How The Courts Are Dealing With Crypto Disputes ' Recent Developments In Crypto Asset Litigation Across Jurisdictions

• Published date: 14 April 2023
• Subject Matter: Technology, Fin Tech
• Law Firm: Rajah & Tann
• Author: Mr Jansen Chow and Foo Xian Fong

Introduction

The crypto market has been through a tumultuous past year. Within months, the market went from all-time highs to the coldest crypto winter as Three Arrows Capital cratered, spreading a contagion that consumed the likes of Celsius, Voyage, TerraLuna and FTX amongst others. Meanwhile, the industry continues to be ravaged by crypto crime, with Chainalysis reporting crypto scam 'revenue' at US$5.9 billion in 2022 led by 'investment'-type scams.¹ These developments have led to an uptick in crypto litigation.

In this Update, we explore the notable crypto litigation developments in the past year, taking a closer look at significant cases from Singapore, the UK, and the US. We examine how the courts are dealing with key issues in crypto disputes, including issues of jurisdiction, service of court documents, and the duties of blockchain developers and crypto exchanges.

A refinement of the jurisdictional gateways for invoking the court's jurisdiction?

Given the frequently cross-border nature of crypto hacks / scams, victims seeking their local courts' assistance to aid in the recovery of their stolen assets against unknown fraudsters or crypto exchanges based overseas must first demonstrate a good arguable case for invoking the court's jurisdiction over the foreign parties.

Several frequently invoked jurisdictional 'gateways' are based on the stolen crypto asset being located within the local courts' jurisdiction. Until recently, the English courts have generally accepted that there is a good arguable case that the location of intangible crypto assets is deemed to be its rightful owner's place of domicile, and therefore based within the jurisdiction of the English courts if the owner is domiciled there. This means the question of whether the crypto assets are located within the local courts' jurisdiction is determined at the time before the assets were stolen from the rightful owner and transferred out of jurisdiction.

In Osbourne v Persons Unknown [2023] EWHC 39 ("Osbourne"), the purported victim of a hacked MetaMask wallet based in England and Wales sought permission from the English High Court to serve the claim documents abroad on a person in South Africa, whose wallet she had traced her 'stolen' NFT to. She invoked the jurisdictional gateway based on her NFT being located within the Court's jurisdiction. The Court was not inclined to grant permission for service of the claim documents out of jurisdiction under this gateway (though it did so on other grounds), questioning whether the victim was still the NFT owner at the time of the application, as the NFT had at that point already been transferred to the wallet of the person in South Africa and the victim was no longer able to exercise control over the NFT.

This decision in Osbourne represents a departure from other decisions made by the English courts. For example:

• In Fetch.ai Ltd v Persons Unknown [2021] EWHC 2254, the claimant - an English registered company whose cryptocurrencies had been stolen - sought permission from the English High Court to serve court documents out of jurisdiction on the fraudsters and Binance. The Court granted permission via several jurisdictional gateways grounded on the finding that "it is at least realistically arguable" that the claimant's stolen cryptocurrency is located in England. The Court held that the "test for whether assets are within the jurisdiction ... must focus on where the assets were located before the justiciable act occurred".
• In D'Aloia v Persons Unknown [2022] EWHC 1723, the claimant - an English-domiciled individual who had been scammed of his Tether ("USDT") and USD Coin ("USDC") cryptocurrencies - sought permission from the English High Court to...