In AA v. Persons Unknown who demanded Bitcoin on 10th and 11th October 2019, Persons Unknown who own/control specified Bitcoin, IFINEX trading as BITFINEX and BFXWW Inc trading as BITFINEX the UK High Court, in an application for an injunction, considered and adopted the UK Jurisdiction Task Force legal statement on crypto assets and smart contracts (the legal statement).
The proprietary status of crypto currencies was considered by the High Court and a number of sections of the legal statement were cited with approval. The court indicated that the legal statement was an accurate statement of the position under English law and proceeded to grant an interim proprietary injunction over the crypto currencies in question.
Legal issue
In this case crypto assets in the form of bitcoin were paid as a ransom to a hacker who had installed malware on a company's IT system. The company's insurer paid the ransom in bitcoin worth almost one million US dollars and then hired a specialist to track some of the bitcoin to an address which is linked to an exchange operated by the third and fourth defendants.
In order to secure an injunction to prevent the dissipation of the bitcoin, the plaintiff had to establish that crypto assets are property and can be the subject of a proprietary injunction.
Secondly, the plaintiff applied to have the case heard in private due to the fact that any publicity would be likely to tip off the hacker who could then dissipate the bitcoin and defeat the purpose of the proceedings. Reprisals could also ensue against the insurer and the original company. There were also security concerns around making public the process by which the company's IT system was hacked and the ransom negotiated.
Judgment
The High Court considered the UK Jurisdiction Task Force legal statement on crypto assets and smart contracts and confirmed that crypto assets are property and can be the subject of a proprietary injunction.
The court was satisfied that the test for holding proceedings in private had been met and ordered that the hearing for interim relief be held in private. In addition, the court did not require the first and second defendants to be put on notice as to do so could lead to the bitcoin being dissipated.
Implications
It is significant but not surprising that the court dispensed with the need to put the first and second defendants on notice of the application for an injunction. The court emphasised that if they had been on notice then they could have relocated or dissipated the assets in order to frustrate the proceedings. This risk is particularly relevant to cases concerning crypto assets because they can be moved so quickly and easily.
This ruling is the first to consider and adopt the UK Jurisdiction Task Force legal statement on crypto assets and smart contracts as it relates to the definition of property.
Earlier cases such as Vorotyntseva v. Money-4 Limited and Liam David Robertson also considered the issue of crypto assets being classed as property. However, these cases were decided before the publication of the legal statement and did not consider in depth, the issue of whether crypto assets are property. All of the cases to date have related to interim applications rather than judgments following final hearing and we anticipate further judicial consideration of the legal statement as these cases are determined.
For further information contact Kevin Allen, Financial Regulation Partner or Sinéad Prunty, Financial Regulation Knowledge Lawyer.
