The crypto factor: investigating jurisdiction, lis pendens and the greatest mystery in the crypto world

Posted: 10/08/2020

‘Bitcoin is the world’s first decentralized cryptocurrency. The concept and technology behind Bitcoin was first published in October 2008 when its pseudonymous creator, Satoshi Nakamoto, sent the now famous protocol to a mailing list of cryptography enthusiasts. That protocol has since spawned a system of value and exchange with a current market cap of ~$150 billion.’

Thus begins the complaint of Ira Kleiman, the personal representative of the estate of Dave Kleiman, against Craig Wright, filed in the Southern District of Florida in February 2018. The lawsuit concerns the ownership of hundreds of thousands of Bitcoin and the intellectual property rights associated with certain blockchain technology.

Craig Wright is an Australian computer scientist and businessman. Since 2016, he has claimed that he is Satoshi Nakamoto, a claim that has been subject to a lot of scepticism in the crypto world. He is also the backer of a ‘hard fork chain’ of Bitcoin called ‘Bitcoin Satoshi Vision’ (Bitcoin SV), which he established with the support of Canadian-Antiguan entrepreneur Calvin Ayre in 2018.

Whilst most eyes in the crypto community have been on the Kleiman v Wright lawsuit, which is set for a jury trial beginning on 13 October 2020, our eye has been drawn to the libel lawsuits brought by Dr Wright against crypto critics who deny his claim to being the Bitcoin inventor.

Lis pendens: courting controversy?

The first claim (Craig Wright v Magnus Granath [2020] EWHC 51 (QB), [2020] All ER (D) 45 (Feb)) relates to Magnus Granath, a citizen of Norway, resident in Oslo, tweeting under the Twitter handle @hodlonaut. On 17 March 2019, he tweeted as follows:

‘The forensics to CSW's first attempt to fraudulently 'prove' he is Satoshi. Enabled by @gavinandresen. Never forget. @CraigWrightIsAFraud.’

The innuendo meaning of this tweet, according to Dr Wright, was that Dr Wright had fraudulently claimed to be Satoshi Nakamoto.

On 29 March 2019, Mr Granath received a letter of claim from Dr Wright’s solicitors in relation to nine tweets, complaining specifically of libel in the 17 March 2019 tweet. The letter requested that Mr Granath identify himself, remove the tweets, undertake not to repeat the statements and apologise (including making a statement in open court).

Mr Granath deleted the tweets and, in May 2019, issued proceedings in the Oslo District Court seeking negative declaratory relief that he was not liable to pay damages for libel to Dr Wright.

On 26 June 2019, Dr Wright issued High Court proceedings against Mr Granath in relation to the 17 March 2019 tweet, seeking (i) damages for libel, (ii) an injunction restraining further publication, and (iii) an order that Mr Granath publish a summary of the judgment in the proceedings.

Mr Granath brought an application under Article 27 of the Lugano Convention 2007, challenging the jurisdiction of the English court, on the basis that there are ongoing proceedings in Norway related to the same cause of action (the ‘lis pendens’ doctrine). 

The case raised a novel point on the application of the lis pendens doctrine to defamation cases. In determining Mr Granath’s application, the court considered:

• whether both sets of proceedings involve the same cause of action; and
• if so, whether Dr Wright enjoys a substantive right, as a victim of defamation, to sue in the UK, being a right which cannot by its very nature be displaced by Article 27?

On the first question, the court considered whether there was a significant or substantial degree of commonality or overlap between the two claims. A key issue in both proceedings was whether the tweet was defamatory. The objet in both proceedings was the same: establishing liability or non-liability for the tweet. As such, there was a risk of conflicting decisions, and Article 27 applied.

In relation to the second question, the court considered the three bases for jurisdiction over a libel claim concerning an internet publication:

• the defendant's state of domicile, under Article 2 of the Lugano Convention, for global damages and/or non-pecuniary relief;
• the state of the claimant's ‘centre of interests’ under Article 5(3) of the Lugano Convention for global damages and/or non-pecuniary relief; or
• each state in which there has been publication under Article 5(3) of the Lugano Convention (‘mosaic’ approach), but only for the damages suffered by publication in that member state.

Whilst the claim in the English court engaged the ‘centre of interest’ and ‘mosaic’ principles, the judge concluded that Mr Granath's claim in Norway was directed as a ‘global’ claim that Mr Granath was not liable for any damage suffered across any member state. On that basis, Dr Wright had no substantive right to sue in the UK in a situation where the lis pendens provisions of Article 27 of the Lugano Convention applied.

Permission to appeal this decision has been granted and the appeal is expected to be heard in October 2020.

Jurisdiction and defamation

The second libel claim (Craig Wright v Roger Ver [2020] EWCA Civ 672, [2020] All ER (D) 42 (Jun)) was against Roger Ver, a bitcoin investor and commentator on cryptocurrencies. Mr Ver was born in California. He is a citizen of St Kitts & Nevis, but lives in Japan. Like Mr Granath, Mr Ver does not accept that Dr Wright is Satoshi Nakamoto.

Mr Ver and Dr Wright fell out in November 2018 as a result of their competing views on Bitcoin: Dr Wright supported the Bitcoin SV version; Mr Ver developed another version known as Bitcoin ABC (Adjustable Blocksize Cap).

Dr Wright’s claim relates to a video posted by Mr Ver on the Bitcoin.com YouTube channel on 15 April 2019, Mr Ver’s tweet containing the YouTube video posted on 3 May 2019, and a reply on Mr Ver’s Twitter account posted on 3 May 2019 from @BkkShadow. Dr Wright claims that the innuendo meaning of these publications was that he had fraudulently claimed to be Satoshi Nakamoto.

Mr Ver challenged the court’s jurisdiction, on the basis of the Defamation Act 2013, section 9. Section 9 provides that where a defendant is not domiciled in the UK, another member state or a member of the Lugano Convention, the court does not have jurisdiction to hear the action unless it is satisfied that England and Wales is ‘clearly the most appropriate place’ in which to bring an action in respect of the alleged defamatory statement.

At first instance, the court found that England and Wales was not ‘clearly the most appropriate place’ in which to bring the libel claim in this action. Dr Wright appealed.

There were two questions on appeal:

• whether the judge took a proper approach to the Defamation Act 2013, section 9; and
• whether England and Wales was clearly the most appropriate jurisdiction to bring the claim.

The Court of Appeal concluded that England and Wales was not ‘clearly the most appropriate’ jurisdiction to hear the claim, and that a state in the US is the most appropriate jurisdiction, based on the following:

• there were four times as many publications of the YouTube channel and tweets in the US as in the UK;
• Dr Wright has a global reputation in the crypto world, so his reputation is just as likely to be affected in other jurisdictions;
• the question of whether Dr Wright is the inventor of Bitcoin is a global issue;
• Dr Wright’s most important business relationships are with peers in the US;
• Dr Wright is employed by nChain Limited, which is part of the nChain group of companies based in more than one jurisdiction, including the US; 
• Dr Wright’s evidence about his reputation in the UK was not inconsistent with his global reputation, or his links to the US;
• there was no evidence that Dr Wright would have difficulties in obtaining access to justice in the US; and
• there was no evidence that any relevant witness would have difficulty in providing evidence in the US.

Comment

The court’s finding in Wright v Granath (assuming it is not overturned on appeal) that the lis pendens doctrine applies to claims in tort, and the analysis of the degree of overlap required between parallel proceedings under Article 27 of the Lugano Convention, sets a useful precedent for future tortious claims brought in multiple jurisdictions.

Wright v Ver sets out a useful, if non-exhaustive, list of the factors the court will consider when approaching section 9 of the Defamation Act 2013. In particular, claimants wishing to avail themselves of English defamation law should be prepared to produce strong evidence of the damage suffered in England and Wales, in comparison to any damage suffered abroad, or globally, in order to demonstrate that England is ‘clearly the most appropriate’ jurisdiction to hear the claim.

Other libel lawsuits

As a result of the judgment in Wright v Ver, Dr Wright has reportedly dropped two other lawsuits he was pursuing against the CEO of Blockstream, Adam Back (based in Malta) and Ethereum’s co-founder, Vitalik Buterin (resident in Singapore), both of whom have publicly doubted his claim to be the inventor of Bitcoin. 

There is one ongoing claim by Dr Wright against Bitcoin podcaster, Peter McCormack. Unlike all of the other potential defendants, Mr McCormack is resident in the UK, and so section 9 of the Defamation Act 2013 will not apply. If the claim proceeds, Mr McCormack will need to produce evidence of the truth of the allegedly defamatory statements.

Could this claim finally solve one of the greatest mysteries in the crypto world? Or will it be the Florida Kleiman v Wright lawsuit? Watch this space.

This article was originally published in New Law Journal.

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