This publication is part of the Lex Digitalis: At the Crossroads of Dispute Resolution and Digital Innovation series by Economou & Co LLC, where we explore the intersections of law, technology, and dispute resolution in the digital age.

Introduction

The rise of digital assets and decentralized technologies has introduced new challenges in dispute resolution, particularly in the realm of cybercrime and the protection of intellectual property in virtual spaces. As cryptocurrency, NFTs, and blockchain technology continue to evolve, courts are increasingly called upon to issue interim injunctions to protect digital assets and prevent irreparable harm. This article explores recent cases from the British Virgin Islands (BVI) and England and Wales, offering insights into how interim injunctions are being applied in the context of digital crime, and the potential implications for Cyprus and broader international legal frameworks.

The BVI’s Groundbreaking Freezing Injunction Against Unknown Hackers

In ChainSwap Limited v Persons Unknown, a freezing injunction was granted against persons unknown accused of cybercrimes related to the theft of digital assets. The case concerned ChainSwap, a company providing a service that allows cryptocurrency tokens to be transferred between blockchains via a smart contract (a cross-chain bridge). Hackers, whose identity remained unknown, exploited vulnerabilities in the open-source code of ChainSwap’s bridge and redirected tokens to their private digital wallets.

The court recognized the significant consequences of the hack, as the stolen assets included tokens from private users who had authorized their wallets to interact with the bridge, as well as from projects issuing digital tokens reliant on ChainSwap’s cross-chain functionality. In light of the cross-border nature of the crime, the BVI Court also issued a letter of request to the Croatian courts, seeking assistance in identifying the hackers through a cryptocurrency wallet associated with a centralized exchange in Croatia.

This decision highlights the growing need for legal frameworks to address cybercrime in the digital space. While the BVI case is specific to that jurisdiction, it offers valuable lessons for other courts, including Cyprus, on the utility of interim injunctions in such cases. Cyprus courts, for instance, are empowered to issue freezing injunctions under the general rule that it is “just and convenient” to do so, provided the following conditions are met:

1. There is a serious issue to be tried.
2. The applicant has a good chance of success.
3. Without an injunction, it would be difficult or impossible to secure justice later.
4. The balance of convenience favors the applicant.

Given the nature of blockchain and cryptocurrency assets, which are often transnational and difficult to trace, the application of these principles will likely become an essential tool for litigants seeking to prevent further asset dissipation in cases of cybercrime.

Freezing Orders in the Context of NFTs: The English Court’s Approach

The issue of digital asset theft was addressed in the English case Osbourne v Persons Unknown, where a freezing injunction was granted in relation to two stolen non-fungible tokens (NFTs). In this case, the claimant alleged that two digital artworks (in NFT form) had been stolen from an online wallet and traced to accounts held by anonymous users. The claimant sought to prevent the dissipation of these NFTs and requested a disclosure order to identify the individuals controlling the wallets to which the tokens had been transferred.

The High Court of England and Wales granted the injunction and the disclosure order, ruling that there was a "realistically arguable case" that NFTs should be treated as property and thus were amenable to a freezing order. The court’s reasoning follows a growing body of case law that recognizes crypto assets as property, subject to legal protections such as injunctions and disclosure orders.

The English court’s decision builds upon previous rulings that treat digital tokens as property located where the owner is domiciled, reinforcing the idea that NFTs can be subject to legal claims in traditional asset-based legal frameworks.

For Cyprus courts, which are governed by the principles of equity and common law, this decision offers valuable guidance. The Osbourne case reinforces the view that NFTs should be treated similarly to traditional property and protected accordingly.

Disclosure Orders Against Crypto Exchanges: Adapting to the Digital Age

Another noteworthy development in the realm of digital assets is the increasing use of disclosure orders against cryptocurrency exchanges. In the case LMN v Bitfyer & Ors, the English High Court issued a disclosure order against multiple cryptocurrency exchanges in an effort to identify the perpetrators behind the theft of digital assets. This decision invoked the Norwich Pharmacal jurisdiction, a powerful remedy that compels third parties to provide information about individuals involved in wrongdoing, even if they are not directly liable.

Lord Woolf’s famous remarks in Norwich Pharmacal about the evolving nature of legal remedies in the face of new technological challenges were reaffirmed in this case. The decision serves as a reminder that the law must adapt to new circumstances and tools, such as cryptocurrency exchanges, which are often used to launder or dissipate stolen assets.

In Cyprus, the flexible nature of Norwich Pharmacal orders has already been recognized, and it is likely that Cypriot courts will continue to apply this approach in cases involving cryptocurrency exchanges and other digital intermediaries. The LMN v Bitfyer case illustrates how disclosure orders can be an essential tool in identifying the perpetrators of cybercrimes, particularly in the complex and fast-moving world of digital assets.

Conclusion: The Role of Interim Injunctions in the Digital Future

As digital innovation continues to reshape the global economy, courts worldwide are finding new ways to address the legal challenges posed by cybercrime and the protection of digital assets. Interim injunctions, including freezing orders and disclosure orders, are increasingly being used to safeguard assets in cases involving cryptocurrencies, NFTs, and other blockchain-based technologies.

For jurisdictions like Cyprus, which already have a strong legal foundation in equity and common law, these developments offer an opportunity to provide more comprehensive protection for digital asset holders. The BVI and English court decisions discussed in this article offer important insights into how interim injunctions can be applied in the digital age, and they provide a roadmap for Cyprus courts in dealing with the complex issues arising from the intersection of dispute resolution and digital innovation.

At Economou & Co LLC, we remain committed to staying at the forefront of legal developments in the digital space and providing our clients with expert advice on how to address the evolving legal landscape of digital assets and blockchain technology.

For further insights regarding the arsenal of interim relief measures available through Cyprus Courts, our readers can explore our guides:

• Preserving Assets and Justice: Interim Orders in Cyprus Explained
• Prohibitory Orders
• Disclosure Orders
• Receivership Orders
• Chabra Orders
• Anton Piller (search) Orders