Introduction
The English high court has considered whether Bitcoin (and other similar cryptocurrencies) should be considered to be “property” for the purposes of granting a proprietary injunction in relation to Bitcoin paid as part of a ransom. In short, the court determined that cryptocurrencies are capable of being property for these purposes, and noted the “compelling” analysis on the proprietary status of cryptocurrencies as set out in the UK Jurisdiction Taskforce legal statement on cryptoassets (the Legal Statement).
This judgment considers the position in somewhat more detail than the two previous cases before the English courts, summarised in another Freshfields Digital post.
Fact Pattern
The case was a private application for an injunction by a UK insurer. The UK insurer had insured on of its clients, itself an insurance company (albeit a Canadian one), against cyber crime attacks.
The client was the subject of an attack, where a hacker managed to encrypt all of the client’s computer systems and then subsequently sent a ransom request for payment in Bitcoin in exchange for the decryption tool. The insurer agreed to pay the ransom on behalf of the client. The insurer then hired a company to track the Bitcoin, which were held on an account held by an exchange, Bitfinex. The insurer was seeking, among other things, a proprietary injunction in respect of Bitcoin held with Bitfinex.
Conclusion on Bitcoin
Much of the judgment covers whether the application should be kept private or made public. However, the judgment also considers whether Bitcoin (and other cryptoassets) could be “property” and thus could be the subject of a proprietary injunction.
Although this is not the first case before the English courts that considers whether Bitcoin might be property, it is the most detailed and effectively confirms the position set out in the Legal Statement.
The judge identifies that traditionally, English law views property as being of only two kinds: choses in possession (broadly, property that is possessed - tangible assets) and choses in action (broadly, a right capable of being enforced by action). Cryptoassets do not sit neatly within either category.
However, the judge also considers that on a detailed analysis, it is “fallacious” to proceed on the basis that English property law does not recognise other forms of property. A cryptoasset might not be a chose in action on a narrow definition of the term, but that does not mean it cannot be treated as property.
In particular, cryptoassets such as Bitcoin meet all the requirements in the definition of “property” as set out in an authoritative definition in an earlier piece of English case law (from the House of Lords, which was, at the time of the case, England’s highest court) on the topic, being definable, identifiable by third parties, capable in their nature of assumption by third parties and having some degree of permanence. The paragraphs which the judge refers to from the Legal Statement include that there are various 20th century statues which assume that intangible property is not limited to things in action and that there is no conceptual difficulty in treating intangible things as property, even if they may not be things in action.
Implications
As a result, the Bitcoin (and by implication, other cryptoassets) were considered to be property and thus could be the subject of a proprietary injunction. Further, the judge noted his view that the Legal Statement was an accurate statement as to the position under English law.
We note that this case considers the question of whether cryptoassets could be property only in the context of proprietary injunctions and therefore it is possible that alternative views could be reached in the context of other areas (e.g., trust law, corporate insolvency). Although this judgment is a helpful indication of how the law could apply in those circumstances, it would not be a binding precedent in matters beyond the context of proprietary injunctions.
However, we would expect that even in other contexts, cryptoassets should at least be capable of being recognised as property. In particular, the analysis relating to the definition of “property” did not solely rely on the definition of “property” in the context of injunctions but was drawn from broader sources. Further, the alternative interpretation (i.e., that cryptoassets can never be property) could lead to unfair and unexpected results.
In any event, we consider that the judgment is a helpful reminder of the flexibility of English law and its ability to adapt to scenarios that could not have been in contemplation at the time that the case was handed down or the legislation was made.
Further, whilst the judgment is a helpful confirmation that cryptoassets could be property (as noted above, at least in the context of proprietary injunctions), it remains to be seen whether the other conclusions of the Legal Statement will be confirmed in the English courts – e.g., valid granting of security, the circumstances in which a smart contract gives rise to binding legal obligations.
