Re Gatecoin  HKCFI 914 is the first case in Hong Kong to discuss the proprietary nature of cryptocurrency in detail. The landmark case confirms the nature of cryptocurrency as property which is capable of being held on trust. The clarity regarding the way crypto assets held by companies should be treated should attract capital to the city at a time of global uncertainty and US-China tensions.
Gatecoin Limited (“Gatecoin”) is a company founded in Hong Kong. From around January 2015, Gatecoin operated a cryptocurrency exchange platform at https://gatecoin.com/. It was wound up by the Court on 13 March 2019 and the joint and several liquidators (“Liquidators”) were appointed on 20 March 2019 to attend to the liquidation.
The Liquidators made an application to the Court under s.200(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“CWUMPO”) for directions on (1) the characterisation of cryptocurrencies and fiat currencies (collectively, “Currencies”); and (2) the allocation of the Currencies to the customers.
The Liquidators investigated on whether the Currencies (or any part thereof) were held by Gatecoin on trust for Gatecoin’s customers or any of them. This would determine whether Gatecoin has any assets which can be deployed by the Liquidators to pay the liquidation expenses and arrange distributions to the unsecured creditors.
S.197 of CWUMPO imposes an obligation on a liquidator to take into custody all “property” upon a winding-up order. However, the meaning of “property” is not defined in CWUMPO. S.3 of the Interpretation and General Clauses Ordinance (Cap. 1) defines “property” as “includes (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 is therefore whether cryptocurrency falls within the meaning of “property”.
Whether Cryptocurrency is a “property”
Before Re Gatecoin, there is no statute nor legal precedent that defines the nature of cryptocurrency. The Hong Kong Courts had granted interlocutory proprietary injunctions over cryptocurrencies, but no party in the application of these injunctions had ever argued that cryptocurrency is not property and therefore cannot form the subject of the proprietary injunctions.
The requirements for “property” were established by Lord Wilberforce in National Provincial Bank v Ainsworth  AC 1175, where the subject concerned must be :-
(2) identifiable by third parties;
(3) capable in its nature of assumption by third parties; and
(4) have some degree of permanence or stability.
After considering the nature of cryptocurrency and blockchain technology which forms the core of business and operation of Gatecoin, the Court found that cryptocurrency :-
(a) 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.
(b) 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.
(c) 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.
(d) has some degree of permanence or stability as the entire life history of a cryptocurrency is available in the blockchain.
In coming to her decision regarding the nature of cryptocurrency, Justice Linda Chan also considered the positions of other major common law jurisdictions. She commented that the most detailed analysis is in a New Zealand case of Ruscoe v Cryptopia  NZHC 728, where the Court ruled that cryptocurrency satisfies the 4 criteria for property in Ainsworth and is a type of intangible property.
With Hong Kong’s statutory definition of “property” covering more than other common law jurisdictions’ versions, the Judge noted that the definition of “property” in Hong Kong is an inclusive one and intended to have a wide meaning.
Whether Gatecoin held cryptocurrency on trust
Whether cryptocurrencies stored on cryptocurrency exchanges were held on trust for Gatecoin’s customers would depend on the construction of the contractual terms and conditions governing the relationships between the cryptocurrency exchange platform and its customers. The Court also assessed the operational reality of the exchange, including how assets were actually maintained and applied by the exchange.
While the court determined that cryptocurrencies are generally capable of forming the subject matter of a trust, on the facts in this particular case it was found that a trust had not been established. The judgement ruled that 2018 terms and conditions of the exchange platform showed no certainty of intention to create a trust over the cryptocurrencies held by Gatecoin.
Cryptocurrency owners and users should ensure that they understand the effect of the terms and conditions of the cryptocurrency exchange and carefully scrutinise any proposed updates to such terms before accepting them.
Re Gatecoin confirms the proprietary nature of cryptocurrency (and arguably digital assets in general). This should clarify all future claims involving cryptocurrencies and digital assets, particularly in the insolvency regime as these assets will now form part of the company’s “property” and should be treated as other intangible assets such as shares and stocks. In divorce cases, distribution of family assets should also be affected if cryptocurrencies and digital assets are involved.
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