Jahangir Piroozzadeh v Persons Unknown Category A
| Jurisdiction | England & Wales |
| Judge | Mr Justice Trower |
| Judgment Date | 02 March 2023 |
| Neutral Citation | [2023] EWHC 1024 (Ch) |
| Docket Number | No. BL-2022-001878 |
| Court | Chancery Division |
[2023] EWHC 1024 (Ch)
Mr Justice Trower
No. BL-2022-001878
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND
AND WALES
BUSINESS LIST (ChD)
Rolls Building
Fetter Lane
London EC4A 1NL
Mr D Armstrong KC and Miss R Muldoon (instructed by Giambrone & Partners LLP) appeared on behalf of the Claimant.
Mr D Quest KC (instructed by Herbert Smith Freehills LLP) appeared on behalf of the Eighth Defendant.
Ms L De Bruyn (instructed by Cooley (UK) LLP) appeared on behalf of the Ninth Defendant.
JUDGMENT APPEARANCES
On 18 October 2022, Sir Anthony Mann made an order without notice against the first three defendants restraining them from dealing with the claimant's cryptocurrency in the form of 870,818 USD Tether (“USDT”) transferred into the eighth and ninth defendant exchanges from what were described as “five last hop wallets”. He also made an order requiring the eighth defendant to preserve the claimant's 479,904 Tether or its traceable proceeds received from three of the five last hop wallets and requiring the ninth defendant to preserve the claimant's 399,914 Tether or its traceable proceeds received from the other two of the identified last hop wallets. Orders were also made for service of the claim form, the order and other documents in the case on the first, second, third, eighth and ninth defendants out of the jurisdiction and by alternative means and for disclosure by the eighth and ninth defendants in exercise of the Bankers Trust jurisdiction.
On 18 November 2022, which was the return date given by Sir Anthony Mann, Michael Green J continued the injunction over a relisted return date hearing to be fixed by the court with a time estimate of one day. The order recorded that he did so because the eighth defendant had indicated to the claimant that it was proposing to contest the application and the claimant had notified the eighth defendant and the court that he intended to call live evidence from his expert intelligence and tracing firm MITMARK. This is the hearing ordered by Michael Green J.
The background can be shortly stated as it appears from the claimant's evidence. During the course of the second half of 2021 (between 29 June and 28 September) the claimant, a resident of Canada, was induced by a complete stranger with whom he had had unsolicited WhatsApp contact to transfer CAD$1,990,051 to two accounts. The first was an account held at the fifth defendant, a US bank, in the name of the fourth defendant also a US entity. The second was an account held at the seventh defendant, a German bank, in the name of the sixth defendant which is a German partnership. The claimant's evidence is that he made transfers to enable foreign exchange trading on an account he was induced to open purportedly with the third defendant, an English company incorporated earlier the same year with a single resident of China as its director and no trading documentation filed. The claimant was then induced to increase his trading capital with the third defendant by transferring eight tranches of Tether to four separate cryptocurrency wallets utilised by the third defendant. These transfers were made over an eighteen-day period in the first half of November 2021 and the total amount transferred was some 870,818 Tether.
By early December 2021, the claimant had realised that he was a victim of a scam because his attempts to withdraw funds from his trading account with the third defendant which itself was a sham were unsuccessful. There is strong evidence that he has, indeed, been the subject of a fraud and that is not an issue in the present application.
It took the claimant some time to instruct solicitors and experts to identify what had occurred. Solicitors instructed first attempted to discover what had happened during the first part of 2022 and the investigation agents were eventually instructed on 28 June 2022. Around about the same time, and the precise dates do not matter, letters before action to the fraudsters and the banks in relation to the Canadian dollars transactions were sent.
The reports the investigation agents produced asserted that it was possible to trace the Tether which had originally been transferred by the claimant to the third defendant's cryptocurrency wallets onwards to the five wallets held with the eighth and the ninth defendants referred to in the order made by Sir Anthony Mann. So far as the eighth defendant is concerned, the evidence is that these were deposit wallets or addresses used by the eighth defendant's own account holders identified only by number. The actual identity of the users of those five wallets was not publicly available information on the blockchain. The disclosure orders made by Sir Anthony Mann have revealed the identity of the users in whose names these five accounts were then held. It is not said that they are parties to the fraud and they have not been joined to the proceedings. Since the original credits were made to the three accounts held by the other users at the eighth defendant, the Tether balances on those accounts have been reduced to zero or almost zero. All of those transactions emptying the accounts occurred some time before the injunction was granted save for a very small balance on one of them attributable to another transaction.
The position is the same so far as the ninth defendant is concerned although it has not formally joined in this application. It has pleaded in its defence and asserted in a skeleton for the purposes of this hearing that the same has happened to the two user accounts held by it. I also understand, although this was not developed in argument before me, that this is claimed to be the position in evidence adduced by the ninth defendant for the purposes of a reverse summary judgment application issued by it some ten days ago but which is not before the court on this hearing.
It is convenient to describe at this stage what happens to crypto assets held at a deposit address with the eighth defendant as explained in its evidence. The uncontradicted evidence adduced by the eighth defendant is that the user does not retain any property in the Tether deposited with the exchange. As it is put in Mr Quest's skeleton argument, the user's account is credited with the amount of the deposit and they are then permitted to draw against any credit balance as in a conventional banking arrangement. The Tether, like other crypto assets, are then swept into a central unsegregated pool address known as a “hot wallet” where they are treated as part of the eighth defendant's general assets. They are not specifically segregated to be held for the sole benefit of the user from whose account they have been transferred. This is what happened in the present case. All of the Tether deposited in the three user addresses held at the eighth defendant were swept into one of two hot wallets. Since that exercise was carried out, there have been hundreds of transactions an hour passing through each of the hot wallets which operate as a central pool. It is evident that, in those circumstances, any attempt to trace the Tether swept into the pool from the three user accounts at the eighth defendant would have been as at the time of the order made by Sir Anthony Mann over nine months later an essentially futile and close to impossible and possibly impossible exercise.
In their application of 30 January 2023 the eighth defendant seeks an order discharging the interim proprietary injunction made against it by Sir Anthony Mann on 21 October on the grounds that it should never have been made without notice and that the claimant's legal representatives failed in their duty of fair presentation. In support of this application which was for good and sufficient reasons heard before any application to extend the injunction or continue the injunction, the eighth defendant makes four headline points. The first is that the claimant did not properly explain the defences likely to be available to the eighth defendant in respect of its alleged liability as a constructive trustee. The second is that the claimant did not explain why there was a sufficient risk of a breach of trust by the eighth defendant to justify an injunction. The third is that the claimant did not explain why damages would not be an adequate remedy and the fourth is that the claimant did not explain how it was that the eighth defendant would in practice be able to comply with the order.
Before explaining my conclusions on the four headline points, I should deal with the initial complaint that the application should never have been made without notice. It is said by the eighth defendant...
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