William Dooley
Senior Associate Solicitor
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Date Published:25 Aug 2021 Last Updated:22 Sep 2021

Does English law apply to your crypto-asset dispute?

Banking & Finance Litigation

In Ion Science Limited v Persons Unknown and others (unreported), 21 December 2020 (Commercial Court), the Commercial Court granted a proprietary injunction, worldwide freezing order and ancillary disclosure order against persons unknown, along with a Bankers Trust order against the parent companies of two cryptocurrency exchanges, in a cryptocurrency Initial Coin Offering (“ICO”) fraud claim. The court provided a further groundbreaking decision on crypto-assets, by indicating that the law applicable to a crypto-asset is the law of the place where its owner is domiciled.

Background:

Over the period February 2020 to October 2020, Ion Science Limited, a manufacturer of gas and leak detectors, and its owner, Duncan Johns (“Mr Johns”) were induced by persons unknown (linked to a Swiss entity, Neo Capital) to transfer £577,002 in the form of some 64.35 Bitcoin in the belief that they were making investments in real cryptocurrency products. Mr Johns discovered that Neo Capital did not appear on the Swiss version of the Companies House register, that the Swiss financial services regulator had issued a warning that it may be providing unauthorised services, and that it had no presence online beyond a website.

Mr Johns had been approached by a Mrs Marilyn Black (“Mrs Black”) from Neo Capital, who persuaded him to make a small investment in two genuine cryptocurrencies, Ethereum and Dimecoin. These investments were successful, producing a £15,000 return. The success of this investment persuaded Mr Johns to invest in two ICOs, Uvexo and Oileum, via funds obtained from his company. In both cases, he allowed Mrs Black access to his computer and money was transferred from his personal bank account to his Coinbase account, which was converted into Bitcoin by Mrs Black. The resulting Bitcoin were transferred purportedly to Uvexo and Oileum. A few months later, Mrs Black informed Mr Johns that profits from Oileum in the region of £15 million were due to him, but that commission needed to be paid to release the profits. Mr Johns again granted Ms Black remote access to his computer and between 14 and 16 September 2020 a total of £250,000 in the form of 29.083 Bitcoin were transferred by Mrs Black, supposedly into an escrow account for the commission payment.

Neither of  Ion Science Limited or Mr Johns had transferred any further sums, neither had been paid any part of the profits supposedly made in relation to the Oileum ICO and neither had received back any of the funds which were invested.

Jurisdiction Against Person Unknown:

As Ion Science Limited or Mr Johns did not know where the respondents were located, they were seeking permission to serve out of the jurisdiction on the basis that they may not be present or domiciled in England and Wales. The court was satisfied that there was a serious issue to be tried for the claims being brought in deceit, unlawful means conspiracy and by way of an equitable proprietary claim. The Court also considered that there was an arguable case that the tort claims fell within Practice Direction 6B paragraph 3.1 (9) as the damage was sustained within the jurisdiction, or as a result of acts committed within the jurisdiction – namely the representations to Mr Johns, the transfer of funds and the granting of remote access to Mr John’s computer in England.

The equitable proprietary claim was deemed to fall within Practice Direction 6B paragraph 3.1 (15) on the basis that the claim related to assets which were held in the jurisdiction of England and Wales.

The judge noted that it was difficult to identify another forum in relation to persons unknown. In addition, Ion Science Limited and Mr Johns were domiciled in England and Wales, the relevant funds were transferred from there, the Bitcoin are or were located there, the applicants’ witnesses were there and the documents were in English. Therefore, the judge was satisfied that the courts of England and Wales were the proper forum for the trial of the claims.

Conclusion

This is an important decision in the emerging case law on cryptocurrencies. Of particular notice is the court’s guidance and conclusion on jurisdiction and the fact that the law applicable to a crypto-asset can be the law of the place where the person or company who owns it is domiciled or registered. The ICO ecosystem, and more broadly cryptocurrencies, are largely unregulated and this creates opportunities for criminals to defraud investors through different mechanisms, notably by promising attractive but unrealistic returns. Therefore, before investing through an ICO, it is sensible to obtain advice from specialists located in England and Wales.

How Can Ellis Jones Help?

Ellis Jones’ Banking & Finance Litigation solicitors have specialist knowledge and expertise across a broad range of finance and banking related matters. If you feel you need any advice on cryptocurrency or any claim related to cryptocurrency please contact either  William Fox Bregman, Paul Kanolik or William Dooley  in our Banking and Financial Litigation team by calling 01202 057733. Alternatively, please email us at banking@ellisjones.co.uk.