The importance and implications for people who use cryptocurrencies and digital assets
A series of protests and blockades in Canada against COVID-19 mandates and restrictions, called the “freedom convoy” by organizers, began earlier this year. It occupied downtown Ottawa in January and February, attracting international attention. In response to protests and blockades in downtown Ottawa, the Government of Canada invoked the emergency law and declared a public order emergency. A number of decrees were then passed in accordance with the legislation and the declaration, which not only prohibited certain public gatherings and restricted the use of goods to support demonstrations and blockades, but also prohibited anyone from providing goods, including currency or digital currency, to or for the benefit of participants in protests and blockades. Meanwhile, a number of those affected by the convoy have launched a putative class action lawsuit against some protest organizers, supporters and participants on behalf of a proposed class of affected residents, businesses and employees, asking for up to to $20 million in damages and other reparations for alleged private and public nuisance.
In this putative class action, the plaintiffs filed a motion for ex parte (without notice) in the Ontario Superior Court of Justice on February 17, 2022 seeking a civil freezing order, known as Mareva injunction, to prevent defendants from dissipating their assets in a way that could deprive plaintiffs of an effective remedy, leaving them with an unenforceable civil judgment.
A Mareva the injunction is an extraordinary remedy. The test for obtaining a Mareva the injunction is strict and well established. A plaintiff must establish not only the typical factors required for an injunction, but also that: (i) they have a seemingly strong case against the defendant, (ii) the defendant has assets in the jurisdiction, and (iii) there is a serious risk that the defendant will dissipate those assets or remove them from the jurisdiction if the order is not granted.
The Court granted the Mareva interim injunction (for a period not exceeding 10 days) and published detailed reasons for its decision, reported here like Li et al. vs. Barber and. Al., 2022 ONSC 1176. Notably, the court-issued order specifically applies to cryptocurrencies and includes a schedule setting out a detailed list of specific crypto wallets to be frozen, including over 100 wallet addresses. The Order prohibits any person notified to the Order (including any crypto exchange served with the Order) from selling, removing, dissipating, alienating, transferring, assigning, encumbering or otherwise dealing in any of the assets subject to the Order. Anyone who knows about the Order and does anything that aids or enables defendants to violate the terms of the Order may be found in contempt of the Order and could be fined or sentenced. of imprisonment.
In its reasons, the Court held that there was apparently strong evidence to establish tort liability. The Court also found that plaintiffs presented clear evidence (including in the form of a report from an expert investigator who had monitored activity in the affected digital wallets) that defendants are the owners of the digital wallets that have amassed bitcoins or other assets, and these digital assets, hosted by digital institutions, are subject to the jurisdiction of the courts of Ontario. The Court was also convinced that there was a risk that the defendants would squander the assets as soon as possible. Based on these and other findings, the Ontario court awarded the Mareva injunction temporarily freezing defendants’ crypto assets.
The Court’s decision appears to have been guided, in part, by the finding that the defendants moved to crypto-based funding specifically to: (i) avoid government seizure and (ii) protect funds from platforms such as GoFundMe. , which had recently frozen and returned some funds to donors after finding that protest-related activities the fundraising campaign was supporting violated its terms of service. Here, the Court found that the funds were deliberately placed outside the control of any conventional fundraising platform such as GoFundMe and that the defendants were promoting the use of cryptocurrencies as an alternative measure under the belief erroneous that the crypto was not found and could not be entered. by the judicial authorities. The Court also found that there was ample evidence, including text messages and social media posts, regarding plans to distribute cryptocurrencies as soon as possible, partly for the benefit of individual protesters, but also to avoid any application activity.
The granting of the Mareva the injunction in this case is significant for a number of reasons, including that it appears to be one of the first reported decisions (if not the first reported decision) in Canada of a Mareva injunction that explicitly freezes cryptocurrencies. While a Mareva the injunction is by no means a new remedy in Canada, and Mareva the orders will generally apply to all of a defendant’s assets, which naturally would include the defendant’s crypto assets, this appears to be one of the first times (if not the first time) that a Canadian has made a ruling regarding Mareva the injunction expressly addressed the freezing of digital cryptocurrency wallets specifically. In its decision, the Court noted that digital funds are not immune from execution and seizure to satisfy a debt, nor are funds in a bank account. This is in line with practice now emerging in other jurisdictions, such as the UK, where courts have recently granted similar civil freezing orders on cryptocurrencies.
Another noteworthy aspect of the Court’s decision is that the Court exercised its discretion to exempt the plaintiff from the obligation to provide an undertaking as to damages, which is a typical condition for obtaining an injunction. Under Ontario Rule 40.03 Rules of civil procedure, unless the Court orders otherwise, a party seeking an injunction is required to undertake to pay damages to the defendant if the injunction is ultimately found to be unjustified and to have caused prejudice to the defendant. Courts rarely waive this requirement, although courts may do so in certain circumstances, including where the case is of great importance to the public interest or the case concerns human rights. In the present case, the Court is satisfied that it is appropriate to dispense with this requirement in view of the nature of the action and the evidence presented to it in the context of the motion.
Whereas cryptocurrencies and other digital assets are stored on public blockchain-based ledgers that can be viewed by anyone, and the sophistication of litigants and the investigative and tracking techniques they can use have improved, cryptocurrencies and other digital assets no longer escape detection. to the same extent as before, and, indeed, are increasingly subject not only to regulatory enforcement and seizure, but also to civil enforcement and seizure by private litigants.
The Court’s decision granting the Mareva injunction presents several key points for industry participants:
- Private litigants should expect there to be more and more enforcement options, which innovative lawyers can seek to exploit to gain access to assets considered largely out of reach.
- Digital asset service providers, such as exchanges and digital wallet providers, should be aware of their legal obligations when receiving court orders such as Mareva injunctions and have robust compliance regimes that will allow them to respond quickly to legal requests. Even if service providers do not directly own assets or perform a custodial function, they are not immune from regulatory and civil litigation. For example, even if a digital asset service provider cannot freeze digital assets under a Mareva order due to technical impossibility since exclusive control and access to assets is held by private keyholders, they may still be subject to Norwich Pharmacy orders or other disclosure orders from third parties requiring them to provide user information. It is essential that service providers recognize that as cryptocurrencies and other digital assets such as non-fungible tokens grow in importance, service providers will increasingly face complex legal challenges and requirements that require prompt and diligent action.
Although relatively nascent, the cryptocurrency space has already provided fertile ground for civil litigation, including class action lawsuits directly against crypto lending and exchange platforms and other operators in the space. crypto for, among other things, violation of securities laws, violation of consumer protection laws, civil fraud, breach of contract, misrepresentation and unjust enrichment. If it remains to be seen whether the Mareva the injunction that was granted in this case will expire or be lifted, or otherwise modified if extended, the original grant of the Mareva the injunction may represent a watershed moment in the Canadian cryptocurrency industry, as it reflects the beginning of an upward trend in digital asset enforcement activity by private plaintiffs and the courts. We expect this to become increasingly mainstream as acceptance and adoption of blockchain technology, cryptocurrencies, and other digital assets become more widespread.
 There must be a genuine issue to be decided, the moving party must establish that they may suffer irreparable harm if the order is not granted, and the balance of convenience must favor the granting of the order.
 Bennett Jones LLP has acted in at least one case where a cryptocurrency preservation order was obtained from the Ontario Superior Court of Justice, on consent, without a published decision (Hyatt vs. Burns, CV-18-00595740-00CL). Similar orders may have been granted by Canadian courts in other cases without published decisions.
 For example Ion Science Ltd v Unknowns (unpublished UK Commercial Court decision, 21 December 2020)