Restitution Claims for Unjust Enrichment in Cryptocurrency: Legal Analysis, Study notes of Law

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UNJUSTLY ENRICHING THE RICHER: A DOCTRINAL

ANALYSIS OF UNJUST ENRICHMENT AND ITS

APPLICATION TO CRYPTOCURRENCY HARD FORK

AND AIRDROP EVENTS

JAZZ OSVALD*

This paper examines the following problem: If there is a generative event (either a hard fork or airdrop) relating to a cryptocurrency blockchain, and a party that retains the benefit is not the person with legal rights to that cryptocurrency, does that person have a claim for restitution under the law of unjust enrichment against a party that retains the benefit of the generative event? Unjust enrichment provides claimants with legal recourse in the event where no other area of law can assist. Here, the paper argues that in an ecosystem such as the cryptocurrency market, where legal frameworks are largely untested and assets are commonly held by individuals in the absence of formalised agreements, unjust enrichment can provide a valuable legal avenue for recourse in the event a claimant cannot otherwise make a claim. To this end, it is necessary to consider whether cryptocurrency can constitute value that can be claimed under unjust enrichment and which cause of action is most suitable to the circumstances above. The paper ultimately concludes that free acceptance is the most suitable cause of action, and that in some circumstances, by retaining the resulting cryptocurrency, that party can be deemed to have freely accepted that cryptocurrency, and consequently have been unjustly enriched at the other individual’s expense.

I INTRODUCTION

The recent actions of Coinbase in relation to the 2017 Bitcoin Cash hard fork have prompted consideration of whether a person with legal rights to cryptocurrency has a claim for restitution under the law of unjust enrichment against a party that retains a benefit resulting from a hard fork or airdrop. Coinbase provides cryptocurrency custody and exchange services to users and, as a result, controls access to user assets in its possession. In 2017, Bitcoin underwent a hard fork,^1 a process by which a secondary blockchain, Bitcoin Cash, was created.

• Jazz Osvald is a recent graduate from the University of Technology Sydney with a Bachelor of Laws (Honours) majoring in Legal Futures and Technology. Jazz has previously worked at King & Wood Mallesons in the areas of Financial Regulation and Markets, Derivatives and Blockchain, and is currently working as a Policy and Operations Assistant at FinTech A 1 ustralia. A hard fork is a process where the blockchain forks into two competing records of the blockchain ledger: Arvind Narayanan et al, Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction (Princeton University Press, 2016) Ch 3, 97.

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Due to the nature of the hard fork, each user that held Bitcoin before the fork held an equal amount of Bitcoin Cash after the fork.^2 Users that held their Bitcoin with Coinbase were initially denied access to their Bitcoin Cash.^3 Subsequently, Coinbase users in the United States of America (USA) threatened legal action, with unjust enrichment being among the claims threatened.^4 These users ultimately received their assets without intervention from the courts, so legal uncertainty surrounding this scenario persists. Recently, this issue was also the subject of an unreported French decision in the Commercial Court of Nanterre. This case involved the provision of a Bitcoin loan prior to the Bitcoin Cash hard fork, which resulted in the borrower gaining possession of Bitcoin Cash proportional to their loan.^5 While not legally definitive of the issues in this paper, this case demonstrates that complications surrounding hard forks can arise in a commercial context, and that such an issue is worth examining. This issue has also received international attention beyond the USA.^6 However, with little consideration in Australian courts, it is important to analyse the relevance and application of existing areas of law.

Unjust enrichment focusses on reversing unjust benefits gained at the expense of another. This provides flexibility in novel scenarios such as the one considered in this paper, for several reasons. Firstly, unjust enrichment can allow for recovery in instances where other areas of law cannot. An example would be where there is no contract, or the underlying contract is void or unenforceable. This is a concern, as legal frameworks surrounding cryptocurrency markets and products are largely untested and may be made void due to the application of regimes such as the Australian Consumer Law’s (ACL) unfair contracts regime.^7 Moreover, as an emerging market comprised largely of non-professional investors, it is common for assets to be held for others by friends or family without any underlying agreement in place. Given the absence of litigation surrounding cryptocurrency in areas such as property law,^8 particularly in relation to assets derived from hard forks and airdrops, other relevant areas of law that may provide recourse to an affected user must

(^2) Jake Smith, 'The Bitcoin Cash Hard Fork Will Show Us Which Coin Is Best', Fortune (Article, 11 August 2017) <http://fortune.com/2017/08/11/bitcoin 3 - cash-hard-fork-price-date-why>. 'Bitcoin Cash Launch Retrospective', The Coinbase Blog (Blog, 9 January 2018) <https://blog.coinbase.com/bitcoin- cash-launch- retrospective-e90e9f863d8d>; 'Bitcoin Fork FAQ', Coinbase (Web Page, 3 August 2017) <https://support.coinbase.com/customer/portal/articles/2844217 4 - uahf-uasf-faq>. Joseph Young, 'Coinbase Consumers Threatened to Sue Over Bitcoin Cash, Was it Realistic to Begin With?', Cointelegraph (Article, 7 August 2017) <https://cointelegraph.com/news/coinbase-consumers-threatened-to-sue-over-bitcoin-cash-was-it-realistic-to- begin 5 - with>. Éric Benhamou, ‘La justice française assimile le bitcoin à de la monnaie’, LesEchos (Article, 5 March 2020) < 6 https://www.lesechos.fr/finance-marches/banque-assurances/la-justice-francaise-assimile-le-bitcoin-a-de-la-monnaie-1182460>. IOSCO identified similar concerns regarding hard forked and airdropped assets, noting that the creation of entirely new assets may present operational challenges for exchanges and wallet providers: IOSCO, Issues, Risks and Regulatory Considerations Relati 7 ng to Crypto-Asset Trading Platforms, (Final Report, February 2020) 18-9. 8 Competition and Consumer Act 2010^ (Cth) Sch 1 Part 2-^3. However, the UK has recently recognised that cryptocurrency is capable of being property: UK Jurisdiction Taskforce, ‘Legal statement on cryptoassets and smart contracts’ (Statement, November 2019) <https://35z8e83m1ih83drye280o9d1-wpengine.netdna-ssl.com/wp content/uploads/2019/11/6.6056_JO_Cryptocurrencies_Statement_FINAL_WEB_111119-1.pdf>. An Ohio court also recognised that Bitcoin was property in the context of a homeowner’s insurance policy: Kimmelman v. Wayne Insurance Group 18 CV 1041 (Ohio CV, 2018).

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be examined. Secondly, unjust enrichment’s focus on the defendant’s gain rather than the plaintiff’s loss may allow for a claim in restitution where an inability to prove loss precludes a claim in a loss-based cause of action. In exploring these issues, this paper will attempt to clarify this often-misunderstood area of the law by articulating how to best plead a claim for unjust enrichment. This paper posits that, in some circumstances, parties that retain the proceeds of hard forks and airdrops may be liable for restitution in unjust enrichment. To reach this conclusion, this paper first begins by providing a technical explanation of cryptocurrency, proof-of-work consensus, and hard forks and airdrops, before explaining how these events generate assets. Secondly, this paper introduces a hypothetical scenario involving Emma, a crypto enthusiast whose cryptocurrency is subject to a generative event (either a hard fork or airdrop), with CryptoStorage, a cryptocurrency wallet provider, introduced to explore the legal relationships between the parties. Thirdly, this paper offers a brief historical account of unjust enrichment, analysing the current Australian law and exploring the bars that may prevent a claim. After identifying free acceptance as the most suitable cause of action, this paper then discusses what constitutes a benefit under the law of unjust enrichment, including whether cryptocurrency can be considered a benefit and whether the proceeds of a hard fork or airdrop can be considered to flow from the defendant to the plaintiff. Finally, a short discussion of the law surrounding free acceptance and its application to the proceeds of a generative event leads to this paper’s ultimate conclusion that unjust enrichment under Australian law may be applicable in some cases where a generative event occurs and the resulting benefit is retained. Due to the developing nature of cryptocurrency technology, this paper relies on grey literature where necessary.

II TECHNICAL BACKGROUND

A What is Cryptocurrency?

Cryptocurrency is an intangible asset that relies on a method of security called public key cryptography to securely facilitate an exchange of value between parties without the need for a trusted third-party intermediary.^9 Cryptocurrency’s public key cryptography is supported by public key infrastructure, which uses two distinct keys to encrypt and decrypt data:^10 a public key and a private key.^11 By its nature, a public key is publicly available,^12 as is the origin and amount of cryptocurrency in a wallet. The private key is kept private and is used to access the cryptocurrency associated with the public key; without it cryptocurrency cannot be accessed

(^9) ‘Ledger’ refers to the record of transactions held by each validating participant, or ‘node’, in a blockchain system. See Arvind Narayanan et al (n 1 ) Ch 1; Financial Stability Board, Crypto-asset markets: Potential channels for future financial stability implications 10 (Report, 10 October 2018) 3. 11 A key is a string of alphanumeric characters that, in effect, act as a password. See generally:^ Arvind Narayanan et al (n^1 ) Ch 4. See generally Jean-Philippe Aumasson, Serious Cryptography: A Practical Introduction to Modern Encryption (No Starch Press,

2017. Ch 1. 12 Narayanan et al (n 1) Ch 4.

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or controlled.^13 An apt analogy is a postbox; the slot acts as the public key, with anyone allowed to send information into the postbox. However, only the individual that possesses the correct (private) key can open the postbox and read the letters within.^14

Public key cryptography has two modes of operation: encryption and authentication.^15 As the latter is the more relevant mode for the purposes of this paper, the encryption mode will not be discussed in further detail. Authentication prevents the unauthorised alteration of messages transmitted on a public channel, ensuring the legitimacy of the message’s contents.^16 As it is impossible to encrypt data with a public key and decrypt that same data with another public key,^17 key pairs can authenticate the identity of a cryptocurrency’s owner.^18 In Emma’s case, the authentication mode of operation allows the network’s participants to verify that she made a valid transaction, as shown in Figure One.

Figure One: Authentication Using Public Key Infrastructure on the Bitcoin Blockchain

(^13) Narayanan et al (n 1) Ch 4. (^14) Mark Van Rijenam and Philippa Ryan, Blockchain: Transforming Your Business and Our World (Routledge, 2019) 15. (^15) Whitfield Diffie and Martin E Hellman, 'New Directions in Cryptography' (1976) 22(6) IEEE Transactions on Information Theory 16 644, 645; Bruce Schneier, Applied Cryptography: Protocols, Algorithms and Source Code in C (Wiley, 2015) Ch 1.1. 17 Diffie and Hellman (n^15 ) 645. 18 Rijenam and Ryan (n^14 ) 15. Ibid.

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Cryptocurrency’s peer-to-peer nature removes reliance on intermediaries to facilitate transactions.^19 Instead, other participants verify transactions using cryptographic proofing mechanisms such as Bitcoin’s proof-of-work.^20 Proof-of-work is designed to prevent users from double-spending Bitcoin by creating a single mathematically verifiable source of truth that is difficult to falsify and simple to verify.^21 Within a proof-of- work network each of the nodes hold an identical copy of the ledger on which transactions are recorded. As demonstrated in Figure Two, when transactions are made, they are sent to the network’s nodes who, after compiling them into one-megabyte blocks, compete to add the block to the blockchain by performing complex calculations.^22 The successful node will add their block to the blockchain. Other nodes then verify the block and indicate their acceptance by building on top of it.^23 Nodes will always consider the longest chain to be the correct chain, and therefore the true representation of transactional history.^24

Figure Two: Proof-of-work Consensus on the Bitcoin Blockchain

(^19) Satoshi Nakamoto, 'Bitcoin: A Peer-to-Peer Electronic Cash System', Bitcoin (White Paper, 31 October 2008) 1, 3 https://bitcoin.org/bitcoin.pdf. 20 21 Ibid. 22 Narayanan et al (n^ 1) 38-40, 55-9. Raphael Auer, 'Beyond the doomsday economics of "proof-of-work" in cryptocurrencies' (Working Paper No 765, Bank for International Settlements, 21 January 2019) 6. 23 24 Nakamoto (n^19 ) 3. This analysis is specific to Bitcoin, not all proof-of-work systems function in this way. Ibid.

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B What Is a Cryptocurrency Wallet?

The terms “wallet” and “public key” are often used interchangeably, however, the wallet is the address to which transactions are directed and recorded against on the blockchain’s ledger. The popularity of cryptocurrency amongst non-professional investors has meant that, increasingly, wallet services are being provided by intermediary “Wallet Providers”, such as Coinbase.^25 These are popular services that allow the generation of a cryptocurrency wallet without needing the required technical knowledge or expertise. Instead of a user holding their own key pair, their cryptocurrency is stored using the Wallet Provider’s key pairs. The user is generally not given access to the private key, meaning that the Wallet Provider is in complete control of the cryptographic assets in their possession. The user, generally through a web-interface, directs the Wallet Provider as to where they want their cryptocurrency sent. However, particularly in the case of coins that are the result of a hard fork or an airdrop, the Wallet Provider may exercise its discretion as to whether users are provided access. The following sections will explain hard forks and airdrops, and how they generate assets.

C What Is a Hard Fork?

A hard fork occurs when there is a dispute between blockchain participants as to that blockchain’s ledger. As demonstrated in Figure Three, this disagreement can cause the chain to “fork”, creating a simultaneous but distinct ledger.^26 An example of this is when Bitcoin Cash was created after Bitcoin’s protocol was altered to support blocks greater than 1 megabyte in August 2017. 27 A hard fork often creates a new cryptocurrency, with individuals holding the old coin (Coin A) acquiring the same amount of the new coin (Coin B) if they held Coin A at the time of the fork.^28

(^25) 'Coinbase', (Web Page) https://www.coinbase.com. (^26) Narayanan et al (n 1) 97. (^27) 'UAHF: A contingency plan against UASF (BIP148)', Blog.Bitmain.com (Webpage, 14 June 2017) <https://blog.bitmain.com/en/uahf 28 - contingency-plan-uasf-bip148>. Narayanan et al (n 1) 229-30.

Figure Three: Hard forks

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D What Is an Airdrop?

Airdrops are a method of cryptocurrency distribution whereby cryptocurrencies are manually generated and sent to recipients’ public key addresses.^29 While airdrops are operationally distinct from hard forks, they both result in the allocation of an amount of new coins to a user’s key pair, often with reference to another definable amount of an “old” coin. Platform operators and developers often use airdrops as a promotional tool to advertise and distribute coins, or as a means to launch blockchain main nets.

In this paper, the coins created as a result of hard forks and airdrops (together known as “Generation Events”) will be referred to as “Generated Coins”.

III THE SCENARIO

Emma recently purchased some Cryptobucks, a new cryptocurrency, and has decided to store them with CryptoStorage, a Wallet Provider who is incorp orated in and subject to the laws of Australia. By using CryptoStorage’s services, Emma is bound by the terms of the User Agreement, which are identical to that of Coinbase’s.^30 On 14 October 2019, Emma transferred her Cryptobucks to CryptoStorage, hoping to keep it secure so she can realise its value in the future. The Cryptobucks are transferred to CryptoStorage and recorded against their key pair in the blockchain’s ledger. On 17 October 2019, a Generation Event (either a hard fork or an airdrop) occurred, resulting in the creation of an equal amount of Generated Coins to the amount of Cryptobucks held. These Generated Coins were recorded against CryptoStorage’s key pair, giving them complete control over the assets. On 20 October 2019, Emma requested CryptoStorage provide her access to her Generated Coins; CryptoStorage refused. The success of an unjust enrichment claim relies on the existing legal relationships between the parties. In this instance, the legal relationship between Emma and CryptoStorage is presumed to be contractual and governed by the User Agreement. However, for the purposes of this paper, the legal issues relating to unjust enrichment will be discussed without consideration of the contract.

(^29) Tamer Sameeh, 'An Introduction to EOS Air Drops', Cointelligence (Article, 19 June 2018) <https://www.cointelligence.com/content/eos 30 - airdrops-list>. 'Coinbase User Agreement', Coinbase (Webpage, March 2019) cls 5.15-5.16 https://www.coinbase.com/legal/user_agreement.

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IV UNJUST ENRICHMENT

The following section demonstrates that unjust enrichment itself is neither a cause of action nor the source of restitutionary liability in Australia. Instead, liability and the requisite elements to be pleaded arise from the unjust factor. However, this section also notes that facts relevant to the cause of action may be pleaded using the Birksian framework; a framework increasingly adopted by lower courts and academics. This paper then provides an analysis of the bars that Emma may encounter in her claim, finally concluding that a claim may be available where the underlying User Agreement is void, unenforceable or entirely absent, or the Generated Coins are conferred outside the scope of its terms. Originally developed through a synthesis of the four restitutionary common counts and the Roman law of quasi-contract (more commonly referred to as implied contract),^31 unjust enrichment has been the subject of recent and significant judicial revision. The common counts have been abolished, often cited as being unhelpful in a pleading of unjust enrichment,^32 and the theory of implied contract was abandoned by the High Court of Australia in its judgement Pavey & Matthews Pty Ltd v Paul (‘Pavey & Matthews’).^33 Here, the Court considered that the obligation to make restitution stems not from implied contract, but an independent obligation imposed by the law in an effort to prevent unjust enrichment.^34 The Court held that unjust enrichment is not a cause of action but a ‘unifying legal concept’ that explains the reason obligations are imposed when individuals are unjustly enriched at another’s expense.^35 Unjust enrichment also assists in determining whether obligations should be imposed in new or developing categories of cases, and serves a taxonomical function similar to the categories of torts or contracts.^36

It is important to note that, in Australia, the elements of the cause of action for an unjust enrichment claim are that of the unjust factor,^37 and not the elements of what is commonly referred to as the Birksian framework.^38 Developed by Professor Peter Birks, the framework’s purpose was to unify common underlying elements of the restitutionary causes of action. In doing so, the framework sets out three broad enquiries for

(^31) The four common counts, also known as the forms of action, are: Money had and received; money paid; quantum meruit and quantum valebat. See: Kit Barker and Ross Grantham, Unjust Enrichment (LexisNexis, 2nd ed, 2017) 2-4; Moses v Macferlan (1760) 2 Burr 1005 (' 32 Moses v Macferlan'). Peter Birks, An Introduction to the Law of Restitution (Clarendon Press, rev ed, 1989) 34 - 5; Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, 252 (' Pavey & Matthews'); Australian Financial Services and Leasing Pty Limited v Hills Industries Limited (2014) 253 CLR 560, [111] (' AFSL'); Baltic Shipping Company v Dillon (1993) 176 CLR 344, 376; TSW Analytical Pty Ltd v University of Western Australia [2017] WASCA 67, [96]-[105] (' TSW'); Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd (No 3) 33 [2014] WASC 162, [45]-[55], [94]-[96] (' Lampson'). 34 Pavey &^ Matthews^ (n^32 ). 35 Ibid 255-257. 36 Ibid 256. Ibid; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269, [86]-[89] (Gummow, Hayne, Heydon, Kiefel and Bell JJ) (' Bofinger'); AFSL 37 (n 32 ) [138]; Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498, [29]-[30] (' Equuscorp'). 38 David Securities Pty Ltd v Commonwealth Bank of Australia^ (1992) 175 CLR 353, 379 ('^ David Securities'). This needs to be made clear as many unjust enrichment textbooks and lower court judgements favour the elements of the Birksian framework rather than the elements of the unjust factor.

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a pleading of unjust enrichment, with restitutionary liability triggered by the unjust factor.^39 The enquiries of the Birksian framework are that: the defendant must be enriched by a benefit; the enrichment must be at the expense of the plaintiff; and the enrichment must be unjust. The courts will also have regard to the rights afforded to the defendant and the availability of a defence.^40

In the United Kingdom (UK), the Birksian framework provides the elements for a pleading of unjust enrichment,^41 with restitutionary liability triggered by the unjust factor.^42 This paper considers the framework relevant to Australia for two reasons. Firstly, the framework greatly simplifies the pleading process, and necessarily moves away from reliance on the now abolished common counts. Secondly, the UK’s acceptance of the framework may influence the future development of Australia’s unjust enrichment jurisprudence, particularly considering that Justice Edelman, a proponent of the framework, is sitting on the High Court.^43

In Australia, the High Court has acknowledged that the framework enjoys a ‘general acceptance’, but has not provided explicit support.^44 However, the High Court has endorsed the framework’s individual components including that:^45 a benefit be made at the expense of another;^46 a qualifying or vitiating factor is present;^47 there is no defence to the claim;^48 and that a reduction in the plaintiff’s wealth is enough to establish that an enrichment has been ‘at the expense of the plaintiff’.^49 Inferior courts have also provided considerable support for the framework.^50

The existence of an agreement between Emma and CryptoStorage is relevant to the success of an unjust enrichment claim. This is because unjust enrichment has a ‘gap-filling and auxiliary role’,^51 meaning

(^39) Barker and Grantham (n 31 ) 11; Benedetti v Sawiris [2013] UKSC 50, [10] (Lord Clarke); Banque Financière de la Cité v Parc (Battersea) Ltd 40 [1999] 1 AC 221, 227. 41 Ibid. 42 Barker and Grantham (n^31 ) 11;^ Benedetti v Sawiris^ [2013] UKSC 50, [10] (Lord Clarke). 43 Banque Financière de la Cité v Parc (Battersea) Ltd^ [1999]^ 1 AC 221, 227. 44 See generally:^ James Edelman and Elise Bant,^ Unjust Enrichment^ (Oxford and Portland, 2nd ed, 2016). Kirby J has expressed that the Birksian framework enjoys ‘general acceptance’: Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 45 n 229 (' Roxborough'). Kit Barker, 'Unjust Enrichment in Australia – What is(n’t) it? Implications for Legal Reasoning and Practice' (2020) 43(3) Melbourne University Law Review (forthcoming) 12; Keith Mason, 'Strong coherence, strong fusion, continuing categorical confusion: The High Court’s latest contributions to the law of restitution' (2015) 39 Australian Bar Review 284, 311-12; Equuscorp (n 46 36 ) [30]; AFSL (n 32 ) [20], [130]-[142]. 47 Pavey & Matthews^ (n^32 ) 255-56. 48 In Australia, the High Court refers to unjust factors as vitiating or qualifying factors. David Securities (n 37 ) 379; Farah Construction Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, [150] (' Farah'); Bofinger (n 36 ) [89]. 49 Roxborough (n 44 ) citing Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd (1994) 182 CLR 51, 75 (Mason CJ) (' 50 Royal Insurance'). Barker (n 45 ) 12, n 88; Lampson (n 32 ) [51]; Southage Pty Ltd (ACN 050 240 965) v Vescovi [2015] VSCA 117, [48]-[49] (Warren CJ, Santamaria JA and Ginnane AJA) (' Vescovi'). It must be noted that the High Court has expressed caution due to the dangers of the framework’s ‘top-down reasoning’. See: Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 [77] (' Lumbers'): The Court held that the framework could result in the pleading of irrelevant facts, or an extension of liability beyond what the circumstances would warrant 51. Roxborough (n 44 ) 545 (Gummow J).

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where there is a claim in another area of law, such as in contract under the User Agreement, it will generally take priority.^52 There is also an assumption that, for Emma to bring an unjust enrichment claim, the User Agreement must be void or unenforceable.^53 This is a concern for courts, as the User Agreement could give CryptoStorage a right to the Generated Coins,^54 and courts are hesitant to shift the allocation of contractual risk.^55 However, the existence of a contract is not a prima facie bar to an unjust enrichment claim. For example, in Roxborough v Rothmans of Pall Mall Australia Ltd (‘ Roxborough’), the plaintiff was awarded restitution despite there being a validly existing contract because the reason that the benefit was conferred on the defendant was not considered by the contract and a term could not be implied.^56 A similar decision was made in Steele v Tardiani.^57 In that case, Steele employed Tardiani to cut timber according to certain specifications. Tardiani did not follow these specifications, so Steele did not pay the entire contract price. This was despite Steele inspecting the wood and failing to notify Tardiani that they were not cut to specification. Steele subsequently sold the improperly cut wood, claiming he had no use for it.^58 The High Court held that despite the existence of a valid agreement between the parties, the plaintiffs could recover in implied contract (or in modern terms, under unjust enrichment) as the benefit conferred was beyond the contract’s scope.^59 This may be relevant where an agreement between a user and Wallet Provider does not contemplate Generation Events or Generated Coins.

Therefore, a claim in unjust enrichment may be available where the User Agreement is ineffective, unenforceable, or entirely absent, or where the Generated Coins are conferred outside of the User Agreement’s scope, such as where a Generation Event has not been contemplated by the User Agreement’s terms. A claim may be precluded where a valid agreement exists that governs Generation Events and Generated Coins between Emma and CryptoStorage.^60 However, such a conclusion depends on whether a court would interpret the User Agreement as either excluding liability for a Generated Event or in respect of Generated Coins, or conferring a right on CryptoStorage for the Generated Coins. It is also important to

(^52) Mann v Paterson Constructions Pty Ltd [2019] HCA 32, [30] (Kiefel CJ, Bell and Keane JJ) (‘ Mann’); Barker and Grantham (n 3153 ) 63-72. 54 Barker and Grantham (n^31 ) 270. In relation to the User Agreement, there may be an argument that an exclusion of liability for Generated Coins is not an explicit right to retain them. See: 55 Edelman and Bant (n 43 ) 166 - 67. Mann (n 52 ) [14] (Kiefel CJ, Bell and Keane JJ); Brenner v First Artists' Management Pty Ltd [1993] 2 VR 221, 260- 61 (' 56 Brenner'). In Roxborough, a fee on cigarettes imposed by statute was found to be unconstitutional, so a restitutionary award was granted for the value of the fee. See: 57 Roxborough (n 44 ) [60], [162], [199]. 58 (1946) 72 CLR 386 ('^ Steele v Tardiani'). 59 Ibid 386-87. Ibid 393 (Latham CJ), 402 (Dixon J) citing Steven v Bromley & Son (1919) 2 KB 722, 727 (Scrutton LJ); Lumbers (n 50 ) [51]; Mann 60 (n 52 ) [14]. Lumbers (n 50 ) [45]-[48], [79]-[80].

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consider whether relevant provisions under the User Agreement are void under the ACL’s unfair contract regime. Another important consideration is that a loss-based claim may be precluded as cryptocurrency’s speculative nature makes it difficult to prove loss.^61 Here, there may be an argument that a restitutionary award should be available in instances where the plaintiff cannot prove they suffered a loss, but can demonstrate that the defendant enjoyed a gain. There is little relevant case law in relation to this point. In the English case of Surrey County Council v Bredero Home Ltd,^62 the plaintiffs brought a claim for breach of contract where they suffered no loss. They argued that the existence of a gain made by the defendant should allow for a restitutionary award. The Court was unwilling to extend restitution to breach of contract, claiming that to make restitutionary awards available solely because the plaintiff is precluded from other remedies may discourage certain economic activity and be against the public interest.^63 Although this case involved a breach of contract not unjust enrichment, and is merely persuasive in the Australian context, it may nevertheless indicate judicial hesitation to award restitution where there is no loss.^64

Therefore, Emma must plead the elements of the unjust factor when making an unjust enrichment claim, and may do so using the Birksian framework, provided the facts relevant to the unjust factor are pleaded.

V PLEADING UNJUST ENRICHMENT

In order to plead unjust enrichment, Emma will need to establish an unjust factor. This creates an actionable claim and demonstrates vitiation or qualification of her intention to enter into the transaction with CryptoStorage, which in this case, is Emma’s transferal of CrytoBucks.^65 However, determining whether an enrichment is unjust is not an exercise of judicial discretion but an analysis of recognised unjust factors.^66 In Emma’s case, the most suitable unjust factor is free acceptance, which Lord Goff and Professor Jones first conceptualised to explain cases where restitutionary awards were granted in the absence of a request for the benefit.^67

Free acceptance is a suitable cause of action which allows one to focus on the CryptoStorage’s unconscionable retention of the Generated Coins (for which there was no request), instead of focusing on the

(^61) Barker and Grantham (n 31 ) 63-72. However, overlap between unjust enrichment and torts is uncommon, as the commission of a tort rarely confers a benefit: Keith Mason, John Carter and Gregory Tolhurst, Mason and Carter's Restitution Law in Australia (LexisNexis Butterworths 3rd ed, 2009) [217]. 62 63 [1993] 1 WLR 1361. 64 Ibid 1370. 65 Due to^ the word limit, a comprehensive analysis^ is beyond the scope of the paper. 66 Farah^ (n^48 ) [150];^ Lampson^ (n^32 ) [94]-[96]. 67 AFSL^ (n 32) [141]. Robert Goff and Gareth Jones, The Law of Restitution (Sweet & Maxwell, 1966); Edelman and Bant (n 43) 129.

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integrity of Emma’s decision to enter into the transaction. The integrity of Emma’s decision would otherwise be the focus of other unjust factors such as mistake, compulsion, total failure of consideration, coercion, and defects in personal capacity.^68

The elements of free acceptance will be satisfied if the defendant:^69 is conferred a benefit by the plaintiff that they knew was not gratuitous; and fails to take an opportunity to reject the benefit.

The following analysis will use the Birksian framework to identify relevant facts that support Emma’s free acceptance claim. The framework provides a clear and effective method of organising a claim (provided the elements of the unjust factor are satisfied).^70

A Benefit

The first question is whether Generated Coins can constitute a benefit for the purposes of an unjust enrichment claim. A benefit under unjust enrichment can be tangible or intangible, and can be anything of value, as determined from the perspective of the recipient.^71 Additionally, a benefit must be requested or accepted for a court to consider it to have enriched a party.^72 Unjust enrichment cases typically categorise benefits as being either monetary, or non-monetary, referring to the retention of money and the receipt of a service respectively. This dichotomy presents a problem where Generated Coins are neither money, nor a service. However, Generated Coins can have a value denoted in fiat currency, provided they are being traded on some kind of market. Therefore, the question becomes whether having a monetary value is enough to constitute a monetary benefit for the purposes of a benefit under unjust enrichment.

Classifying Generated Coins as a monetary benefit is important as monetary benefits are generally regarded as being incontrovertibly beneficial.^73 The incontrovertible benefit principle states that where a benefit is conferred that no reasonable person can deny, acceptance of that benefit is presumed and operates where no request for a benefit has been made.^74 This is relevant to Emma’s claim, as CryptoStorage made no request for the Generated Coins. In instances where no request is made, proof of acceptance is required, as

(^68) Birks, An Introduction to the Law of Restitution (n 32 ) 265; Barker and Grantham (n 31 ) 110; John Carter and Gregory Tolhurst, 'Acceptance of Benefit as a Basis for Restitution' (2002) 18 69 Journal of Contract Law 52, 54. 70 Lampson^ (n^32 ) [59];^ Birks,^ An Introduction to the Law of Restitution^ (n 32) 265-93;^ Edelman and Bant (n^54 ) 129. 71 Lampson^ (n^32 ) [51]-[52]. John Carter, Keith Mason, Greg Tolhurst, Mason and Carter’s Restitution Law in Australia (LexisNexis, 3rd ed, 2016) 55 ; Brenner (n 72 55 ) 258-60. Damberg v Damberg [2001] NSWCA 87, [187] (' Damberg'). It should be noted that Birks argues that free acceptance serves a dual purpose of proving both an unjust factor and acceptance of a benefit, however, the position of this is unclear in Australia. See: Birks, An Introduction to the Law of Restitution (n 32 ) 114-15; Andrew Shelton & Co Pty Ltd v Alpha Healthcare Ltd [2002] VSC 248, [96] 73 - [97] (‘ Andrew Shelton’). 74 Lumbers^ (n^50 ) [75], fn 26. W Cook Builders v Lumbers [2007] SASC 20, 442, [70] (' W Cook Builders'). Although this case was overturned on appeal, it does not appear that the High Court disagreed with the Full Court’s characterisation of an incontrovertible benefit: Lumbers (n 50 ) [75], fn 26.

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courts are unwilling to impose liability ‘upon people behind their backs.’ 75 Therefore, if the Generated Coins are considered a monetary benefit, their retention by CryptoStorage presumes acceptance irrespective of whether they were requested.

Whether a benefit is monetary in nature is generally uncontentious. As a result, there is little authority that discusses what constitutes a monetary benefit. English courts have considered money, in the context of monetary benefits, to be an asset which is a ‘universal medium of exchange’, receipt of which presents no difficulty in ascertaining the amount to be repaid.^76 Justice Edelman, extrajudicially, considers monetary benefit to be restricted to ‘only the most liquid forms of exchange: notes and coins, instantly accessible bank debts due to a plaintiff’.^77 It is unclear whether an Australian court would reach the conclusion that a Generated Coin constitutes a monetary benefit. The Reserve Bank of Australia regards money as being a good store of value, medium of exchange and unit of account.^78 Relevantly, under both the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), and A New Tax System (Goods and a Services Tax) Act 1999 (Cth), cryptocurrency may be considered ‘digital currency’ rather than money.^79 Ultimately, whether the Generated Coins can be considered money for the purposes of being a monetary benefit is a question of fact. Where the Generated Coins do not bear the above characteristics, it may be difficult to argue that they can constitute a monetary benefit.

However, there is an argument that where Generated Coins themselves cannot be considered money, they may nevertheless be incontrovertibly beneficial where they are capable of being realised into money. In Marston Construction Co Ltd v Kigass Ltd,^80 the plaintiffs tendered for a contract to build a factory for the defendant.^81 The plaintiffs performed preparatory designs and working drawings which exceeded the costs of the tender. Despite assurances made by the defendants, the plaintiffs were never awarded the contract. The plaintiffs sued the defendants for unjust enrichment. The preparatory work was considered a potential benefit to the defendants as they had the option to realise it by building a factory.^82 While this case does not concern

(^75) Falcke v Scottish Imperial Insurance Company (1886) 34 Ch D 234, 248; Lumbers (n 50 ) 663 (Gummow, Hayne, Crennan and Kiefel JJ). 76 BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783, 799 (' BP Exploration'). Outside of England, a French tribunal, while not a definitive judgment by any means, recently made a decision in respect of a Bitcoin loan (previously referred to above), which held that Bitcoin is fungible, and should be considered money. 77 78 Edelman and Bant (n 43) 55. ‘Money in the Australian Economy’, Reserve Bank of Australia (Article, September 2018) https://www.rba.gov.au/publications/bulletin/2018/sep/money-in-the-australian-economy.html; ‘Submission to the Inquiry into Digital Currency’, Reserve Bank of Australia (Submission, November 2014) 8 < 79 https://www.rba.gov.au/publications/submissions/financial-sector/pdf/inquiry-digital-currency- 2014 - 11.pdf>. Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) s 5 (definition of ‘digital currency’); A New Tax System (Goods and a Services Tax) Act 1999 80 (Cth) s 195-1 (definition of ‘digital currency’). 81 Marston^ Construction Co Ltd v Kigass Ltd^ [1989] 15 ConLR 116, 128-30 (Bowsher J). 82 Ibid 116. Ibid 129.

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realising a benefit into money, it demonstrates that actual benefit may not be necessary to prove enrichment, and that a potential benefit that is readily realisable is sufficient.^83

Therefore, it is arguable that, where Generated Coins can be realised into fiat currency, their distinction from a monetary benefit is arbitrary. Generated Coins may be considered similar to a stock or derivative; not money, but representations of value realisable into money.^84 Whether Generated Coins are readily realisable is a question of fact, with a Court likely to consider CryptoStorage’s ability to realise the Generated Coins with reference to their resources, control over the asset, knowledge of the market, and access to cryptocurrency markets.^85 Should this be the case, then it would be open for Emma to argue that retention of Generated Coins would be a benefit that no reasonable person could deny.^86

B At the Plaintiff’s Expense

This section characterises ‘at the expense of the plaintiff’ not as a question of loss or expense, but as one of causation, referring to whether the benefit flowed from the plaintiff to the defendant. Through analysis of relevant case law, this paper concludes that conferral of the Generated Coins was at Emma’s expense, as they were only conferred upon CryptoStorage because of the initial transfer.

A common criticism of the Birksian framework is that it implies that the plaintiff must bear an expense.^87 The High Court in Roxborough rejected this argument, finding that a reduction in the plaintiff’s wealth was enough to demonstrate that the enrichment was indeed at their expense.^88 References to “at the plaintiff’s expense” are not in relation to loss, but refer to the causal connection between the defendant’s gain and the injustice to the plaintiff.^89 This is similar to principles in tort and contract where the loss must be caused by the tort or breach of contract,^90 with the “but for” test equally applicable.^91 Generally, the benefit on which unjust enrichment cases focus is the initial benefit, such as money that is mistakenly sent to another. However, the scenario presents a unique fact pattern where the benefit

(^83) Marston Construction Co Ltd v Kigass Ltd [1989] 15 ConLR 116, 118 (Bowsher J). Gleeson CJ in Lumbers also appeared to assume that the product of a service, in this case a property, could constitute a benefit where that end product is realizable: Michael Bryan, 'Lumbers V W Cook Builders Pty Ltd (in Liq): Restitution for Services and the Allocation of Contractual Risk' (2009) 33(1) Melbourne University Law Review 84 323, fn 23; Lumbers (n 50 ) 657. The similarity is only to the extent that they are representations of value, whilst also not being strictly ‘monetary’ in nature. It is acknowledged that cryptocurrency is not necessarily legally the same as a stock or derivative. 85 86 Edelman and Bant^ (n 43) 73. Demonstrating that the Generated Coins are realisable and have an objective value can also strengthen a free acceptance claim. See: 87 Andrew Burrows, The Law of Restitution (Butterworths, London, 1st ed, 1993) 8-9. 88 Ian Jackman,^ The Varieties of Restitution^ (The Federation Press, 2nd ed, 2017) 8-12. 89 Roxborough^ (n^44 ) [26] (Gleeson CJ, Gaudron and Hayne JJ) citing^ Royal Insurance^ (n^49 ) 75 (Mason CJ). 90 Barker and Grantham (n^31 ) 112. 91 Ibid. Ibid 112-13.

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conferred is not the asset that is initially transferred. The asset initially transferred is the Cryptobucks, sent by Emma to CryptoStorage. The benefit is the Generated Coins that materialised after the transfer. Despite the benefit not being one that was conferred by the initial transfer, it should be considered causally connected as the Generated Coins were only conferred on CryptoStorage because of the initial transfer.

On this point, Birks argues that in circumstances where money is used to make a profit, the restitutionary award should include that profit.^92 This was the case in FC Jones (Trustee in Bankruptcy) v Jones, where the Court held that money taken from a trustee in bankruptcy and used to make a profit by speculating on futures should be returned, along with the profit made on the futures.^93 Similarly, Foskett v McKeown held that trust monies paid (in breach of trust) for the benefit of another,^94 in this case for insurance premiums that resulted in a lump sum payout, were recoverable proportional to the amount paid for the premium.^95 This judgment has been affirmed in the Federal Court of Australia.^96

These cases demonstrate that fruits of an enrichment ought to be returned alongside the initially transferred asset. An analogy can also be drawn between Generated Coins and interest, where the Generated Coin is interest (albeit in the form of an entirely separate asset) accrued by virtue of the Cryptobucks. However, Generated Coins are a distinct asset class in this respect. Interest is generated through economic mechanisms within a given account, while Generated Coins are, in effect, materialised from nothing as a result of a Generation Event. Applying the ‘but for’ test, the Generated Coins would not have been allocated to CryptoStorage’s key pair but for the transaction that initially moved Emma’s Cryptobucks into its possession. Therefore, it is arguable that the Generated Coins were conferred at Emma’s expense. If Emma had not transferred the CryptoBucks to CryptoStorage, she would have possession of the Generated Coin.

VI THE UNJUST FACTOR OF FREE ACCEPTANCE

While free acceptance has seen support in England,^97 Australian courts are yet to determine whether free acceptance is recognised as an unjust factor.^98 The leading Australian authority on free acceptance is Lumbers v W Cook Builders Pty Ltd (in liq) (‘ Lumbers’).^99 Here, Lumbers engaged with W Cook & Sons Pty Ltd

(^92) Peter Birks, Unjust Enrichment (Oxford University Press, 2nd ed, 2005) 82. (^93) FC Jones (Trustee in Bankruptcy) v Jones [1997] Ch 159. Birks argues that this case should belong to the unjust enrichment taxonomy, as the outcome did not turn on wrongdoing, and could only be explained with reference to unjust enrichment: Birks, Unjust Enrichment 94 (n 92 ) 82. 95 Foskett^ v McKeown^ [2001] AC 102. As the case involved the misapplication of trust property, the court made their decision based on property law and equitable principles, rather than unjust enrichment: Ibid 127, 132. Birks disagrees with this categorisation, arguing that unjust enrichment was as equally placed as property law and equity to resolve the dispute: 96 Birks, Unjust Enrichment (n 92 ) 34-36. 97 Wollumbin Horizons Pty Ltd (in^ liq) v Berry, Re^ [2019] FCA 924;^ Turner v MyBudget Pty Ltd^ [2018] FCA 1407. R (Rowe) v Vale of White Horse District Council [2003] 1 Lloyd's Rep 418, 422, [14] (Lightman J) (' Rowe'); Benedetti v Sawiris [2009] EWHC 1330 (Ch), [574] 98 - [575]. 99 Lampson^ (n^32 ) [56]-[90]. Lumbers (n 50 ).

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(‘Cook & Sons’) to construct a house. Cook & Sons sub-contracted with a related business, W Cook Builders Pty Ltd (‘Builders’) to perform most of the building work without the knowledge or consent of the Lumbers. Builders went into liquidation and claimed against Lumbers for the value of the work done. At first instance and on appeal, Builders argued that Lumbers had freely accepted the benefit of their work. On appeal, the High Court did not expressly reject free acceptance as an unjust factor,^100 instead considering that a claim in unjust enrichment was ineffective as the parties were governed by contract law.^101 However, in a separate judgment, Gleeson CJ appeared to accept that while free acceptance of a service could constitute a benefit, the Lumbers could not have freely accepted work done by Builders as they never had the opportunity to reject it.^102 In Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd (No 3) (‘ Lampson’) , Edelman J ultimately refused to strike out a claim for unjust enrichment based on free acceptance of goods, considering the factor to be arguable in Australia.^103

A Free Acceptance of Goods Given free acceptance is typically applied to services, a relevant consideration is whether it can also apply to goods. There is limited case law in this area. This may be explained by the fact that these cases would generally be governed by contract law,^104 or by other unjust factors such as mistake or total failure of consideration.^105 The Supreme Court of South Australia in Design Joinery & Doors Pty Ltd v IPower Pty Ltd & Anor suggested that classification of a benefit as a good or service is not strictly necessary.^106 Here, the plaintiff alleged that the defendant freely accepted electricity that was transmitted to it. While the Court did not consider free acceptance applicable, it did note that for its purposes it was not relevant to determine whether electricity was a good or service.^107 The Court is not clear as to how it came to this conclusion, but it may be based on unjust enrichment’s focus on the substance, not the form, of the benefit.^108 Should this be the case, then the distinction between goods and services for the purposes of free acceptance is arbitrary. However, as this argument is only supported by a footnote in a single judgment, this paper will examine several cases that apply free acceptance to goods. It is arguable that the case of Steele v Tardiani considered free acceptance of goods.^109 The High Court held that since the contract was not substantially performed, the respondents had

(^100) Lampson (n 32 ) [78]-[90]. Edelman J noted in Lampson that if the Court in Lumbers intended to reject the unjust factor of free acceptance, then reference would have been made to Liebe v Molloy [1906] HCA 67 , which Edelman J argues was the first pleading of free acceptance in the High Court of Australia 101 : Lampson (n 32 ) [62]-[63]. 102 Ibid 654-657 (Gleeson J), 671-2 (Gummow, Hayne, Crennan and Kiefel JJ). 103 Lumbers^ (n^50 ) 655;^ Bryan (n^83 ) 323. 104 Lampson^ (n^32 )^ [43];^ TSW^ (n^32 ) [105]. 105 Carter and Tolhurst (n^68 ). 106 Ibid 55. 107 Design Joinery &^ Doors Pty Ltd v IPower Pty Ltd & Anor^ [2015] SASC 93. 108 Ibid [103], fn 24. 109 Roxborough^ (n^44 )^ [92]-[95]. Carter and Tolhurst (n 68 ) 57-9.

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no claim in contract. Instead, the Court decided the case based on quantum meruit. Chief Justice Latham stated that ‘where work is done by one party under a special contract, but not according to its terms, the other may refuse to accept it; but if he does accept it and takes the benefit of it, he may be sued for the value in this [common indebitatus] count [for work done].’^110

The specific elements referred to by Latham CJ ⎯ work done, an opportunity to reject, and a failure

to reject ⎯ are precisely the same as those of free acceptance.^111 The Court held that an implied contract, or in modern terms an obligation under unjust enrichment, was formed as Steele had the opportunity to reject the wood during the inspection but failed to do so. This retention of the benefit was considered to constitute acceptance. The importance of this case is that Steele not only freely accepted the benefit of the work done, but freely accepted goods as a benefit by retention, which will be discussed below. Additionally, Debelle J in Re Magarey Farlam Lawyers Trust Accounts (No 3) cites with approval a passage from Birks that refers to the application of free acceptance to goods.^112 Lampson left the possibility open for free acceptance to bepleaded in relation to goods. Birks also argued that, with the rejection of the common counts, whether a benefit is a service or purely monetary should have no bearing on how unjust enrichment is applied.^113 Considering the above authorities, it seems that free acceptance can be applied to goods.

B Free Acceptance of Generated Coins

It is open to argue the unjust factor of free acceptance in Australia in relation to goods through an application of each element of free acceptance. The first element is satisfied as Emma’s request for the Generated Coins would have indicated to a reasonable person in CryptoStorage’s position that the Generated Coins were not conferred gratuitously. CryptoStorage’s conduct in refusing to return the Generated Coins to Emma satisfies the second element. Thus, by retaining the Generated Coins, CryptoStorage freely accepted them.

1 Was the Benefit Conferred Gratuitously?

In Australia, the relevant standard of knowledge as to whether one knew a benefit was conferred gratuitously is one of a reasonable person.^114 Therefore, to establish knowledge, it is necessary for a reasonable person in CryptoStorage’s position to believe that the user conferred the benefit on the defendant gratuitously. In the present case, it is unlikely that a reasonable person in such a position would regard the Generated Coins as being conferred to them gratuitously. There was no positive indication by Emma that CryptoStorage could

(^110) Steele v Tardiani (n 57 ) 393. (^111) Carter and Tolhurst (n 68 ) 59. (^112) Re Magarey Farlam Lawyers Trust Accounts (No 3) [2007] SASC 9, [171]. (^113) Birks, An Introduction to the Law of Restitution (n 32) 449-50. (^114) Brenner (n 55 ) 259, 261; Liebe (n 100 ) 354; W Cook Builders (n 74 ) 423 (Sulan and Layton JJ); Lampson (n 32 ) [80]; Damberg (n 72 ) [192]; Andrew Shelton (n 72 ) [98].

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keep the Generated Coins. Rather, Emma explicitly asked to have the Generated Coins conferred back to her. As it would be difficult for CryptoStorage to reasonably assess whether users are conferring Generated Coins gratuitously on them, it may be the case that this element can only be satisfied where the user makes some kind of indication that they wish to have possession of the Generated Coins.

2 Failure to Reject

The second element of free acceptance considers whether CryptoStorage had an opportunity to reject the Generated Coins and whether that opportunity was taken. This element demonstrates that a failure to reject a benefit amounts to acceptance. Having the opportunity to reject a benefit is essential to the success of a free acceptance claim, as courts are unwilling to impose liability on a party where no opportunity to reject has occurred.^115

The courts place an emphasis on whether an opportunity to reject a service exists, as generally benefits conferred by a service cannot be reversed, such as the construction of a house.^116 However, the same cannot be said for goods, which can often be returned.^117 This distinction means a defendant has an opportunity to reject goods at any time after receipt, provided the goods can be returned. Retention of goods is a failure to reject those goods and satisfies the elements of free acceptance.^118 CryptoStorage had the opportunity to “return” the Generated Coins to Emma at any time as they had complete control over the requisite key pair. The term “return” may cause confusion as Emma never had possession of the Generated Coins. Here, the term “return” refers to transferring the Generated Coins from CryptoStorage to Emma. CryptoStorage’s decision to retain the Generated Coins, instead of returning them at Emma’s request, constituted a failure to reject the benefit.

In conclusion, the two elements of free acceptance are satisfied by Emma’s request to have the Generated Coins returned and CryptoStorage’s subsequent conduct. However, an argument of free acceptance is not without its difficulties. For example, CryptoStorage may argue that passive retention should not equate to acceptance of the Generated Coins. They may also argue that, by imposing liability to return all Generated Coins to users, the courts would be interfering with the commercial efficacy of CryptoStorage’s business. Hard forks and airdrops occur on a frequent basis across the market, and it may be logistically difficult to facilitate the infrastructure required to support these new assets and ensure that each user gains access to them in a timely manner. Due to its speculative nature, plaintiffs may further encounter difficulties in valuing Generated

(^115) Lumbers (n 50 ) [53]. (^116) Ibid. (^117) BP Exploration (n 76 ) 799. (^118) Steele v Tardiani (n 57 ); Weatherby v Banham (1832) 172 ER 950; Cressman v Coys of Kensington (Sales) Ltd [2004] EWCA Civ 47.

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Coins as the value of cryptocurrency is volatile. The absence of a market price may make it difficult to objectively value Generated coins, as a new market is formed upon their creation.

VII CONCLUSION

What is unique about the scenario considered in this paper is that Generated Coins are created without any input from the parties to a transaction, as opposed to being created through a Generation Event authorised by the network’s users. This can result in parties coming into possession of assets that may not have been contemplated by any agreements or transaction documentation.

Unjust enrichment’s application to this novel scenario is clear. Developed as a means to recover where actions under other areas of law are ineffective, unjust enrichment allows for recovery where an underlying contract does not contemplate the creation of an entirely new asset or where assets are transferred between parties without any agreements. The operation of blockchain technology also creates a unique fact pattern where a Generated Coin is created. In this case, the benefit does not move from Emma to CryptoStorage as it would in a traditional transaction but is instead conferred on CryptoStorage by the actions of the network’s nodes. Even though the benefit does not flow from Emma, she would still be able to recover because unjust enrichment focusses on the enrichment of CryptoStorage at Emma’s expense. Recipients of Generated Coins are also not required to make a request for Generated Coins, and there is not necessarily a vitiating factor that affects a party’s intention to enter into the transaction, such as mistake or total failure of consideration. As the allocation of Generated Coins is, in effect, autonomous, free acceptance allows for recovery by focusing on the unjust retention by CryptoStorage.

This paper also emphasised the relationship between the Birksian framework and Australian unjust enrichment law. There is deep uncertainty within the Australian legal landscape as to the exact nature of this relationship. While the High Court has recently reinforced the auxiliary function of unjust enrichment,^119 it would be of great benefit if the Court were to also clarify unjust enrichment’s relationship with the framework beyond one of ‘general acceptance’.^120 A judgment clarifying the High Court’s position on free acceptance would also prove valuable. Despite this uncertainty, the adoption of the framework by inferior courts, and the current trajectory of UK unjust enrichment law presents a real possibility that the framework may eventually enjoy acceptance by the High Court, particularly with Justice Edelman’s appointment.

The most obvious takeaway from this analysis is that, to avoid uncertainty, it would wise for parties to incorporate terms that clearly contemplate Generation Events and Generated Coins during the provision of custodial services or cryptocurrency products, such as loans. However, as these terms will always be at the

(^119) Mann (n 52 ) [30] (Kiefel CJ, Bell and Keane JJ). (^120) Roxborough (n 44 ) fn 229.

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mercy of the courts and regimes such as the ACL’s unfair contracts regime, a consideration of the application of common law principles is still valuable. Another question that should be considered is whether rights (if any) that are associated with the initial cryptocurrency are also associated with the Generated Coin. For example, were CryptoBucks to grant Emma a right in another asset, or a right to do something, would the creation of the Generated Coins also have given Emma an additional right to those things? This depends on the terms of any underlying agreements; so thought must be given to the drafting of those terms.

As the technology and markets mature over the coming years, cryptocurrency will undoubtedly play a more significant role in the global economy. This necessitates the identification of areas of the law that not only protect vulnerable consumers within the market, but also provide that very market with the confidence and legal certainty required to operate effectively