Cryptocurrency is property – at least according to Federal Court Justice Ian Jackman.
In a recent extracurial speech to the Commercial Law Association, his Honour undertook a comprehensive analysis of case law and scholarship across the common law world, concluding that cryptocurrency is personal property at common law in Australia, specifically a chose in action.
In so doing, his Honour charted a middle course between the insistence by a vocal minority of scholars that ‘Crypto is Not Property’, and the UK Law Commission’s proposal to recognize crypto-assets as a ‘third category’ of personal property called ‘data objects’.
Justice Jackman stressed that the recognition of cryptocurrency as property did not depend on any novel statutory invention, but rather the common law’s timeless ability to adapt to changing circumstances. According to his Honour, the common law:
operates by close observation of the facts as they are revealed by actual experience in the real world, and provides an educated response… [it] embod[ies] in a relatively predictable way the reasonable expectations of ordinary and honest people.
His Honour also warned that:
the rigidity of a statute would inhibit experimentation, and suffers from the problem that you cannot regulate something in advance of its invention.
Justice Jackman’s argument adds to a growing mountain of scholarship and jurisprudence from jurisdictions around the world to the effect that the time to recognize crypto’s proprietary nature has come.
The starting point: property is a relationship to a thing
While many cases in this area begin their analysis with Lord Wilberforce’s four criteria of property in National Provincial Bank v Ainsworth (1965) AC 1175, Justice Jackman considered it more appropriate to start with the High Court’s observation in Yanner v Eaton (1999) 201 CLR 351 that ‘property’ is not a thing, but a relationship between a person and a thing, usually treated as a bundle of rights.
This sidesteps the argument that the Ainsworth criteria as a ‘definition’ of property (which Gendall J adopted in the New Zealand High Court case Ruscoe v Cryptopia (in liq) [2020] 2 NZLR 809), does no more than state necessary conditions for the existence of property.
There is no third category of personal property
Justice Jackman rejected the UK Jurisdiction Taskforce’s conclusion that cryptocurrencies fall into a third category of personal property. According to his Honour, the recognition of cryptocurrency as property is entirely compatible with the traditional dichotomy between choses in possession and choses in action going back to Colonial Bank v Whinney (1885) 30 ChD 261. That is because, in Australia, it is not necessary for something to be enforceable by court action to be classified as a chose in action, nor does there need to be an identifiable counterparty against whom the right can be so enforced. Citing National Trustees Executors and Agency Company of Australasia Limited v Federal Commissioner of Taxation (1954) 91 CLR 540 (Cain’s Case) and Commonwealth v WMC Resources Ltd (1998) 194 CLR 1, which took a broad commercial approach to recognising choses in action, Justice Jackman contends persuasively that the chose in action is a broad tent encompassing a diversity of intangible rights, including milk quotas, statute-barred debts, government bonds and, yes, cryptocurrencies.
Cryptocurrency is not mere information
Justice Jackman then dealt with a common objection to recognition of crypto’s proprietary nature – that it is only information, which the law typically does not treat as property (the mere information objection). His Honour noted that the rationale behind the mere information objection is that information is ‘open to all who have eyes to read and ears to hear’ per Boadman v Phipps [1967], and thus lacks the exclusivity required to amount to property.
However, the immutability of the transaction ledger achieved through consensus mechanisms like Proof of Work and Proof of Stake eliminate that concern, by ensuring that the same ‘unit’ of cryptocurrency cannot be under the simultaneous control of different persons (known as the ‘double-spend problem’). For that reason, says Justice Jackman:
We are thus a long way removed from the general objection to information as property that the information has an inherent value and benefit over which there is no exclusive right or control
Public policy is no obstacle to recognition
The final objection Justice Jackman tackled was that of public policy: that cryptocurrency, by enabling pseudonymity, is associated with criminal activity, and recognition of it as property may embolden those actors. Jackman countered this point by observing that:
A very great number of honest people are, as a matter of fact, currently buying and selling cryptocurrency, declaring trusts over it, and bequeathing it in their wills.
His Honour went even further to say that public policy favoured recognition of cryptocurrency as property. For this proposition, Jackman made reference to the High Court in Cain’s Case, which took into account:
the actual conduct of the commercial community in the way in which assets are trade or otherwise dealt with as a compelling reason for recognising those assets as proprietary in nature.
Put another way:
[I]f market participants in very large numbers are satisfied… in undertaking transactions on the basis that cryptocurrency is property, then it would be most surprising if the judiciary were to disagree.
Conclusions
While Justice Jackman’s speech has no binding weight at law, his extra-curial comments may well prove influential when an Australian Court is called upon to formally determine whether cryptocurrency is property at law. His Honour’s conclusion relies upon a considerable body of common law authority and is noteworthy for its recognition of the common law’s ability to adapt to new facts and circumstances (including new innovations) as they arise. His Honour also demonstrates a keen sense of pragmatism in recognizing the commercial realities of an emerging technology which has received wide adoption by the Australian public.
Michael Bacina – Partner, Piper Alderman
Steven Pettigrove – Partner, Piper Alderman