The rise of cryptocurrency and crypto crime
There has been a cryptocurrency boom in recent years, giving rise to the fundamental question “what is cryptocurrency?”. This question has been asked repeatedly since the birth of Bitcoin (the first decentralised cryptocurrency) ten years a
go. Notwithstanding this fact, there is still no statutory definition of cryptocurrency and there has been great uncertainty around its legal status – is it property, a right or something else entirely? However, the speed with which cryptocurrency penetrated the global financial system and the rise of crypto crime have created a pressing need for clarity on its legal status.
With more money flowing through digital exchanges, there have been new opportunities for crypto criminals to carry out bigger and better heists. According to a report by CipherTrace, a blockchain forensics company, losses from cryptocurrency crime totalled $4.52 billion in 2019 – an increase of more than 150% from the previous year.[1] The surge in digital currency crime means more victims are seeking redress through the courts, requesting freezing orders and proprietary injunctions to prevent funds from being dissipated. However, these court orders require evidence that the currency in question is personal property. As such, the question “is cryptocurrency property?” becomes a vital issue in these cases.
Property under English law
To begin, it’s worth outlining how English law deals with and defines property. The Law of Property Act 1925 defines property under section 205(xx) as “any thing in action, and any interest in real or personal property”. Although this section only provides a basic (and incomplete) definition of property, it does identify things in action as a special category of personal property and highlights the key distinction between personal and real property. It is also important that this provision states that property “includes” these categories, rather than being limited to them. Therefore, from a statutory perspective, there is no reason why cryptocurrency cannot be acknowledged under English law as a new form of personal property. [2]
The definition of property in Colonial Bank v Whinney [1885] 30 Ch D 261 is also worth consulting. In this case, Fry LJ observed that “All personal things are either in possession or in action. The law knows no tertium quid between the two.” As such, English law has traditionally viewed property as being of only two kinds – choses in possession and choses in action. The former refers to an object which physically exists, such as money in a purse, and the latter describes a right that can only be claimed or enforced through legal action, such as money due on a bond.
Under Fry LJ’s definition, if something is not “in possession” or “in action”, it cannot be classified as property. This poses a problem for the status of cryptocurrencies, which do not fit neatly into either category. They are not a chose in possession because they are intangible and they are not a chose in action because they do not embody a right capable of being enforced by legal action. So, what does this mean for cryptocurrency?
The Legal Statement on cryptoassets
Fortunately, the UK Jurisdiction Task Force (“UKJT”), a panel of expert QCs and barristers, recently addressed this exact issue. In November 2019, the UKJT, headed by Chancellor of the High Court Sir Geoffrey Vos, published a Legal Statement on Cryptoassets and Smart Contracts (the “Legal Statement”). Its stated aim was to create “market confidence, legal certainty and predictability” around the use of cryptocurrencies and provide investors with increased confidence in their rights.[3]
By way of overview, the Legal Statement declared that cryptocurrency is legally equivalent to property and possesses all the necessary features or “indicia” to qualify as such. The Legal Statement explained that the novel and distinctive features of cryptoassets – “intangibility, cryptographic authentication, use of a distributed transaction ledger, decentralisation, rule by consensus” – do not prevent them from being treated as property.
Following the Legal Statement’s publication, Sir Geoffrey Vos described it as a “definitive statement of what English law now provides in this area. The outcome is not about what [the panel] would like English law to be; it is about what [the panel] believe English law actually to be”.[4] However, the Legal Statement acknowledged that the scope of its discussion would be the “subject of judicial decision” in the future. In other words, the Legal Statement was not in fact a statement of law, begging the question of whether its analysis has played out as expected in the English courts.
The Legal Statement in practice
Prior to the Legal Statement, some English authorities had already treated cryptocurrency as property. Vorotyntseva v Money-4 Ltd [2018] 9 WLUK 501 held that there was no “suggestion that cryptocurrency cannot be a form of property” and Birss J granted a worldwide freezing order to prevent Bitcoin and Ethereum, another cryptocurrency, from being dissipated. Similarly, in the case of Robertson v Persons Unknown (unreported) Moulder J granted an asset preservation order over a substantial sum of Bitcoin. However, neither of these authorities considered the legal status of cryptocurrency in depth.
A recent case, AA v Persons Unknown [2019] EWHC 3556, provides more detailed and definitive guidance. In this case, Justice Bryan confirmed that the UKJT’s analysis was an “accurate statement” of English law and “that cryptocurrencies are a form of property capable of being the subject of a proprietary injunction”. According to Justice Bryan, cryptocurrencies should be treated as property because they meet the requirements set out in Lord Wilberforce’s classic definition of property in National Provincial Bank v Ainsworth [1965] 1 AC 1175 – that is, they are “definable, identifiable by third parties, capable in [their] nature of assumption by third parties and have some degree of permanence or stability”. The Singapore International Commercial Court drew the same conclusion in B2C2 Limited v Quoine PTC Limited [2019] SGHC (I) 03 [142].
What can we expect next?
Cryptocurrencies have a unique identity and it’s not surprising lawmakers have taken some time to classify them under classical English law terms. Although there is still no legislation governing cryptocurrency directly, the UKJT’s Legal Statement paved the way for clarity on its legal status. Following on from the Legal Statement, AA v Persons Unknown unequivocally confirmed that cryptocurrencies are property, capable of being the subject of freezing orders and proprietary injunctions.
Clarity on the fundamental status of cryptocurrency is welcome news, not least because it will help in the fight against cryptocurrency theft and fraud. Victims of this kind of crime can now take comfort that the English courts have powerful tools to assist them, including freezing orders and proprietary injunctions. Not only are victims now assured protection, the classification of cryptocurrency as property also makes the English courts an attractive option for those wanting to litigate cryptocurrency disputes.
Camilla Turner and Yasmin Hassan
Edmonds Marshall McMahon
26 May 2020
[1] “Cryptocurrency Anti-Money Laundering Report, 2019 Q4”, CipherTrace, January 2020, available at: https://ciphertrace.com/wp-content/uploads/2020/02/CipherTrace-CAML-2019-Q4-20200220.pdf, last accessed 26 May 2020.
[2] Joint Northern Chancery Bar Association and University of Liverpool Lecture, “Cryptoassets as property: how can English law boost the confidence of would-be parties to smart legal contracts?”, Sir Geoffrey Vos, 2 May 2019 https://www.judiciary.uk/wp-content/uploads/2019/05/Sir-Geoffrey-Vos-Chancellor-of-the-High-Court-speech-on-cryptoassets.pdf last accessed 26 May 2020.
[3] “Legal Statement on Cryptoassets and Smart Contracts”, UK Jurisdiction Taskforce, November 2019, available at: https://35z8e83m1ih83drye280o9d1-wpengine.netdna-ssl.com/wp-content/uploads/2019/11/6.6056_JO_Cryptocurrencies_Statement_FINAL_WEB_111119-1.pdf, last accessed 26 May 2020.
[4] “Future Proofing for Commercial Lawyers in an Unpredictable World”, Annual COMBAR lecture, Sir Geoffrey Vos, 12 November 2019, available at: https://www.judiciary.uk/wp-content/uploads/2019/11/COMBAR.lecture2019.final_.pdf, last accessed 26 May 2020.
