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. A third-party debt order (formerly known as a garnishee order) is a method of enforcing a money judgment by recovering sums that are in the hands of a third party: 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 considering the status of cryptoassets in the context of fraud claims. It 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 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. 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 particular, with regard to crypto fraud, he highlighted the challenge of tracing unlawfully obtained cryptoassets.
A sub-committee of the Civil Procedure Rules Committee is currently looking at amending or expanding the grounds on which proceedings (including third-party disclosure applications) can be served out of the jurisdiction in this context, so as to remove an obstacle that has impeded tracing the proceeds of crypto fraud.
For more on the recent decision, see this post on our Litigation Notes blog.