In crypto we trust
03 December 2021
The High Court recently handed down judgment in Wang v. Darby, the first contested case to consider whether or not cryptocurrency was held on trust.
The dispute concerned two contracts entered into by the Claimant (Mr Wang) and the Defendant (Mr Darby). Broadly, these involved Mr Wang transferring an amount of Tezos to Mr Darby in exchange for Bitcoin and after two years, Mr Wang could require Mr Darby to return the Tezos to him, conditional on Mr Darby restoring the Bitcoins or an equivalent US dollar sum.
The contracts required Mr Darby to hold the Tezos in a certain manner. He failed to do so and Mr Wang brought a claim against him alleging, among other things, breach of trust and/or his fiduciary duties. The Court therefore had to determine the legal nature of the arrangement between the parties.
It was agreed between the parties that, as a matter of English law, a unit or token of Tezos constitutes property which can, in principle, be the subject of a trust. The Court was therefore not required to determine this question, although it seemed, obiter, to support the principle (paragraph 89 of the judgment).
The Court found that Mr Darby did not hold the Tezos on trust for Mr Wang:
- Mr Wang was only entitled to the return of the Tezos in exchange for the Bitcoin (or an equivalent US dollar sum). This "essential economic reciprocity" precluded the existence of any trust.
- If Mr Wang had defaulted on his own restoration obligation at the relevant time, Mr Darby would have been entitled to keep the 400,000 Tezos. That was inconsistent with a trust.
- Both parties characterised the arrangement as a sale/purchase back arrangement, which presupposes an original sale/purchase in the other direction. Each sale/purchase transferred ownership of the asset - this was "fatal to any trust analysis".
- A trust over the Tezos was not necessary to give effect to the parties' legitimate expectations or commercial interests.
The Court therefore struck out this aspect of Mr Wang's claim.
Holders of cryptocurrencies may take some comfort from the fact that the Court treated cryptocurrency in the same way as any other property for the purpose of proprietary claims, continuing the treatment seen in the case of AA v Persons Unknown (an uncontested case – see our earlier briefing).
Case ref: Zi Wang v. Graham Darby [2021] EWHC 3054 (Comm)
