In a speech on issues in cryptocurrency fraud claims at the Crypto Disputes Conference on 29 June 2022, His Honour Judge Pelling QC announced a new Gateway to be incorporated into CPR Practice Direction 6B, which aims to assist victims of cryptocurrency fraud in overcoming jurisdictional issues in bringing claims against fraudsters based outside of England and Wales.
BACKGROUND
In his speech, HHJ Pelling QC outlined the procedural and jurisdictional issues that victims of cryptocurrency fraud currently face and some of the “traps for the unwary” when bringing claims in England and Wales including:
- identifying the correct defendant and the quantum of their claim when the fraudster is typically unknown and based outside the jurisdiction;
- the lack of jurisdictional gateways under CPR Practice Direction 6B to allow a Norwich Pharmacal Order to be served outside of the jurisdiction;
- Bankers Trust Orders, which can be served outside of the jurisdiction, require the claimant to first commence a proprietary claim against the alleged fraudsters;
- if the defendant is based outside of the jurisdiction, the courts in that jurisdiction must be amenable to enforcement of English information orders such as Bankers Trust Orders;
- if the claimant brings a claim against “persons unknown”, the defendants must fall into an identified class, which is particularly difficult in cryptocurrency fraud claims where the assets will likely have been transferred several times after being stolen from the claimant’s wallet;
- the continuing uncertainty surrounding whether certain types of digital asset, for example some non-fungible tokens, should be recognised as property under English law and therefore form the basis of a proprietary claim; and
- where the claimant has been fraudulently induced to enter into a contract under which the cryptoassets were transferred do not give rise to a constructive trust until the contract is rescinded.
In a move that is hoped will alleviate some of these issues, HHJ Pelling announced the forthcoming introduction of a new Gateway into CPR Practice Direction 6B. The Practice Direction changes have since been published, with the Gateway to which HHJ Pellling refers in his speech as Gateway (23), in fact numbered (25). The text of the new Gateway is:
Information orders against non-parties
(25) A claim or application is made for disclosure in order to obtain information:
(a) regarding:
(i) the true identity of a defendant or a potential defendant; and/or
(ii) what has become of the property of a claimant or applicant;
and
(b) the claim or application is made for the purpose of proceedings already commenced or which, subject to the content of the information received, are intended to be commenced either by service in England and Wales or pursuant to CPR 6.32, CPR 6.33 or CPR 6.36
This Gateway will enable applications for permission the service out of the jurisdiction of a Part 8 claim for disclosure of information regarding the true identity of a potential defendant (a Norwich Pharmacal Order) or what has become of the claimant’s property, to support proceedings which are about to be commenced. This would not require the claimant first to commence proceedings against persons unknown.
HHJ Pelling QC also commented that it was “unlikely” that the direction of travel will be reversed in relation to the courts’ treatment of digital assets as property and the determination that the relevant location of the assets is where the owner of the property is resident or domiciled.
This Practice Direction change, which takes effect on 1 October 2022, should address a number of the procedural issues and traps which claimants have faced until now when seeking relief to assist with recovering stolen digital assets. The introduction of the new Gateway should also reduce the cost and increase the efficacy of gathering information about the alleged fraudsters where their identities are unknown and they are based outside of the jurisdiction.
