Recovery of Claims from Cryptocurrencies

There are currently around 1,600 cryptocurrencies on the exchange market. This is a relatively new phenomenon and difficult to define, so for the purposes of this article, we will simplistically assume, following Article 2(2)(26) of the AML/CFT Act, that cryptocurrencies can be qualified as virtual currency, i.e. a digital representation of value that can be exchanged for legal tender in business transactions. According to the aforementioned provision, virtual currencies are not:

• legal tender issued by the NBP, foreign central banks or other public administrations,
• international units of account established by an international organisation and accepted by individual countries belonging to or cooperating with that organisation,
• electronic money within the meaning of the Payment Services Act of 19 August 2011,
• financial instruments within the meaning of the Act on Trading in Financial Instruments of 29 July 2005,
• bills of exchange or cheques

Whatever definition is adopted, it appears that cryptocurrencies are gaining in popularity and the pool of users is growing. A natural consequence of this will therefore be an increased number of civil disputes related to cryptocurrencies.

Fundamental issues in the proceedings before the General Court

Pursuant to Article 187(1)(1) of the Code of Civil Procedure, the demand for a statement of claim may concern adjudication of a benefit, determination of the existence/non-existence of a legal relationship or right, or shaping of a legal relationship or right. From the legal perspective, cryptocurrencies are civil law benefits, therefore the demand for a statement of claim in the case of claiming claims from cryptocurrencies should concern adjudication of a benefit. At the same time, it should be borne in mind that from the perspective of the applicable regulations, we are not dealing with money, so the lawsuit will not be an action for payment and the subject matter of the case will not be a designated amount.

The demand of the lawsuit may therefore consist of an award of benefits in the form of:

– award a specific quantity of cryptocurrencies denominated in specie

– the release of physical media on which cryptocurrencies are stored

– issuing codes to use cryptocurrencies

When formulating the claim, particular attention should be paid to the appropriate specification of the subject matter of the performance. The mere handing over of the medium on which the cryptocurrencies are recorded is very often not enough to be able to use them, therefore it is important to specify the claim in a manner allowing for subsequent satisfaction of the claim.

Basic issues in enforcement proceedings

A key issue in the case of enforcement proceedings concerning a demand expressed in cryptocurrency is the provisions that speak of the enforcement of irreplaceable acts. An irreplaceable act is one that cannot be performed by another person in the debtor's stead, and whose performance depends solely on the debtor's will. This is a difficult enforcement route, but due to the specificities of cryptocurrencies, the only one possible. The legislation does, however, provide for various forms of leverage, such as fines, fines for late payment or custody in the event that a fine proves ineffective. The upper limit of the fine that the Court may impose on the debtor is PLN 15,000 at one time and PLN 1,000,000 throughout the proceedings.

What in the case where a monetary claim expressed in traditional currency is claimed and the debtor's only assets are cryptocurrencies?  The situation gets more complicated, from a legal point of view, enforcement can be carried out against : movable property, salaries, bank accounts, other receivables, other property rights, real estate and seagoing vessels. Cryptocurrency is accepted as a digital representation of value, so it is not a movable thing and is not subject to the law of property. Instead, the physical medium that allows access to the cryptocurrency will be a tangible thing and, as such, can be the subject of enforcement.

Reference should be made here to the provisions on rights in intangible assets. Well, the catalogue of these rights is closed and cryptocurrencies are not included in it. The same is true when it comes to classifying a cryptocurrency as a financial instrument.

Leaving aside the legal classification of cryptocurrencies, the reality of the market is that it is very common for a debtor to hold cryptocurrencies with a third party, e.g. on a cryptocurrency exchange. It is then possible to approach the cryptocurrency exchange with information about the seizure of the debtor's claim.