High Court confirms only certain actions in tort are available when seeking to recover crypto assets

The Court nevertheless permitted the claimant to amend his claim to pursue allegedly stolen Bitcoin via other causes of action in tort: proprietary restitution; unjust enrichment; and constructive trust. Cotter J’s judgment demonstrates the Act in action. It was designed to empower the English Courts to deal swiftly with the question whether a digital asset (in this case Bitcoin) can be the subject of personal property rights (they can), and move on to these types of more nuanced questions about the availability of associated relief.

The background

The Claimant held a substantial sum of Bitcoin in a cold wallet (a physical device unconnected to the internet), located at a UK home address, protected by a PIN and a 24-word seed phrase (a type of recovery passphrase). In August 2023, the Bitcoin was transferred without the Claimant's consent, via a number of transactions, to 71 separate addresses. The Claimant alleges that his estranged wife (the First Defendant), acting alone or with her sister (the Second Defendant), covertly recorded him on home video to obtain the seed phrase without his knowledge or permission and used it to transfer the Bitcoin.

The claim

The Claimant initially sought and obtained a proprietary injunction to prevent the Defendants from dissipating assets, advancing causes of action in the torts of conversion and trespass to goods, alongside related conspiracies.

The First Defendant subsequently applied for a strike-out and summary judgment, arguing these torts were not available to a claimant in an action by which recovery of intangible assets (in this case, Bitcoin) is sought.

In response, the Claimant amended the Particulars of Claim to add a number of alternative causes of action, including unjust enrichment, breach of confidence, misuse of private information, causing loss by unlawful means, proprietary restitution and constructive trust.

The court’s decision

Cotter J allowed the Claimant's amendments, but struck out the claims in conversion and trespass to goods. The court found that while Bitcoin is undoubtedly property, not least as a result of the operation of the Act, it is nonetheless intangible, and therefore cannot be the subject of a claim in conversion under English common law.

The court’s analysis

The parties and the court acknowledged that the House of Lords decision in OBG Ltd v Allan [2008] 1 AC 1 is the leading authority that the tort of conversion presently only provides a route to relief insofar as there has been an interference with tangible property (not, as was the case in OBG, interference with contractual rights).

The court rejected the Claimant’s submission that the common law could develop a tort of conversion in respect of the new type of digital (intangible) property acknowledged by the Act. In OBG, albeit years ago and in difference circumstances, the majority rejected precisely this type of expansion of conversion to intangible properties (incapable of being possessed). Lord Hoffmann emphasised that conversion is historically a tort of strict liability against a person's interest in a physical chattel, and that extending it to cover choses in action would be an “extraordinary step” representing a “drastic” reshaping of the law.

Despite the trend in other common law jurisdictions (such as British Columbia, New Zealand, and several US states including New York and Florida) recognising digital assets as being capable of being converted, Cotter J found that the crux of the House of Lords decision in OBG acts as a "clear block" to the extension of the law of conversion to intangible property in England and Wales.

In striking out the conversion claim, and the trespass claim, Cotter J also rejected the Claimant’s argument that, on a purposive interpretation, the Act bore the legislative intent to afford cryptocurrencies the same or equivalent protection afforded to other forms of personal property. The Act recognises that a digital asset should not fall short of being personal property merely because it does not fall into one of the two traditional classes of assets (choses in possession and choses in action). But Cotter J held that this does not necessarily mean that all torts should be available in respect of all digital assets. He noted that the Law Commission, whose reports paved the way for the Act, explicitly concluded that digital assets are currently incapable of being converted because the tort inherently requires physical possession. In other words, the court decided that the legislative intent was not to redesign the established principles of the tort of conversion, but instead to encourage development in more amenable areas.

Although conversion remains off the table for now, the court permitted the amendments to the claim to reflect the range of alternative causes of action available to victims of crypto-misappropriation. These now well-established causes of action include:

• restitution and constructive trust (see AA v Persons Unknown [2019] EWHC 3556); and
• deceit and unjust enrichment (see Jones v Persons Unknown [2022] EWHC 2543).

What next

For individuals and organisations involved in digital asset recovery, Yuen v Li underlines the need for a precise approach to pleading causes of action in tort. As the Law Commission anticipated when contributing to the Act, the intangible nature of digital assets separates them from tangible assets for the purposes of tort law (including specifically the tort of conversion). Insofar as a cause of action is derived from the concept of the wrongdoer taking (or interfering with) possession of the stolen property, it will not be available to a party whose digital assets are stolen. However, the court’s readiness in Yuen v Li to permit the claimant to amend his case to advance other economic torts is indicative that this will likely have limited impact in practice. Familiar routes to recovery will be available to those seeking to recover digital assets, provided care is taken to formulate a claim that recognises their intangible nature and selects from the armoury of tort law accordingly. Alternatively, in circumstances which are not amenable to other economic torts, a party may focus their claim on tangible elements of what has been stolen (e.g. cold wallet storage units and/or physical records of PINs and/or seed phrases). This is likely in turn to raise novel questions around the relationship between tangible tools and the intangible digital assets to which they hold the key.

Authored by Jennifer Dickey, William Robinson and Zachariah Chen.