Take care when seeking an injunction!
Litigation around cryptocurrency is a new and developing area of the law. However, in Piroozzadeh v Persons unknown and others  EWHC 1024 (Ch) the court reminded practitioners that long established principals will still apply when it is asked to consider injunctive relief in the context of novel crypto disputes.
The claimant claimed to be the victim of a crypto fraud and obtained a without notice injunction against a number of people, including the crypto exchange who had allegedly handled the transactions.
One of the corner stones to injunctive relief (particularly where the injunction is obtained without notice to the defendants) is the obligation of full and frank disclosure. This imposes an obligation on the claimant to tell the court everything about the case on a “warts and all” basis: even if the information is potentially harmful to the claimant’s own case. The reason for this is simple – where the court is being asked to make an order that severely curtails the rights of a third party and the application is being pursued quickly and often urgently then the court has to be aware of everything relevant to the making of the order when it balances whether the order should be made. This is particularly acute where the potential defendant is not even aware that any order has been made against it.
When the injunction came before the court again for further consideration, it was discharged. The claimant was ordered to pay the crypto exchange’s costs of defending the injunction application on an indemnity basis. The reasons why the injunction was discharged were:-
- The claimant failed to distinguish between the position of the exchange and the position of other defendants, against whom allegations of fraud were being levied, when making the application without notice. The court indicated that this issue was not, on its own, sufficient to justify the discharge of the injunction, but it was a significant failing as there was no evidence that the exchange would itself take any steps (or permit any steps) if it were forewarned of the application.
- The claimant had failed to notify the court that the exchange might run the defence that they were a bona fide purchaser. Previous litigation with the exchange that the claimant’s solicitor and counsel had been involved in meant that they would have been aware of the possibility of the exchange relying on such a defence. The court noted that previous authorities suggest that the claimant is obliged to notify it of any anticipated defences that a defendant might eventually run when it is applying for the injunction, so that the court can then make a balanced assessment of the application.
- The claimant did not sufficiently explain why damages would not be an adequate remedy. The claimant had only given an explanation for other defendants at the without notice hearing. The court commented how the exchange should not be ‘tarred with the same brush’. When challenged by the judge at the return hearing, the claimant still could not give an explanation that satisfied the court.
- The claimant did not explain how the money could be traced onto the exchange’s platform. This was a particular issue given that the claimant was aware that any receipts went into a mixed fund on the platform, which would make tracing them very difficult.
The above issues meant that the claimant had not complied with its obligation to provide full and frank disclosure, and it had failed to fairly present the application to the judge at the first hearing. Accordingly, the injunction was discharged at the second hearing.
This is a reminder to parties that seeking an injunctive remedy is not for the faint hearted. Applications for an injunction must be presented quickly, but at the same time prepared with great care and considerable thought. It is important that claimants who are seeking an injunction give full and frank disclosure to the court on all of the issues that are relevant to the making of the order (even if those issues are adverse to their case) and give early consideration to whether an injunction is even appropriate. A failure to do this risks handing your opponent an early and potentially embarrassing victory in the proceedings.
Peter Brewer is a partner in the Commercial and Private Client Litigation team in the Birmingham office of Clarke Willmott LLP. He has experience of seeking injunctive relief for clients (and successfully resisting injunctions made against clients) and he would be happy to assist clients dealing with application of that nature.