A court based in Hong Kong has ruled that property rights are applicable to digital currencies, saying that they can be held in trust like any other property.
In a review of the court’s decision, law firm Hogan Lovells noted that other common law jurisdictions influenced the court’s decision. The court ruled that property is an inclusive term with a wide range of meanings, noting that in the past, the courts have granted interlocutory proprietary injunctions over digital currencies.
“The court felt it appropriate to apply and follow the lines of reasoning adopted in other jurisdictions that cryptocurrency was ‘property,'” Hogan Lovells’ report read.
The court also noted that digital currencies can be the subject matter of a trust, provided it satisfies the pre-requisites of a subject matter, object, and intention. In the case at hand involving digital currencies in the defunct Gatecoin exchange, the court ruled that the requirement of certainty of subject matter was satisfied despite the fact that assets were placed in a common pool.
However, the peculiarities of the case saw the court remark that that element of intention had not been established based on the wording of Gatecoin’s terms and conditions.
“The 2018 T&C contained no express declaration of trust and to the contrary, made clear that the currencies were not held on trust for customers. Furthermore, two clauses within the 2018 T&C expressly disclaimed any fiduciary relationship between Gatecoin and the customer,” the case review read.
In 2016, Gatecoin suffered a massive hack that triggered the loss of over $2 million in digital currencies. In 2019, a Hong Kong court ordered a mandatory liquidation of the assets, spelling chaos for insolvency practitioners as a myriad of issues cropped up during the winding-up processes.
The U.S. views digital currencies as property to collect federal taxes, a position adopted by a handful of other countries. Despite a blanket ban on the asset class, digital currencies have been granted property rights in China following multiple court decisions.
Analysts have described the recent decision as proof that Hong Kong’s plans to transform the city into a digital currency paradise have both executive and judicial support. Hong Kong announced that it intends to attract global Web3 firms to set up operations in the city-state through tax incentives and residency permits.
The city disclosed that it would be launching a Web3 fund aimed at deepening the talent pool and putting the final touches to its encompassing legal framework for regulations. Banking services for interested Web3 firms appear to be abundant, with Chinese financial institutions supplementing local banks.
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