Cryptocurrency is evolving and with that, a plethora of legal issues are likely to arise. That will undoubtedly create the requirement for courts to apply not only new remedies to address claimed wrongdoings related to cryptocurrency transactions but, in addition, the use and expansion of existing remedies.
WHAT IS BITCOIN?
Bitcoin is perhaps the most widely known cryptocurrency. In 2009, Bitcoin was created as an open-source, peer-to-peer digital currency, meaning the control and computer code is open to public view, transactions do not require a third-party intermediary and it's electronic, with no physical manifestation. The Bitcoin system is private, without any central controlling person or entity. The network is completely decentralized, with all parts of transactions performed by system users. While Bitcoin offers users the advantages of lower transaction costs, long-term protection of loss of purchasing power from inflation and increased privacy, it also has a number of disadvantages, including uncertain security from theft and fraud.
Challenges and Remedies for Litigants
While Bitcoin transactions do not involve a third-party intermediary, the peer-to-peer interaction between the buyer and seller is not completely anonymous. Rather, the identities of the buyer and seller are encrypted, although no personal information is transferred from one party to the other. There is, however, a transaction record that is maintained on the public ledger. While anti-money laundering laws and Bitcoin exchanges may require the collection of personal data of customers, thereby limiting the system's ability to maintain the user's privacy, identifying potential defendants who are claimed to have engaged in theft or fraud will continue to be challenging.
Litigants attempting to enforce rights and address wrongful behaviour face obstacles including the difficulty in identifying potential defendants and the international nature of the transactions, which raises many jurisdictional issues. At least two equitable remedies already exist, which could be flexibly applied to this evolving business.
Canadian and other commonwealth courts have used broad interim equitable remedies to achieve pre-action discovery, the preservation of evidence and the freezing of assets in appropriate circumstances in flexible and evolving ways. One existing remedy is the equitable bill of discovery known as the Norwich order requiring third parties to disclose information to the party obtaining the order.
The principles of Norwich orders have been applied to identify wrongdoers, to trace funds and assets and to assist prospective plaintiffs in determining whether a cause of action exists. The evolution of the remedy has focused on the extension and development of the "full information" portion of the relief as opposed to simply discovering the identity of the claimed wrongdoer. Such relief has been granted to assist in tracing funds fraudulently misappropriated together in aid of many other remedies. Norwich orders, being an elastic tool of equity, will no doubt assist in the ever evolving area of remedies available for claims involving cryptocurrency transactions.
Another equitable remedy available is injunctive relief. The Supreme Court of Canada (SCC) in Google Inc. v. Equustek Solutions Inc. held that a Canadian court can potentially grant an injunction enjoining conduct anywhere in the world, particularly where the impugned conduct is occurring online and globally, such as on the Internet. The SCC also held that injunctive relief can be ordered against somebody who is not a party to the underlying lawsuit, even if the third parties themselves are not guilty of wrongdoing. In such circumstances, those third parties can potentially be subject to interlocutory injunctions. The ultimate question for a Canadian court is whether granting the injunction would be just and inequitable in all the circumstances of the case.
There is no doubt that there is much jurisprudence to be developed relating to the remedies available to users of cryptocurrencies including Bitcoin, however, one can expect that the existing equitable remedies of Norwich orders and injunctions will be instruments used by litigants in attempting to enforce rights and address claimed wrongdoings arising from those transactions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.