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insolvency, Trusts, Trusts Act

Can’t see it , can’t touch it, can’t explain it

But it is still property!

The High Court decision in Ruscoe v Cryptopia Limited (In Liquidation) concerning an application for directions by the liquidators of a cryptocurrency trading exchange online platform, builds on concepts of property explored in Clayton v Clayton.

By way of background, Cryptopia Limited (Cryptopia) was placed in liquidation in May 2019 by its shareholders following a serious hack and the alleged theft of $30 million from its exchange.

Significantly, in this case, the High Court held that cryptocurrency is property that can be held on trust.

This decision was reached by reference to the three certainties (see further in the Trusts Act 2019) as to what comprises a trust.  Specifically, certainty as to the intention that there is a trust, who can benefit from the trust and what property is subject to the trust.   Implicit in this is that where there is a trust of property, that trust property is just that.  Ruscoe v Cryptopia Limited considers the novel  question  of whether cryptocurrency is property.

To assess this, it is important to understand what constitutes a cryptocurrency.  Essentially cryptocurrency is a digital asset designed intended as a to work as a medium of exchange.  Typically, cryptocurrency does not exist in physical form (like paper money) and is not issued by any central banking authority. The best-known example of cryptocurrency is bitcoin, which was first released as open-source software in 2009 and is generally considered as the first decentralised cryptocurrency of which there are several thousand variants.

The  decision in Ruscoe v Cryptopia Limited concerned a company Cryptopia Limited  (Cryptopia), which operated a cryptocurrency trading exchange.  Cryptopia operated an online platform that allowed users to trade cryptocurrencies between themselves, charging users fees for trades, deposits and withdrawals.

Cryptopia enabled accountholders to trade pairs of cryptocurrencies. When a trade occurred between two users on the exchange, the users’ respective coin balances on the company’s internal ledger would change to reflect the trade, but the balances in the company’s digital wallets did not change. The trades and transfers that took place on the exchange did not affect the blockchain ledgers, (the general ledgers of ownership that exist for each cryptocurrency outside of the exchange), because at all times the coins remained held in Cryptopia’s digital wallets. All cryptocurrency transactions that moved coins from one wallet (or address) to another required a private and public key. The public key was the digital wallet address, and the private key was similar to a password, known only to the user. A new private key was generated each time cryptocurrency was transferred on the blockchain.  Cryptopia also had its own account holdings on the exchange.  These aspects of each trade were significant with respect to the ultimate findings.

Cryptopia’s initial terms and conditions provided that it was not involved in the actual transaction between buyers and sellers and did not transfer legal ownership of items. Cryptopia’s financial statements and the details of its assets did not include any cryptocurrency, other than the amounts that Cryptopia clearly held on its own account. Digital currency held on the platform for accountholders was not shown as an asset of  Cryptopia.

Notwithstanding the safe guards in place, Cryptopia was the subject of a serious hack and alleged theft of $30 million from its exchange in early 2019.   Subsequently, Cryptopia was liquidated.  Following Crytopia’s liquidation, Cryptopia held  assets of approximately $5.4 million but had creditor claims of approximately $12.7 million.

Cryptopia’s liquidators applied for directions as to whether cryptocurrency was “property” under s 2 of the Companies Act 1993, and consequently whether those digital assets were held on trust by the company for the accountholders.

Can digital assets be property?

Whether digital assets are “property” requires reference to the relevant statutory framework.  In Ruscoe v Cryptopia Limited the starting reference point was the Companies Act 1993.  A critical analysis given the nature in which interests were held might have properly suggested a starting point by reference to trust considerations, objectively, the end result would have been the same as a trust interest requires identifiable property to exist and therefore the property must come before the trust.

 The definition of “property” in New Zealand’s Companies Act 1993  is wide and inclusive and has been held to include the payment of money, despite “money” not being expressly included. The characteristics of “property” are: it must be definable, identifiable by third parties and capable in its nature of assumption by third parties, and having some degree of permanence or stability.  See National Provincial Bank Ltd v Ainsworth.

A diverse range of types of assets have already been recognised in equity and statute in other jurisdictions as coming within the meaning of the word “property”  and being types of interest capable of being the subject of a trust including an oral contract, non-enforceable debt claims, payments through the banking system, copyright, shares, licences/exemptions/quotas and a trustee’s rights of indemnity. In New Zealand powers in respect of a trust have satisfied the definition of property for the purposes of the Property (Relationships) Act 1976.

The characteristics of “property” outlined in Ainsworth are met in the Cryptopia case in that there is property that is:

  • Identifiable subject matter. The cryptocurrencies here involved specific allocation of data to a public key, similar to the banking system with international banks and recorded bank balances
  • Identifiable by third parties. This includes the power to exclude others from an asset. In the present case the unique strings of data recording the creation of and dealings with cryptocurrency were always allocated via the public key to a particular accountholder connected to the system, excluding third parties and could not be used again
  • Capable of assumption by third partie That third parties respect the rights of the owner of the property (which is normally potentially desirable). Here the cryptocurrencies meet both of these criteria
  • Some degree of permanence or stability. Cryptocurrencies like bank payments meet this criterion, the blockchain methodology which cryptocurrency systems deploy assist giving stability to cryptocoins. In conclusion, cryptocurrencies are a type of intangible property They obtain their definition as a result of the public key recording the unit of currency. The control and stability necessary to ownership and for creating a market in the coins are provided by the private key attached to the corresponding public key and the generation of a fresh private key upon a transfer of the relevant coin. In this regard it is notes that cryptocurrencies are more than mere information but, rather, with the use of a private key provide a method of transferring value.

Can digital assets be held on trust?

To determine whether cryptocurrencies can be held on an express trust, it is necessary to consider the three certainties (as set out above).  Separately it is useful to note that the appointment of a digital executor is now a common feature of a modern will.   While note determining the point as to whether digital assets can be held on trust, this modern phenomenon is illustrative of the need for a quasi-legal construct to deal with the burgeoning extent of digital interests that populate modern life and commerce.

Whether cryptocurrencies are property that can form the subject of a trust it is useful to consider the practical management of such assets. Cryptopia maintained its own database of the accountholders and digital assets that it controlled and all cryptocurrency holdings were held on trust by Cryptopia, although it was itself one of the beneficiaries of some trusts relating to cryptocurrency which it had introduced.   In this regarding we note that independently of the ability to define cryptocurrency by reference to a the relevant legislative framework, the manner in which the cryptocurrency was managed was indicative of property at common law.

With respect to certainty of objects, it was clear  who the beneficiaries of the relevant trusts were – that is the investors with positive coin balances in Cryptopia’s database. Although the liquidators indicated there may be difficulty finding out the true identities of some of the accountholders (meaning some evidential uncertainty could arise), this did not invalidate the trust for those whose precise identities can be shown.

The requirement for certainty of intention was demonstrated by Cryptopia through how it documented the exchange and database, which showed it was custodian and trustee of the digital assets and did not trade in them in its own right, other than where it was a beneficiary of the trusts established. The intent to create the trusts was manifested and a trust came into existence for each of the cryptocurrencies as soon as Cryptopia came to hold a new currency for accountholders.

Express trusts

Ultimately, Gendall J was satisfied that a series of express trusts (akin, given the circumstances, to constructive trusts)  in favour of the accountholders arose in respect of their respective digital assets. Details of those trusts, their changing subject matter and membership, were held in the database maintained by Cryptopia.

Cryptopia’s whole purpose was to provide a platform to enable accountholders to store their currency from which they could trade in cryptocurrency.

Creation of the relevant trusts

The relevant trusts came into existence for each different type of currency that Cryptopia acquired when there was a dealing with an accountholder in accordance with Cryptopia’s terms of trade. Once each trust came into existence, that trust applied to any currency of the relevant type subsequently acquired by Cryptopia as part of the running of its cryptocurrency platform irrespective of whether it was in hot wallets or cold wallets. This can be anologised with any other form of express trust, where trust assets are utilised to acquire further assets or investments.

Significance of the trust finding

The significance of the finding that each accountholder’s cryptocurrency interests were held on trust meant that the value of those interests did not fall into the pool of assets available to Cryptopia’s personal creditors.  Accordingly, as there was one such trust for each type of cryptocurrency held, only those accountholders who hold types of cryptocurrency that were stolen suffered a loss as a result of that misappropriation.

Accordingly, all of the digital assets held by the liquidators were property held on trust for the accountholders, the trusts coming into existence when the first tranche of a specific cryptocurrency was accepted onto Cryptopia’s platform.  The accountholders who hold that particular digital asset are co-beneficiaries of the same trust.


  • Ruscoe v Cryptopia Limited (In Liquidation) [2020] NZHC 728
  • National Provincial Bank Ltd v Ainsworth [1965] AC 1175 (HL) at 1247–1248
  • Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29
  • Goldcorp Exchange Limited (In Receivership), Re [1994] 3 NZLR 385 (PC)
  • Quoine Pte Ltd v B2C2 Ltd [2020] SGCA(I) 2 [B2C2 (SGCA)]


2 thoughts on “Can’t see it , can’t touch it, can’t explain it

  1. “Separately it is useful to note that the appointment of a digital executor is now a common feature of a modern will.”

    What is a “digital executor,” please?

    Posted by simonseymour | May 11, 2020, 9:35 am

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