Bitcoin as a (crypto) currency
Recent news headlines abound with
stories about Bitcoin and other cryptocurrencies. These have been prompted to a
large extent by their extreme volatility over the past few years. Further,
because those stories are principally focused on people and institutions who are
trading Bitcoins, a great deal of analysis and commentary has concentrated on the
potential legal mechanisms by which they might be recoverable if a trade does
not go through or if they are misappropriated — an analysis which often turns
on whether Bitcoins can be classified as a form of property.
The case of B2C2 Ltd v Quoine Pte Ltd, currently going through the
Singapore Courts (and resulting most recently in a judgment of Simon Thorley IJ
at [2018]
SGHC(I) 4), is a case in point. Electronic market maker B2C2 sued bitcoin
exchange operator Quoine in May 2017 in respect of trades it executed buying
and selling Ethereum in exchange for Bitcoin. Some of those trades were
processed at a rate about 250 times higher than the then current market rate,
due (so Quoine say) to a technical glitch in its software trading systems. As a
result, the day after the trades, Quoine reversed them returning the Ethereum
to B2C2. B2C2 has claimed for breach of contract and breach of trust on the
basis that that reversal was wrongful.
However, momentum is now
gathering behind using Bitcoin as a currency or medium of exchange in trade (as
opposed to merely speculating on its value). To great fanfare, in December last
year a property developer announced that it was marketing a house in London for
sale in Bitcoin. Then, the Financial Times reported in January 2018 that major
commodities houses, Louis Dreyfus and Mercuria, together with some of the
leading trade-finance banking institutions, had performed international sales
of goods priced and paid for in Bitcoin. More recently it has been reported
that ships were being chartered with freight stated and paid in Bitcoin.
Bitcoin as ‘money’
These developments prompt the
question whether English law would treat Bitcoins or other crypto-currencies not
merely as property but as actual money. The guidance on this from other
jurisdictions is mixed.
A 2014 case in Holland decided that
Bitcoins were not money for the purposes of section 6.1.11 of the Dutch Civil
Code (Case no. C / 08/140456 / HA ZA 13255). This was on the basis that they
were not ‘common money’ within the meaning of the Code but just a means of
exchange. The Court drew an analogy with precious metals; just because those
are traded in considerable volumes, they still did not amount to money.
Cases
in the United States at about the same time came to a similar view (see Florida v Espinoza (Case No F14-2923)). However,
more recent US authority supports the conclusion that Bitcoins are money (see
the decision of US District Judge Alison Nathan in US v Murgio et al, US District Court, Southern District of New
York, No 15-cr-00769. She found that ‘[Bitcoins] can be accepted as a payment for goods and services or bought directly
from an exchange with a bank account. They, therefore, function as pecuniary
resources and are used as a medium of exchange and a means of payment’.
This change of attitude is not surprising since at least one of the tests for
what counts as money looks in significant part at how the item in question is
used in practice and crypto-currency technology and usage is adapting and
advancing at an extraordinary pace.
There are a number of reasons to think that the English
courts would follow this more modern approach. A leading theory in English law
focuses on money’s function as the currency of commerce – is the item in
question commonly and continuously accepted as payment in exchange for articles
of commerce? This test was illustrated by the judgment of Lord Mansfield as
long ago as Miller v Race (1758) 1
Burr 452, at 457. This concept of money encompasses more than that which the
State recognizes as such. The news stories summarised above suggest we are
moving in a direction in which Bitcoin might fall within it. In addition, it is
perhaps telling that HMRC treats crypto-currency as foreign currency for the
purposes of income, corporation and capital gains tax.
Judgments in Bitcoin
Why does this matter?
The answer goes back to the
volatility of Bitcoin’s value. If Bitcoin is merely property then damages for
its non-delivery would (traditionally) be assessed at the date of breach.
However, that might be many months or even years before the date of judgment, during
which time the value of Bitcoin may have changed dramatically. An award of
interest, especially in the current low interest environment, will not
compensate for this.
The English courts faced a
similar issue during the 1970s when there was considerable volatility in the
external value of sterling. This problem was solved by the House of Lords
deciding in Miliangos v George Frank [1976]
AC 443 that the courts were not confined to giving judgments in
sterling (as had previously been assumed) but could give judgments in foreign
currencies whether the claim was in debt, for liquidated or unliquidated
damages for breach of contract or another cause of action and regardless of
whether the applicable law governing any associated contract was English law or
a foreign law. Their Lordships stated that this was a question of procedure and
the common law, not statute. As such, there is no bar in principle to the
courts adapting that reasoning to give a judgment in Bitcoin. If they did, the
judgment would operate by ‘awarding
delivery in specie [of the cryptocurrency] rather than giving damages’ and the relevant date for converting
the judgment sum into sterling (assuming enforcement of the judgment in the
United Kingdom) would be the date of payment (on the basis that this best
secures to the judgment creditor what he bargained for). The financial result
in any given case could be a matter of considerable significance.
Lawrence Akka QC is a barrister at 20 Essex Street. His practice
encompasses high value technically complex commercial and contractual disputes
particularly those involving new technologies, media and telecommunications. He
is the co-author of IT
Contracts and Dispute Management (Edward Elgar, March 2018).
Henry Byam-Cook is also a barrister at 20 Essex Street. Henry
practises in a range of commercial disputes, including information technology.
He handles a wide variety of software licensing and IT project implementation
cases.
