English Court grants an asset preservation order over Bitcoin - further guidance for the Cayman Islands02 Oct 2019
In August 2019, the Commercial Court in London ("Commercial Court") granted an asset preservation order ("APO") over Bitcoin. In the case of Liam David Robertson v Persons Unknown ("Robertson"), the Commercial Court was asked to decide whether Bitcoin is property over which an APO could be made.
So it looked for guidance from the International Commercial Court of Singapore ("SICC") decision in B2C2 Ltd v Quoine Pte Ltd  ("Quoine") and accepted that whether Bitcoin is property is a "serious issue". The SICC decision will be persuasive authority in other common law jurisdictions such as the Cayman Islands, where disputes with cryptocurrencies as their subject matter are arising with increasing regularity.
Since the grant of the APO, there have been reports that a settlement may have been reached between the party who was the victim of a spearphishing attack which resulted in the theft of its Bitcoin ("Mr Robertson") and the digital currency exchange, Coinbase UK ("Coinbase"). In this case, Coinbase was a defendant to the proceedings and had unwittingly become the recipient of the stolen Bitcoin.
What did the SICC decide?
As we reported in our previous article, in Quoine the SICC considered whether crypto assets (such as cryptocurrencies) could be classed as property. The Judge found that cryptocurrencies have "the fundamental characteristic of intangible property as being an identifiable thing of value" and referred to the following classic definition of a property right in the House of Lords decision in National Provincial Bank v Ainsworth:
“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”.
The Judge in Quoine found that cryptocurrencies met those requirements. As such they could be treated as personal property, which could be the subject of a trust. The Claimant in Robertson relied upon Quoine for its successful application.
What did the UK Court decide?
Mr Robertson thought he was transferring 100 Bitcoin to a company in which he wished to invest. He did not know at the time of transfer that the recipient's email address had been hacked. 80 of the Bitcoin transferred found their way to a wallet owned by the fraudster at Coinbase, via an intermediary currency exchange.
Mr Robertson's attorneys claimed that the transfer of Bitcoin to the alleged fraudster's intermediate wallet did not transfer title in the Bitcoin and the fraudster could not then transfer title to whomever owned the wallet held by Coinbase. Mr Robertson claimed title to the transferred Bitcoin and that, given the circumstances of the transfer, he retained title.
Accepting that there was an argument that the Bitcoin could be considered to be property, the Commercial Court was satisfied that Mr Robertson's claim gave rise to a serious issue to be tried. The Commercial Court needed to consider whether the Bitcoin was property and so could be the subject of a proprietary claim and therefore granted the APO and a Bankers Trust Order, which obliged Coinbase to provide details of the parties in whose wallets the Bitcoin had been transferred. At a second hearing the Court continued the APO.
Why did the Judge grant the APO?
Despite the strong evidence of fraud, the judge was not satisfied that the “balance of convenience” or the “risk of dissipation” requirements had been met to justify the making of a freezing order against parties whose identities at that time were completely unknown. However, those requirements need not be met for a court to grant an APO, which the Judge was willing to make, as there was a serious issue to be tried concerning a proprietary claim.
Bankers Trust Order
Coinbase, although supportive of Mr Robertson's desire to know the identity of the individual who controlled the wallet containing the 80 Bitcoin, was hamstrung by client confidentiality and regulatory obligations and therefore could not disclose the identity of the wallet holder in the absence of a Court order. The Court therefore ordered Coinbase, by way of a Bankers Trust Order, to provide that disclosure.
How might this play out in a Cayman Court?
The success of the application for an APO suggests that the Quoine decision may help other investors apply for interlocutory relief in the form of orders for freezing, tracing and disclosure.
There are now two common law jurisdictions whose Courts have accepted that cryptocurrencies are, or might be, capable of being property. Those cases will be of persuasive value to the Cayman Court, should it have to rule on the question.
APOs are a type of freezing order and something which the Cayman Courts would be prepared to grant, and we would expect the same criteria as were met in Robertson to have to be satisfied.
Bankers Trust Orders have been granted before by the Cayman Courts where the Courts can be persuaded that there is a strong case of fraud and that the victim of that fraud has a proprietary claim.