Canadian Court Awards Cryptocurrency Owner a Tracing Order

Last month, the Supreme Court of British Columbia awarded a Singapore company, Copytrack, an order that it was entitled to trace Ether tokens which had been issued to an investor by mistake.

Last month, the Supreme Court of British Columbia* awarded a Singapore company, Copytrack, an order that it was entitled to trace Ether tokens which had been issued to an investor by mistake.

In September last year, Copytrack had offered CPY tokens to investors as part of an initial coin offering campaign and the defendant, Mr Wall, subscribed for 530 CPY tokens which were worth about $780. Copytrack mistakenly transferred 530 Ether tokens to Mr Wall (which were worth approximately $495,000) in February this year.

Immediately after the mistaken transfer, Copytrack requested their return. Mr Wall did not return them but transferred them to a cryptocurrency trading account held with a cryptocurrency exchange. Mr Wall subsequently agreed to return them and requested details of Copytrack's wallet, which were duly provided. Mr Wall did not return them to Copytrack but he did return them to his own wallet.

Just over a week after they were returned to Mr Wall's wallet the Ether tokens were transferred out to five different wallets which Mr Wall said were made by an unknown third party who had accessed his wallet without his consent. Mr Wall defended the claim brought by Copytrack on the basis that he no longer had control of the Ether tokens so he was unable to return them. Mr Wall then died in May this year.

Copytrack applied for summary judgment on its claim for conversion and detinue against the Estate of Mr Wall shortly after.

The Court first considered whether the claim was appropriate for summary judgment:

The fact that the Ether tokens had not been returned despite Copytrack's request were not disputed. What the Estate disputed was the fact that the tokens had been removed without consent and secondly, that cryptocurrency had not been properly characterised as a matter of law so it was not clear that the doctrines of conversion or detinue were available. The Court considered that allowing the claim to proceed to trial would achieve little given that Mr Wall would not be able to present any better evidence. It sought additional submissions on the issue of whether cryptocurrencies were goods as the issue was not dealt with in any detail at the original hearing; Copytrack simply asserting that the Ether tokens were goods.

Copytrack argued that a broad range of things could now be subject to claims in detinue and conversion such as funds, shares, customer lists, accounts receivable, crops and mineral interests and it was unnecessary to decide whether cryptocurrencies were goods. Further they argued the Ether tokens had the following characteristics:

1. They were capable of being possessed, stored, transferred, lost and stolen;

2. They had been held in the defendant's wallet beforehand;

3. They were specifically identifiable and had been traced to five wallets; and

4. They can be used as a medium of exchange, a store of value and a unit of account, like funds or currency.

The Estate's position was that whether cryptocurrency was a good was a question of law and not able to be resolved at a summary judgment application.

The Court held that the proper characterisation of cryptocurrency was a central issue and would determine whether the claim could succeed and the evidence on the issue was inadequate; furthermore, it was a complex question which had not been decided by any court and it not suitable for a summary judgment. Despite this, it was undisputed that the Ether tokens were the property of Copytrack, which were sent in error, were not returned and the defendant had no proprietary interest in them and that they should be returned to Copytrack.

Accordingly, the court determined that Copytrack was entitled to a remedy, which was that:

"Copytrack was entitled to trace and recover the 529.8273791 Ether tokens received by Wall from Copytrack on 15 February 2018 in whatsoever hands those Ether tokens may currently be held".

Copytrack was not entitled to any other relief, such as disgorgement or damages, as they were not appropriate for a summary judgment application.

*Copytrack Pte Ltd v. Wall 2018 BCSC 1709