AA v Persons Unknown & Ors, Re Bitcoin

Cryptoassets such as Bitcoin are capable of being property. The traditional distinction between choses in possession and choses in action does not prevent that conclusion. A proprietary injunction may therefore protect traced Bitcoin where there is a serious issue to be tried and the balance of convenience favours relief.

A hearing may be held in private under CPR r 39.2 only where it is necessary to secure the proper administration of justice. In blackmail and cyber-extortion cases, a private hearing may be necessary to prevent dissipation, further attacks and the frustration of the claim. Urgency and the ease with which Bitcoin may be transferred can also justify alternative service.

An English insurer paid a Bitcoin ransom after hackers encrypted its insured customer's computer systems. It traced 96 Bitcoin to an address associated with the Bitfinex exchange, operated by the third and fourth defendants. The alleged hackers and the controller of the address were unknown.

The insurer sought disclosure relief, a proprietary injunction, a freezing injunction, permission to serve out, alternative service, anonymity and a private hearing. It narrowed the immediate application to proprietary claims in restitution and constructive trust. The central issues were whether Bitcoin was property capable of proprietary protection and whether interim, service and privacy relief should be granted.

1. Private hearing and anonymity. The hearing was properly held in private under CPR r 39.2(3). Publicity would probably frustrate the purpose of the application by alerting the wrongdoers and permitting dissipation of the Bitcoin. It also created risks of retaliatory or copycat cyber-attacks and disclosure of confidential information. A private hearing was necessary and proportionate; lesser measures would not provide sufficient protection. The requirements of section 12 of the Human Rights Act 1998 were also met.
2. Bitcoin as property. Bitcoin is property for the purpose of an interim proprietary injunction. The court rejected the proposition that English law recognises only choses in possession and choses in action. It adopted the analysis in the UK Jurisdictional Taskforce Legal Statement and held that Bitcoin meets the characteristics identified in National Provincial Bank v Ainsworth [1965] 1 AC 1175: it is definable, identifiable by third parties, capable of assumption by third parties and sufficiently permanent.
3. Proprietary injunction. The American Cyanamid principles apply. There was a serious issue to be tried that the insurer could assert restitutionary and constructive-trust claims over Bitcoin representing the proceeds of the ransom. Its claims against the alleged extortionists were strong, and there was also a serious issue against the exchange entities as holders of the traced Bitcoin. Damages were inadequate because the Bitcoin could be transferred rapidly, and the balance of convenience firmly favoured relief.
4. Service and disclosure. Permission was granted to amend and serve the claim form out of the jurisdiction. The proprietary claims fell within the relevant gateways, including the interim-remedy and tort gateways. Alternative service was justified for persons unknown and for the exchange entities because of urgency, the unknown location of the alleged wrongdoers and the immediate risk of dissipation. Ancillary identity and account information was necessary to police the injunction.
5. Order. A proprietary injunction was granted against all defendants, with a cross-undertaking in damages. The Bankers Trust/Norwich Pharmacal and worldwide freezing applications were adjourned to the return date. Costs were reserved.

not stated in the judgment.