English court adds Norwich Pharmacal relief to the weaponry available to victims of international cryptocurrency fraud

In Mr Dollar Bill Limited v Persons Unknown and Others [2021] EWHC 2718 (Ch), the High Court highlighted the range of remedies that the courts are prepared to deploy to assist victims of “crypto-fraud”. Notably in this case, that included Norwich Pharmacal relief against cryptocurrency exchanges located outside of the jurisdiction.

Mr Dollar Bill: summary

Soon after purchasing Bitcoin, via a cryptocurrency trading platform called “Bittrust.net”, the Claimant suspected that it was the victim of a scam perpetrated by those behind Bittrust.net. The Claimant commissioned an asset tracing report which scrutinised the publicly available and immutable digital ledger which constitutes the blockchain itself. The report found evidence showing the chaotic movement of the Claimant’s Bitcoin across several intermediary accounts.

The Claimant successfully sought various remedies, including against the two exchanges who hold the wallets to which a substantial amount of the Bitcoin was traced. The Court granted:

• a propriety injunction restraining the further dissipation of the Bitcoin in the wallets – an order in line with the general consensus that cryptoassets are regarded as property for the purposes of English law; and
• relief requiring the exchanges to assist in determining what has happened to the Claimant’s Bitcoin (so called Bankers Trust and Norwich Pharmacal orders, named after the cases in which they first arose).

We have previously reported on a Bankers Trust order in the crypto-dispute context. However, this case is notable in that a Norwich Pharmacal order (NPO), a similarly valuable remedy for claimants, was ordered against cryptocurrency exchanges located outside of England and Wales.

Norwich Pharmacal orders

A NPO requires a third party to disclose documents or information to the applicant. There are three conditions for the granting of a NPO:

• a wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer;
• there must be the need for an order to enable action to be brought against the ultimate wrongdoer; and
• the person against whom the order is sought must: (a) be mixed up in so as to have facilitated the wrongdoing; and (b) be able or likely to be able to provide the information necessary to enable the ultimate wrongdoer to be sued.

Once these conditions are satisfied, the court will exercise its discretion over whether to grant a NPO. It will only do so where it is a “necessary and proportionate response in all the circumstances” (per Lord Woolf CJ in Ashworth Hospital Authority v MGN Ltd [2002] UKHL 29).

A NPO is an important tool for claimants seeking to gather crucial information in order to follow their cryptoassets and thereby facilitate redress relating to the alleged fraud. Whilst this judgment concerned an uncontested application, the potential for NPOs to be ordered against cryptocurrency exchanges based outside the jurisdiction is of significant interest.

Jurisdiction

Previous cases have decided that a NPO cannot be served on a respondent based outside the jurisdiction on the basis that none of the jurisdictional “gateways” for service out of the jurisdiction apply. In AB Bank Limited v Abu Dhabi Commercial Bank PJSC [2016] EWHC 2082, the Court refused a NPO on bases which are applicable to the present case, namely: (a) a NPO is not an interim remedy as it represents final relief against the respondent; (b) the respondent is not a necessary or proper party as it is not anticipated that the respondent will go on to be a defendant in the main action; and (c) the NPO is not seeking to require or refrain an act being done in this jurisdiction. The court followed this approach in Fetch.ai Ltd v Persons Unknown [2021] EWHC 2254 in the crypto-dispute context. In AA v Persons Unknown [2019] EWHC 3556 (Comm), the Court also raised more general concerns with requiring non-English entities to provide information pursuant to an order made in English proceedings to which they are not a party.

In granting the NPO, the judge in this case did not fully explain his reasons for permitting the order to be served on a respondent based outside the jurisdiction. Therefore, in light of previous cases, this issue is likely to be subject to more detailed consideration in the future and may receive greater scrutiny when a contested application comes before the Court.

English courts: a leading forum for crypto-disputes

Cryptocurrency trading is an inherently decentralised form of commerce and consequently, when it interacts with national courts, legal difficulties emerge. The courts are evolving to meet the unique demands of crypto-disputes and to assist claimants facing novel challenges in this developing area of law.

Information gathering is vital for claimants in crypto-disputes as the high degree of secrecy provided by cryptoassets presents difficulties in relation to identifying the wrongdoer and the location of misappropriated assets. This judgment further exemplifies the English court’s developing status as the leading centre for global crypto-disputes and its willingness to expand the tools available to the victims of crypto-fraud.