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English High Court judgment paved the way for crypto-litigation

In the recent case of AA v Persons Unknown [2019] EWHC 3556 (Comm), the English High Court concluded that cryptoassets, in particular Bitcoin, can be treated as “property” and can therefore be the subject of a proprietary injunction.


The Insurer sought to recover the Bitcoin by issuing various proprietary claims (restitution and/or as constructive trustees) in respect of money which had been demanded from its customer as a ransom and paid in Bitcoin. The customer’s computer systems had been hacked and encrypted. It received ransom demands from persons unknown, the 1st defendant. The insurer agreed to pay US $950,000 in Bitcoin, and the system was decrypted. The money was transferred into a Bitcoin account controlled by persons unknown, the 2nd defendant, and linked to a Bitcoin exchange operated by the 3rd and 4th defendants.

The insurer brought ex-parte applications seeking, amongst other things, proprietary injunctions to restrict the defendants’ ability to use and/or transfer the Bitcoin, given the high likelihood that the Bitcoin would be dissipated before a final judgment was issued.


In considering whether the insurer was entitled to such a proprietary injunction, the court had to consider whether a cryptoasset could constitute property.


Cryptoassets as Property


Bryan J, in answering the pivotal question of whether or not cryptoassets are property, accepted that the question was of peculiar nature since, under the traditional view enunciated in the case Colonial Bank v Whinney [1885] 30 Ch.D 261, property can have only two forms, either:

(1) ‘thing in possession’ (ie, tangible assets) or

(2) ‘thing in action’ (eg, debt or contractual rights).


Anything else, between the two, is no tertium quid and is not recognizable under the law.

Cryptoassets are neither a "thing in possession" because they are virtual and cannot be possessed nor a ‘thing in action’, because they do not embody any right capable of being enforced.


However, after considering the detailed analysis of the legal statement of the UK jurisdictional Task Force on “Crypto-Assets and Smart Contracts” dated 11th November 2019 (“UKJT Legal Statement”), he concluded that while a cryptoasset might not be a ‘thing in action’ on the narrow definition of that term, that did not in itself mean that it cannot be treated as property.


Bryan J, in adopting the detailed analysis of UKJT Legal Statement, agreed that the Colonial Bank case should not be read as limiting the scope of things that can be property in law since common law has the ability to stretch traditional definitions to facilitate and adapt to new business practices.


He further noted that cryptoassets, such as Bitcoin, satisfy the criteria set out in Lord Wilberforce’s classic definition of property in National Provincial Bank v Ainsworth [1965] 1 AC 1175 since they are: (i) definable; (ii) identifiable by third parties; (iii) capable in their nature of assumption by third parties; and (iv) have some degree of permanence.


Bryan J also referred to the judgment of the Singapore International Commercial Court in B2C2 Limited v Quoine PTC Limited [2019] SGHC (I) 03, which followed the same approach on the issue.


It must be noted that the Court of Appeal of Singapore (Quoine PTC Limited v B2C2 Limited [2020] SGCA(I) 02), did not decide on the issue of the nature of the cryptocurrencies; even though it examined and discussed it, the court stated at paragraph [144]:


There may be much to commend the view that cryptocurrencies should be capable of assimilation into the general concepts of property. There are, however, difficult questions as to the type of property that is involved. It is not necessary for us to come to a final position on this question in the present case”.


Comment


The decision of Brian J clarifies the legal status of cryptoassets as property by providing detailed judicial reasoning. While the characteristics of cryptoassets can vary, the decision indicates that the common law courts are likely to find that established, tradable cryptocurrencies can be treated as property.


Thereby paving a path of certainty and protection for victims of cyber-attacks and cryptocurrency investors in cases of misappropriation.


Cyprus courts


The Cyprus courts, by virtue of Section 29(1)(c) of the Courts of Justice Law (14/1960), apply “the common law and the doctrines of equity save in so far as other provision has been or shall be made by any law”.


In essence, English case law and principles are extensively applied and provide valuable guidance to the Cyprus courts.


In view of the above, it is highly arguable that the Cyprus courts will apply the dynamic principles of common law, to safeguard the interest of victims of cyber extortion who have paid ransom in cryptocurrencies. In doing so, the seminal judgment of Bryan J will be of immense assistance.


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The content of this article is valid as of the date of its first publication. It is only intended to provide a brief introduction to the particular subject matter. Detailed specialist advice should be taken prior to taking or refraining from taking any action as a result of the information contained in this article.


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