In Toma v Murray,(1) the court declined to continue interim injunctions granted in respect of a ‘coin depot account’ holding bitcoin over which the claimants asserted a proprietary right. On this occasion, the balance of convenience in respect of continuing the injunctions did not lie with the claimants, including because damages would be an adequate remedy.

Background

In 2015 the two claimants, Mr Toma and Mr True, sold bitcoin to an account in the name of BTC OTC on LocalBitcoins, an online trading platform based in Finland. Although the claimants had initially been paid for the bitcoin, the relevant payments were reversed leaving them without the bitcoin or the relevant payments.

The BTC OTC account was controlled by the defendant, Mr Murray. Similar amounts of bitcoin had been transferred from the BTC OTC account to a coin depot account that he also controlled, giving rise to the inference that the claimants’ bitcoin had been transferred from one account to the other. Murray’s position was that his accounts had been hacked.

The claimants had obtained interim injunctions restraining the defendant from dealing with the bitcoin in the coin depot account and applied to continue those interim injunctions.

Relevant legal test for granting interim injunctions

The relevant legal test for interim injunctions was recently set out in cyber-fraud case AA v Persons Unknown(2) (more commonly known as Re Bitcoin) (for further details please see “Bitcoin is ‘property’ and can therefore be subject of proprietary injunction”):

  • Is there a serious issue to be tried?
  • Does the balance of convenience lie in granting the relief applied for?

On these facts, the court found that there was a serious issue to be tried. A full hearing would be needed to determine whether the defendant had committed a fraud; this was not a matter for an interim application where the court should not conduct a mini trial or even express a view on the merits of either party’s case.

So, did the balance of convenience justify continuing the interim injunctions?

Balance of convenience

The court needed to consider:

  • were damages an adequate remedy; and
  • could any cross-undertaking as to damages given by the claimants provide adequate protection to the defendant?

As to the damages question, the claimants submitted that the significance of that question is reduced where there was a proprietary claim, citing AA v Persons Unknown and Madoff Securities International Ltd v Raven.(3)

The court held that those cases merely established that claimants would more readily be afforded interim remedies in such circumstances, not that they inevitably would. The cases could be distinguished on the basis that on their facts, if a proprietary injunction had not been granted, the claimants were likely to have had no realistic possibility of recovering any loss that they had suffered. In this case, the defendant was a known individual with a substantial unencumbered asset worth many times more than the value of the claim. Further, although the claimants’ claim was put on the basis of a proprietary tracing claim, they were essentially seeking the value of the bitcoin contained in the coin depot account which was capable of being satisfied in monetary terms rather than necessitating a proprietary remedy.

Further, by the claimants’ own admission, they would have had difficulty satisfying any cross-undertaking as to damages and therefore the defendant would potentially have been exposed to any loss suffered as a result of the injunctions being continued.

Finally, the court considered whether the injunctions might be continued with a protective mechanism added whereby the defendant would be able to sell the bitcoin in the cash depot account subject to the claimants’ consent. However, the court did not consider this practical as a long-term solution given that obtaining consent expeditiously might be difficult, recognising that the volatile nature of bitcoin meant that its value could fall very quickly. The court also considered that the claimants could potentially use any requirement for consent as settlement leverage.

Therefore, the court concluded that the balance of convenience did not lie with the claimants and declined to continue the interim injunctions.

Comment

This case adds to the growing body of case law relating to the injunctive relief that may be granted in respect of bitcoin and other cryptocurrencies. It is interesting that bitcoin’s characteristic volatility was one factor that the court considered militated against an injunction. It should be noted that while the court did not consider that an injunction containing a mechanism permitting the sale of the bitcoin by the defendant subject to the claimants’ consent was a viable long-term option, it acknowledged that it might be an appropriate short-term solution where claimants were seeking an interim injunction on a without notice basis (as was initially the case here). Accordingly, claimants seeking short-term injunctive relief should consider making such a proposal to maximise the probability of obtaining such relief.

More generally, it is interesting to note the divergence between the court’s approach in this case, where the identity of the defendant is known, and in AA v Persons Unknown where it was not. There is clearly a strong logical basis for providing claimants who do not know the identity of a potential fraudster with greater ammunition to protect their interests than those who do.

Endnotes

(1) [2020] EWHC 2295 (Ch).

(2) [2019] EWHC 3556 (Comm).

(3) [2011] EWHC 3102 (Comm).

(Excerpt) Read more Here | 2020-09-01 02:18:27
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