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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> AA v Persons Unknown & Ors, Re Bitcoin [2019] EWHC 3556 (Comm) (13 December 2019) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2019/3556.html Cite as: [2020] Lloyd's Rep FC 127, [2020] WLR(D) 50, [2020] 4 WLR 35, [2019] EWHC 3556 (Comm), [2020] 2 All ER (Comm) 704, [2020] 1 CLC 64 |
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BUSINESS & PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
IN PRIVATE
(reporting restrictions lifted,
and released for publication, 17 January 2020)
7 Rolls Buildings Fetter Lane London EC4A 1NL |
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B e f o r e :
____________________
![]() | Claimant |
|
- and - |
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(1) ![]() ![]() ![]() ![]() (2) ![]() ![]() ![]() ![]() (3) iFINEX trading as BITFINEX (4) BFXWW INC trading as BITFINEX |
Defendant |
____________________
____________________
VERSION
OF APPROVED JUDGMENT
Crown Copyright ©
MR. JUSTICE BRYAN:
INTRODUCTION
BACKGROUND
"Hello [insured customer] your network was hacked and encrypted. No free decryption software is available on the web. Email us at […] to get the ransom amount. Keep our contact safe. Disclosure can lead to impossibility of decryption. Please use your company name as the email subject."
"as an exception we can agree on US $950K for the tool. You can send us a few encrypted files for the test decryption ((do not forget to include the corresponding _readme files as well)."
"The Bitcoin address for the payment […] When sending the payment check the USD/BTC exchange rate on bitrex.com we have to receive no less than USD 950K in Bitcoins. It takes around 40-60 minutes to get enough confirmations form [sic] the blockchain in order tovalidate
the payment. Upon receipt we send you the tool."
"Please reply. You have received $950,000 and I am hoping we can get what we need ASAP. Thank you."
"Hello,
Here is the tool
Download
[address]
Delete:
[address]
Password:
[address]
Execute the tool on every impacted host"
APPLICATION FOR HEARING TO BE IN PRIVATE
"39.2(1) The general rule is that a hearing is to be in public. A hearing may not be held in private irrespective of the parties' consent unless and to the extent that the court decides it must be held in private applying, the provisions in paragraph (3).
"39.2(2) In deciding whether to hold a hearing in private the court must consider any duty to protect or have regard to a right to freedom of expression which may be affected."
"The court shall take reasonable steps to ensure that all hearings are of an open and public character save when a hearing is held in private."
A hearing, or any part of it, must be held in private if, and only to the extent that, the court is satisfied of one or more of the matters set out in sub-paragraphs (a) to (g) and that it is necessary to sit in private to secure the proper administration of justice—
(a) publicity would defeat the object of the hearing;
(b) it involves matters relating to national security;
(c) it involves confidential information (including information relating to personal
financial matters) and publicity would damage that confidentiality;
(d) a private hearing is necessary to protect the interests of any child or protected party;
(e) it is a hearing of an application made without notice and it would be unjust to any respondent for there to be a public hearing;
(f) it involves uncontentious matters arising in the administration of trusts or in the administration of a deceased person's
estate; or
(g) the court for any other reason considers this to be necessary to secure the proper administration of justice.
"Generally, the court has taken theview
that blackmail represents the misuse of freedom of speech rights. Such conduct will considerably reduce the weight attached to free speech and correspondingly increase the weight of the arguments in favour of restraint. The court recognises the need to ensure that it does not encourage or help blackmailers or deter
victims
of blackmail from seeking justice before the court. All these points are well recognised ."
"I heard the Privacy Application at the beginning of the hearing, giving reasons in public for granting it, which I summarise as follows:
i) The Orders are principally concerned with preventing the defendants and, in particular, Mr Cumberland, directly or indirectly, from making or encouraging the making of disparaging statements about the claimants or in other ways acting to damage the business or reputation of the claimants. It will be necessary during the course of the hearing to considervarious
allegations and allegedly damaging statements made by Mr Cumberland, his motivations for making them and other relevant circumstances, the
ventilation
of which could have the damaging effect of which it is the purpose of this claim to prevent or avoid.
ii) I was satisfied that the grounds set out in CPR 39.2(a) , (c) and (g) apply to this case and justify the hearing of the matter in private.
iii) I considered whether it was necessary and proportionate to conduct the hearing in private or whether some lesser measure or combination of measures would suffice, such as imposing reporting restrictions, anonymising the parties or restricting access to court records. I was satisfied, however, that no lesser measure or combination of measures would provide the necessary protection, given the nature of the conduct alleged against Mr Cumberland (much of which, I note, he admitted during the course of the hearing) which would make it difficult, if not impossible, for the court effectively to police and enforce lesser measures.
iv) I found it relevant to these considerations that the business of the claimants is one in which the reputation of the companies and of the leading individuals managing and operating them are of critical importance. Damage to reputation can lead to rapid and potentially massive losses for a business operating in the international financial services sector."
NORWICH PHARMACAL/BANKERS TRUST APPLICATION
"It seems to me that, first of all, there is a good case for seeking the information in documents contained in the order which I am making in respect of the banks, because that is the critical source to discover what has happened to the money which has been paid out from the claimant's bank account in London pursuant to the alleged fraud. I am satisfied there is jurisdiction to do that under Bankers Trustv.
Shapira principles , and/or CPR 25.1(1)(g) . Secondly, there still has to be a case for service out even if no positive remedy is sought against those defendants other than the information. For present purposes I am satisfied that in relation to those banks which are situate outside the EU and outside this jurisdiction, that is covered by the fact that they are a necessary and proper party to the claims which have been brought against the perpetrator defendants; and in respect of service within the EU that Article 7.2 of the recast Brussels Regulation will apply, subject to the claimants filling out and attaching to the claim form, Form 510 where they certify to that effect."
"29. On 8 March 2016 ADCB Dubai, through its solicitors, stated that it was willing to write to the Central Bank to seek guidance as to whether the documents might be disclosed and was willing for the Claimant to join it in submitting a joint application to the Central Bank on the issue. On 9 March the Claimant, through its solicitors, requested more details about the proposed approach, doubted that the Central Bank would entertain a request from the Claimant and said that the will to disclose must come from ADCB Dubai. On 14 March 2016 the Claimant referred to the letter of 9 March 2016 and requested a detailed response. On 18 March 2016 ADCB Dubai said that it had made a reasonable offer to seek guidance from the Central Bank and to submit a joint application on the issue. ADCB Dubai was willing to agree the wording of an application and hoped that the Claimant's questions had been answered. However, there was no further response and so on 4 April 2016 ADCB Dubai wrote to the Central Bank informing it of this court's order and stating that it understood that "local regulations do not permit us to take action based on an order from a foreign court" and that it could only release customer information "where we receive an order from either a local court (ie UAE based) or Central Bank of UAE." ADCB Dubai went on to say that it had been argued that its terms and conditions gave a discretion for release information to third parties but that it did not understand that "general contractual rights override regulations issued by our regulator." ADCB Dubai urgently requested the Central Bank to approve its interpretation or approve the release of documents pursuant to the UK court order.
30. Counsel for the Claimant criticised the terms of the letter to the Central Bank dated 4 April 2016. I agree that it might have been better if clause 2 of ADCB Dubai's terms and conditions had been quoted and if a copy of Al Tamimi's advice had been appended. However, given the offer made by ADCB Dubai to agree the terms of any approach to the Central Bank I do not consider that ADCB Dubai can be criticised for the terms of their letter to the Central Bank.
31. On 7 April 2016 the Bank replied as follows:
"While agreeing with your interpretation, you may proceed further in accordance with 2007 Treaty between UAE and UK on Mutual legal Assistance. While writing to the court, you may highlight the legal restriction on the bank to pass on any customer related information to third parties without prior approval of the Central Bank. It will therefore be necessary to follow the protocol given in the Treaty in order for the Central Bank of the UAE to pass on the required information to the court in the UK thought the proper channels."
PROPRIETARY INJUNCTION APPLICATION
"Allpersonal
things are either in possession or action. The law knows no tertium quid between the two."
"71. The Colonial Bank case concerned a dispute about shares deposited as security for a loan. The borrower was declared bankrupt and there was a contest for the shares between the plaintiff bank and the trustee in bankruptcy. The case was not about the scope of property generally: there was no dispute that the shares were property. The relevant question was rather whether they were things in action within the meaning of the Bankruptcy Act 1883, an issue of statutory interpretation. If so, then they were excluded from the bankrupt estate by section 44 of that Act.
72. Lindley LJ and Cotton LJ held that the shares were not things in action. They relied principally on previous case law where the court had come to a similar conclusion in relation to the predecessor statute, the Bankruptcy Act 1869. They also drew some support from sections 50(3) and 50(5) of the 1883 Act, which appeared to make a distinction between shares and things in action.
73. Fry LJ reached the opposite conclusion, reasoning principally from what he considered to be the essential nature of a share. A share constituted "the right to receive certain benefits from a corporation, and to do certain acts as a member of that corporation" and was therefore, in hisview,
closely akin to a debt. He supported his conclusion by a comparison of shares to other, established, things in action, such as partnership interests and interests in funds.
74. Fry LJ's statement that "personal
things" are either in possession or in action, and that there is no third category, may carry the logical implication that an intangible thing is not property if it is not a thing in action. It is not clear, however, whether Fry LJ intended that corollary and it should not in any case be regarded as part of the reasoning leading to his decision (and so binding in other cases). The question before him was whether the shares were things in action for the purpose of the Bankruptcy Act, not whether they were property, still less the scope of property generally.
75. Moreover, in making the statement Fry LJ attributed avery
broad meaning to things in action. He approved a passage from
Personal
Property by Joshua Williams, which described things in action as a kind of residual category of property: "In modern times [sc. by the 19th century] … several species of property have sprung up which were
unknown
to the common law … For want of a better classification, these subjects of
personal
property are now usually spoken of as ... [things] in action. They are, in fact,
personal
property of an incorporeal nature…".
76. On appeal, the House of Lords also framed the question as one about statutory interpretation. They reversed the Court of Appeal's decision, approving the judgment and reasoning of Fry LJ. They did not explicitly address the issue of exhaustive classification between things in action and things in possession and said nothing about the definition of property. Lord Blackburn did say, however, that "in modern times lawyers have accurately or inaccurately used the phrase '[things] in action' as including allpersonal
chattels that are not in possession". Thus, to the extent that the House of Lords agreed with Fry LJ on the classification issue, that seems to have been on the basis that the class of things in action could be extended to all intangible property (i.e. it was a residual class of all things not in possession) rather than on the basis that the class of intangible property should be restricted to rights that could be claimed or enforced by action.
77. Ourview
is that Colonial Bank is not therefore to be treated as limiting the scope of what kinds of things can be property in law. If anything, it shows the ability of the common law to stretch traditional definitions and concepts to adapt to new business practices (in that case the development of shares in companies).
78. Colonial Bank was referred to in AllgemeineVersicherungs-Gesellschaft
Helvetia
v
Administrator of German Property by Slesser LJ as showing "how the two conditions of [thing] in action and [thing] in possession are antithetical and how there is nomiddle term". Again, however, the case was not about the scope of property generally but about whether something that was undoubtedly property should be classified as a thing in possession or a thing in action.
79. Most recently, Colonial Bank was cited in 2014 in Your Responsev
Datateam. In that case, the claimant sought to assert a lien over a database in digital form but faced the obstacle of the previous decision of the House of Lords in OBG Ltd
v
Allan that there could be no claim in conversion for wrongful interference with a thing in action because it could not be possessed. In an attempt to distinguish the case from OBG, the claimant argued that, even if the database could not be regarded as a physical object, it was a form of intangible property different from a thing in action and so was capable of being possessed.
80. The Court of Appeal rejected the argument. Moore-Bick LJ said that Colonial Bank made it "very
difficult to accept that the common law recognises the existence of intangible property other than [things] in action (apart from patents, which are subject to statutory classification), but even if it does, the decision in OBG Ltd
v
Allan [2008] AC 1 prevents us from holding that property of that kind is susceptible of possession so that wrongful interference can constitute the tort of conversion." He said that there was "a powerful case for reconsidering the dichotomy between [things] in possession and [things] in action and recognising a third category of intangible property, which may also be susceptible of possession and therefore amenable to the tort of conversion" but the Court of Appeal could not do that because it was bound to follow the decision in OBG. The other members of the court agreed.
81. The Court of Appeal did not, and did not need to, go so far as to hold that intangible things other than things in action could never be property at all, only that they could not be the subject of certain remedies. The intangible thing with which they were concerned was a database, which (as Floyd LJ said) would not be regarded as property anyway because it was pure information. They did not have to consider intangible assets with the special characteristics possessed by cryptoassets.
82. In other cases, the courts have found no difficulty in treating novel kinds of intangible assets as property. Although some of those cases are concerned with the meaning of property in particular statutory contexts, there are at least two concerning property in general. In Dairy Swiftv
Dairywise Farms Ltd, the court held that a milk quota could be the subject of a trust; and in Armstrong
v
Winnington, the court held that an EU carbon emissions allowance could be the subject of a tracing claim as a form of "other intangible property", even though it was neither a thing in possession nor a thing in action.
83. A number of important 20th century statutes define property in terms that assume that intangible property is not limited to things in action. The Theft Act 1968, the Proceeds of Crime Act 2002, and the Fraud Act 2006 all define property as including things in action "and other intangible property". It might be said that those statutes are extending the definition of property for their own, special purposes, but they at least demonstrate that there is no conceptual difficulty in treating intangible things as property even if they may not be things in action. Moreover, the Patents Act 1977 goes further in providing, at s30, that a patent or application for a patent "ispersonal
property (without being a thing in action)". That necessarily recognises that
personal
property can include things other than things in possession (which a patent clearly is not) and things in action.
84. We conclude that the fact that a cryptoasset might not be a thing in action on the narrower definition of that term does not in itself mean that it cannot be treated as property."