The question of whether cryptocurrencies constitute property was considered by the British Columbia Supreme Court in the 2018 case of Copytrack Pte Ltd v Wall as we described in a previous legal update. While the court was not prepared to determine that cryptocurrencies are “goods” and therefore open to claims in wrongful detention and conversion, it held that cryptocurrency is sufficiently “property” as to be subject to orders for tracing and recovery.
While the Copytrack decision was a significant development in the law, the question of whether cryptocurrency may be subject to freezing orders in instances of fraud remains uncertain. However, recent decisions from the United Kingdom and Singapore may provide a path for such a legal development to occur in Canada.
B2C2 Ltd v Quoine Pte Ltd
In B2C2 Ltd v Quoine Pte Ltd, the Singapore International Commercial Court determined cryptocurrencies can be considered as property and capable of being held in trust. The plaintiff B2C2 traded the cryptocurrency ethereum for bitcoin through the defendant Quoine’s currency exchange platform. Due to a defect in the software, B2C2’s account was credited with an exchange rate of roughly 250 times the market rate. Upon realizing the error, Quoine reversed the transaction. B2C2 brought an action against Quoine on the grounds that Quoine’s reversal of the transaction breached the terms of the contract and constituted a breach of trust.
On the breach of trust issue, the court considered whether cryptocurrencies were “property” in order to satisfy the requirement of the certainty of subject matter to create a trust. The court held that cryptocurrencies meet all the requirements of property as defined by the House of Lords in National Provincial Bank v Ainsworth[, namely, “… 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.” Based upon this definition, the court held that cryptocurrencies “have the fundamental characteristic of intangible property as being an identifiable thing of value.”
Vorotyntseva v Money-4 Ltd
In Vorotyntseva v Money-4 Ltd (T/A Nebus.com), claimant sought a freezing order against the respondent company and its directors regarding about £1.5 million worth of bitcoin and ethereum cryptocurrency. The claimant was concerned her funds had been dissipated, and brought an ex parte application after being unsatisfied with the respondent’s answers to questions regarding the status of her funds.
When assessing the respondent’s evidence, the High Court of Justice noted the documents produced either appeared to have been altered or simply did not prove that the applicant’s cryptocurrency was still in the respondent’s control. Consequently, the court held there to be a real risk of dissipation of the funds, making it an appropriate case for a freezing order. The court found that no party had suggested cryptocurrencies could not be a form of property or a party subject to the court’s jurisdiction could not be enjoined from dealing in or disposing of it. Consequently, the court treated the cryptocurrencies in the same manner as tangible property and issued the freezing order against the respondents.
In Canada, the legal status of cryptocurrency as property is still a developing issue. While Copytrack provides authority that cryptocurrency can be subject to tracing and recovery when it is inadvertently transferred to third parties, questions remain as to how courts will treat cryptocurrency regarding other remedies. The B2C2 and Vorotyntseva decisions are positive indicators that the common law is moving towards recognizing cryptocurrency as property, providing a basis for freezing orders applicable to cryptocurrencies in instances of fraud.
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