Background

In a recent Commercial Court decision (AA –v- Persons Unknown [2019] EWHC 3556 (comm)), the status of cryptocurrencies was considered. The case concerned a private application for an injunction by a UK firm who insured a Canadian insurance company against four defendants (two persons unknown and two entities trading as a cryptocurrency exchange called Bitfinex). The application arose as a result of a successful attack by cyber-criminals who were able to encrypt the Canadian insurance company’s files. The hackers demanded a ransom payment in the form of Bitcoin equivalent to $950,000 in exchange for the software needed to decrypt the files.

The UK firm agreed to pay the ransom on behalf of the Canadian insurer and engaged agents who were able to track the payment to an account with cryptocurrency exchange Bitfinex. The injunction sought would prevent the dissipation of the Bitcoin held in the Bitfinex account.

Decision

The judgment is the most detailed consideration so far given by the courts of the status of cryptocurrencies. The decision confirms the position as set out in the Legal Statement on Crypotassets and Smart Contracts by the UK Jurisdiction Taskforce.

The judicial consideration of status of cryptocurrencies has been awaited given that they do not sit neatly within the traditional categories of property delineated by English law, namely choses in possession (tangible assets capable of being possessed) and choses in action (rights capable of being enforced by the courts).

Bryan J, having considered the UK Jurisdiction Taskforce’s Legal Statement found it to be an accurate summary of the position with regard to cryptocurrencies. In particular, he agreed that such assets, despite being intangible and incapable of giving rise to a right of action in the traditional sense, complied with the four criteria Lord Wilberforce set out in his classic definition of property found in National Provincial Bank –v- Ainsworth [1965] 1 AC 1175; the criteria being that the subject be definable, identifiable by third parties, capable of assumption by third parties and have some degree of permanence.

Bryan J therefore concluded the Bitcoin paid by way of ransom could be the subject of the proprietary injunction sought.

The case also considered the necessity for a private hearing of the case and the application of CPR 39.2 (3) and found that publicity would defeat the point of the hearing as those possessing the Bitcoin may be tipped off and dissipate the currency. The exchange holding the ransomed Bitcoin also remained anonymous, as they had not had the opportunity to address the Court and were to a certain extent involved in wrongfulness of another’s doing.

Permission was also given by Bryan J for alternative service under CPR 6.15 on a number of email addresses, as the respondents were unknown and the application was particularly urgent given how quickly the Bitcoin could be dissipated.

The recognition of cryptocurrencies as property (albeit in the context of a proprietary injunction – other areas of law may reach different conclusions) shows their increasing prominence and role in society. The law on cryptocurrencies is still developing and will no doubt see further judicial treatment as and when further issues arise.

In addition to the recognition of cryptocurrencies as property, the judgment demonstrates the Court’s flexibility and willingness to recognise modern developments in society. In this instance, developments brought about by new technology could potentially have resulted in a considerable injustice to those who suffered the consequences of the cyberattack if they were left without redress simply because the criminals insisted on a ransom of Bitcoin rather than more traditional currencies.

The decision will therefore add a welcome degree of certainty to the area of cryptocurrencies, whereas previously potential litigants may have hesitated to bring such matters before the Court. The decision will also undoubtedly have implications for other areas of law such as fraud and breach of trust.