This article was first published in New Law Journal.
When it first started trading, the initial price for one Bitcoin was less than a dollar. At the time of writing, that price is just over $18,000 per unit having settled from a previous high of almost $50,000. The rise of Bitcoin and other cryptocurrencies has been coupled with a rise in crypto-related crime, which has created the need for redress in the courts. Consequently, the demand for freezing orders and proprietary injunctions over these assets has increased. In turn, this has led to many legal questions many of which we still cannot say have been decided explicitly.
First, it is worth considering how property is defined under UK law. Section 205 of the Law of Property Act 1925 states that: ‘Property includes any thing in action, and any interest in real or personal property’. Given this basic definition, which distinguishes between personal and real property (but states that property ‘includes’ these categories rather than being limited to them), it seems obvious that cryptocurrencies should be viewed as a new form of personal property from a statutory perspective. However, the definition of property in Colonial Bank v Whinney (1885) 30 Ch D 261 also needs to be considered. In this case, Fry LJ stated that: ‘All personal things are either in possession or in action. The law knows no tertium quid between the two.’ As a result, the courts have viewed property as being either:
i. that which is of a physical nature (‘in possession’), such as a house; or
ii. a right that can be enforced through legal action (‘in action’), such as a trademark.
Importantly, common law has established that it does not recognise any third type of property. This poses questions as to whether cryptocurrencies should be considered property given that they arguably do not fit neatly into either category.
However, the courts have been willing to treat cryptocurrency as property to date. In Vorotyntseva v Money-4 Ltd (trading as Nebeus.Com) and others  EWHC 2596 (Ch), the High Court held that there was no ‘suggestion that cryptocurrency cannot be a form of property’ and Birss J granted a worldwide freezing order to prevent cryptocurrency assets being dissipated.
On 18 November 2019 the UK Jurisdiction Taskforce (UKJT), chaired by Sir Geoffrey Vos (then Chancellor of the High Court), published its statement on smart contracts and cryptocurrencies. The UKJT concluded that cryptocurrencies are capable of constituting property under English law, having all the distinguishing marks of property as required by National Provincial Bank Ltd v Ainsworth  AC 1175. In that case, Lord Wilberforce provided his classic definition of property as something which is: ‘definable, identifiable by third parties, capable in nature of assumption by third parties and have some degree of permanence or stability’.
Consequently, the UKJT has stated that cryptocurrencies’ novel characteristics do not disqualify them from being property, nor are they disqualified as pure information. They are definable, identifiable by third parties, and have some degree of permanence or stability. Title can be vested or transferred by assignment or agreement with the owner of the assets. They also possess other important proprietary features: for example, they are certain and are able to be controlled at the exclusion of others.
The case of AA v Persons unknown  EWHC 3556 (Comm)provided more definitive guidance. In this case, Mr Justice Bryan confirmed that the UKJT’s analysis was an ‘accurate statement’ of English law and ‘that cryptocurrencies are a form of property capable of being the subject of a proprietary injunction’. According to Bryan J, cryptocurrencies should be treated as property because they meet the requirements set out in National Provincial Bank v Ainsworth.
Further cases, such as Ion Science Ltd v Persons Unknown (unreported, 21 December 2020) and Wang v Darby  EWHC 3054 (Comm), have also confirmed this approach. In Wang v Darby, the court stated that ‘fungible and non-identifiable digital assets constitute property that is capable of being bought and sold as well as held on trust as a matter of English law’.
AA v Persons Unknown and Ion Science were without notice applications, so the judge in each case was only being asked whether there was a good arguable case that the assets in question were property. However, the more recent decision of Tulip Trading Ltd (a Seychelles company) v Van Der Laan and others  EWHC 667 (Ch),  All ER (D) 106 (Mar) did have defendants present, and Mrs Justice Falk, as she then was, held (obiter, and in line with other recent authorities referred to above) that cryptocurrency is property.
While it seems the courts have been willing to identify cryptocurrency as property, it is still intangible and so determining where the assets are located (and thus where the dispute should be tried) is not obvious.
In Ion Sciences, the English court was willing to proceed on the basis that the assets are located where the person who owns the assets is domiciled. Mr Justice Butcher in his judgment stated that a cryptoasset is situated in ‘the place where the person or company who owns it is domiciled’, but he commented that, at the time, there were no decided cases in England on this question. In Tulip Trading Ltd, Falk J held (obiter) that the lex situs of cryptocurrency is likely to be the place where the owner is resident, rather than where it is domiciled.
In relation to where cryptocurrencies should be located, the UKJT stated, in its November 2019 statement on smart contracts and cryptocurrencies, that: ‘…it does not make much sense to say that there is any one country where the asset is recoverable or enforceable. In the circumstances, we think that there is a good argument for saying that the normal rules should not apply. There is very little reason to try to allocate a location to an asset which is specifically designed to have none because it is wholly decentralised’ … and that: ‘Ultimately, we believe that these complex issues will best be resolved by legislation, most likely following international cooperation.’
In Tulip Trading Ltd, the claimant (a Seychelles company) alleged that it had suffered a hack and claimed $4.5bn from 16 developers who controlled the software in respect of the relevant digital asset networks allowing access to the Bitcoin. The claimant alleged that those defendants owe it fiduciary and/or tortious duties which mean that they should assist it in regaining control and use of its assets by writing a patch to the blockchain network. That patch would not have been technically difficult to write and would have allowed the claimant to regain control of its assets.
However, the court determined that the developers in this instance did not owe fiduciary duties or a common law duty of care in this instance to essentially help recover the assets when they were not at fault for their theft.
Mrs Justice Falk highlighted that this was not a case where the defendants, in updating their network, had acted in their own interests and contrary to the interests of owners. For example, had it been a case where they were introducing a bug or feature that compromised owners’ security but served their own purposes, then Mrs Justice Falk said that it was conceivable that some form of duty could be engaged in that situation (although she questioned whether it would properly be characterised as a fiduciary duty).
The judgment has been a welcome one for open-source Bitcoin software developers, whose code is widely adopted and used to trade or store cryptocurrencies, as it suggests that they do not have a positive obligation to assist an individual whose cryptoassets have been stolen from their networks.
In Fetch.ai Ltd and another company v Persons Unknown Category A and others  EWHC 2254 (Comm), the English courts demonstrated their willingness to assist a victim of crypto-fraud seeking to obtain information to particularise claims for misappropriated funds. In Fetch.ai Ltd, the court was willing to grant wide ranging remedies to two ‘Fetch’ companies, against:
a. the unidentified fraudsters who had accessed and transferred cryptocurrency from their accounts;
b. the two Binance entities, who managed the accounts and exchange; and
c. the recipients of the misappropriated cryptocurrency—though a distinction was made between innocent and fraudulent recipients of the currency.
In his decision, Judge Pelling KC said that the applicants’ initial formulation of the relief against these individuals was ‘too wide ranging’ and had the potential to capture individuals who had received the assets unknowingly having paid full price for them.
Consequently, Judge Pelling KC divided the ‘Persons Unknown’’ into three categories:
In doing so, he limited proprietary relief to: ‘those assets which the third category of persons unknown either knew, or ought reasonably to have known, belong to the claimant or did not belong to them’.
With regards to the relief granted against the Binance entities, Judge Pelling KC was willing to grant Bankers Trust orders (BTOs) against both (which is an order for disclosure of confidential documents from the potential defendant’s bank to assist a proprietary claim to trace the assets).
At the time, Norwich Pharmacal orders (NPOs) (which, like a BTO, is a third-party disclosure order, but is aimed more broadly at obtaining documents from a third party, usually for the purposes of identifying the defendant or gathering sufficient information to particularise a claim against them) could not be served outside the jurisdiction by the English courts. Further, there were conflicting authorities as to whether the English courts have jurisdiction to order a BTO against a party outside the jurisdiction.
However, in this case, Judge Pelling KC was willing to grant a BTO against the Binance entities, including the administrator of the cryptocurrency exchange incorporated in the Cayman Islands.
From 1 October 2022, Practice Direction 6B of the Civil Procedure Rules has been amended to include a new gateway specifically allowing for third-party information claims (ie NPOs and BTOs). This will hopefully make it easier for victims of fraud to obtain the information they need from outside the UK in order to bring an action.
There is a willingness to adapt the jurisdictional framework to make it easier for the English courts to assist applicants who have been the victim of crypto-fraud. However, the question remains as to where the balance of legal assistance will come to rest if and when more of these cases are tried at contested hearings. As the body of case law currently stands, we have only a small handful of crypto cases where the defendant has participated in the proceedings.
There is no doubt that the English courts have been willing to adapt to this relatively new asset class and have been keen to assist those who have been the victim of crypto-related fraud—that is the good news for those in the space and for future victims. However, this is a relatively new currency, and consequently there have been relatively few cases to test the legal principles and how they have been applied.
Furthermore, because of the nature of cryptocurrency, whereby the wrongdoers are largely unknown, it has meant that many of the cases have been heard without the defendants present. Consequently, the opportunity for robust arguments to be exchanged in order to test where the legal lines should be drawn has been sparse and, as a result, the legal decisions which have been made in this space to date remain relatively untested. Suffice to say, lawyers will continue to ‘watch this space’ with eager anticipation.
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