In the recent case of Marian Toma (1) David True (2) v Ciaran Murray (2020) Ch D, which concerned a reversed payment of Bitcoin, it was held that the Claimants were not entitled to the continuing of an injunction against the Defendant due to the Claimants being unable to provide a cross-undertaking of damages, and the subsequent injustice this would cause to the Defendant given the volatile nature of Bitcoin.
We await the judgment to be published, but summarise the details of the case below.
The facts:
The Claimants had sold Bitcoin through an account based in Finland. However, the payment received for the Bitcoin was later reversed, and they were left without the Bitcoin or the purchase money.
The Defendant accepted that he controlled the accounts which had been used to make and withdraw the payments, and that a fraud of some sort had taken place, but asserted that his account had been hacked.
The Claimants issued a claim seeking to recover the value of the Bitcoin held in the Defendant's coin depot account, and were granted a without notice interim injunction.
At the return date the Claimants sought to continue that injunction pending the final determination of their claim. They were unable to satisfy a cross-undertaking in damages, but contended that the fact that their claim was a proprietary tracing claim reduced the significance of damages as an adequate remedy.
In turn, the Defendant submitted that damages would be an adequate remedy, as he had an unencumbered asset in the form of a property in Dublin. Further, he asserted that there was a risk of his suffering loss if the injunction was granted, since the value of Bitcoin was volatile and it would put him in a difficult position if he was unable to sell it when appropriate.
The judgment:
The court declined to continue the Claimants' without-notice interim injunction restraining the defendant from dealing with Bitcoin held in a coin depot account.
The purpose of an interim injunction is to mitigate the risk of injustice to the claimants between the making of their claim and trial, but that had to be weighed against the risk to the defendant.
Applying AA v Persons Unknown [2019] EWHC 3556 (Comm), it was firstly considered if there is a serious issue to be tried, and if so, the court needed to consider where the balance of convenience lay in light of the efficacy of damages as an adequate remedy, the giving of a cross-undertaking in damages and the merits of the proposed claim.
Here although there was clearly a serious issue to be tried, it was not necessary for the court to conduct a mini-trial or express any view on the allegations of fraud; an arguable case for a proprietary remedy did not automatically mean that the court would inevitably grant a proprietary injunction.
The court then considered Haiti v Duvalier (Mareva Injunction) (No.2) [1990] 1 Q.B. 202 and National Commercial Bank Jamaica Ltd v Olint Corp Ltd [2009] UKPC 16, and held that damages would be an adequate remedy, even if that meant converting a proprietary tracing claim into a personal remedy of the value of the Bitcoin sold. Here, the value of the Bitcoin in the Defendant's account, which the Claimants' sought to recover, was capable of being satisfied in monetary terms due to the Defendant's unencumbered asset.
Further, the fact that the Claimants would be unable to satisfy any cross-undertaking in damages was deemed significant, especially when looking at the risk of injustice to the Defendant, which was considered high due to the volatile nature of Bitcoin's value. If the Defendant was unable to sell the Bitcoin and invest in other assets, he would suffer loss.
Ultimately, taking all the circumstances into account, the balance of convenience lay against continuing the injunction.
We expect that many similar issues will arise in cryptocurrency and cyber fraud cases. If you would like to discuss this case, or the issues arising, please contact the team.