The claimant, Mr Piroozzadeh, alleged that in 2021 he was scammed into transferring a significant amount of assets to a fraudster. The assets included a significant amount of Tether (USDT).

Mr Piroozzadeh traced some of the stolen funds to a Binance wallet. He applied, without notice, for a proprietary injunction against the fraudsters (being persons unknown). As has become commonplace, Mr Piroozzadeh also enjoined the various companies, banks and exchanges that had handled the proceeds of the scam as co-defendants for the purposes of ensuring that they were bound by the terms of the injunction and any subsequent order requiring the return of assets. The order was granted and, amongst other things, prevented Binance from dealing or disposing of the USDT or its traceable proceeds.

In January 2023 Binance applied to discharge the injunction, arguing that the application should not have been made without notice and that Mr Piroozzadeh had failed to comply with his duty of fair presentation.

One of the key elements of Binance’s case was that Mr Piroozzadeh had failed adequately deal with the basis upon which Binance holds its users’ deposits.

In its evidence, Binance explained that its users deposit cryptocurrency into a deposit address. The user’s account is then credited with a balance which they are entitled to draw on. Separately, the deposited cryptocurrency is swept into Binance’s hot wallet, a centralised pool of assets, where it is treated as an asset of the company.

While Mr Piroozzadeh’s lawyers had referred to Binance’s pooling of assets, they had not drawn the court’s attention its potential legal implications. Such consequences included that Binance may not a constructive trustee and could instead be a bona fide purchaser for value, thereby providing a defence to any action to recover assets directly from it. Mr Piroozzadeh’s team had also incorrectly asserted that D’Aloia v Persons Unknown & Others  provides authority for the general statement that “exchanges are constructive trustees.”

Finally, while Mr Piroozzadeh’s application had established that damages were an inadequate remedy in respect of his claim against the fraudsters, it did not address why damages would be inadequate in respect of his claim against Binance.

In these circumstances, the court found that Mr Piroozzadeh had failed to satisfy his duty of fair presentation and granted Binance’s application to discharge the injunction made against it. The court also declined to grant a new injunction.

The English court’s judgment in Jahangir Piroozzadeh v Persons Unknown and ors  (which can be found here) serves as a warning against adopting the general proposition that exchanges hold misappropriated assets as constructive trustees. Each case will require a specific analysis of the basis upon which an exchange handles its users’ deposits. This analysis then stands to have a significant impact on the remedies a victim ought to pursue, both by way of interim relief and in their substantive claim.

The judgment also highlights the importance of a claimant considering their case against each individual respondent when bringing an application of this nature. While a risk of tipping off and the inadequacy of damages as a remedy may be clear as against the wrongdoer, separate analysis applies to nominal defendants such as third-party banks or exchanges. A claimant must ensure that they have properly evaluated whether they have satisfied the requirements for bringing an application against these entities on a without notice basis.