December 8, 2019

High Court tackles Bitcoin ‘property’ first | Angela Bilbow

Fibo Quantum


In a first for courts in England and Wales, sitting in the Commercial Court in London, Mrs Justice Moulde…

In a first for courts in England and Wales, sitting in the Commercial Court in London, Mrs Justice Moulder has granted an asset preservation order over more than GBP 1 million of Bitcoin stolen in a spear phishing attack.

Argued by Brick Court ChambersDavid Heaton, and represented by Marc Jones of Stewarts, one of Europe and the Middle East’s largest crypto-asset investors – Liam Robertson, chief executive of Alphabit Fund – has been granted an asset preservation order (APO) over more than GBP 1 million of Bitcoin (80 Bitcoin) fraudulently obtained from him in a spear phishing attack and which eventually was transferred to a digital wallet held by digital currency exchange Coinbase.

The case, Liam David Robertson v Persons Unknown, is of great significance as practitioners await the outcome of the UK Jurisdiction Taskforce consultation that is considering, among other related matters, the status of crypto-assets under English private law, in particular whether they can be considered as ‘property’.

It also cements that English courts are now more than capable of tackling novel and complex matters related to cryptocurrencies; as highlighted by Sir Geoffrey Vos, chancellor of the English and Welsh High Court, in his ‘courts of the future’ address at a digitising disputes event held by Taylor Wessing in London earlier this year. It also, rightly, pits London against competing European jurisdictions, such as Poland, which launched a blockchain arbitration court last November that will hear cases involving cryptocurrencies, smart contracts and other distributed ledger technology disputes.

While the initial transfer had been 100 Bitcoin, by using blockchain intelligence company Chainalysis, 80 of the Bitcoin were tracked to a digital wallet held by the UK arm of San Francisco-headquartered Coinbase.

Speaking to CDR, Jones says Coinbase was supportive of Robertson’s claim throughout, and had been willing to freeze the Bitcoin for a short period of time, “but was limited in what it could [do], given its contractual and regulatory obligations, unless complying with a court order”. 

The case, initially referred by Lichtenstein firm NÄGELE Attorneys at Law, saw Stewarts apply for an APO to secure the 80 Bitcoin and a Bankers Trust Order to reveal the identity of the wallet-holder and at the same time ensure it was not the same person as who made the initial transfer.

However, the proceedings were anything but straightforward.

On the face of it, under English law, Bitcoin is neither property that a party can take physical possession of, nor does it create a property right that can only be obtained or enforced through legal action, Jones explains, adding that due to its intangible nature, Bitcoin is information or data, and numerous English authorities have affirmed that information or data is not property.

Relying on an authority of the Singapore International Commercial Court, B2C2 v Quoine Pty (2019), which held that cryptocurrencies meet all the requirements of a property right and can be the subject of a trust, Stewarts argued that the initial transfer of the 100 Bitcoin did not transfer title to the fraudster – the unknown first defendant, so it could not then transfer title on to the Coinbase wallet-holder. Therefore, the title remained with Robertson.

Moulder J had strong reservations, pointing out that “[w]e know nothing about this person who perpetrated the fraud. We do not know his identity. We do not know his assets. We do not know if a Freezing Order would achieve anything whatsoever”, therefore the ‘balance of convenience’ and ‘risk of dissipation’ requirements needed for freezing orders could not be met.

However, given the seriousness of Robertson claiming and retaining title under these circumstances, an APO was an option because the above requirements did not need to be met; the court only needed to be satisfied that there is a serious issue to be tried concerning a proprietary claim.

Both the Bankers Trust Order and APO were granted by Moulder J. At a return hearing, Mr Justice Jacobs continued the APO and gave Robertson permission to serve the claim on the second defendant out of the jurisdiction.

“For victims of fraud, this is the key reason why it matters whether cryptocurrencies are treated as personal property; the obstacles to securing stolen cryptocurrencies are reduced significantly,” Jones notes.

Although this is only an interlocutory decision, “it’s the first occasion on which these fundamental issues about Bitcoin have been argued in court and, critically, it has opened the door for other fraud victims to seek an effective remedy in the crypto-world where the traditional freezing order may in practice not be feasible”, he concludes.

Elsewhere, in another first, Jim McGovern and Gregory Lisa, both US-based partners of Hogan Lovells, achieved a precedent-setting settlement with the US Securities and Exchange Commission at the end of last year for their client EtherDelta, a digital token trading platform, which had been charged with operating as an unregistered national securities exchange.

 

 

 

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