Out-Law / Your Daily Need-To-Know
Out-Law Analysis 2 min. read
Seeking legal remedies for cryptocurrency as a form of property in Hong Kong
12 Apr 2022, 7:25 am
Although the courts of the Hong Kong Special Administrative Region (SAR) have not explicitly addressed whether bitcoin and other cryptocurrencies can be a form of property, the courts have granted injunctions and other equitable remedies as a way of protecting these assets.
Some overseas jurisdictions also call cryptocurrency ‘crypto assets’. Without going into the technicalities of these terms, they are generally used interchangeably in the crypto market.
As the global crypto economy continues to mature, businesses become increasingly involved in the crypto market - whether as investors, due to customer demand or inadvertently as victims of cyber fraud. It is important for businesses to understand how cryptocurrency may affect their operations and growth opportunities and how their interests may be protected and what legal remedies are available in case of dispute.
In this context, whether cryptocurrency is considered as a form of ‘property’ becomes a legally relevant question.
Why does it matter whether cryptocurrency is considered as property?
Whether cryptocurrency is considered as a form of property is important because it will potentially determine how far the court can protect a business’ interest in cryptocurrency in a legal action. If the court does not recognise cryptocurrency as ‘property’ in the legal sense, a cryptocurrency cannot reliably form the subject matter of a trust, a proprietary right or a part of estate. This will affect the remedies available for the protection of these crypto assets and hence the potential value of these assets.
The classic test for 'property', as set out by Lord Wilberforce in the UK House of Lords in 1965, has four criteria: the right or interest must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.
How is cryptocurrency treated in Hong Kong SAR?
The courts in Hong Kong SAR have previously granted injunctive relief and other equitable relief over cryptocurrency to assist victims of cyber fraud.
In a 2019 Hong Kong High Court case Nico Constantijn Antonius Samara v Stive Jean Paul Dan, there was an alleged agreement between two parties: Stive Jean Paul Dan agreed to act as agent of Nico Constantijn Antonius Samara when selling his bitcoins in return for commission. When Dan suddenly stopped remitting sale proceeds to Samara, Samara applied to court for injunctive relief, among other remedies. In the end, the High Court granted a proprietary injunction, Mareva injunction and a declaration over the relevant bitcoins and sale proceeds, as well as a discovery order.
In this case, the High Court did not explicitly address whether cryptocurrency constitutes a form of property. However, the remedies given by the court are those akin to treating cryptocurrency as a form of property.
Businesses can now more confidently rely on the court to grant injunctive relief and other relief to protect their crypto assets in Hong Kong SAR.
How is cryptocurrency treated in other common law jurisdictions?
The English High Court was one of the earliest courts to recognise cryptocurrency as a form of property capable of being the subject of proprietary injunction.
The courts in New Zealand and Canada have also arrived at similar conclusions where cryptocurrency or crypto assets could be treated as property capable of being traced, recovered, or held on trust in cyber fraud incidents as well as in liquidation proceedings.
In Singapore, in the case B2C2 Ltd v Quoine Pte Ltd, even though the lower court has commented that cryptocurrencies “have the fundamental characteristic of intangible property as being an identifiable thing of value”, the Court of Appeal in Singapore has declined to reach a final position on this matter, leaving the issue open.
Co-written by Sara Chan of Pinsent Masons.
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