprietary injunction, a freezing injunction and disclosure orders against various cryptocurrency exchanges, including Binance Holdings and Payward Ltd (a subsidiary of Kraken Exchange). The disclosure order led to Payward Ltd disclosing that Mirriam Corp LP was the holder of the now-frozen account that had been used to carry out the fraud. The disclosure also showed there were amounts of both cash and cryptocurrency in that account. The claimants obtained a judgement for £2,935,204.30 against Mirriam Corp after it failed to respond to the claim.
The High Court then made an interim third party debt order relating to a debt owed by Payward to Mirriam Corp. A third-party debt order allows whoever is owed money to take what is owed from whoever currently has the money. In this case, Payward owed money to Mirriam Corp – which was its customer – that could be used to repay the £2,935,204.30 that Miriam Corp owed the claimants under the judgement.
Payward had no objection to the third party debt order, but Mirriam Corp did not respond to the application (just as it had not responded to the original claim for £2,935,204.30). Despite Mirriam Corp’s lack of response, the High Court made the third party debt order final. The judge was satisfied that there was a debt payable from Payward to Mirriam Corp and that Ion Science and Duncan Johns were entitled to have the interim order made final. The court’s ruling ensured the claimants could recover what they had lost in the fraud.
While this case was notable for the use of the third party debt order, it was also significant for a number of other reasons.
It was believed to have been the first time the Commercial Court had heard a fraud case involving an initial coin offering - where finance is raised through the creation of cryptocurrency. It was also the first time that a court had considered the lex situs (location) of Bitcoin to establish jurisdiction.
The case was also the first example of a court granting permission to serve a free-standing Bankers Trust order out of the jurisdiction against cryptocurrency exchanges. Such an order compels a third party (in this case a cryptocurrency exchange) to disclose certain information to the applicant. In AA v Persons Unknown, it was doubted whether this could be done but the Ion Science case confirmed it could be. This is set to be of great use to anyone who is trying to trace and recover assets that they have lost to crypto-related fraud.
The successful application for the third party debt order in this case can be seen as proof that fraud using virtual assets such as Bitcoin is not necessarily a safe haven for bad actors. It demonstrated that assets can be traced and followed no matter what form they take. This new asset class cannot now be viewed as a refuge for fraud and money laundering within the UK financial system.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.