A PYMNTS Company

From Cryptic to (Some) Clarity: English Law and Policy Rising to the Challenge of Cryptoassets (Part 2)

 |  May 16, 2022

By: Steven Baker & Julia Bihary (Blockchain and the Law)

In the first part of this series of articles, we examined the progress of English law to shape and build an infrastructure to support the development of a secure and certain environment for investment in digital assets. We considered how recent English case law has addressed the questions of whether cryptoassets are property, and whether they can be held on trust.

In this second instalment, we review jurisdictional issues relating to digital assets.

Where are cryptoassets located?

Where assets are located in the eyes of the law is relevant to questions of what governing law applies to them, the Court’s determination of its own jurisdiction (including the appropriate forum for a claim to be resolved) and questions of service of court documents outside the jurisdiction. Crypto-disputes raise questions of where cryptocurrency exchanges are located, the identification and location of defendants, and where cryptoassets (which have no traditional physical form) are situated.

The law of the jurisdiction in which property which is subject to litigation is located is referred to as the lex situs of the property. In general terms, Courts determine the lex situs of land and chattels based on their (physical) location, and in respect of enforceable personal rights over property (known as choses in action) where they are recoverable or can be enforced. Given their intangible nature, determining the lex situs of cryptoassets is a question the English Courts have needed to grapple with sooner or later.

The Ion Science Ltd v Persons Unknown (unreported, 21 December 2020) case presented an opportunity to do so. It suggested that for the purposes of English law the lex situs of cryptocurrency is the place where the person or company who owns it is domiciled.[1] This approach was followed in Fetch.ai Ltd and another v Persons Unknown Category A and others[2] as part of the Court’s consideration of whether to grant permission for the claimants to serve proceedings outside the jurisdiction. (In that case, the claimants were then able to obtain a worldwide freezing order and proprietary injunctive relief against unknown fraudsters, among other orders.)

Residency or domicile?

In the recent decision in Tulip Trading Limited v Bitcoin Association for BSV, in rejecting some ambitious legal arguments, English law appears to have adopted a different tack on the lex situs of a cryptoasset, preferring residency rather than domicile as the influencing factor.

The claimant (TTL, a Seychelles company owned by Dr Craig Wright, who claims to be the creator of the Bitcoin system) claimed to own Bitcoin worth ca. US$4.5 billion, which he accessed and controlled from his computer and network in England, facilitated by secure private keys. The keys were deleted by hackers who accessed Dr Wright’s computer as a result of which Dr Wright lost access to the Bitcoin.

TTL claimed that the defendants, the developers who developed the relevant Bitcoin software owed a fiduciary, or alternatively a tortious, duty to TTL to enable it to re-access the Bitcoin. TTL sought a declaration that it owned the relevant assets and orders requiring the defendants to take reasonable steps to ensure that it had access to them, or for equitable compensation or damages, claiming that it would not be technically difficult for the defendants to write and implement a software “patch” enabling it to regain control of the lost cryptoassets. It obtained permission to serve the claim on the defendants out of the jurisdiction. Following service, some of the defendants challenged the English Court’s jurisdiction…