## How is the UK handling Cryptocurrency and the Law? Part 3: *AA v Persons Unknown* [2019] ![](https://www.cps.gov.uk/sites/default/files/slideshow/lady-justice-bright-crop_0.png) Kirsty Goodary July 2020 <hr style="height:3px;border:none;color:#333;background-color:#333;"> Welcome to Part 3 of our series at Extropy.io. We hope you enjoyed Parts [One](https://blog.extropy.io/posts/legal1.html) and [Two](https://blog.extropy.io/posts/legal2.html), where we gave a comprehensive review on the legal status of cryptocurrency and smart contracts in the UK. You can also find links for Parts One and Two at the end of this article. The legal issues surrounding cryptoassets are still extremely new. As well as the UK Jurisdiction Taskforce's (UKJT) "Legal Statement on Cryptoassets and Smart Contracts" in November 2019, the Financial Conduct Authority were granted powers to regulate crypto businesses in January 2020. Another recent development was from common law (English caselaw). Common law can be relied on by Courts in deciding future cases, so we have decided to take a look at a recent case and discuss its findings. ### "Cryptocurrency is property", says the High Court of Justice On 13th December 2019, in the case of *AA v Persons Unknown*, the UK Commercial Court in the High Court of Justice granted an interim proprietary injunction over Bitcoin, thereby confirming its status as a property. #### What happened in the case? A Canadian insurance company's computer systems were hacked. The hacker bypassed their security and installed malware which subsequently encrypted their systems. In order for the company to regain access, the hacker demanded a ransom of US $1,200,000 to be paid in bitcoin, in return for the decryption tool. The company's Insurers (the Applicant in this case) instructed an Incident Response Company to negotiate the ransom from US $1,200,000 to US $950,000 (109.25 Bitcoins). The amount was paid to the hacker's address and after the funds had cleared, the decryption tool was sent. Chainalysis Inc – a specialist company that provides software to track payments of cryptocurrency – began an investigation. They successfully tracked the Bitcoins that had been transferred. It came to light that some of the Bitcoins were transferred into fiat currency and 96 Bitcoins were transferred to another address. This address was linked to the exchange, Bitfinex. #### What did the Applicant seek from the Court? The Applicant sought against Bitfinex: i) A Bankers Trust order and / or Norwich Pharmacal order. Either of these would order Bitfinex to give information about the account controlled by the unknown person, and / or; ii) A proprietary injunction in respect of the Bitcoin held on the account, and / or; iii) A freezing injunction against the Bitcoin held in the account. An explanation of the legal terms: - 'Bankers Trust orders' are usually made against banks/ other entities holding misappropriated or stolen funds, or through whom such funds have passed; - A 'Norwich Pharmacal order' is an order for the disclosure of documents or information. It's granted against a third party whose been innocently mixed up in some wrongdoing; - A 'proprietary injunction' prevents a person from dealing with assets. In order for the Court to grant a propritary injunction, the Applicant must show that they have a proprietary interest. In order words, they must provide evidence that these assets either belong to him, or can be traced into by him; and - A 'freezing injunction' is sought when there's a real risk of the disposal of assets. #### What was the outcome? The key question was whether cryptocurrency could be regarded as a property. Traditionally, the term property is viewed as being of only two kinds; 'things in possession' and 'things in action'. In other words, cryptocurrency is virtual, intangible and cannot be possessed. Therefore it can't be a 'thing in possession'. Participants in a decentralised system don't have any obligations to each other. Therefore they aren't "things in action" either, because ownership doesn't give rise to any legal rights. Since cryptocurrency doesn't sit neatly within either kind, the Court relied on the UKJT's "Legal Statement on Cryptoassets and Smart Contracts" for guidance. Here's a summary of the UKJT's findings on cryptoassets: 1. They are capable of ownership; 2. They are capable of being defined; 3. The owners are identifiable and cryptoassets are assignable; 4. They are permanent, except for when they are cancelled, redeemed, repaid or exercised; 5. They have some degree of stability; and 6. They don't disqualify from being a property due to their unique features (intangibility, cryptographic authentication, use of a distributed ledger, decentralisation and rule by consensus.) [Part One](https://blog.extropy.io/posts/legal1.html) covers their findings for cryptoassets in more detail. **In light of the UKJT's legal paper, The Court was satisfied for the purposes of a proprietary injunction, Bitcoin and other cryptocurrencies constituted as a property. Therefore, the Insurer's application for a proprietary injunction was granted against Bitfinex.** ### A significant step in the right direction Cryptoassets enjoy the benefits of decentralisation, little to no legal obligations and irreversible transactions. However, this case shows that if a participant acts in bad faith, the enjoyment of such benefits does not mean that the UK's legal system cannot intervene to rectify their wrongdoing. Since the UK are still in the early stages of addressing these legal issues, it's likely that the Courts will make decisions on a case by case basis. Nevertheless, this is a significant step in the right direction for defining cryptocurrency as an asset and for giving owners legal rights and protection. It may well be that this case becomes a useful precedent as more cases start to emerge. In the meantime, we look forward to seeing more cases arise and what other legal issues they bring. <hr style="height:3px;border:none;color:#333;background-color:#333;"> <i> Extropy.io are a consultancy for blockchain and cryptography based in Oxford, UK. We help businesses and startups realise the full potential of the blockchain and bring them cutting edge technology in a way that non-rocket scientists can understand.  We also teach blockchain and cryptography workshops and give talks at conferences worldwide. If you would like to find out more, please get in touch. </i> References: [Judgment](https://www.bailii.org/ew/cases/EWHC/Comm/2019/3556.html) - *AA v Persons Unknown* [2019] EWHC 3556 (Comm) [Legal statement on cryptoassets and smart contracts](https://35z8e83m1ih83drye280o9d1-wpengine.netdna-ssl.com/wp-content/uploads/2019/11/6.6056_JO_Cryptocurrencies_Statement_FINAL_WEB_111119-1.pdf) - UK Jurisdiction Taskforce [Part One](https://blog.extropy.io/posts/legal1.html) and [Part Two](https://blog.extropy.io/posts/legal2.html) for this series