Recent developments in crypto-assets: Applying traditional asset recovery tools to Bitcoin
In the recently released decision of AA v Persons unknown who demanded Bitcoin on 10th and 11th October 2019 and others  EWHC 3556 (Comm), the English High Court granted an application by an insurer (the Applicant) for a proprietary injunction in respect of Bitcoin ransomed from its client (the Client).
The decision is significant because it adds to the small but slowly growing body of authorities that support the view that crypto-assets are “property” in the legal sense. Given the surge in cryptocurrency and blockchain funds set up in the Cayman Islands in recent years, such judgments provide valuable jurisprudential guidance. It is also an illustrative example of the practical issues that arise when applying the traditional tracing and recovery tool box to this novel form of asset.
The Client’s firewall was bypassed, malware installed and a ransom note left by the persons unknown. After a period of negotiation, the Applicant transferred Bitcoin to the persons unknown in exchange for a tool to decrypt the Client’s files. Subsequent investigation uncovered that some of the Bitcoins were liquidated into fiat currency and the balance sent to an account in the name of the second defendant held with a Bitcoin exchange operated by the third and fourth defendants. The Applicant was unable to identify the second defendant from the Bitcoin address but the third and fourth defendants were likely to hold identifying information in compliance with their anti-money laundering obligations.
The application for a proprietary injunction necessarily required the Court to address the fundamental question of whether Bitcoins are property. The question is a significant one because English common law traditionally views property as fitting within one of two categories – a chose in action or a chose in possession – and crypto assets do not fit comfortably within either. The Court adopted the non-judicial analysis of crypto assets in the UK Jurisdictional Task Force November 2019 statement on crypto assets and smart contracts in concluding that Bitcoins are “property”. The Court held that the Bitcoins met the criteria of property per Lord Wilberforce’s classic definition of property in National Bank v Ainsworth (being definable, identifiable by third parties, capable in their nature of assumption by third parties and having some degree of permanence). The Court also cited Voruntyntseva v Money-4 Limited and Liam David Robertson v Persons Unknown & Ors as precedent for treating cryptocurrencies as property and by extension, capable of being the subject of a proprietary injunction. Having so held, the injunction was granted, applying well-settled principles.