This article forms part of a series prepared by partners James Eggleton and Christopher Pease, of our Cayman Islands and BVI offices respectively, in connection with digital assets disputes. For more information, please click here.

Perhaps inevitably given the exponential growth in the value of the crypto market in recent years, courts all over the world are now tasked with resolving an increasing number of crypto-related disputes. Within the context of crypto recovery claims, this has invariably required the court to grapple with the underlying blockchain technologies.

The decisions we have seen to date have varied enormously in terms of the nature of the disputes, the stakeholders involved, the causes of action alleged and the blockchain technologies and cryptocurrencies forming their subject matter. Often, they involve allegations of fraud.

So, for example:

• Tippawan Boonyaem v Persons Unknown Category (A) & Ors^[1] a decision of the English High Court, concerned a real estate agent residing in Thailand who became a victim of a cryptocurrency investment scam. Ms Boonyaem obtained an interim worldwide proprietary and non-proprietary freezing order against all defendants, as well as a disclosure order in an attempt to identify the perpetrators. Final injunctive relief was obtained against some of the defendants.
• In ChainSwap v Persons Unknown^[2], a decision of the BVI Commercial Court, a blockchain-services provider, which was the victim of two crypto hacking attacks directed at smart contracts through which it operated a cross-chain bridge, obtained a freezing injunction against unknown hackers in addition to other relief that enabled the victim to make a recovery.
• In Piroozzadeh v Persons Unknown Category A & Ors^[3], misappropriated assets (870,818 USDT) had been traced into deposit addresses held by two crypto exchanges, including Binance. The claimant subsequently obtained, on ex parte without notice basis, interim proprietary injunctive relief against the exchanges requiring them to preserve the USDT or its traceable proceeds. In a subsequent decision, the English High Court discharged that interim injunction on the basis that the claimant’s legal representatives had failed to comply with their duty of fair presentation (in particular, having failed to explain the defences that were likely to be available to Binance in respect of its alleged liability as constructive trustee).
• In In the Matter of Atom Holdings^[4], which was the first liquidation involving a cryptocurrency exchange incorporated in the Cayman Islands, the Cayman Grand Court ordered the winding up of Atom Holdings, the holding company for the Atom group of entities operating the now defunct centralised cryptocurrency exchange, Atom Asset Exchange.
• Fabrizio D’Aloia v Persons Unknown^[5], a decision of the English High Court, involved a crypto scam whereby the claimant, Mr D’Aloia, was induced by persons unknown to transfer cryptocurrency (Circle and Tether) totalling approximately £5m. The cryptocurrency was subsequently passed through a number of different wallets before being withdrawn as fiat currency (“off-ramped”) through various crypto exchanges.

Notwithstanding the wide-ranging and fact-specific nature of the disputes that have arisen in the crypto space, certain trends are beginning to emerge. What we are seeing is that although blockchain technology and digital assets may be technologically and conceptually complex^[6] and unfamiliar to the court^[7], that does not mean that disputes concerning this asset class are unnavigable.

In fact, the contrary is the case. It is now tolerably clear, for example, that (in the common law world at least) courts are likely to treat crypto assets as a form of property^[8]. In those circumstances, traditional asset tracing tools – applied in accordance with long established legal principles – will in principle be available to victims of crypto-related wrongdoing or misappropriation in the same way as they would be in respect of wrongdoing concerning any other more traditional asset type.

Moreover, the fact that specific crypto expertise may be required on the given facts of a particular dispute – to take one obvious example, to “follow” or “trace” or investigate crypto transactions ’on chain’^[9] – does not, of itself, elevate crypto-related disputes into any form of special category. The courts of common law jurisdictions hear expert evidence every day. And, to the extent that experts are needed to assist the court, there is no reason in principle why the parties should not be allowed to rely upon their evidence in the usual way, subject to any relevant procedural safeguards that may be in place in the relevant jurisdiction. Indeed, because the movement of digital assets is recorded on an immutable ledger which is publicly viewable (at least for the most widely used blockchains), evidencing the way misappropriated assets have been dissipated can be quicker and easier than with cash transfers.

That being said, the problems posed by crypto fraud are manifold. In a DIFC seminar given on 13 November 2023, His Honour Judge Pelling KC put the problem in the following stark terms:

“The problems posed by these frauds are acute and for many victims can be life changing. Attempts to recover what has been lost pose very significant procedural and jurisdictional difficulties with the same common themes arising in most if not all cases. At this moment of acute anxiety, victims are faced with finding lawyers to attempt to recover what has been lost and to do so in a legal environment that is technically and legally difficult…

… in most of these cases the principal actors will be or are likely to be outside England and Wales, as will the exchanges that administer the wallets into or through which the victims’ assets have passed. In most cases therefore the victim of a cyber currency fraud domiciled and resident in England, or who has suffered losses in England will be faced with the need to seek information disclosure orders against those who administer the relevant wallets and a worldwide freezing and/or proprietary freezing order, usually against fraudsters who cannot be identified, who are almost certainly located in offshore jurisdictions and for whom the only known contact details are the email addresses used to carry the fraud into effect. The problems that arise are generally ones of identification and jurisdiction in relation to those who have engineered the fraud, those to whom assets belonging to the victims have been transferred and received unconscionably or otherwise and those who can provide relevant information about the identity of those responsible for the fraud or the whereabouts of the victims’ assets or their traceable equivalent…”

With these issues in mind, this series of articles considers some of the more traditional asset tracing tools available to victims of crypto wrongdoing, by reference to the relevant legal principles (primarily but not exclusively as a matter of Cayman Islands and BVI law) and to the various reported crypto-related decisions in which alleged victims of wrongdoing have sought to deploy those tools and/or seek recourse against wrongdoers.

Inevitably, what follows will require at least some rudimentary understanding of crypto assets and the blockchain technologies underlying them. Where necessary, explanations will be provided by reference to the authorities cited (which authorities are by no means intended to be exhaustive or dispositive).

In the next article, we consider the so-called Norwich Pharmacal  and Bankers Trust jurisdictions. Where a person (for example, a crypto exchange), through no fault of their own, gets mixed up in wrongdoing, to what extent may that person come under a legal duty to assist the victim of that wrongdoing? To what extent may that person be required to provide information about the wrongdoing and/or the identity of the wrongdoer?

^[1][2023] EWHC 3180 (Comm)

^[2]BVIHC(COM)2022/0031

^[3][2023] EWHC 1024 (Ch)

^[4]FSD 54 of 2023 (IKJ)

^[5][2024] EWHC 2342 (Ch)

^[6]According to Michael Saylor, the executive Chairman of Strategy (formerly MicroStrategy), Bitcoin is “a swarm of cyber hornets serving the goddess of wisdom, feeding on the fire of truth, exponentially growing ever smarter, faster, and stronger behind a wall of encrypted energy.”  (Michael Saylor: Bitcoin's Cyber Hornet - CoinDesk)

^[7]As was recently acknowledged in Hong Kong in Mantra Dao Inc and Riodefi Inc. v Mullin and ors  [2024] HKCFI 2099, in which the Court of First Instance stated, at [11]: “…At this stage, it suffices for me to say that cryptocurrency trading is a new, novel and innovative business. The Hong Kong courts, and indeed many other courts in different jurisdictions, have little experience in dealing with such kind of disputes. The courts may not be familiar with the modus operandi and the structures for the operation of such kind of business…”

^[8]See, for example, AA v Persons Unknown  [2019] EWHC 3556 (Comm); Tulip Trading v Van Der Laan  [2023] EWCA Civ 83; D’Aloia v Persons Unknown  [2024] EWHC 2342 (Ch); Philip Smith and Jason Kardachi (in their  capacity as joint liquidators) v Torque Group Holdings Ltd  [2021] ECSCJ No 627 (Wallbank J); ChainSwap v Persons Unknown VG 2022 HC 036.

^[9]The concepts of “following” and “tracing” will be considered in closer detail in this series in due course. For a helpful explanation within the crypto context, see D’Aloia v Persons Unknown  [2024] EWHC 2342 (Ch), at [174] – [200].