UK digital assets disputes in 2022 and what to expect in 2023

2022 has been a turbulent year for the digital assets sphere. While the industry is under harsher scrutiny than ever before following a number of high-profile cases and collapses of big players across the globe, the digital assets disputes landscape remains relatively nascent in the UK. In this post, we provide an overview of some of the key cases that came before the English Courts in 2022 and take a quick look at what to expect next year.

When do blockchain developers owe duties to their users? 

The seminal case before the English Courts in the digital asset space this year was Tulip Trading Ltd v Bitcoin Association for BSV and others [2022] EWHC 667 (Ch), which examined the duties owed by blockchain developers to their users (see our blogpost on the first instance decision). In the context of an application to serve out of jurisdiction, the English High Court rejected the proposition that developers and/or controllers of blockchain software owe a duty of care to take reasonable steps to protect blockchain users by, for example, re-establishing access to stolen digital assets and reversing known frauds. The Court did, however, leave the door open to the possibility that other more restricted duties may be imposed on developers and/or controllers. This first instance decision is currently subject to appeal, which was heard by the Court of Appeal in early December 2022.

Digital assets as “property”?

For some time now, the English Courts have been willing to consider that cryptoassets should be treated as property for the purposes of granting proprietary injunctions (see, for example, AA v Persons Unknown and others [2019] EWHC 3556 (Comm) and Ion Science Ltd v Persons Unknown (unreported), 21 December 2020). However, the same had yet to be confirmed for NFTs, until the recent case of Osbourne v Persons Unknown and another [2022] EWHC 1021 (Comm). While the English Court noted that “[t]here is clearly going to be an issue at some stage as to whether non-fungible tokens constitute property for the purposes of the law of England and Wales”, it found that there was “at least a realistically arguable case” that NFTs are property as a matter of English law and proceeded to grant injunctive relief. Shortly after this decision was handed down, the Law Commission published a consultation paper, proposing a third category of personal property labelled “data objects” (see our blogpost on this). The final report and Law Commission’s law reform recommendations are expected to be published in 2023.

Service in fraud claims

A feature of many cases coming before the English Courts concerning digital assets is that they arise out of fraud, and typically see claimants/victims of fraud seeking the court’s assistance in the “hot pursuit” of stolen digital assets. Claimants are therefore frequently asking the courts to make orders against so-called “persons unknown”, as well as orders against parties out of the jurisdiction. To facilitate this, we have, for some time now, seen the English Courts be willing to permit service by alternative means such as Whatsapp or email (see, for example, Danisz v Persons Unknown and Huobi Global Ltd (T/A Huobi) [2022] EWHC 280 (QB) and XY v Persons Unknown and Binance Holdings Ltd [2021] EWHC 3352 (Comm)). However, in what is believed to be a first for the English Courts, in D’Aloia v. Binance Holdings & Others [2022] EWHC 1723 (Ch), permission was granted to serve proceedings on Persons Unknown by NFT airdrop into two wallets to which misappropriated cryptoassets had been sent. More recently, an English Court granted permission to serve an order granting summary judgment by way of NFT airdrop only to anonymous fraudsters and Persons Unknown who own or control the accounts into which the lost digital assets were transferred to other than purchasers for full value (see Jones v Persons Unknown [2022] EWHC 2543 (Comm)).

In LMN v Bitflyer and Others [2022] EWHC 2954 (Comm), the High Court ordered six crypto exchanges to provide customer information relating to accounts into which allegedly misappropriated cryptoassets had been traced and gave permission for those orders to be served out of the jurisdiction. While the orders granted were not unusual, it is reportedly the first use of the new gateway for service out of jurisdiction to obtain information regarding the true identity of a potential defendant under Practice Direction 6B §3.1(25). 

Competition claims

An application for an opt-out Collective Proceedings Order was issued on behalf of investors in Bitcoin Satoshi Vision (BSV), against a number of cryptocurrency exchanges alleging that those exchanges had conspired to delist BSV and called on other exchanges to delist it, causing loss to holders of BSV in breach of Article 101 TFEU and the Chapter I Prohibition (BSV Claims Limited v Bittylicious Limited & Others). The proposed class representative has valued the claim at up to £9.9bn. The applicant is seeking authorisation from the Competition Appeal Tribunal to act as class representative in these proceedings.

The UK Law Commission’s work

While the English Courts have shown that they are willing to mould existing legal principles and apply them to challenges posed by the emergence of digital assets, the Law Commission is actively working on a number of further projects looking into the legal issues thrown up by digital assets and related technology, including: (i) conflict of law issues involving emerging technology, which should also touch on cross-border crypto fraud related issues; and (ii) how decentralised autonomous organisations should be characterised under English law. The Law Commission’s work, together with an ongoing project by the UK Jurisdictional Taskforce on the issue and transfer of digital equity or debt securities, is likely provide further guidance and clarity on the English law approach to issues arising from the application of blockchain and distributed ledger technology, as well as highlighting the potential challenges when things go wrong.

What to expect in 2023?

Given the turbulence in the cryptocurrency markets throughout 2022, we expect to see litigation arising out of insolvencies of direct and indirect participants in the cryptocurrency market, as well as a continued flow of claims arising out of fraudulent conduct. However, despite that turbulence, we continue to see an uptake in the use of digital assets and related technology outside of the pure exchange token sphere. For example, the use of blockchain technology to facilitate fixed income products settlement and real-time cross border settlements, and to modernise financing that currently relies on paper documents. Wider adoption of such emerging technology by industry means we might expect to see more general commercial disputes centred around emerging technology in the not-too-distant future.