Saturday 28 November 2015

Choice-of-law aspects of the judgment on the ownership of bitcoins

As I mentioned in my earlier post, the Tokyo District Court in its judgment on 5 August 2015 denied the ownership (more precisely, "shoyûken" in Japanese) of bitcoins. In that post, I have also noted that translating "shoyûken" into the English word "ownership" may be misleading.
In this post, I will look at the choice-of-law aspects. The judgment is based on the assumption that Japanese law was the applicable law without giving any reasons. Nor did either party discuss choice-of-law issues (according to the Court's summary of their arguments).
The scope of the bankruptcy estate of MTGOX is surely a matter for Japanese law since the bankruptcy proceedings opened in Japan. The effect of Japanese bankruptcy proceedings extends to all assets of the bankrupt wherever in the world they are situated. This follows from the repeal in 2000 of the then Article 3(1) of the Bankruptcy Act which provided:
The bankruptcy which is declared in Japan shall only have effect on the asset of the bankrupt situated in Japan.
The bankruptcy estate of MTGOX, therefore, covers all bitcoin units wherever situated. Here, the borderless nature of the blockchain poses no problem.
On the other hand, it is not as obvious that Japanese law was the governing law of the plaintiff's ownership-based claim to recover the bitcoin units. On the face of it, the application of Japanese law may seem uncontroversial since there were no strong foreign elements in that case: the plaintiff was an individual residing in Kyoto and the defendant was the bankruptcy representative of the bankrupt MTGOX, a Tokyo-based company, appointed in the Japanese bankruptcy proceedings. But as I noted in my earlier post, choice-of-law rules for determining the ownership of intangible property are not well-established and, depending on the connecting factor to be adopted, the borderless nature of the blockchain may make it difficult to localise bitcoin units in a particular country. If the plaintiff had been a foreigner residing abroad (which would not have been a remote possibility since a majority of the creditors of MTGOX are such persons), the parties and the court might have felt it necessary to address the choice-of-law question.

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