English court orders crypto exchange to transfer assets into England and Wales to facilitate enforcement of judgment

The English High Court has ordered a cryptocurrency exchange (Huobi) to transfer into the jurisdiction a defendant's cryptocurrency held outside the jurisdiction to facilitate the claimant's efforts to enforce its judgment against those assets. Under the court's order, the cryptocurrency is first to be converted into fiat currency and then transferred to the Court Funds Office, either directly or via the claimant's solicitors: Joseph Keen Shing Law v Persons Unknown & Huobi Global Limited.

Huobi neither consented to nor opposed the order. The court held that exceptional circumstances warranted such an order, noting that even though the exchange was cooperating with the claimant to prevent the other defendants (who had defrauded the claimant) from accessing their accounts, the situation could change to the claimant's detriment and the court would have no control over Huobi as it was based outside England and Wales.

This decision (from January this year but only recently published) predates Piroozzadeh v Persons Unknown and Others [2023] EWHC 1024 (Ch) (which we have commented on here), in which the High Court discharged an interim proprietary injunction against cryptocurrency exchange Binance which had required it to preserve cryptocurrency that the claimant (the alleged victim of a fraud) claimed to be able to trace to the exchange.

Conversely, in this case, the claimant did not seek an injunction against the exchange, but rather an order seeking the transfer of the cryptocurrency it held, in an overseas account, into the jurisdiction and the court's control. It is significant that in this case, unlike in Piroozzadeh, the claimant already had the benefit of a judgment against the fraudsters, albeit by default. While the court in this case adopted a highly claimant friendly approach, ultimately the effectiveness of such an approach against a cryptocurrency exchange located outside the court's jurisdiction will rely on the exchange's willingness to cooperate.

Background

The claimant had obtained a worldwide freezing injunction against the first three defendants in relation to cryptoassets contained in two accounts maintained by the fourth defendant, Huobi Global Limited (Huobi), in an offshore jurisdiction.

The claimant sought an order transferring the cryptoassets into England and Wales so as to facilitate enforcement of its judgments against the first three defendants. The court noted that the funds in the first account were the subject of a proprietary claim. The first three defendants had not participated in the litigation, and the court considered that no real issue arose, other than the extraterritorial element, in ordering that the money be transferred back to the claimant.

In respect of the second account, the claimant's counsel acknowledged that there were difficulties in maintaining a strictly proprietary claim to the funds in that account, but the claimant had obtained judgment in default for his personal causes of action in relation to the losses. The account was plainly controlled by the defendants responsible for the fraud and the claimant would be able to enforce a monetary order if the accounts were maintained in England.

While the other defendants did not participate in the litigation, Huobi was aware of the application and cooperated with the claimant and its solicitors. It neither consented to nor opposed the order sought by the claimant.

Decision

The High Court ordered that the cryptocurrency held in the relevant accounts be converted to fiat currency and transferred into England and Wales and into the Court Funds Office either directly or through the claimant's solicitors. The claimant could then apply under CPR 72.10 for an order that the money be transferred out in satisfaction of his judgments.

Governing principles

The court acknowledged that the circumstances in which a court will order funds subject to a worldwide freezing order to be transferred into the jurisdiction are generally limited, as it is assumed defendants will comply with the order. In this instance, while Huobi was cooperating with the claimant and denying the other defendants access to the relevant accounts, that state of affairs might not continue and the court would not have control over the defendants since they are based outside the jurisdiction. These circumstances warranted an exception to be made.

The court referred to a number of principles identified in Gee on Commercial Injunctions as applicable when considering whether to make an order involving the transfer of assets which are subject to a worldwide freezing order into more direct control by the court.

First, in relation to the claimant having to "…show by clear evidence that the defendant is likely, unless restrained by order, to dispose or deal with the assets so as to deprive the claimant of the fruits of any judgment that may be obtained", the judge noted that this rang true in the context of a pre- rather than post-judgment freezing order. A judgment had been entered in this case and English courts are strongly inclined to enforce judgments entered by the court. Further, the claimant had already obtained a worldwide freezing order, presumably after satisfying this test.

Second, given the judgments entered in this case, the judge did not consider it to be in dispute that there was "….some evidence or inference that the property was acquired by the defendant as the result of alleged wrongdoing". Again, this was more apt to a pre- rather than post-judgment order.

Third, Gee suggests that the order needs to clearly specify what is being transferred, and the court was satisfied in respect of this limb.

Fourth, "…an order for delivery up should generally not be made to anyone other than the claimant’s solicitor or a receiver appointed by the High Court, and the court should appoint a receiver unless satisfied that the claimant’s solicitors have or can arrange suitable safe custody for what is being delivered".  As this case was concerned with the delivery up of cash or its equivalent rather than assets, and the sums involved were modest, the court considered that appointment of a receiver would not be appropriate as professional fees would erode the sums available for potential execution.

Finally, Gee suggests that the court may order delivery up of cash to be paid into either a blocked account or into court. The judge was satisfied that paying sums into court rather than a blocked account was appropriate, given the objective was to seek to enforce the personal judgments made in favour of the claimant against the sums sought to be transferred. The procedure of payment into court was likely to be more straightforward.

Conversion of the cryptocurrency into fiat currency

The court suggested two possible routes for conversion of the cryptocurrency. The first was by Huobi, which could then credit the sums to the claimant’s solicitors. Alternatively, Huobi could credit the cryptocurrency held in the relevant accounts to a cryptocurrency account maintained by the claimant’s solicitors, who could then convert it into fiat currency, and transfer the fiat currency to the client account or to the Court Funds Office direct.

Potential failure of the CPR 72.10 application

Given that the order involved the transfer of assets which belonged, on the face of it, to the defendants, the judge considered the possibility of an application under CPR 72.10 failing. In such a case, it would be necessary for the funds to be transferred back to the defendants. The costs of converting the cryptocurrency to fiat currency and converting back to crypto, as well as "other additional and incidental costs", would need to be met. The court also required the claimant to provide a cross-undertaking in damages if any part of the court's order came to be set aside.