Seeking an Edge in Judicial Competition: England is Becoming the Leading Crypto Litigation Hub

The Channel is Really an Abyss

When reading court judgments from the UK and the EU, one is often struck by the different attitudes on either side of the Channel. While courts on the continent try to get rid of cases as quickly as possible, their English counterparts seem to tell litigants ‘Bring them on!’. For an illustration of the continental approach, look no further than the Brogsitter case, in which a German Court of First Instance was so determined to reject its jurisdiction that, after being overruled by the Court of Appeal, it even sought help from the CJEU. If you seek evidence for the English attitude, remember the decision in Brownlie II, where the UK Supreme Court accepted jurisdiction in a case in which the connections to England were slight at best.

A Question of Policy

Behind the technical differences in rules on jurisdiction lie discrepancies between policies. Continental judges are career public servants; the number of cases they solve neither determines their salary nor reputation. In contrast, their English colleagues are drawn from the bar; they bring a business attitude to the law, constantly looking out for new customers and trying to improve their courts’ revenues. Geert van Calster aptly calls this the ‘English ‘knack for regulatory competition’. It is no coincidence that the term ‘legal industry’ – an oxymoron from a continental point of view – originates from the English language.

Brexit has damaged the UK’s model by limiting the possibility of exporting the ‘products’ of the English legal industry to the continent. But London courts are already seeking new business opportunities.

The New Promised Land

High revenues can be expected in future, for instance, from the crypto economy. One reason is the typically high litigation values. Another is the blockchain’s lack of connection to any particular state, or rather its connection to all of them, which allows the easy establishing of jurisdiction. As a result, British courts see a new lucrative business in this area. The difficulties of enforcing their judgments in the EU do not matter much in this context, given the global nature of the blockchain.

Various steps have been taken by English courts, and first and foremost by the High Court in London, to become the worldwide leader in crypto litigation.

Claims against ‘Persons Unknown’

First, English courts have allowed actions against ‘persons unknown’ (see e.g. AA v Persons Unknown,Fetch.AI v Persons Unknown et al or Ion Science et al v Persons Unknown et al). These are a particularity of English law that can be used to recover stolen crypto assets or paid crypto ransoms, even where it is unclear who the defendant is. Importantly, the ‘persons unknown’ can also be used as anchor defendants to obtain jurisdictions over foreign crypto exchanges or custodians under the necessary or proper party gateway of Practice Direction 6B, para 3.1(3)(b). In other words, a claim can be brought without the main defendant being known and with the other, known defendants being outside British territory.

Freezing Orders

Second, English courts have issued worldwide proprietary injunctions against foreign crypto custodians, preventing the persons unknown from dealing with or disposing of assets in respect of which a proprietary claim has been made. These injunctions were coupled with orders to inform about the identity of the persons unknown, i.e. the customers who had allegedly alienated crypto-assets (so-called Bankers Trust orders), see e.g. Fetch.AI v Persons Unknown et al paras 30 et seq.

Service out of Jurisdiction

Third, the English courts have permitted claims to be served out of jurisdiction (see again Fetch.AI v Persons Unknown et al or Ion Science et al v Persons Unknown et al). As a connection to England, they have deemed it sufficient that the claimant is domiciled or has his habitual residence or place of business in England, assuming that for this reason the crypto property would also be situated there. This “situs” was used as an argument as to why English law would govern a claim e.g. in tort, property or conversion (see e.g. Fetch.AI v Persons Unknown et al., paras 14-16), which opened up the gateway for service out of the jurisdiction (Practice Direction 6B para 3.1(9), (15), (16). Once any of these gateways are open, the related claims gateway (Practice Direction 6B para 3.1(4A)) can be used to justify jurisdiction over other causes of action, such as unjust enrichment or trust.

Service by Airdrop

Fourth, the English courts have condoned innovative types of service. In one case, they accepted that the defendant could be served by a so-called ‘airdrop’ (D’Aloia v Persons Unknown et al.). This is done by delivering a specific crypto-asset containing information about the claim to the public crypto address of the presumed tortfeasor. The latter’s identity and whereabouts may remain unknown. Still, he is considered to have been served with the claim.

Remedy by Patch

Finally, the English courts have also permitted actions that, at face value, seem without merit. In a particularly salient instance, they have allowed the trial of a case in which an individual claimed to be Satoshi Nakamoto, the inventor of Bitcoin (Tulip Trading Limited v Wladimir Jasper van der Laan et al). The claimant allegedly lost access to his crypto-assets and sought an order against a team of developers in charge of the Bitcoin code to program a patch to restore his access. The Court of Appeal thought this remedy could not be excluded outright. In the end, the High Court dismissed the claim for lack of evidence, but only after considerable time and money had been spent.

Regulatory Action

It fits into the emerging picture that the UK has created a group called the ‘UK Jurisdiction Taskforce‘, which combines experts from the judiciary and the bar and is tasked with promoting English law and UK jurisdiction for ‘tech and innovation’. Since 2019, it has issued various statements; inter alia, it has confirmed that Common law can accommodate crypto-assets as property, which is vital for crypto litigation. With the same objective, the Law Commission has suggested legislative reform in its final report on digital assets.

Lessons for EU Courts

The crypto cases and initiatives illustrate how English courts seek to position themselves favourably in global judicial competition. Their welcoming attitude and far-reaching tools will likely attract claimants to English soil. If courts in EU member states want to have a slice of the crypto business and protect their residents as effectively as possible, they need to wake up and smell the coffee. Otherwise, it may be too late, and England may dominate yet another area of law.

— I am very grateful to Ugljesa Grusic for numerous insights and clarifications on English law. Thanks also to Paul Lehmann for his language review.