AA v Persons Unknown: Unmasking the Proprietary Status of Cryptoassets

In the first of three articles touching on the UK Jurisdiction Taskforce’s Legal Statement on Cryptoassets and Smart Contracts, published in November 2019, Laura Wright & Jonathan Schaffer-Goddard review Mr Justice Bryan’s judgment in AA v Persons Unknown, in which he considered the effect of the new guidance.

In the recent Commercial Court decision AA v Persons Unknown [2019] EWHC 3556 (Comm), Bryan J held that cryptoassets such as Bitcoin are property within the meaning of English law. In his judgment he adopted the recommendations made by the UK Jurisdiction Taskforce in their Legal Statement on Cryptoassets and Smart Contracts.

Background to the Legal Statement

Published in November 2019, the Legal Statement discusses the extent to which general legal principles apply to the aspects of cryptoassets and smart contracts that are potentially novel and distinctive. The Legal Statement reaches two main conclusions. Firstly, that cryptoassets should be treated as property and, secondly, that English law is equipped to deal with smart contracts. The drafting team was 4 Pump Court’s Matthew Lavy alongside Lawrence Akka QC, David Quest QC and Sam Goodman.

AA v Persons Unknown

The case involved an application made by an anonymous English insurer. The four defendants comprised two persons unknown and two entities which both trade as the cryptocurrencies exchange “Bitfinex”. An insured customer of the applicant had been held to ransom following a “ransomware” hack which left its systems encrypted and unusable. The customer, also an insurance company but based in Canada, had made payment of US $950,000 in Bitcoin in return for a decryption tool.

Following payment of the ransom, the applicant undertook investigations and tracked the transferred Bitcoins to an address linked to the cryptocurrency exchange operated by the third and fourth defendants. The relief sought included a Bankers Trust order/Norwich Pharmacal order, proprietary and/or freezing injunctions in respect of the Bitcoin and consequential orders to serve the same including alternative service and service outside the jurisdiction. The application was held in private before Bryan J.

Judicial Treatment of the Legal Statement

In considering the principles relevant to granting a proprietary injunction, Bryan J first answered what he called the “perhaps fundamental question” of whether or not the Bitcoins were property at all. He summarised the difficulties in classifying Bitcoin and other cryptoassets by reference to existing legal definitions of property at paragraph 55 of the judgment:

“they are neither chose in possession nor are they chose in action. They are not choses in possession because they are virtual, they are not tangible, they cannot be possessed. They are not choses in action because they do not embody any right capable of being enforced by action. That produces a difficulty because English law traditionally views property as being of only two kinds, choses in possession and choses in action.”


Bryan J noted that whilst these traditional categories would prevent cryptoassets from being classified as property, this issue had been the subject of detailed consideration by the UKJT in the November 2019 Legal Statement. He stated at paragraph 56 that the Legal Statement was relevant to his analysis “because it is a detailed and careful consideration” and he considered that the “analysis as to the proprietary status of crypto currencies is compelling and for the reasons identified therein should be adopted by this court.”

The judge cited with approval sections from the Legal Statement which argued that the fact that a cryptoasset might not be chose in action on a narrow definition of that term does not in itself mean that it cannot be treated as property. He stated that cryptoassets meet the four criteria of property set out by Lord Wilberforce in National Provincial Bank v Ainsworth [1965] 1 AC 1175 in that they are definable, identifiable by third parties, capable in their nature of assumption by third parties and have some degree of permanence. For these reasons, Bryan J was satisfied for the purpose of granting an interim proprietary injunction that cryptoassets are a form of property capable of being the subject of a proprietary injunction.

Discussion

While only just published following the lifting of reporting restrictions, the decision in AA v Persons Unknown was handed down in December 2019.

In applying the test in National Provincial Bank v Ainsworth [1965] 1 AC 1175, Bryan J adopted the same approach as that taken by the Commercial Court in Singapore in B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03.

While two English judgments have previously treated cryptoassets as property, the point was not argued in at least one of them (Vorotyntseva v Money-4 Limited, trading as Nebeus.com [2018] EWHC 2598 (Ch)). The treatment in the Singapore judgment is also brief – the Defendant did not take the point and the judgment considers the matter in a single paragraph. Other common law decisions are more difficult to come by (although there can be little doubt that Bitcoin will be treated by many US jurisdictions as property: the tripartite definition of property given by the 9th Circuit in G.S. Rasmussen & Assocs., Inc. v. Kalitta Flying Serv., Inc., 958 F.2d 896 (9th Cir. 1992) being wider than the Ainsworth test).

So, while this is not the first common law decision to consider the status of cryptoassets, it is both the first to give detailed consideration to the point, and the first to consider the careful reasoning of the UKJT Legal Statement.

While Bryan J does caveat his conclusions, stating that his conclusion is “at least to the level required for the purposes of this application for interim relief”, the otherwise unreserved endorsement and complete adoption of the careful and well-reasoned position taken by the UKJT Legal Statement strengthens the status of that ground-breaking publication, and gives one of its major conclusions a strong judicial endorsement.

The Singapore decision in B2C2 has previously been much cited despite the brevity of its reasoning. There can be little doubt that the more detailed consideration in AA v Persons Unknown will achieve a similar international importance in this emerging area, and with it the Legal Statement as well.

This is to be welcomed. The Legal Statement represents the culmination of a detailed market consultation and the careful reasoning of very well regarded authors. The endorsement of this key conclusion by the High Court in a decision less than a month after the Legal Statement’s publication will only strengthen its position not only in this jurisdiction but across the common law world.

The UKJT Legal Statement spoke of “the ability of the common law to stretch traditional definitions and concepts to adapt to new business practices”. In its approach to cryptoassets the English courts, applying the common law as articulated in the pre-digital age case of Ainsworth, are demonstrating precisely that.

A note of caution should be sounded though: like Vorotyntseva and Liam David Robertson v Persons Unknown (unreported 15th July 2019) (the two other English authorities), this case revolves around an application for interim relief, and is not the culmination of a full trial or even a defended claim. Among questions which remain unanswered is the status of the claim in conversion pursued in the claim form by the English insurer in this case (paragraph 51). While the claim was pursued and permission to serve out given (paragraphs 67-68), a claim in conversion over Bitcoins would face the high obstacles erected by OBG Ltd v Allan [2007] UKHL 21. It still remains to be seen if or how the common law will stretch the “traditional definitions and concepts” of that tort and other causes of action in the brave new world of the cryptoassets.


image of Laura Wright 4 Pump Court

Laura Wright, 4 Pump Court 

picture of Jonathan Schaffer-Goddard

Jonathan Schaffer-Goddard, 4 Pump Court

Published: 2020-01-28T11:00:00

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