Background

The Applicant was a broker for gold bullion transactions.  He had agreed to broker the purchase of gold bullion whereby he would advance the purchase price to the seller and subsequently be reimbursed by the purchaser.  Unfortunately, the Applicant claimed to be the victim of a crypto address poisoning scam where the scammer produced a near-identical wallet address to the seller’s wallet address which was provided to accommodate the purchase of the gold bullion transaction.  The Applicant advanced tokens as part of the purchase to the scammers wallet and on 3 July 2023 he made 4 payments totaling US$3,065,100.06 worth of cryptocurrency.

While the Applicant acted quickly by alerting the Dubai Police to the alleged theft on 6 July 2023, the tokens had by then already been transferred three times to various wallets.  That was said to be for the purpose of “layering” the stolen tokens.  To protect his position, the Applicant sought and obtained a freezing and disclosure order in the High Court of the Republic of Singapore against Persons Unknown for a proprietary injunction and for disclosure orders against the exchanges through which some of the defrauded tokens had been transmitted.   As a result of the disclosure given in Singapore further wallets were discovered which were suspected to be linked to the fraud.  The Court in Singapore gave the Claimant permission to commence proceedings in the BVI against Persons Unknown and to use the information obtained as a result of the orders in Singapore in BVI proceedings.

BVI court’s approach

The Court’s decision needs to be read with caution, because the judgment was delivered following an ex-parte hearing. However, the Court considered it to be “now well established that cryptocurrency is property”. The Court was content that there are BVI decisions, while some are unreported, that freezing orders can be granted in the jurisdiction in relation to cryptocurrency against persons unknown.

The First Respondent to the application was “Persons Unknown” – the persons alleged to have received the stolen cryptocurrency. The Second and Third Respondents were entirely innocent non-cause of action defendants (NCAD), that merely issued the relevant currency and retained an ability to effectively freeze it.

The relief which was sought against the NCAD was therefore not in the nature of a prohibitory injunction which prevented the NCAD from acting in a particular way, but was of the character of a mandatory injunction requiring the NCAD to take steps to freeze the tokens so that the First Respondent could not make further use of them. The Court was therefore required to consider the law in relation to the grant of a mandatory injunction against a NCAD.

The Court concluded that while the Court has the jurisdiction to grant interim relief in relation to proceedings commenced abroad including against NCAD under Eastern Caribbean Supreme Court (Virgin Islands) (Amendment) Act 2020, section 24A of the Supreme Court Act (Cap. 80), the Court considered that the Second and Third Defendants ability to “freeze” the tokens was analogous to the website blocking injunctions approved by the Privy Council in Broad Idea International Ltd v Convoy Collateral [ 2021] UKPC 24, and that ordering the freeze of the tokens involved the least risk of injustice. As a matter of discretion, the Court was still cognizant of the risk of injustice against the NCAD – particularly in this case where the Second and Third Defendants only had an ability to freeze the tokens in the wallets while having no power to access or block the wallets concerned.

In relation to service, the Court acknowledged, that an Applicant now only needs to show the Court that there is “good reason” (as opposed to showing “impracticability”) in order for the Court to approve service by an alternative means. The BVI Court considered the recent case of D’Aloia v Persons Unknown and Binance Holdings Limited and Others [2022] EWHC 1723 (Ch) and found that the approach taken by Trowers J in the English Courts in approving the alternative service on the defendants by NFT air-drop entirely “logical” and appropriate in this case. The Court therefore ordered that service could take place by both email and by NFT airdrop as it would ensure that service was dealt with “justly, expeditiously, and effectively”.

Comment

The Court’s decision, whilst ex-parte, is significant in that it is likely to provide a template which other claimants will adopt in the future.  It serves as an example of the BVI court’s willingness to adapt to technological innovation and to follow in the footsteps of the courts of England, Hong Kong and Singapore in meeting the challenges arising from service on persons unknown.

The Court did not, however, create new law.  Since the Claimants did not know who Persons Unknown were, or where they were to be found, it is likely that the test for service by an alternative method would have been satisfied under the CPR, even prior to their revision.  Moreover, in permitting service to take place by NFT air-drop the Court was simply following established authority in England.

Perhaps the more noteworthy feature of the decision is one which the Judgment does not address; which is that the Claimants were allowed to proceed ex-parte as against the Second and Third Respondents.  Future claimants should, however, proceed with caution in doing so against respectable third-party issuers and exchanges.  First, Claimants are likely to find that service of a draft order upon an exchange or issuer is likely to be received co-operatively in identifying any technical or other difficulties with the form of the order proposed.  Second, in Piroozzadeh v Persons Unknown and Others [2023] EWHC 1024 the English Court discharged orders made ex-parte, on the basis (amongst others) that there was no material risk of tipping off and that the exchange itself would have taken any steps or permitted any steps to be taken if it was forewarned of the application.

[1] BVIHCCOM 2023/0239

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