AA v Persons Unknown
| Jurisdiction | England & Wales |
| Judge | Bryan J. |
| Judgment Date | 13 December 2019 |
| Neutral Citation | [2019] EWHC 3556 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 13 December 2019 |
[2019] EWHC 3556 (Comm)
Bryan J.
Queen's Bench Division (Commercial Court).
Interim injunction — Proprietary injunction — Crypto currencies — Bitcoin — Private hearing — Service out of jurisdiction — Alternative service — Hackers installed malware on company's computers and demanded ransom to restore access — Insurer paid ransom in Bitcoin — Insurer traced Bitcoin and brought restitutionary and constructive trust claims against unknown hackers and Bitcoin exchange — Insurer applying without notice for interim proprietary injunction — Whether application should be heard in private — Whether Bitcoin property for purposes of interim proprietary injunction — Whether court should order service out of jurisdiction and alternative service — Civil Procedure Rules 1998, r. 6.15, Practice Direction 6B, para. 3.1(2), (3), (5), (9), r. 39.2(3)(a), (c), (g).
This was an application by an insurance company for permission to serve out of the jurisdiction and for alternative service in respect of restitution and constructive trust claims and for an interim proprietary injunction.
The application related to the hacking of a company that was insured by the applicant against cybercrime attacks. The hacker had installed malware on the insured's computer systems and the insured had to pay a ransom in Bitcoin to regain access to its systems and data. The ransom of US$950,000 was provided by the applicant and paid in Bitcoin via an agent.
It was possible to track the Bitcoins that had been transferred as a ransom: 96 Bitcoins were transferred to an address linked to the Bitfinex exchange operated by the third and fourth defendants, which were British Virgin Islands companies.
The insurer brought proceedings against the first defendant, the person(s) unknown who had demanded the Bitcoin, the second defendant, the person(s) who held the 96 Bitcoins in the specified Bitfinex address, and the third and fourth defendants. It sought an interim proprietary injunction and permission to serve out of the jurisdiction on the basis that it had restitutionary or constructive trust claims against the first and second defendants who had wrongfully extorted the Bitcoin, and the third and fourth defendants which held the Bitcoin.
Held, granting an interim proprietary injunction:
1. It was appropriate to hear the application in private since the grounds set out in CPR r. 39.2(3)(a), (c) and (g) applied: publicity would defeat the object of the hearing, it had been necessary to consider confidential information, and the application was made without notice. Once the first and second defendants had been served and/or the property protected, the court could lift the privacy in respect of the judgment so that it could be publicly reported.
2. Crypto assets such as Bitcoin were a form of property for the purposes of obtaining an interim proprietary injunction. There was a serious issue to be tried against all four defendants. The balance of convenience was in favour of granting relief in furtherance of the insurer's claimed proprietary rights. Damages would not be an adequate remedy in circumstances where the 96 Bitcoins could be dissipated and in addition to the proprietary claim the applicant sought ancillary relief in terms of providing information about the location of the assets.
3. The constructive trust and restitutionary claims, and the proprietary injunction sought in relation to them, fell within the gateway for service out of the jurisdiction in CPR Practice Direction 6B, para. 3.1(5), as a claim for an interim remedy, and within para. 3.1(9), as a claim in tort where damage was sustained within the jurisdiction. Provided that any of the defendants came within those gateways, the necessary or proper party gateway in para. 3.1(3) was potentially available in respect of the other defendants. It was appropriate to serve the claim form out of the jurisdiction in relation to the restitutionary and constructive trust causes of action. The first and second defendants could be served by an alternative method pursuant to r. 6.15, namely at any email or physical address relating to the Bitcoin account and by filing the relevant documents at court. The third and fourth defendants could also be served by email pursuant to r. 6.15. The injunction would require the third and fourth defendants to identify the first and second defendants, and the first and second defendants to identify themselves.
The following cases were referred to in the judgment:
AB Bank Ltd v Abu Dhabi Commercial Bank PJSC [2016] EWHC 2082 (Comm); [2016] 2 CLC 372.
American Cyanamid Co v Ethicon Ltd [1975] AC 396.
AMM v HXW [2010] EWHC 2457 (QB).
B2C2 Ltd v Quoine PTC Ltd [2019] SGHC(I) 03.
Bankers Trust Co v Shapira [1980] 1 WLR 1274.
Cape Intermediate Holdings Ltd v Dring [2019] UKSC 38; [2020] AC 629.
Clarkson plc v Persons Unknown [2018] EWHC 417 (QB).
CMOC v Persons Unknown [2017] EWHC 3599 (Comm).
Colonial Bank v Whinney (1885) 30 Ch D 261.
LJY v Persons Unknown [2017] EWHC 3230 (QB); [2018] EMLR 19.
National Provincial Bank Ltd v Ainsworth [1965] AC 1175.
Norwich Pharmacal Co v C & E Commrs [1974] AC 133.
NPV v QEL [2018] EWHC 703 (QB); [2018] EMLR 20.
PML v Persons Unknown [2018] EWHC 838 (QB).
Polly Peck International plc v Nadir (No. 2) [1992] 4 All ER 769.
Robertson v Persons Unknown (unreported, 15 July 2019, Moulder J).
Scott v Scott [1913] AC 417.
Taher v Cumberland [2019] EWHC 2589 (QB).
Vorotyntseva v Money-4 Ltd (t/a Nebeus.com) [2018] EWHC 2598 (Ch).
Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] CLC 990; [1996] AC 669.
Darragh Connell (instructed by Brandsmiths SL Ltd) for the claimant.
Bryan J: Introduction
1. There is before me today an application made by an applicant, an English insurer who requests to be anonymised, against four defendants. Those four defendants are: the first defendant, persons unknown who demanded Bitcoin on 10 and 11 October 2019; the second defendant, persons unknown who hold/controls 96 Bitcoins held in a specified Bitfinex Bitcoin address; the third defendant, iFINEX Inc trading as Bitfinex; and the fourth defendant, BFXWW Inc also trading as Bitfinex.
2. The application relates to the hacking of a Canadian insurance company that I will refer to simply as the insured customer. What happened in relation to that company is that a hacker managed to infiltrate and bypass the firewall of that insured customer, which happens to be an insurance company, and installed malware called BitPaymer. The effect of that malware was that all of the insured customer's computer systems were encrypted, the malware having first bypassed the system's firewalls and anti-virus software. The insured customer then received notes which were left on the encrypted system by the first defendant. In particular, there was a communication from the first defendant as follows:
‘Hello [insured customer] your network was hacked and encrypted. No free decryption software is available on the web. Email us at […] to get the ransom amount. Keep our contact safe. Disclosure can lead to impossibility of decryption. Please use your company name as the email subject.’
3. The insured customer is insured with the applicant (an English insurer), whom I shall refer to as ‘the insurer’/'the applicant’. The insurer is applying to be anonymised for reasons that I will come on to. The insurer instructed, as is common in such cases, what is known as an incident response company (IRC) that specialises in the provision of negotiation services in relation to crypto currency ransom payments. The insured customer is insured with the insurer against cybercrime attacks.
4. That entity, IRC, then was instructed by the insurer to correspond with the first defendant on behalf of it and the insured customer so as to negotiate the provision of the relevant decryption software (the tool) which would allow the insured customer to re-access its data and systems. Following initial emails from IRC asking the first defendant: ‘To relay your terms of decryption’ the first defendant stated ‘Hello, to get your data back you have to pay for the decryption tool, the price is $1,200,000 (one million two hundred thousand). You have to make the payment in Bitcoins.’
5. After several exchanges the first defendant agreed the value of the payment to recover the tool as follows:
‘as an exception we can agree on US $950K for the tool. You can send us a few encrypted files for the test decryption (do not forget to include the corresponding _readme files as well).’
6. Given the importance to the insured customer to obtain access to its systems, the insurer agreed to pay the ransom in return for the tool.
7. In further correspondence which is exhibited before me, and following the testing of several encrypted files, the first defendant stated as follows:
‘The Bitcoin address for the payment […] When sending the payment check the USD/BTC exchange rate on bitrex.com we have to receive no less than USD 950K in Bitcoins. It takes around 40–60 minutes to get enough confirmations form [sic] the blockchain in order to validate the payment. Upon receipt we send you the tool.’
8. The payment of the ransom in Bitcoin was via an agent of the insurer, who was referred to as JJ, and who assists with the purchase and transfer of crypto currencies, including Bitcoins. Acting on the insurer's instructions and with its authority JJ purchased and transferred 109.25 Bitcoins to the address that was provided.
9. The ransom was subsequently paid at 12.24 on 10 October 2019 and by way of email IRC requested confirmation from the first respondent:
‘Please reply. You have received $950,000 and I am hoping we can get what we need ASAP. Thank you.’
10. The tool was indeed received on 11 October 2019 at 04.07 pacific daylight time by way of the following message:
‘Hello,
Here is the tool
Download
[address]
Delete:
[addres...
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