Home Advantage: English Courts Confirm Jurisdiction Over Crypto Fraud Claims

In the recent judgment of Smithers & Anor v Persons Unknown¹, the English High Court confirmed that cryptoassets should be treated in law as existing at the place where their owner resides, and the courts of the place of residence should have jurisdiction over tort claims relating to them.

The Facts

A claim was brought by the owners of cryptocurrency assets which they alleged were stolen from them. They engaged experts who undertook a tracing exercise and concluded that the assets had been taken by participants in what is known as an “Inferno Drainer” fraud (a highly sophisticated, multichain cryptocurrency phishing toolkit enabling criminals to create realistic, malicious websites that mimic legitimate protocols and token projects to steal assets). The experts identified certain accounts as being connected with the Inferno Drainer fraud and the claimants brought a claim in the tort of unlawful means conspiracy against persons unknown alleged to have participated in the fraudulent scheme. A freezing order over the respondents’ cryptoasset accounts was granted in support of that claim. The Judge was asked to decide whether to continue the freezing order.

The Decision

The court made three key findings in support of its decision to continue the freezing order.

• In light of the expert reports and witness statements submitted by the claimants, they had established a good arguable case that each of the respondents was involved with the Inferno Drainer fraud, that the fraud amounted to a conspiracy in law, and that it was that fraud that led to their loss.
• There was a real risk of dissipation of the assets due to the nature of the fraud and the assets in question.
• There was at least a good arguable case that where cryptoassets are taken from an individual who is resident in England and Wales, the damage is sustained in that jurisdiction for the purposes of a claim in tort. The Judge emphasised the importance of taking a “realistic and pragmatic approach to the application of the jurisdictional gateways” and noted that he saw no difficulty in saying that such assets should be treated in law as existing at the place where their owner resides, rather than having a technical debate about ‘where’ cryptoassets are located. He added that the courts of the place where their owner resides therefore should have jurisdiction over tort claims relating to them.  The Judge referred to the decision in the 2020 Ion Science Limited and Duncan Johns v Persons Unknown case (see our OnPoint on that decision here), where the court considered (without ruling on the point) whether the location of cryptoassets, for the purposes of determining the applicable law of a given dispute, is the place where the owner of the cryptoassets is domiciled.

Significance

The Smithers judgment is significant as it explicitly refers to the cryptoasset owner’s residence as the connecting factor to establish jurisdiction, confirming that victims of crypto fraud can in principle bring claims in their home jurisdiction. It therefore limits fraudsters’ ability to exploit the uncertainty related to the decentralised nature of blockchain technology to avoid being caught by the English court’s jurisdiction.

Although this was not a final judgment,² the court’s pragmatic approach to dealing with complex questions posed by evolving technologies is part of a series of decisions reinforcing the English court’s attractiveness for victims of cryptoasset fraud.