Ontario Superior Court Of Justice Deals With Delays In Potential “The Code is Law” Cryptocurrency Case

On January 17, 2022, in Cicada 137 LLC v Medjedovic, 2022 ONSC 369, the Ontario Superior Court of Justice (the Court) decided on a procedural issue in relation to a claim by the plaintiff, Cicada 137 LLC (Cicada), that the 19-year old defendant allegedly stole $15 million in cryptocurrency tokens. In the decision, the Court confirmed Cicada’s entitlement to inspect devices seized under an Anton Piller order despite delivery of a notice of motion by the defendant’s parents seeking to set aside the order.

Cicada is a corporation that was created to hold the cryptocurrency interests for several customers of the Index Finance facility. It claims that the defendant stole from its customers when he hacked Index Finance’s systems and induced the transfer of $15 million in cryptocurrency tokens to his Etherium account. The Court granted Cicada an Anton Piller order to search for passwords and other evidence that could lead them to locate and preserve the tokens. Under this order, Cicada seized the defendant’s parents’ electronic devices, which it hoped would reveal information on the defendant’s whereabouts and lead to obtaining the tokens.

The defendant failed to comply with the Court’s order to turn over the disputed tokens for preservation with an independent court officer pending determination of the matter. He also failed to attend court hearings and his whereabouts are unknown.

The defendant’s parents delivered a notice of motion to set aside the Anton Piller order, and proposed to file materials in support. Cicada delayed inspecting the devices after receiving the notice of motion. The parents’ counsel argued that this delay should last until the motion to set aside the order is scheduled and resolved, while Cicada wished to proceed.

The Court disagreed with the argument, finding that it “is self-evident that the subsisting Anton Piller order is not stayed by the delivery of a notice of motion by the parents.” Although the parents provided a notice of motion, it was uncertain when it would be scheduled. The Court concluded that Cicada was entitled to carry out inspecting the seized devices in accordance with the Anton Piller order.

Of particular interest are the Court’s comments on the theory among cryptocurrency academics that, because blockchain technology is based on open source code, “the code is law”. The Court explained that pursuant to this theory users are deemed to accept any risk, including vulnerabilities in the code, when using the technology and are bound by the results of transactions that are conducted within the parameters of the code. The Court further noted that the defendant may argue that his actions were lawful because he merely exploited a weakness in the code, while still remaining within its parameters, to induce the lawful transfer of the cryptocurrency tokens. While the Court raised this issue in the hypothetical, it is not clear whether the potential “code is law” argument will be raised in this action.

Summary By: Imtiaz Karamat