Zi Wang v Graham Darby: Can cryptocurrencies be held on trust?

Zi Wang v Graham Darby: Can cryptocurrencies be held on trust?'s Tags

Tags related to this article

Zi Wang v Graham Darby: Can cryptocurrencies be held on trust?

Published 23 December 2021

The High Court addressed, for the first time, whether a cryptocurrency was held on trust in Zi Wang v Graham Darby [2021] EWHC 3054 (Comm). It is understood that that cryptocurrencies could be held on trust, but adjudged on the facts of this case, that they were not.


Mr Wang, was an experienced crypto trader, and sought Mr Darby’s ‘baking’ services. Baking is a process whereby individual tokens are utilized so as to yield rewards in the form of additional tokens. During the baking process, it is common that crypto traders will loan or entrust their currency to the account of another, which enables a higher volume of ‘baking’ to occur and in turn, higher rewards.

In late December 2018, after some discussion, the two crypto traders made an agreement that Mr Wang would “sell” 400,000 Tezos tokens to Mr Darby, in exchange for 30 Bitcoin from Mr Darby (the “Agreement”). Under the terms of the Agreement, Mr Darby was required to keep the Tezos in a specific crypto wallet for a minimum of 2 years, to carry out the “baking” process. Meanwhile, Mr Wang was free to use and trade the Bitcoin as he pleased. Mr Darby would be entitled to 50 percent of the accrued additional tokens created by the baking process, in return. At this time, the 30 Bitcoins were worth half of the current value of the 400,000 Tezos.

Upon completion of those two years, Mr Wang could exercise an option to require Mr Darby to return the Tezos to him in exchange for the 30 Bitcoins or alternatively, on payment of the sum of $110,000 to Mr Darby.

In March 2019, Mr Darby communicated to Mr Wang that he would be shutting down the baking services, and would begin to trade the Tezos. The value of Tezos had begun to rise at this time, and Mr Darby was keen to trade the Tezos as he could generate a considerably higher return on trading the Tezos than baking them. Therefore, contrary to the Agreement, Mr Darby ceased to hold the Tezos in the specified wallet and, it is presumed, he began to with trade them.

Mr Wang brought proceedings against Mr Darby for breach of the Agreement, and for breach of trust and/or fiduciary duties in failing to hold the Tezos in the specified wallet to “bake” them.

The court initially granted a Worldwide Freezing Order (“WFO”) and proprietary injunction over the Tezos to prevent further trading by Mr Darby. Mr Wang sought to extend this Order. Upon the application of Mr Darby for strike out of the claim, the Court considered whether the Agreement constituted a trust.

Did the Agreement constitute a trust?

Mr Wang alleged that the Tezos were held on trust for him by Mr Darby as either an (i) Express Trust (ii) Quistclose-Resulting Trust or (iii) a Constructive Trust.

In line with a recent decision of the High Court, AA v Persons Unknown, the Court commented that it “was common ground that fungible and non-identifiable digital assets such as Tezos constitute property that is capable of being bought and sold as well as held on trust as a matter of English law”. Therefore, it was accepted by both parties that the Tezos tokens could constitute property, which theoretically can be the subject of a trust. The question of whether the cryptocurrency could be held on trust was not considered, as both parties agreed that it could, however it was considered whether, on these facts, a trust was created.

The Court held in this case a trust had not been created, mainly due to “essential economic reciprocity” of the transaction, which precluded any trust from occurring. Further, a sale/purchase back arrangement is fatal to any trust as each sale/purchase transfers the ownership between the parties. The Court described this as the “antithesis of a trust” as the receiving party is able to deal with the property as they see fit. The Court also questioned the need for a trust to give effect to the parties’ Agreement and concluded that a trust would only “frustrate the essence of their bargain”.

In turn, summary judgment of the breach of trust and/or fiduciary duties claim was granted to Mr Darby as no trust had been created between the parties.

However, the Court did accept that the continuance of the WFO was necessary, given that there was a real risk of unjustified dissipation of assets by Mr Darby which might render enforcement of any personal claims still remaining against Mr Darby more difficult or less effective.

The Court refused to strike out Mr Wang’s claim, which was independent of the trust, for breach of contract and the equitable compensation that flows from this. The Court  noted that the precise terms of the contracts and any breach of those contracts are “for trial”, but did comment that Mr Darby’s behaviour was arguably “dishonourable or commercially colourable” and it was clear that “[Mr Darby] took advantage of the rising value of the Tezos”. Therefore, the Court concluded “without hesitation” that the WFO should remain.  

What does this mean going forward?

The establishment of proprietary interests in crypto currency in AA v Persons Unknown was an important step in the legal protections afforded to those operating in the crypto asset space. It is a natural development of the recognition of proprietary interests in crypto assets to consider and recognise that parties to crypto asset arrangements can, as a matter of law, hold the crypto assets on trust for another. In this way, the Court has treated crypto assets no differently than it has previously treated other asset classes. Whether or not a trust is created remains subject to strict rules and parties to crypto assets arrangements of the type Mr Wang and Mr Darby entered into would be well advised to ensure there is a greater level of certainty and clarity afforded to any written terms put in place to evidence their agreement. 


Jonathan Brogden

Jonathan Brogden

London - Walbrook

+44 (0)20 7894 6290

Millie Bailey

Millie Bailey

London - Walbrook

+44 (0)20 7894 6319

< Back to articles