First Third-party Debt Order Granted By The English High Court In Relation To Cryptocurrency

• Published date: 10 March 2022
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Technology, Debt Capital Markets, Financial Services, Trials & Appeals & Compensation, Fin Tech
• Law Firm: Herbert Smith Freehills
• Author: Ms Natasha Johnson, Philip Lis and Olivia Odubanjo

The High Court has granted the first third-party debt order in relation to cryptocurrency in an application involving allegations of fraud related to a cryptocurrency initial coin offering (ICO). A third party debt order is a method of enforcement of a money judgment which allows recovery of sums owed to a judgment debtor that are in the hands of a third party (formerly known as garnishee orders): Ion Science Ltd v Persons Unknown (unreported, 28 January 2022).

This decision is the latest in a series of significant rulings from the English courts in relation to the status of cryptoassets. The ruling in this application follows an earlier interim order in the same case (discussed in our previous blog post) which indicated (among other things) that cryptoassets can be treated as property, with their lex situs at the place where the person or company who owned the coin or token is domiciled.

The High Court has also recently refused to allow security for costs to be paid in cryptocurrency as that would not result in protection equal to a payment into court or first class guarantee (as discussed here).

The present decision confirms that cryptoassets may be capable of being traced and enforced against, similar to other classes of property under English law.

Also significant in this context are recent comments made by the Master of the Rolls, Sir Geoffrey Vos, in a speech on 24 February, 2022, which emphasised the importance of the UK and its courts being at the vanguard of blockchain and crypto technologies. In the speech, he suggested that it has now been made clear that cryptoassets are properly to be regarded as property in English law. He noted that litigation involving cryptoassets and smart contracts is increasing significantly but cases are proving complex because of the difficulty of applying historic analogue rules to the digital environment.

In the context of crypto fraud, a key issue raised by the Master of the Rolls is that there are no national barriers and it can be difficult to trace unlawfully obtained cryptoassets. A sub-committee of the Civil Procedure Rules Committee is looking at amending or expanding the grounds on which proceedings can be served out of the jurisdiction in this context, so as to remove an obstacle that has impeded many sets of proceedings aimed at tracing the proceeds of crypto fraud.

Background

The background to the case is described in more detail in our previous post here. The claimants claimed that they had been victims...