Into the future: Court gave short shrift to crypto fraudsters by ruling constructive trust existence
The recent High Court decision in Jones v Persons Unknown  EWHC 2543 (Comm) highlights the English court’s ability to deal with crypto fraud in novel ways, including the imposition of a constructive trust between an individual and a cryptocurrency exchange platform, and permitting service by way of NFT air drop.
The claimant, Gary Jones, was the victim of a fraud perpetrated by cyber criminals located overseas. He held around 90 Bitcoin (worth approximately £1.5m at the date of judgment), which he transferred to a crypto investment vehicle known as Extick Pro. Extick proved to be a fake investment company operated by the fraudsters. Mr Jones authorised various trades through a representative of Extick. It transpired, however, that the trades were non-existent; the fraudsters were using remote desktop software to make it appear as though the trades had occurred, and that Mr Jones had made a significant profit as a result.
After many unsuccessful attempts to withdraw his money, Mr Jones instructed lawyers and investigators to attempt to recover it. He learned that his Bitcoin had been transferred to a wallet on the Huobi Exchange, owned by Huobi Global Limited. He issued proceedings against the (unknown) fraudsters for deceit and unjust enrichment and against Huobi as constructive trustee for the return of his Bitcoin and obtained a worldwide freezing injunction and proprietary injunction against them.
The defendants did not engage in the litigation and Mr Jones applied for summary judgment and a delivery up order against Huobi. During the summary judgment hearing, the judge noted that despite the freezing order, the quantity of Bitcoin in the Huobi wallet had decreased.
The Court was satisfied that the test for summary judgment had been met. The defendants had not adduced any evidence to rebut Mr Jones’s allegations and the Court was satisfied that Mr Jones’s evidence was “compelling and sufficient to establish each of the claims”.
The Court was also satisfied that Huobi was a constructive trustee of Mr Jones’s Bitcoin, because it controlled the wallet holding the stolen Bitcoin and there was no evidence that Huobi had “any proprietary interest in respect of the claimant's Bitcoin, which would override the claimant's beneficial interest in that Bitcoin”.
The Court also considered that there is sufficient authority in English case law to treat Bitcoin as property, referring to the decision in AA v. Persons Unknown  EWHC 3556 (Comm). We have produced several earlier perspective on how the English courts have previously dealt with this question.
The Court accordingly held that Mr Jones was entitled to an order for delivery up of his Bitcoin and extended the freezing and proprietary injunctions to prevent disposal of the Bitcoin.
The final question was service of the orders. The Court granted permission for service out of the jurisdiction pursuant to CPR 6.38. It also made an order for alternative service, finding that this was “an exceptional case” where traditional means of service were likely to be ineffective and granting Mr Jones permission to serve by email and by NFT air drop (following an earlier decision in which the court had also allowed service by these means).
The finding that a claimant’s assets were held on constructive trust by a crypto platform is a particularly helpful authority for victims of crypto fraud. In many cases they do not know of the identity or location of the fraudsters but may be able to trace their stolen cryptocurrency to a particular wallet. The ability to argue for a constructive trust gives them an extra tool in their efforts to recover their assets.