Cryptocurrency recognised as property in another common law jurisdiction: the gate is open

The recent decision by the Hong Kong High Court in Re Gatecoin Limited [2023] HKCFI 91 (Gatecoin) recognised cryptocurrency as property in that jurisdiction for the first time. Importantly, Hong Kong is not only a common law jurisdiction, but a global arbitration hotspot.   

In this alert, Partner and Head of Digital Assets Tim Edwards and Solicitor Tom Mirolo-Lynam discuss the Gatecoin decision and its implications for the treatment of cryptocurrencies in legal disputes moving forward.

The context

Gatecoin Limited was a cryptocurrency exchange based in Hong Kong. The company entered liquidation, and the Liquidators brought an application to court seeking directions as to how they should characterise cryptocurrencies in the possession or control of the company (for the most part, Bitcoin and Ethereum).

A key question for determination was whether this cryptocurrency was property of the company available for division among the body of creditors, property held on trust for customers, or not property at all.

The decision

Her Honour Justice Chan ultimately determined that the cryptocurrency was property, and property of the company available for distribution among creditors at that.  

In doing so, Her Honour relied heavily upon the decision of the New Zealand High Court in the oft-cited Ruscoe v Cryptopia Ltd [2020] NZHC 728 (Cryptopia) (see our previous article about that decision).  After applying a similar analysis to that propounded by the New Zealand High Court, Her Honour ultimately determined that the cryptocurrency in question was intangible property under Hong Kong law (namely, section 3 of the Interpretation and General Clauses Ordinance (Ca. 1)) because it:

1. had a definable subject matter;
2. was identifiable by third parties as private keys allow for the transfer of cryptocurrencies between people; 
3. was capable of assumption on the basis that cryptocurrencies can be, and usually are, the subject of active trading markets; and
4. had some degree of permanence or stability, given the availability of each and every transaction being recorded and reviewable on the blockchain. 

Her Honour also found it relevant that, like many common law jurisdictions, Hong Kong law imposed a broad and inclusive definition of ‘property’. 

Implications

Gatecoin furthers the trend being seen in common law countries around the world right now whereby courts are being asked to clarify, and are stepping up to clarify, how outdated or vague legislation applies to digital assets. The result is, in our view, better certainty for all involved and interested in the matter. 

The fact this is a decision from Hong Kong’s court system ought to be encouraging to all significant players in the digital asset industry, given:

1. the significance of that particular jurisdiction to digital asset markets (Hong Kong is certainly aiming to be a digital asset hub for the Asia-Pacific region);
2. that common law courts around the world also seem to be displaying an increased appetite to pay high regard to decisions from their foreign, common-law equivalents (Justice Chan was content to rely heavily on a decision from New Zealand, and Australian courts appear to be willing to consider decisions on novel points of law from Hong Kong, England, Canada and New Zealand of late, among others); and
3. the fact that Hong Kong is, as noted, an arbitration hotspot.  

As to the relevance of arbitration, it is in our opinion increasingly becoming the dispute resolution tool of choice for significant players in the digital asset industry, given the cross-border nature of many cryptocurrency-centric deals, transactions and disputes, and the ability for arbitration to resolve some disputes far quicker and more efficiently than a court.

HopgoodGanim Lawyers has a specialist business unit which focuses on advising clients in relation to legal matters involving digital assets and other applications of distributed ledger technology. Our expertise extends to the resolution of complex and significant disputes, including through arbitration. Please contact Tim Edwards, Partner and Head of Digital Assets at HopgoodGanim, if you have an enquiry.