Authors
Background
Alleged victims of crypto fraud or misappropriation have historically sought remedies not just against the fraudsters themselves, but also the crypto asset exchanges or other intermediaries alleged to have received the proceeds.
In some instances, exchanges do not defend claims. This may be through choice, or it may be that the claimant has failed to make proper notification, leaving the exchange unaware of the claim advanced.
The risk for an exchange in such circumstances is that it might become subject to a default judgment compelling it to provide information and deliver up crypto assets. This may be unsatisfactory for a number of reasons. The alleged fraudster may have reduced its exchange account to zero, leaving the exchange to satisfy the judgment at its own expense. It may even be that the exchange never received any proceeds of fraud in the first place, and the claim is based on unreliable tracing evidence.
Further difficulties arise where the aggrieved exchange or intermediary is a third party which was not named in the original claim or order. In the English court, if such a third party wishes to challenge a judgment, it must meet the test set out in the Civil Procedure Rules (CPR). In addition to showing a “real prospect of successfully defending the claim” or other “good reason”, and further that it “acted promptly” in bringing the set aside application (CPR 13.3(1) and (2)), the applicant must show it was “directly affected” by the order (CPR 40.9).
Facts
In Jones v. Persons Unknown [2025] EWHC 1823 (Comm), Mr Jones, a victim of fraud, obtained an expert report alleging that approximately 89 stolen Bitcoin could be traced to a wallet “tHEL” controlled by the (at the time) Huobi Global Ltd. exchange (Huobi).
Mr Jones brought a claim against the original fraudsters (First Defendants); the Persons Unknown, being the individuals or companies who owned or controlled the accounts into which the assets in question were transferred other than purchasers for full value (Second Defendants); the Persons Unknown, being the individuals or companies who were innocent receivers and had no reasonable grounds for thinking that what appeared in their account belonged to the claimant (Third Defendants); and Huobi (Fourth Defendant).
The claim against Huobi was brought on the basis that it held the assets on constructive trust for Mr Jones.
None of the Defendants, including Huobi, participated in the proceedings. No defence was advanced, and on 6 September 2022, the judge rendered summary judgment against the Defendants.
Upon receiving judgment and an order from the court to pay Mr Jones the 89 point odd Bitcoin – as well as legal costs – from tHEL, Huobi paid Mr Jones that amount of Bitcoin from a crypto asset wallet known as RwrmV. It further appears that, once done, Huobi deducted the same amount of Bitcoin from its off-chain user account of Kyrrex Ltd., another crypto asset exchange, which had made transfers to the tHEL wallet.1
The judgment does not reveal the full wallet addresses of tHEL and RwrmV. It is therefore unknown what role these wallets actually played in the Huobi wallet infrastructure. It has been suggested by other sources that Huobi (now HTX) may have hosted Kyrrex operations in a so-called “nested” structure and/or Kyrrex may have acted as a form of brokerage for Huobi.2 That said, the court commented that “there seem to have been Bitcoin belonging to others as well as Kyrrex within the tHEL wallet”.3 This and the fact it contained large sums suggest it may have been an omnibus wallet deployed for the general running of the exchange.
On 27 November 2024, over two years after Mr Jones obtained his summary judgment, Kyrrex issued an application under CPR 40.9 to set aside the judgment. Kyrrex claimed it had been directly affected by the judgment through the loss of the Bitcoin in its account and that the judgment was tainted because the expert evidence was wrong and misleading. It is said that, by this time, Mr Jones had disavowed his original tracing evidence and sought expert evidence from a different company.4
With respect to delay, Kyrrex acknowledged that it had become aware of the freezing injunction in mid-September 2022,5 but explained that the delay to November 2024 was because: (a) until March 2023 it had not obtained disclosure of documents from Mr Jones and did not have materials necessary to make the application;6 (b) it “spent some months in 2023 ensuring that proceedings via the English Court was the right approach and that we had corporate approval to invest in a potentially costly expert exercise”; (c) from early 2024 to August 2024, its expert was preparing its report, a process which took “around half a year”;7 and (d) the final two months were spent preparing the application.8
Decision
The court declined to set aside its judgment under CPR 40.9 because (a) it found that Kyrrex was not directly affected by the issue and (b) the delay to the proceedings was beyond what was reasonable.
First, regarding the “directly affected” test, the court found that “here is a classic example of an indirect effect”. This was because “it is quite clear on the evidence that Huobi did not need to access any Bitcoin that belonged to Kyrrex or its clients in order to satisfy this judgment”.9 Put another way, the adverse impact Kyrrex suffered was found not to have resulted directly from the enforcement of the judgment and order, but rather from Huobi’s actions in so enforcing it.10 Therefore, the court concluded that Kyrrex did not have standing under CPR 40.9.
Turning to the issue of delay, the court found that the delay in bringing the application and the subsequent prejudice it had on the parties barred Kyrrex from applying to set aside the judgment.11 The judge found that, in determining the length of the applicable delay, the appropriate period was not the two years following the third party becoming aware of the judgment. Rather the “better measure” of delay was the 18 months from when disclosure had been granted.12 That said, 18 months was too long. The length of time said to have been necessary to instruct an expert and then to obtain an expert’s report was unconvincing.13 The judge also found that “delay was … likely to be of significance” because it would affect the ability of Mr Jones to get relief from any other source.14 Further, although the court accepted that the original judgment may have been based on inaccurate expert tracing evidence, only fraud provides an automatic right for a judgment to be set aside. Since fraud was not alleged, the court declined to exercise its discretion to allow the action after the delay.
Interestingly, the court also made a determination on the merits of the prospective dismissal of Mr Jones’ claims, which would have followed the set aside proceedings. The court rejected Kyrrex’s case as there was difficulty in treating Huobi as a custodian of Kyrrex’s assets in view of the nature of the on-chain wallets and also drew attention to the delay by Kyrrex in bringing the application, concluding that Kyrrex’s claim would have failed on the merits in any event.15
Comment
The facts in this case differ slightly from the archetypal fraud claim in which a crypto exchange is named as an additional defendant to persons unknown alleged to have committed fraud. Such exchanges have the advantage of being named defendants and will have standing without recourse to the CPR 40.9 mechanism or need to show they are “directly affected”.
That said, it is an open question what would have transpired had Huobi taken a more active role in defending the claim, particularly in challenging the blockchain analytics presented, and providing information as to its wallet infrastructure, custody arrangements, and on-platform transactions with Kyrrex and others. It may well be that, in responding to the order as it did, Huobi was simply seeking to comply with the spirit of an order in circumstances in which strict compliance was impossible or unsafe due to the nature of its internal architecture and the practicalities of managing on-chain wallets containing hundreds of millions of dollars’ worth of assets. If this was indeed the case, and had it been explained to the court at the time, the order may have been differently structured and the nature of the effect on Kyrrex been drawn out with more clarity.
As it stands, the decision gives rise to a counterintuitive result. On the one hand, it was recognised both by the parties and the court that the original order in question was premised on tracing errors, but on the other, the court felt unable to set aside that order. Put another way, it was apparently clear that none of the assets in the tHEL wallet “related to Mr. Jones”,16 yet the order, requiring assets be delivered up to Mr Jones, was permitted to stand.
It seems that a salient factor was the delay, and the fact that Mr Jones would be unable to obtain recourse elsewhere, having already obtained assets from Huobi, at the expense of Kyrrex, who the court described as “entirely innocent losers”.17
However, non-parties seeking to bring challenges to improperly obtained default judgments might take some comfort in the fact that the date on which time should have started to run for the purpose of ascertaining whether the party applying to set aside the judgment acted promptly was not the date on which the original order was given, but rather that on which the challenging party obtained disclosure.18
1. Judgment at §19.
2. Hunt for missing millions unmasks one crypto exchange hidden inside another
3. Judgment at §19.
4. Judgment at §15.
5. Judgment at §14.
6. Judgment at §§14 and 38.
7. Judgment at §38.
8. Ibid.
9. Judgment at §52.
10. Ibid.
11. Ibid.
12. Judgment at §48.
13. Ibid.
14. Judgment at §49.
15. Judgment at §§44 and 52.
16. Judgment at §18.
17. Judgment at §52.
18. Judgment at §48.
Client Alert 2026-18