It is widely accepted that cryptocurrencies are not considered “money” in the traditional sense, nor “goods” under the Sale of Goods Act 1979. So, if not money or goods, what are cryptocurrencies? And what impact does this have for litigants before the English courts?
The meteoric rise of the digital assets space, together with retail mass adoption, has meant that the English courts have increasingly been forced to grapple with this question in the context of complex commercial disputes and, in particular, whether cryptocurrencies constitute “property”. Although the conceptual justification remains the subject of ongoing academic debate, the established position appears to be that, in principle, cryptocurrencies are capable of constituting property under English law. If true, this has important remedial consequences for litigants.
Legal classification of cryptocurrencies: a square peg in a round hold?
Since Colonial Bank1, English law has traditionally viewed property as comprising either ‘choses [things] in possession’ (for example, tangible assets) or ‘choses [things] in action’ (for example, debt or contractual rights such as shares). Due to their digital nature, cryptocurrencies don’t fall squarely into either of these categories; they are not strictly choses in possession because they are virtual, non-tangible and incapable of physical possession, and they are not strictly choses in action because they don’t embody any claim or right capable of being enforced by action.
However, in Re Bitcoin2 the High Court adopted the pragmatic conclusion that although they don’t fall neatly within the two traditional categories of property under English law, Colonial Bank does not prevent cryptocurrencies from being treated as property under English law (or, more precisely, from constituting a form of property capable of being the subject of a proprietary injunction for the purposes of granting interim relief). The judgment placed heavy reliance on the UK Jurisdiction Taskforce’s (“UKJT”) legal statement on ‘Crypto Assets and Smart Contracts’ and, in particular, the following points:
- Colonial Bank should not be read to limit the scope of things that can constitute property in law, noting that the question before the court in Colonial Bank was one of statutory interpretation (i.e. whether the shares concerned were choses in action within the meaning of the Bankruptcy Act 1883). Importantly, Colonial Bank did not consider whether the shares were property generally, and did not explicitly address the issue of exhaustive classification between choses in action and choses in possession; to the extent it did, it seemed to suggest that the class of choses in action could be extended to all intangible property (i.e. choses in action was a residual class of all things not in possession), rather than suggesting the class of intangible property should be restricted to rights that could be claimed or enforced by action;
- cryptocurrencies meet the four criteria set out in Lord Wilberforce’s classic definition of property3, being: (1) definable; (2) identifiable by third parties; (3) capable in the nature of assumption by third parties; and (4) having a degree of permanence;
- the court has had no issue treating other kinds of intangible assets as property, such as milk quotas and carbon emissions allowances (see Swift v Dairywise Farms Ltd  1 All ER 320); and
- various important 20th century statutes define property in terms that assume intangible property is not limited to choses in action. For example, the Theft Act 1968, the Proceeds of Crime Act 2002 and the Fraud Act 2006.
Fetch.ai (2021), another case involving the grant of a proprietary injunction, recently affirmed the conclusion reached in Re Bitcoin – that cryptocurrencies are capable of constituting property – albeit on a different and unexplained basis. Although no supporting analysis was provided for the divergence (indeed, Fetch.ai made no reference to Re Bitcoin altogether), the High Court determined that cryptocurrencies were property on the basis of cryptocurrencies being choses in action, in other words falling neatly into the second of the traditional categories of property under English law. This contrasts with the reasoning underlying the same conclusion in Re Bitcoin, therefore, that although cryptocurrencies don’t fall squarely into either of the choses in possession or choses in action categories, they are nonetheless capable of constituting property.
Whatever the correct reasoning, other recent cases such as Wang v Darby4 have supported the analysis that cryptocurrencies are capable of constituting property. In Wang, the judge observed that “…the transfer of digital assets from one account-holder to another…could involve or constitute a trust”. This is consistent with the position adopted by the New Zealand courts in Cryptopia (2020)5, which considered Re Bitcoin, and held that cryptocurrencies are property, both within the statutory framework concerned and “also probably more generally”. In a similar vein to Wang, therefore, Cryptopia held that “digital assets…being property…are capable of forming the subject matter of a trust”.
Practical consequences / future developments
Most of the English cases dealing with the question of whether cryptocurrencies constitute “property” have been interlocutory in nature, often in the context of proprietary injunctions and/or freezing orders, and so of limited precedential value.
However, in light of the considerable body of jurisprudence suggesting that cryptocurrencies are property (both in England and overseas), in line with the UKJT’s conclusions, it is likely that when the question does eventually reach the highest levels of the English courts, it will be answered – at least as a general matter – in the affirmative. The sooner the position is established the better, as the classification will have significant legal consequences for the remedies available to litigants in crypto-related disputes.
In addition to providing litigants with wider jurisdictional gateway, more remedies are likely to be available to litigants if cryptocurrencies are authoritatively determined to be property under English law. For example, damages representing currency loss for late delivery of cryptocurrency, the right to treat a delay in transfer as a repudiatory breach and, where a buyer fails to pay for cryptocurrency, the right of stoppage in transit, will be more readily available if cryptocurrencies are deemed property.