According to research conducted by Stewarts and Solomonic into commercial fraud claims in the civil courts of England and Wales, the number of cryptoasset-related disputes has more than quadrupled since 2019.

Stewarts partner Marc Jones authored the cryptoassets section of the ‘Analysing trends’ report on fraud claims, addressing both the significant increase in cryptoasset claims overall and the notable overlap with fraud.

Last year, there were 19 cryptoasset claims in the English courts, of which five were fraud claims. This compares to just four cryptoasset claims in 2019, with the upward trend indicative of the ascent of cryptoassets into the mainstream and its ascent to a legally recognised asset class. It also coincides with the Covid-19 pandemic and the widely reported increase in online fraud generally during that period.

According to recent research by the Financial Conduct Authority, it has been estimated that 4.97 million UK adults own cryptoassets, amounting to just under 10% of the population. As the popularity of cryptoassets continue to rise, the number of cryptoasset claims will likely also continue to increase. According to the UK’s fraud reporting agency, Action Fraud, there has been a 40% rise in crypto fraud in the UK over the last year, surpassing £300m for the first time.

Legislative moves are well underway to bring a broad range of cryptoassets under the same regulatory framework that currently applies to other financial instruments. The hope is that, in doing so, consumers will be better protected, and fraud reduced, though it may also lead to an increase in regulatory litigation against cryptoasset service providers. It may also lead to a continued increase in the variety of disputes concerning cryptoassets, moving beyond fraud to, for example, professional negligence and financial market disputes.

Marc Jones comments:

“The increase in civil fraud claims concerning cryptoassets in the English courts mirrors the growth in recent years of cryptoasset ownership and related crime. The English courts have responded quickly in adapting English law to give victims a better chance of recovering their assets. That in turn may be encouraging more victims to take action in the courts.”

Cryptoassets in court to date

What is perhaps surprising given the prevalence and value of crypto-related fraud – and in contrast to the number of high-profile and high-value recoveries that have been made both in the UK and internationally – is that there are very few fraud cases making it to court. This may reflect anecdotal experience that the vast majority of such frauds concern amounts which it is uneconomic to pursue in High Court litigation.

English courts have been at the forefront of efforts to develop the law rapidly to enable victims of crime to bring actions for the recovery of cryptoassets. The English courts were amongst the first to recognise that cryptoassets can be legal property (Robertson v Person Unknown, 16 July 2019 (unreported) followed by AA v Persons Unknown [2019] EWHC 3556 (Comm)) and have taken a highly flexible and innovative approach to issues such as jurisdiction and governing law to ensure that claims can be heard before the English courts.

The result has been that the English courts have now granted several proprietary injunctions over cryptoassets, including worldwide freezing orders relating to cryptoasset frauds and a number of third-party disclosure orders against crypto exchanges located overseas. Court procedure has been amended specifically to make it easier to serve defendants in these types of cases outside the jurisdiction, and service has recently been permitted via NFT (see D’Aloia v Persons Unknown [2022] EWHC 1723 (Ch)). These developments are no accident but reflect a recognition within the judiciary, from the top down, of the importance of this developing area. It is fair to say that, when it comes to cryptoassets, the English judiciary “get it”.

The English High Court is without a shadow of a doubt one of the best venues – I would say the best – in the world for claimants to bring crypto-related fraud claims.

Key trends to watch

We expect the number of cryptoasset claims to continue to increase, with English law continuing to be at the forefront of legal developments in this area. The industry continues to grow and, in recognition of that, legislative moves are now well under way in the UK to bring a broad range of cryptoassets under the same regulatory framework as applies to other financial instruments. The hope is that, in doing so, consumers will be better protected and fraud reduced, though it may also lead to an increase in regulatory litigation against cryptoasset service providers. In a more mainstream and regulated commercial environment, one might also expect see a continued increase in the variety of disputes concerning cryptoassets, moving beyond fraud to, for example, professional negligence and financial market disputes.

The UK’s fraud reporting agency, Action Fraud, recently found that there has been a 40% rise in crypto fraud in the UK over the last year, surpassing £300m for the first time. The willingness of the English courts to develop the law to accommodate victims of crypto-related fraud has certainly helped remove uncertainties and lower the barriers to obtaining effective remedies against fraudsters. Whether, as a result, there will be an increase in claimants reflecting the increase in fraud has yet to be seen.

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