If you are seeking an injunction against Bitcoin or other crypto assets, here are our three key tips.
Although there have only been a handful of cases, we know that the English Courts regard Bitcoin and other crypto assets as property. As such, they can, in principle, be frozen (see our earlier briefing, here). This is good news for claimants litigating over the ownership of crypto assets or looking to enforce judgments against them. However, a recent case also confirms that the special characteristics of Bitcoin (and by extension other crypto assets) have to be taken into account in any crypto asset recovery strategy.
A Bitcoin sale transaction when awry leaving the Sellers without their Bitcoin or the money they was supposed to receive for it. The Sellers issued proceedings in England against the individual who controlled the coin depot account used for the failed transaction (the “Defendant”). In the proceedings, the Sellers sought to recover their losses via other assets in the Defendant’s Bitcoin account. To preserve the position until trial, in a classic move for parties in their position, the Sellers obtained an injunction; effectively freezing other Bitcoin in the account in question. They obtained the injunction without notice to the Defendant, meaning that the injunction was only given on a temporary basis – until the court could consider arguments from the Defendant about whether the injunction should be discontinued.
The English court will not grant an injunction, and then maintain it in the face of attack by a defendant, unless it is satisfied that overall it reduces, rather than increases, the risk of injustice. In this case, the potential injustice to the Sellers was being unable to recover their losses from the relevant account. The potential injustice to the Defendant was being unable to sell other Bitcoin when he chose to (i.e., when the value was high).
Bitcoin value volatility
These are relatively standard considerations for the Court when balancing the risks of injustice. However, in this case, the Defendant argued that Bitcoin’s value is particularly volatile so that, if he was prevented by the injunction from selling further coin when he chose, he could suffer very significant losses. The Court accepted this argument.
The Sellers could have, in theory, neutralised this potential injustice by showing that they had the wherewithal to compensate the Defendant for any losses causes by the injunction (for example, if the Court were to find against the Sellers in the underlying case and that, therefore, the injunction should not have been granted). This is known as the “cross-undertaking in damages”. However, it is clear that the Court was not persuaded that the Sellers could do so in this case.
Further, the potential injustice to the Sellers (inability to enforce a judgment against other assets in the Defendant’s account) was reduced by the fact that the Defendant had other assets against which a judgment could be enforced (real estate in Ireland).
The volatility of Bitcoin, coupled with these other factors, led to the injunction being discontinued.
The case is (1) Marian Toma (2) David True V Ciaran Murray (2020) Ch D (Judge Robin Vos) 29/07/2020.
Key strategy tips
If you need to seek an injunction over crypto assets, here are our key strategy tips from this case:
1. Be prepared to pivot strategy. If, as in this case, it may not be possible to hold an injunction over Bitcoin due to value volatility, consider a Notification Injunction instead. This rarer form of injunction compels a defendant to give a claimant a specified period of notice before selling assets. This could give you enough time to seek further orders (for example against cash to be received for a sale) to protect your position.
2. Don’t underestimate the need for a cross undertaking in damages. Consider using other Bitcoin to support your cross undertaking, or look for insurance products if cash reserves may not be sufficient.
3. Prepare to counter-act arguments about Bitcoin value volatility. Bitcoin can be volatile, yes, but it is not alone as such as an asset class, especially in the light of market pressures posed by Brexit and COVID-19.
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