In AA v Persons Unknown  EWHC 3556 (comm) Mr Justice Bryan gave further consideration to the treatment of cryptocurrencies as property for the purposes of English Law, determining that they are capable of being subject to an interim proprietary injunction.
Cryptocurrencies are becoming a more common feature of commercial life and impact on associated areas including cyber security and fraud as well as asset tracing and recovery.
Numerous issues arise when dealing with cryptocurrencies and this case saw the court permit the hearing of the application to be held in private, the Claimant to be anonymised and service out of the jurisdiction, by means of alternative service.
The matter arose following a successful cyber-attack on a Canadian insurance company, which encrypted the insurer’s files and demanded a ransom payment in Bitcoin equivalent to the sum of $950,000 USD in exchange for the decryption software.
The ransom was paid (via an intermediary) by the Applicant in the proceedings (an English insurer) which insured the Canadian insurance company in respect of cyber-crime attacks.
The Applicant sought relief against the unknown individual(s) who demanded the ransom and into whose accounts the Bitcoin used to pay the ransom had been paid; accounts which were operated by the other respondents, a Bitcoin Exchange.
The primary relief sought was an injunction to prevent the dissipation of the Bitcoin as well as disclosure orders to allow the Applicant to identify the wrongdoers. The Applicant had successfully used a specialist security company to trace the ransom Bitcoin to specific cryptocurrency accounts.
Proceedings held in Private
Bryan J was satisfied that the criteria in CPR 39.2(3)(a), (c), (e) and (g) applied.
He found that publicity would defeat the object of the hearing as it would tip off those in possession of the Bitcoin, potentially leading to dissipation. He also considered the risk of further revenge or copycat attacks on the Applicant or the Canadian insurance company and the fact that confidential information was involved. Finally, it would be unfair to name the third and fourth respondents (the Exchange which operated the accounts where the ransom Bitcoin was being held) as they had not yet had the opportunity to address the court and had, at the very least become mixed up in the wrongdoing of the other respondents [paras 30 – 32].
Bitcoin as Property
In order to consider whether it would be appropriate to grant the proprietary injunction, the court first needed to consider whether the ransom Bitcoin were property at all.
The law traditionally recognised two types of personal property; things which could be possessed or things which give rise to a right which can be enforced through the courts. Cryptocurrencies do not fit neatly into either category as they are intangible and do not themselves give rise to a right of action in the way that a contractual right or a debt would.
Bryan J was referred to the analysis of the UK Jurisdictional Taskforce (“UKJT”) in its legal statement on Crypto Assets and Smart Contracts published in November 2019 (“the Legal Statement”). He considered it to be an accurate statement as to the position in English law in respect of cryptocurrencies.
Crucially, as the UKJT concluded, they meet the four criteria set out in Lord Wilberforce’s classic definition of property in National Provincial Bank v Ainsworth  1 AC 1175 as being definable, identifiable by third parties, capable in their nature of assumption by third parties, and having some degree of permanence.
In the circumstances, Bryan J held that the ransom Bitcoin could be considered property and the subject of an injunction [para 59].
Service out of the jurisdiction was sought under several gateways in Practice Direction 6B.
Bryan J was satisfied that the claims which were sought in terms of constructive trust and restitution, and the proprietary injunction that was sought in relation to those fell within gateway (5), claim for interim remedy under section 25.1 of the Civil Jurisdiction and Judgments Act; as well as (9), claims in tort, where damage was sustained within the jurisdiction, the Insurer being an English insurance company who paid the money from an English bank account and is registered here and therefore had suffered loss in the money which was used to buy the Bitcoin. [para 68].
Pursuant to CPR 6.15 Bryan J also gave permission for alternative service on various email addresses which had been obtained. He held that because it was not known who the first and second respondent were, coupled with the urgency of the application, the speed with which the Bitcoin could be moved and the importance of preserving the Applicant’s rights over the Bitcoin, all these factors made it appropriate to allow alternative service [paras 73 – 77].
The judgment highlights some of the many issues which arise in matters involving cryptocurrencies. This is an interesting and developing area which will inevitably receive further Judicial consideration in the future and builds on the recent decisions in Robertson v Persons Unknown (unreported, 15 July 2019) and Vorotyntseva v Money-4 Ltd  EWHC 2598 (Ch).
The recognition of cryptocurrencies and other crypto-assets as capable of being property is important. In principle, proprietary rights are recognised against the whole world, whereas other, personal rights, are recognised only against someone who has assumed a relevant legal duty. Proprietary rights are of particular importance in an insolvency, where they generally have priority over claims by creditors, and when someone seeks to recover something that has been lost, stolen or unlawfully taken. They are also relevant to the questions of whether there can be a security interest in a crypto-asset and whether a crypto-asset can be held on trust (see paragraph 36 of the Legal Statement).
Whilst the decentralised nature of cryptocurrencies and assets may create some practical obstacles to legal intervention, the decisions so far have shown that that does not meant that they fall outside of the law.