Federal Court finds Cryptocurrency is "property" under the Corporations Act

The recent Federal Court decision of ASIC v NGS Crypto Pty Ltd (No 3) [2024] FCA 822 concerned an application made by NGS Group Ltd (HK Company number 19639490) ("NGS") and its director ("the defendants") to set aside an interim freezing order made by the Federal Court over certain cryptocurrency assets held by NGS and related entities, on application by ASIC. Among other things, the defendants argued the orders should be set aside on the basis that cryptocurrencies are not "property" under Australian law. Ultimatey, the Federal Court held that, for the purposes of an interlocutory application, the definition of 'property' in s 9 of the Corporations Act 2001' (Cth) ("Act") is sufficiently wide to encompass cryptocurrency assets.'  Accordingly, the freezing order was upheld.

Background

On 10 April 2024, the Federal Court made interim orders against the defendants, including orders under s.1323 of the Act, appointing receivers over NGS' "Digital Currency" assets. Pursuant to that section, the Court is empowered to make an order appointing a receiver over a party's property, where the party is being investigated or prosecuted in respect of a contravention of the Act. On 27 May 2024, the defendants filed an interlocutory application to set aside or vary the orders. Amongst other things, the defendants argued that the cryptocurrency is not property within the meaning of s.9 of the Act. In particular, the defendants asserted that no Australian authority supports the position that cryptocurrency is property.

Consideration

In considering the issue of whether cryptocurrencies constitute property, the court noted the definition of "property" of a company in s 9 of the Act which includes: (a)'  any PPSA retention of title property of the company; and (b)'  any other property used or occupied by, or in the possession of, the company. Ultimately, the Court was satisfied that, at an interlocutory level, the definition of "property" in the Act is sufficiently broad to encompass cryptocurrency assets in appropriate circumstances.'  The Court considered this conclusion was "fortified" by the recent paper by Jackman J entitled "Is cryptocurrency property" delivered on 21 June 2024 to the Commercial Law Association (https://www.fedcourt.gov.au/digital-law-library/judges-speeches/justice-jackman/jackman-j-20240621), where his Honour noted inter alia:

• cryptocurrency was effectively assumed to be property in two Australian cases which might have analysed the issue (Commissioner of the Australian Federal Police v Bigatton [2020] NSWSC 245 (Cavanagh J); Chen v Blockchain Global Limited (2022) 66 VR 30 (Attiwill J)) and
• the analysis of Gendall J in the High Court of New Zealand in Ruscoe v Cryptopia Limited (in liq) [2020] 2 NZLR 809, where the Court held that the relevant cryptocurrencies were a species of intangible personal property which were capable of being the subject matter of a trust.

Accordingly, the Court refused to set aside the orders, and held that cryptocurrency assets constitute property within the meaning of the Act for the purposes of an interlocutory application.

Takeaways

ASIC's investigation into NGS is ongoing. What this latest update demonstrates is that, despite uncertainties surrounding the treatment of digital assets, courts are prepared to include cryptocurrencies in their al and protective measures, for the purposes of interlocutory proceedings. This approach ensures that emerging asset classes like cryptocurrencies are subject to similar regulatory scrutiny and protective actions as traditional assets. We note that, since this judgment was delivered, the Supreme Court of Victoria has confirmed that cryptocurrency assets such as Bitcoin are property under Australian law in Blockchain Tech Pty Ltd [2024] VSC 69.

With Pippa Thorne.