Full disclosure, you may not get what you asked for…
In its recent decision in LMN v Bitflyer Holdings Inc & Ors  EWHC 2954, the English High Court made third-party disclosure orders against six foreign cryptocurrency exchanges registered in various jurisdictions around the world. The order was made to enable the applicant to access information that could be used to identify hackers who had stolen millions of dollars worth of digital assets from the Claimant in 2020 and to trace the stolen cryptocurrency.
The Claimant was a UK company operating a cryptocurrency exchange. It had identified 26 recipient addresses, to which the hacked cryptocurrency had been transferred, which were associated with exchanges. However, the “hot wallets” to which the cryptocurrency had been moved could not be located. The Claimant also struggled to identify the specific legal entities that might have this information. The Claimant therefore sought disclosure of this information by the exchange entities it was able to identify.
The orders were made despite the respondents being based abroad. The decision followed a recent update to Practice Direction 6B 3.1(25) of the English CPR (‘disclosure gateway’), which provides for claims or applications for disclosure of the identity of a defendant/potential defendant, and/or what has become of the property of a claimant, where proceedings have or will be brought in England and Wales. The Court found there was a serious issue to be tried and that there was clearly a good arguable case that the claim fell under the ambit of the new disclosure gateway. The Judge also concluded that the UK was the proper forum to initiate proceedings and that the law of England and Wales arguably governed the proprietary claim.
One of the Defendants argued that such orders against foreign defendants constituted an exceptional infringement of the sovereignty of a foreign jurisdiction, however, Butcher J noted the novel challenge before the Court of fraud in relation to cryptocurrency transactions and cited the importance of preventing further avoidable delays. He opined that it would be “impractical and contrary to the interests of justice to require a victim of fraud to make speculative applications in different jurisdictions to seek to locate the relevant exchange company and then to seek disclosure, probably in aid of foreign proceedings”.
The approach of the English court is helpful from the perspective of those seeking to trace and recover misappropriated digital assets. However, the effectiveness of such orders will hinge on whether the targets of such orders consider the effect of a foreign court order made in civil proceedings overrides any duties of confidentiality they may owe to their customers. There may be circumstances in which foreign targets will take the view that they are only able to comply with orders made by the courts in their own jurisdiction or requests made by local law enforcement.