In the case of AA v Persons Unknown [2019] EWHC 3556 (Comm) (17 January 2020), the Commercial Court found that cryptocurrencies are property as defined by English law and capable of being subject to an interim proprietary injunction.
The Commercial Court allowed a private hearing of an application by the English insurer of a Canadian insurance company for injunctive relief in proceedings following a successful cyber-attack against the Canadian insurance company.The cyber-attack occurred in October 2019 and encrypted the Canadian insurance company's computer systems. The persons unknown demanded 96 bitcoins in exchange for the decryption software. The ransom was paid by the Canadian insurance company (through a specialist intermediary), but it was able to trace the Bitcoin to a cryptocurrency wallet held with Bitfinex using specialised software.
Bryan J considered it appropriate to hear the English insurer's application in private to secure the proper administration of justice. The publicity of a public hearing would have defeated the object of the application had it tipped-off the persons unknown and the Bitcoin been dissipated. An anonymity order was granted to protect the identities of both the Canadian and English insurance companies due to the risk of retaliatory cyber-attacks by the persons unknown.
The claimant sought to recover the bitcoin by virtue of, amongst other things, the imposition of a constructive trust. In addition, the claimant also sought disclosure orders as against the cryptocurrency exchanges which operated the cryptocurrency wallets containing the bitcoin (and which were outside of the jurisdiction) to verify the identities of the wrongdoers.
Bryan J satisfied himself that cryptoassets are a form of property under English law: being definable, identifiable by third parties, capable in their nature of assumption by third parties and having some degree of permanence. As a result, and building on from the Robertson v Persons Unknown and Vorotyntseva v Money-4 Ltd decisions, cryptocurrencies are capable of being the subject of a proprietary injunction. An interim proprietary injunction was therefore granted, as well as ancillary disclosure orders, having considered that there was a serious issue to be tried and the balance of convenience lay in granting the relief sought.
Commentary
Although the cryptoasset markets continue to see significant growth, the legal uncertainty surrounding cryptocurrencies is often cited as a deterrent to adoption, investment and development. Whilst cryptoassets have sat outside of traditional financial systems because of their decentralisation, the judicial finding of the Commercial Court that cryptocurrencies, specifically bitcoin, constitute property is significant. The Commercial Court helpfully cited and accepted the reasoning in the UK Jurisdictional Taskforce (UKJT) Legal statement on cryptoassets and smart contracts (November 2019) that cryptoassets fell within legal rules. However, we anticipate that each case will need to be considered on its own merits, particularly given the sheer variety of cryptocurrencies (and their nature, and use cases).
The finding that cryptocurrencies are property within English law will have foreseeable consequences for a number of more settled areas, including cases of fraud, theft and breach of trust. Further judicial consideration of this developing area is inevitable and we expect to see continued recognition of cryptocurrencies as property in the English courts (coupled with injunctive relief, tracing and complex asset recovery strategies).