In the recent case of Wang v Darby [2021] EWHC 3054 (Comm), the English High Court, in what is understood to be a first, considered whether a trust might apply over cryptoassets. This was in the context of determining whether a proprietary claim founded on there being a trust in respect of the assets could proceed to trial, or should be determined at the summary judgment stage. The Court held that there was no real or reasonable argument that there could be a trust over the cryptoassets. This was, however, due to the specific circumstances of the case rather than the fact that cryptoassets were involved.

Introduction

The dispute concerned two related contracts under which the parties exchanged specified quantities of two types of cryptocurrency: Tezos (an ‘altcoin’ - currently around the 40th largest cryptocurrency by market capitalisation) and Bitcoin, with the option to repurchase the exchanged cryptocurrencies at a later date. Despite the Claimant seeking to exercise this option, the Defendant did not ‘sell-back’ the Tezos to the Claimant.

The Claimant’s case was that there was an express, resulting or constructive trust in respect of the Tezos transferred by him to the Defendant. The Defendant denied that this claim had any real or reasonable prospect of success, given that the bilateral exchange and obligatory re-exchange (upon demand) of cryptocurrencies constituted a sale and buy-back arrangement which, by definition, precluded any trust arising. The Defendant therefore applied to strike out or enter reverse summary judgment in respect of the proprietary claims pleaded against him.

The Defendant argued that the contracts had been entered into through the Telegram app, and all relevant communications between the parties had been through the same app. A transcript of the messages was before the Court, which meant that the issue could be determined summarily. The High Court took the same view.

The key issue therefore was whether some form of trust arose in respect of the Tezos transferred by the Claimant to the Defendant. It was common ground between the parties that, as a matter of English law, a unit or token of Tezos constitutes property which could in principle be the subject of a trust. This common ground was presumably reached in light of the recent clear line of English law authorities under which it has been held on multiple occasions that cryptoassets constitute property (see our previous Perspectives articles on this topic, linked below). Given that the matter was common ground it did not need to be determined by the Court.

Was there a trust?

The High Court granted summary judgment in favour of the Defendant on the proprietary claims. In doing so, the Court held that the fundamental problem with the existence or imposition of any kind of trust over the Tezos was the reciprocal nature of the transactions in question. In order for the Claimant to be entitled to the return of the Tezos, he had to return a corresponding value of Bitcoin to the Defendant in order to reverse the swap. This precluded any kind of trust being established.

This was demonstrated by the Claimant’s own description of the relevant obligation in the contracts as one of “sale or purchase back”. The Court described this as “fatal” to the proprietary claims, being “anathema to the existence of a trust over the relevant property arising upon or from the original outward transfer. It is the antithesis of a trust”.

Commentary

This is the first English authority dealing with the question of whether a trust exists over cryptoassets. While the transactions in question did not constitute a trust, this decision was reached based on the construction of the contracts at hand, rather than due to the characteristics of the property in question.

As to any reliance that may be placed on this highly fact specific summary judgment case, the Court helpfully noted that jurisprudential novelty was not a compelling reason for the proprietary trusts claim to proceed to trial. This was on the basis that there was no controversy as to whether cryptoassets constitute property under English law. Whilst the Court did not go on to record this expressly in the judgment, the implication is that there is no reason cryptoassets cannot be held on trust like any other property.

Given the increasing flow of cryptoasset-related cases passing through the English courts, it is unlikely to be too long before the issue is expressly determined by the Courts. Until then, this judgment provides parties with only limited assistance in answering the question of whether a cryptoasset can be held on trust. That said, it is likely that the courts will ultimately be prepared to find that trusts can exist over cryptoassets in light of the existing clear line of authority which provide that cryptoassets constitute property.