Cayman Islands: English High Court Confirms Status Of Cryptoassets As Property

In an important decision of the English High Court in AA v. Persons Unknown and Others, Re Bitcoin [2019] EWHC 3556 (Comm) the English High Court helpfully recognises cryptoassets as property and therefore capable of being the subject of interim propriety injunctions.

Facts

In October 2019, cyber-attackers hacked into the computer system of a Canadian insurance company and installed malware called BitPaymer which encrypted those systems, preventing anyone but the hackers from accessing them. The hackers offered decryption software to the insurance company in exchange for a ransom of US$950,000 (payable via Bitcoin). The insurance company paid the ransom through an intermediary, but after the transaction, it was able to trace the Bitcoins using specialist software. Some Bitcoins had been exchanged into a fiat currency, but others had been transferred to a cryptocurrency exchange account linked to one of the defendants. The Canadian insurance company was itself insured by an English insurance company, (the Applicant). The Applicant applied for an interim proprietary injunction over the Bitcoins that remained in the cryptocurrency exchange account.

For the purpose of the application, Mr. Justice Bryan agreed that the hearing should be heard in private and on an ex parte basis. An anonymity order was granted to protect the names of the insurance company and the Applicant. Noting the well-established principles of open justice, Mr. Justice Bryan deemed the privacy of the proceedings necessary due to the risk of retaliatory attacks in addition to the fact that the publicity could defeat the object of the hearing by tipping off the defendants. The fundamental question for the Court to consider for the purposes of the application was whether or not cryptoassets constituted a form of property capable of being the subject of a proprietary injunction.

Cryptoassets as Property

Traditionally, English law only recognises two types of personal property, choses in possession and choses in action. A difficulty arose in seeking to categorise the legal nature and aspects of cryptoassets as a form of property as they are neither choses in possession nor choses in action. They are not choses in possession due to the fact that they are virtual and therefore cannot be deemed to be tangible or possessed. They are not choses in action as they do not embody any right that is capable of being enforced by any action. If cryptoassets could not fall into the classification of a form of property, it would prevent them being the subject of a proprietary injunction or a freezing injunction. The UK Jurisdictional Taskforce (UKJT) published a legal statement on 11 November 2019 considering this issue and provided a detailed analysis as to the proprietary status of cryptoassets (the Legal Statement).

Although the Legal Statement was not a statement of the law, Mr. Justice Bryan considered its analysis as to the proprietary status of cryptoassets compelling, and endorsed its findings as an accurate statement as to the position under English Law. The High Court concluded that a cryptoasset might not be a chose in action on a narrow definition of the term, but that does not mean that it cannot be treated as property. The Court was satisfied that Bitcoin, as a cryptoasset, meets the four criteria set out in Lord Wilberforce's classic definition of property in National Provincial bank v. Ainsworth [1965] 1 AC 1175 as being definable, identifiable by third parties, capable in their nature of assumption by third parties and having some degree of permanence. In granting the interim proprietary injunction the High Court ruled that cryptoassets are a form of property capable of being the subject of a proprietary injunction.

Conclusion

While there had been some limited authority for the proposition that cryptoassets should be deemed as property, this is the first judgment to consider the issue in depth and to fully endorse the conclusions of the Legal Statement. The decision has clarified the status of cryptoassets as property under English Law and, in doing so, provides greater clarity on the potential availability of interim relief such as injunctions in the event of the misappropriation of cryptoassets.

A copy of the judgment is available here: https://www.conyers.com/wp-content/uploads/2020/02/AA-vPersons-Unknown-2019-EWHC-3556.pdf

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