Posted: 02/02/2024
Crypto claims before the courts of England and Wales have almost exclusively been fraud cases. The anonymity which digital currencies and online trading platforms offer makes the digital space very attractive to preying fraudsters.
The recent case of Tippawan Boonyaem v Persons Unknown Category (A) & Ors [2023] EWCH 3180 (Comm), in which judgment was handed down in December 2023, demonstrates the increasing willingness that the courts of England and Wales have shown in recent years to help victims of crypto fraud.
The case also highlights the challenges that victims encounter in bringing claims against unidentifiable and anonymous fraudsters. While the courts may permit claimants to start proceedings against anonymous fraudsters who are unidentifiable, and while they may be prepared to offer interim relief against them, they have, and will, stop short at granting final judgment against unknown and unidentifiable defendants, given the practicable unworkability of enforcing a judgment against someone who cannot be identified.
This article explores the recent Boonyaem judgment and the practical implications it has for victims of crypto fraud when seeking to secure and recover their assets.
Ms Boonyaem, the claimant, was a real estate agent residing in Thailand who became a victim of a cryptocurrency investment. It was alleged that she was contacted by someone on Facebook who, after discussions on both Facebook and later a messaging phone application called LINE, induced her to invest in a fraudulent scheme using INGFX, a supposed trading platform, and to convert her fiat currency into Tether tokens (USDT) – a classified stablecoin pegged to the US dollar.
The alleged fraudster opened an account for the claimant with INGFX to allow her to deposit her recently acquired USDT into wallet addresses at INGFX, which the individual would then trade on her behalf. The claimant alleged that the individual was constantly encouraging her to invest more money, and recommending which trades she should open. In a similar vein to many other crypto fraud victims, Ms Boonyaem was told that she was making profits, but when she wanted to withdraw these, she was told that she needed to send more USDT to pay tax, withdrawal fees and insurance. After being met with various excuses as to why she could not access her profits, she realised that she was the victim of a scam and shortly thereafter sought legal advice.
She brought claims against three groups of defendants, which the court divided into three categories:
The claimant obtained an interim worldwide proprietary and non-proprietary freezing order against all defendants in August 2023. She also obtained a disclosure order in an attempt to identify the perpetrators. She then sought summary judgment in respect of her proprietary claims to the traceable proceeds, an order continuing the proprietary freezing injunction until the traceable proceeds had been recovered, and an order continuing the worldwide non-proprietary freezing injunction in support of her non-proprietary claims.
At the summary judgment hearing, the judge considered the different groups of defendants. In particular, he looked at the ‘persons unknown’ and grouped them into two categories.
Category A ‘persons unknown’
He considered that the Category A ‘persons unknown’ – those connected to the fraudster and/or to the INGFX website – were totally unknown. Unfortunately for the claimant, the earlier disclosure order did not assist her in identifying the persons who perpetrated the fraud on her.
Category B ‘persons unknown’
The Category B ‘persons unknown’ – those who operated and/or owned the cryptocurrency wallet addresses to which the claimant’s USDT had been sent – were, in principle, identifiable even if their identity was not known at the time of the court giving judgment. The judge considered that this was so because if they wanted to claim ownership of the content of the wallets, then they would have to identify themselves.
Injunctions and summary judgment granted against Category B ‘persons unknown’
The judge proceeded to grant summary judgment in respect of the claimant’s proprietary claim to the traceable proceeds of her USDT against the Category B ‘persons unknown’ and INGFX Limited. It held that the Category B fraudsters of the type in this case can be sued as ‘persons unknown’ provided they are properly defined, and it is possible to bring the proceedings to their attention effectively. The court also continued the proprietary injunction and the worldwide non-proprietary freezing injunction against these defendants, along with the disclosure orders in the hope that they would belatedly be complied with.
Distinction drawn between interim and final relief
The court did not, however, grant summary judgment or continue the injunctions against the Category A ‘persons unknown’. The judge drew a distinction between granting interim relief and granting final judgment.
He was not prepared to award final injunctive relief against the Category A ‘persons unknown’, holding that they ‘cannot properly be sued to judgment until they can be identified’. He held that to grant an injunction against a category of defendants who were unknown and also unidentifiable would have rendered any final injunction order unenforceable, as it would not have been possible, in principle, to locate or communicate with them.
This case demonstrates the court’s continuing willingness to grant remedies against ‘unknown’ defendants, including freezing orders and disclosure orders[1], to help claimants secure and recover (as far as possible) their assets, provided that such remedies can, practically, be capable of enforcement.
The case also offered helpful commentary on other important legal principles including:
Digital assets as property
The judge reaffirmed the stance taken in previous case law that digital assets are considered ‘property’. He went further to note that the specific nature of USDT, governed by redeemable promises, may potentially classify them as ‘things in action’ (as opposed to ‘things in possession’).
Tracing of assets
He acknowledged the potential for tracing and recovering cryptoassets, contingent on establishing a connection between the asset’s depletion and the acquisition of traceable proceeds.
Disclosure
He was initially of the view that the claimant should have used the court process to obtain disclosure of the names of the Category B ‘persons unknown’ from the relevant cryptocurrency exchanges before seeking summary judgment. However, counsel for the claimant persuaded the judge that it would not have been reasonable or proportionate in light of the amount in issue in the claim to require the claimant to incur the additional cost and delay of proceedings for disclosure.
Alternative service
This was a case in which service of the claim form by Facebook messenger, text and WhatsApp message, and by transferring a non-fungible token to the relevant wallet address, was permitted. The judge commented that technology made it possible for the proceedings to be brought effectively to the attention of the Category B ‘persons unknown’ and for them to therefore be sued and have an enforceable judgment given against them.
The case does, however, also highlight the plight of fraud victims who have had their assets misappropriated by ‘unknown’ fraudsters who must be identified before judgment can be entered against them. Even when a claimant is granted final relief against known, or theoretically identifiable, fraudsters, they then face the next hurdle of enforcing any final judgment and seeking to recover their assets.
Victims of crypto scams should act quickly to take steps to recover any misappropriated assets, which could involve tracing assets and making a claim against the fraudsters and/or a third party who may be holding their assets.
If you would like advice on any claim related to cryptocurrency, please contact Charlotte Hill or Lauren Cormack, or make an enquiry using our enquiry form, and one of our solicitors with specialist expertise in digital assets will be in touch.
[1] Typically involving a Norwich Pharmacal and/or a Bankers Trust order.
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