In July this year, the English High Court made its first asset preservation order over Bitcoin held in an account on a cryptocurrency trading platform. This was followed in late September by the Court granting a freezing order in another case. This time over Bitcoin and Ethereum held by another trading platform.
The first case (Robertson v Persons Unknown)
In the first case, Mrs Justice Moulder found that there was a serious issue to be tried as to whether the claimant could claim title to Bitcoin as personal property.
After receiving a spear-phising email, the claimant transferred 100 Bitcoin to an individual, who then transferred 80 Bitcoin to another individual. Through analysis of the Bitcoin blockchain, the 80 Bitcoin was traced to a digital wallet held by Coinbase, a digital currency exchange platform.
The court declined to grant a freezing order against “persons unknown”. Mrs Justice Moulder was not persuaded that the risk of dissipation of the Bitcoin was high enough to meet the requisite threshold or that the balance of convenience supported granting a freezing order. She also expressed reservations as to whether a freezing order would be effective in this situation. Instead, she granted an asset preservation order over the Bitcoin in the digital wallet (worth, at the time, around £1 million) - satisfied that the claimant had met the lower threshold of establishing an arguable case - and a bankers trust order to reveal the identity of the wallet owner.
The second case (Elena Vorotyntseva v Money-4 Service Limited t/a Nebeus.com and others)
In the second case, Mr Justice Birss was satisfied that a freezing order could be granted. He made the order against a cryptocurrency trading company and its two directors over 293 Bitcoin and 400 Ethereum (worth, at the time, around £1.5 million).
The claimant had transferred the cryptocurrencies to the defendant company on that basis that it would be traded on her behalf. After becoming concerned that the company no longer held her funds, she sought a freezing order.
The court found that there was a serious risk of dissipation because the evidence put forward by the defendants did not demonstrate that they still had the claimant’s cryptocurrency. Mr Justice Birss noted that the defendants did not dispute the claimant’s proprietary claim to the funds and had not argued that cryptocurrency was not a form of property. He was therefore satisfied that the court could make such an order.
Clarity around legal status of cryptocurrency
Until recently, questions remained as to whether cryptocurrency constitutes property under English law, as opposed to merely data or information. It does not fall squarely within either category of property in the traditional, English legal sense; the intangible nature of digital currency means there can be no “physical’ possession, and it is not something that can be obviously claimed or enforced by action given that it is decentralised.
There are limited examples of other forms of property being recognised under English law; patents as specified by the Patents Act 1977, being the obvious example. More unusually, the Hong Kong courts found in 1987 that export quotas fell within the definition of property in the Theft Ordinance 1970 (being identical to the English Theft Act 1968) and, in 2012, the High Court found that EU carbon trading allowances also constituted property.
Earlier this year, the Singapore International Commercial Court held that Bitcoin is personal property that can be the subject of a trust. The judge noted that “cryptocurrencies are not legal tender in the sense of being regulated currency issued by a government but do have the fundamental characteristic of intangible property as being an identifiable thing of value”. He did not consider the question in any detail, though, as the parties did not dispute that cryptocurrencies may be treated as property in a generic sense.
Now, following its consultation on cryptoassets, distributed ledger technologies and smart contracts, the UK Jurisdiction Taskforce has provided clarity on the critical question of whether cryptoassets are property under English law. The legal statement confirmed that cryptoassets have all the indices of property and should be treated as such.
In the UKJT's own words, it provides "a degree of legal certainty as regards English common law in an area that is critical to the successful development and use of cryptoassets and smart contracts in the global financial services industry and beyond."
"The UKJT believes that investor confidence would grow significantly if it were clear that cryptoassets were property in English law, that they could be the subject of a security interest and that smart legal contracts give rise to binding legal obligations." Sir Geoffrey Vos, Chancellor of the High Court