Law ‘must continue to evolve’ in line with a rapid shift towards a digital society

Richard Bartle, property dispute resolution expert at Pinsent Masons, said: “This case is a something of a ‘buried treasure’ case, which, for obvious reasons, has piqued the public’s interest. But it also represents the latest chapter in the ongoing chronicle of the law having to swiftly evolve by grappling with well-established legal principles that cannot always be neatly applied or themselves evolve as fast as the modern world in which they are being applied, involving, as it does, a rapid shift to a digital society.”

James Howells, a British IT worker, lost his legal battle against Newport City Council to recover a hard drive with a ‘wallet.dat’ file on it which contains a public and private key address needed for Howells to access his bitcoin.

In 2013 Howells’ partner accidentally discarded a hard drive containing the private keys to 8,000 bitcoins at a landfill site owned by the council. At the time, Bitcoin was in its relatively early stages, and the value of Howells' cryptocurrency was therefore a fraction of the £600 million it is valued at today. Howells sought permission from the council to excavate the landfill site where he believed the hard drive was buried. Despite his numerous proposals, including offering a significant portion of the recovered Bitcoin to the council, his requests were consistently denied.

In May 2024, Howells escalated his efforts by filing a claim against the council at the High Court. He sought a court order to establish that he is the legal owner of the hard drive and all tangible and intangible property on it, or that he had a so-called ‘equitable interest’ in it, and an order for delivery up of the hard drive, which would involve excavation to recover it, or damages for the wrongful detention of the hard drive by the council.

The council sought both strike out and summary judgment on Howells’ claim and the court awarded summary judgment on it. It was ruled that the physical hard drive and what was on it was now the property of the council and that Howells was not entitled to a so-called “proprietary restitutionary” remedy or a so-called “equitable proprietary” remedy.

The judge decided that the provisions of the Control of Pollution Act 1974 vested title to and therefore legal ownership of the hard drive and everything on it in the council. Therefore, Howells’ claim that he was the legal owner of the hard drive and everything on it failed. The court’s decision on that point – in effect, that ownership of the hard drive and what was on it had passed to the council – also meant that Howell’s proprietary restitutionary claim and equitable restitutionary claim for a constructive trust also failed.

Bartle said: “In this case, the primary reason for dismissal of Howells’ claims rested on a point of statutory interpretation of the Control of Pollution Act 1974. The process of statutory interpretation – which means deciding what parliament intended based on a series of conflicting presumptions of statutory interpretation, each with different or variable weightings – is notoriously susceptible to divergences of judicial opinion. There is often legitimate scope for differing views. As such, points of interpretation, both statutory and contractual, are often fertile grounds for appeals to the higher courts. In that respect, it wouldn’t be overly surprising if Howells were now to seek to advance an appeal on that basis.”

As the judge noted in his decision, he heard no argument concerning wrongful interference with goods on the claim asserting legal ownership of the hard drive.

Bartle said: “In some respects, the absence of a claim involving wrongful interference was surprising, although, that said, it is not uncommon to leave elements of a case ‘unadvanced’ during an application for summary judgment. It may therefore be the case that for the purposes of any appeal that such a case could be developed, as there do appear to be some grounds for doing so here.”

A critical point in this decision was whether the code on the hard drive, which would, in effect, allow Howells to access his bitcoin, could be ‘intangible property’, or indeed, another kind of property. In that regard, the law has already, and relatively recently, designated a special “third category” for cryptocurrency which has not been restrictively defined or fully tested.

“It was apparently accepted by Howells during the hearing that the private key stored on the hard drive was not intangible property, but instead, ‘information’. In some respects, that also came as a surprise,” said Bartle. “The reason for the concession, and the court’s decision on the issue, appears to have relied on a statement of law in a dissenting view in a House of Lords case from the 1960s, but there have also been other judicial statements on the issue expressing the contrary view. It does appear that the point potentially remains, as lawyers sometimes say, ‘up for grabs’.” 

The dismissal of Howells’ first alternative claim, for a so-called “proprietary restitutionary remedy”, was founded on the decision and the reasoning in a 2012 case – Armstrong DLW GmbH v Winnington Networks. That case involved a claimant who was deprived of EU emissions trading permits due to fraud.

Bartle said: “The Armstrong case has generally been interpreted to suggest that there could be a general cause of action for loss suffered for ‘intangible’ property that is appropriated or otherwise dealt with by a third party. The distinction between tangible and intangible property is an important one in Howells’ case. It appears, as the Judge noted in his judgment, that the Council could not have realistically succeeded in asserting title to any intangible property on the hard drive, as opposed to the physical hard drive itself. Given the view of leading academics and legal authorities that computer files are “property”, albeit not convertible property, there may be at least some scope to argue that the ‘wallet.dat’ file containing the key to the bitcoin in this case was, in fact, intangible property or some other new species of property. As such, there may be scope for an appeal on this point, too.”

Howells’ final alternative claim was that the council, insofar as it does now own the physical hard drive or its contents, holds them as a constructive trustee for Howells. The court held that part of Howells’ claim also failed for the same reason as Howells’ claim that he is the legal owner of the hard drive or the contents of the hard drive.

Bartle said: “Whilst there is certainly some force in that argument in relation to the physical hard drive itself, there could potentially be a little more scope for argument as to whether the 1974 Act operates to prevent Howells retaining an equitable as opposed to a legal interest in the hard drive or the contents of it. Certainly, if the point as to whether the wallet.dat file is ‘intangible property’ is ‘up for grabs’, this may leave open an avenue for Howells to pursue on any appeal.”

Two further factors were relied on by the judge in granting summary judgment to dismiss Howells’ claim seeking a constructive trust. Firstly, the court held that it would be “fanciful” to suppose the refusal by the council to allow Howells to excavate would be “unconscionable”. The court compared the more common asset classes over which constructive trusts are imposed - such a money in a bank account of a car in a garage - with a hard drive sitting on landfill which it would be a criminal offence to excavate without authorisation. Secondly, the Judge held that the claim was “out of time” by virtue of the Limitation Act 1980. The judge refused to give summary judgment on whether the relief sought by Howells in his claim would be barred by the equitable doctrine of ‘laches’, which prevents a remedy being granted by the court in the case of delay which would make it inequitable to grant it. This is because it was not certain how much harder any excavation and recovery operation would be by reason of the lapse of time.

Bartle said: “Both of the further factors relied on by the court are to some extent issues of fact, as other elements of the constructive trust claim would be. Insofar as Howells does now seek to appeal, he may say that a full trial is required to determine to those facts, as opposed to being summarily dealt with, as they were in this decision.”

The court had to decide whether there was any other compelling reason for the claim to be disposed of at trial, rather than summarily. The court held that there was not. The court rejected Howells’ submission that there were many facts which could only be investigated at trial and that Howells’ offer to give the city of Newport 10% of the value of the Bitcoin were compelling reasons for a trial. The court noted the council’s position on the implications of allowing Howells access to excavate the site, which included putting the council in breach of contract, property damage, environmental and health and safety concerns.

Bartle said: “The underlying value of the claim and various avenues for a legal appeal of this decision both suggest this may well not be the final chapter in this litigation. Even if Howells does manage to establish ownership in this litigation, following any appeal and then a full trial, it seems that issues under contact and public, property, human rights, environmental and health and safety law could still then subsequently arise.”