Cross-Border Crypto Related Litigation


Cross-Border Crypto Related Litigation

Part 3 of the “Smartblock Law Guide to Cryptocurrency Contracts, Litigation, Monetary Instruments, and Financial Institution Regulations in Canada”


Chetan Phull · April 26, 2018


The “Smartblock Law Guide to Cryptocurrency Contracts, Litigation, Monetary Instruments, and Financial Institution Regulations in Canada” is comprised of:

I. Introduction

Cross-border commercial disputes between private parties engage private international law, which the Supreme Court of Canada has described as follows:

Private international law is in essence domestic law, and it is designed to resolve conflicts between different jurisdictions, the legal systems or rules of different jurisdictions and decisions of courts of different jurisdictions.

[Van Breda v. Village Resorts Ltd., 2012 SCC 17 at para. 15 (“Van Breda”).]

Private international law applies to both court litigation and private arbitration. This article focuses on court litigation against a party located abroad.


II. Service of Pleadings

A party’s first step to commence a proceeding or counterclaim is to serve its pleading. A claim or counterclaim arising out of a contract may be served on an opposing party outside Ontario, if the contract:

  • was made in Ontario;

  • is governed by Ontario law;

  • states that Ontario courts have jurisdiction over disputes arising from the contract; OR

  • was breached in Ontario.

[See Ontario’s Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r.17.02(f).]

Other grounds of service are also available, including with leave (i.e., the court's permission) (r.17.03(1)).


III. Does the Ontario Court Have Jurisdiction?

After the pleading has been served on the other party, it must be determined whether an Ontario court has jurisdiction over the matter.

The existence of jurisdiction is determined by whether the matters at issue have a “real and substantial connection” to Ontario. This test is context- and fact-specific (Van Breda at para. 35).

Presumptive connecting factors—which the defence can rebut—have been identified for tort cases (Van Breda at paras. 80-81, 93-94, 100). The list of presumptive connecting factors is not closed (Van Breda at paras. 91). Future cases are expected to clarify which presumptive connecting factors exist for contract law matters, and how they may be rebutted (Van Breda at para. 85, 92).

Here are some guiding principles relevant to cryptocurrency businesses:

  • carrying on business in Ontario is a presumptive connecting factor (Van Breda at para 122; Rules of Civil Procedure, r.17.02(p));

  • website accessibility from Ontario is not on its own a presumptive connecting factor (Van Breda at para. 87);

  • advertising within Ontario is not on its own a presumptive connecting factor (Van Breda at paras. 87 and 114); and

  • it remains to be determined whether e-trade within Ontario is a presumptive connecting factor (Van Breda at paras. 87 and 114).

We note that, “where the presumptive connecting factor is a contract made in the province, the presumption can be rebutted by showing that the contract has little or nothing to do with the subject matter of the litigation” (Van Breda at para. 96).

The recent case of Arend v. Boehm, 2017 ONSC 3424 (CanLII) is instructive for cryptocurrency businesses.

This case involved BitRush Corp., which was centred in Toronto but had investors, officers and businesses around the world. A proceeding was commenced against BitRush’s former CEO (Werner Boehm) and others, alleging oppression and breach of fiduciary duties, and seeking the transfer and cancelation of shares of various classes.

Jurisdiction was easy to establish, because this step only required “a good arguable case”, which meant no more than a “serious question to be tried”, or a “genuine issue”, or that the case had “some chance of success.”

In this case, jurisdiction was established on the basis of the following factors:

  • Bitrush was domiciled in Ontario;

  • BitRush was traded on a public market in Canada;

  • BitRush was “doing business in Ontario”; and

  • a significant percentage of BitRush shares in issue remained in escrow with its transfer agent located in Toronto.

In an attempt to rebut the presumptive connecting factors, Boehm “stressed that he [had] never been in Ontario and that he carried most of his activities for BitRush in Austria.”

The Court found that this excuse did not rebut the presumption of jurisdiction because, as an officer of the corporation, Boehm “would have understood and expected that disputes dealing with the affairs of the corporation would be dealt with at the place of incorporation” (i.e. Ontario).


IV. Should the Ontario Court Decline Jurisdiction?

If the test for jurisdiction is met, the next question is whether the Ontario court should decline to exercise its jurisdiction.

It can do this if another forum with a real and substantial connection to the matter is demonstrably preferable (Van Breda at paras. 103-105), on the basis that the other forum “is in a better position to dispose fairly and efficiently of the litigation” (Van Breda at para. 109).

This analysis is context- and fact-specific.

In the case of Arend v. Boehm, the Court accepted jurisdiction because shareholder oppression claims were at issue, and a foreign court does not have jurisdiction to decide oppression claims under Ontario’s corporate law legislation. Moreover, many of the applicable contracts between the parties were governed by the laws of Ontario.

The case of Mt. Gox Co., Ltd (Re), 2014 ONSC 5811 (CanLII) is also relevant to whether jurisdiction should be accepted or refused. Although the question of whether jurisdiction existed was skipped in this case, that issue was ultimately unnecessary because jurisdiction was declined.

Mt. Gox supports the proposition that, if a foreign cryptocurrency exchange with a “foreign centre of main interest” commences bankruptcy proceedings in that foreign forum, a domestic class action will fail because the Court will be compelled to refuse jurisdiction.

Mt. Gox was a Japanese corporation located and headquartered in Japan, and formerly operating as an online Bitcoin exchange. The platform halted Bitcoin withdrawals and suspended all trading in February 2014 due to the theft of approximately 850,000 Bitcoins.

A Tokyo Court entered the Japan bankruptcy order in April 2014, which formally commenced bankruptcy proceedings. At that time, there were approximately 120,000 customers with a Bitcoin or fiat currency balance with Mt. Gox, living in approximately 175 countries around the world.

A class action was subsequently commenced in the Ontario Superior Court of Justice.

The Court recognized that because the corporation’s center of main interests was in Japan, the Japanese bankruptcy proceeding was a foreign proceeding under Canadian bankruptcy legislation. On this basis, the Canadian proceeding was stayed (i.e. halted).

The Court also noted that two class actions initiated in the U.S. were also stayed by U.S. courts for similar reasons.

Additional grounds for the decision included the private international law concepts of state sovereignty, international comity, and cooperation.


V. Conclusion

Jurisdictional issues in the context of cross-border disputes require detailed consideration and research. If you are involved in an international dispute concerning cryptocurrency, or a cryptocurrency business, we invite you to consider our “Litigation & Arbitration” service offerings.


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