The English High Court has granted an asset preservation order over Bitcoin finding that there was a serious issue to be tried concerning a proprietary claim. In this case, the proprietary question was relevant to whether the order should be granted. More widely, the status of Bitcoin as property goes to the competing rights parties may have in it: Robertson v Persons Unknown, unreported, CL-2019-000444
According to Decrypt Media, following a phone call and so when he was expecting to make a transfer of 100 Bitcoins to a fund, Mr Robertson received an email requesting a transfer which he duly made. It transpired the request was a cloned email and that the Bitcoins had been sent to a hacker’s wallet.
Having traced 80 Bitcoins to a wallet held at Coinbase UK, Robertson applied for a freezing order and an asset preservation order over the Bitcoins in Coinbase’s wallet.
The claim form, filed after the application, included the following brief details of the claims:
− a claim for rescission of the transaction by which Robertson was fraudulently induced by Persons Unknown to transfer 100 Bitcoins and restoration to Robertson of those Bitcoins;
− a claim for a declaration that a Quistclose trust arose over the transferred Bitcoins of which Robertson was the beneficiary;
− damages for deceit; and
− a claim for the return of the value of the Bitcoins on the basis that Persons Unknown had been unjustly enriched as a result of the mistaken transfer of the Bitcoins.
A third category of personal property?
One of the challenges for Robertson, when seeking the interim orders, was addressing the question of whether the Bitcoins were property.
According to an eighteenth century decision of the Court of Appeal in Colonial Bank v Whinney, “all personal things are either in possession or in action”. This means that a personal thing must be either a “chose in possession” – something over which physical possession can be taken, or a “chose in action” – something which can only be claimed or enforced by action as opposed to by taking physical possession.
Bitcoin does not fall neatly into either category. It is not obviously something over which possession can be taken. Neither, since it is decentralised, is it a claim on any person that can be enforced by an action. This begs the question whether there is a third category of personal thing?
The Patents Act 1977 suggests there may be such a third category. It provides that “[a]ny patent or application for a patent is a personal property (without being a thing in action)”. Additionally, two cases – one a 1980s decision of the Privy Council concerning export quotas under Hong Kong legislation and the other a 2012 High Court decision concerning EU carbon trading allowances – contemplate something that is not a chose in action but rather some form of “other intangible property”.
However, in 2014, in Your Response v Datateam the Court of Appeal held that an electronic database was not capable of being possessed and so could not be subject to a common law lien. In reaching this conclusion it emphasised the orthodox approach: “[Colonial Bank v Whinney] makes it very difficult to accept that the common law recognises the existence of intangible property other than choses in action (apart from patents, which are subject to statutory classification)”.
There is a fair amount of academic and other commentary on how Bitcoin should be characterised. According to Stewarts Law’s website (who acted for Robertson), the court was referred to the Financial Markets Law Committee 2016 report on virtual currencies which stated that “it may be convenient to understand [virtual currencies] … as a kind of hybrid: “virtual choses in possession””. The court was also referred to the 2019 decision of the Singapore International Commercial Court in B2C2 v Quoine which agreed, though the matter was not disputed, that Bitcoin was personal property that could be the subject of a trust (relying on the classic definition of a property right set out in the House of Lords decision in: “Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability”).
Ultimately the court was satisfied that there was a serious issue to be tried concerning a proprietary claim allowing it to grant an asset preservation order. According to Stewarts Law, the court declined to grant a freezing order on the basis that a risk of dissipation could not be shown.
In this case there is no reported judgment, being an interim without notice application heard on an urgent basis.
In any event, the application seems to have achieved its aim as we understand that the Bitcoins (or at least the majority of them) have been returned to Robertson.
In some ways, when faced with a fraud, the legal issues – in particular whether or not Bitcoin is property – are not so difficult to resolve against the fraudster. The more difficult case will be where the two or more parties competing for an interest are innocent and the court has to determine the priority of those claims and whether or not they are proprietary. For answers, we may have to wait for the authoritative legal statement that the UK Jurisdiction Taskforce of the LawTech Delivery Panel has promised this autumn.