Introduction

In a landmark decision on the legal status of digital assets in Hong Kong handed down on 31 March 2023, the Court of First Instance, in Re Gatecoin Limited[1], has ruled that cryptocurrencies satisfy the definition of “property” under Hong Kong law and are capable of being held on trust.

The case arose in connection with the liquidation of Gatecoin Limited where the liquidators sought the court’s directions on, among other things, the characterisation of cryptocurrencies.

Definition of “property”

Under Hong Kong law, s.3 of the Interpretation and General Clauses Ordinance (Cap. 1) defines “property” as “ (a) money, goods, choses in action and land; and (b) obligations, easements and every description of estate, interest and profit, present or future, vested or contingent, arising out of or incident to property as defined in paragraph (a) of this definition”. The question before the court was whether cryptocurrency falls within the meaning of “property”.

The Hon Madam Justice Linda Chan considered that cryptocurrency met the principles and requirements for “property” as laid down by Lord Wilberforce in National Provincial Bank v Ainsworth [1965] AC 1175:for something to amount to “property” it must be (i) definable, (ii) identifiable by third parties, (iii) capable in their nature of assumption by third parties, and (iv) have some degree of permanence.

The Court of First Instance also took into consideration the UK Jurisdiction Taskforce’s Legal Statement on Cryptoassets and Smart Contracts[2] published in November 2019 and the New Zealand case of Ruscoe v Cryptopia[3]. In Ruscoe v Cryptopia, which the Hon Madam Justice Linda Chan referred to as “the most detailed analysis on the issue”, Gendall J concluded that cryptocurrency satisfies the four criteria for “property” and is a type of intangible property in that:

  1. It is definable as the public key allocated to a cryptocurrency wallet is readily identifiable, sufficiently distinct and capable of being allocated uniquely to individual accountholder.
  2. It is identifiable by third parties in that only the holder of a private key is able to access and transfer the cryptocurrency from one wallet to another.
  3. It is capable of assumption by third parties in that it can be and is the subject of active trading markets where (a) the rights of the owner in that property are respected, and (b) it is potentially desirable to third parties such that they want themselves to obtain ownership of it.
  4. It has some degree of permanence or stability as the entire life history of a cryptocurrency is available on the blockchain.

For a detailed overview of Ruscoe v Cryptopia, please refer to our previous publication: Cryptocurrencies are property capable of being held on trust, New Zealand High Court holds

The Hon Madam Justice Linda Chan noted that “the preponderance of jurisprudence recognises the proprietary nature of cryptocurrencies” and included case law on cryptocurrencies being considered as “property” (or similar definition) in various jurisdictions including England and Wales, the BVI, Singapore, Canada, the United States, Australia and New Zealand.

Interlocutory proprietary injunction over cryptocurrencies

In recent years, the Hong Kong courts have granted interlocutory proprietary injunctions over cryptocurrencies without any party suggesting that cryptocurrencies are not “property”.

See Nico Constantijn Antonius Samara v Stive Jean-Paul Dan [2021] HKCFI 1078[41]; Yan Yu Ying v Leung Wing Hei [2021] HKCFI 3160 and Huobi Asia Limited & Anor v Chen Boliang & Anor [2020] HKCFI 2750.

Conclusion

This landmark decision is an illustration of how the Hong Kong legal landscape in digital assets is in line with other common law jurisdictions, and is complimentary to Hong Kong’s vision to become an international digital asset hub. As there is no Hong Kong legislation defining cryptocurrencies as “property”, this pioneering decision is a milestone for all stakeholders involved in cryptocurrencies and digital assets, who can all benefit from the enhanced certainty of enforceable rights of cryptocurrencies and digital assets under common law.

[1] For the decision of Re Gatecoin Limited (In Liquidation) [2023] HKCFI 914, please refer to: https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=151622

[2] For the legal statement, please refer to: https://technation.io/lawtechukpanel/

[3] For the decision of Ruscoe v Cryptopia Ltd (In Liquidation) [2020] NZHC 728, please refer to: http://www.nzlii.org/nz/cases/NZHC/2020/728.html