High Court permits enforcement of foreign judgment in crypto recovery case

Tai Mo Shan Ltd v. Persons Unknown [2024] EWHC 1514 (Comm)

Background

The High Court granted an application for service out of the jurisdiction in proceedings seeking to enforce a New York state court judgment concerning stolen crypto assets (the New York Judgment). The New York Judgment declared that the claimant, Tai Mo Shan Ltd (TSML), had a proprietary interest in the contents of a cryptocurrency wallet controlled by its solicitors, which held the proceeds of an ethical hack ordered in related English proceedings (the Recovery Wallet). Further details on those proceedings can be found in the authors' article on the Crypto Fraud and Asset Recovery 'CFAAR' blog.

To the authors' knowledge, this is the first instance of the English Court permitting such an application, marking a significant milestone in crypto case law. The judgment addresses several practical and logistical issues arising from such applications, including alternative service via NFT airdrop, which is becoming common in crypto fraud cases.

The service out application 

The judge applied the standard test for permission to serve out of the jurisdiction, which requires there to be a good arguable case that the claim falls within one of the classes of cases set out in Practice Direction 6B.3.1,¹ that England is the appropriate forum, and that there is a reasonable prospect of success in relation to one of the jurisdictional gateways.

The judge held that the primary claim for enforcement of the New York Judgment met the good arguable case threshold and fell within the relevant jurisdictional gateway (gateway 10 for claims 'made to enforce any judgment or arbitral award'). However, the judge rejected two additional claims by TSML for freestanding declarations regarding TSML's beneficial ownership of assets in the Recovery Wallet. These claims were deemed not to fall within the relevant gateway, with the court stating that a further application to serve out would be needed to pursue them and expressing scepticism about their utility.

The judge also held that England was the appropriate forum for the proceedings, stating that there was a plausible evidential basis for concluding that the misappropriated assets should be treated as located in England. The judge noted that in any event the solicitors controlling the Recovery Wallet were based in England, making the English Court the most appropriate venue for the proceedings. This was particularly relevant as the solicitors would need to be released from undertakings they had given to the English Court to hold and preserve the relevant crypto assets as part of their eventual transfer to TSML.

Finally, the judge concluded that the claim met the 'reasonable prospect of success' threshold, considering two critical matters:

1. The judge noted that for a judgment to be enforceable, it "must be in relation to subject matter which is situate in the relevant foreign state." In this case, it was arguable to the required threshold that New York was the situs of the crypto stolen from the claimant, as although the claimant was a Cayman-registered company, its management and control was in New York².  

2. The judge also considered whether the New York Judgment was sufficiently final and conclusive to be enforceable in England. Despite being a default judgment, which could theoretically be set aside by a subsequent application in the United States, the judge found it could still be considered final so as long as it was subject to immediate enforcement (which, from its wording, it appeared to be in this case).  

Service issues

The claimant also applied for permission to serve the claim documents by alternative means via NFT airdrop sent to the wallet addresses associated with the defendants, a practice now well-established in crypto case law.

Permission was granted with two noteworthy features:

1. To address any potential issues with CPR Rule 6.40(4), which provides that nothing in the service provisions requires any person to do anything contrary to the law of the country where the claim form or other document is to be served,  the relevant order was qualified such that service would not be effective where service by NFT was contrary to the law of the country where the defendant was located at the time service was effected.

2. To safeguard against the risk of non-parties gaining access to underlying documentation, the order permitted password protection of the documents, with instructions included on how to obtain the password. This may be contrasted with Osbourne v Persons Unknown [2023] EWHC 340 (KB), where documents with various redactions were served, with unredacted copies available to the defendants on request (see the authors' article referencing this case here).

Comment

This case contributes to the growing body of case law on enforcement in crypto cases and showcases the English jurisdiction's ability to enforce judgments relating to cryptocurrency from foreign courts.

It is also notable that the Court decided that the lex situs of the relevant crypto assets was New York, where the claimant's management and control was located, as opposed to its corporate domicile in the Cayman Islands. The issue of lex situs has been inconsistently decided in crypto cases to date, with the most persuasive authority being the obiter remarks in Tulip Trading Ltd v Bitcoin Association for BSV & Ors [2022] EWHC 667.  In Tulip Trading, the court favoured the management and control analysis, which is consistent with the approach taken in this case.

The judgment's paragraphs on service also provide useful incremental contributions to case law on best practices in this area. However, there remains an existential threat to this manner of service, given the contrasting decisions in Mooij v Persons Unknown (February 2024) and Boonyaem v Persons Unknown (December 2023), discussed in the authors' article on those cases here. 

1. Formally there is a separate threshold test of there being 'a serious issue to be tried' on the merits although this analysis is often subsumed into the good arguable case analysis as that is a higher threshold, as appears to have been the case in these proceedings.

2. There was a separate issue regarding whether the New York judgment should be treated as a judgment from the entire United States for enforcement purposes. If it had been treated as a judgment solely from New York, the judge noted he had been drawn to dicta that might have created difficulty. However, the judge concluded that it was at least arguable that the relevant jurisdiction was the United States as a whole, rather than just the state of New York.