Crypto enforcement: Current developments in case law

The enforcement of debts by drawing on crypto assets remains legally challenging at present due to the lack of specifically tailored legal regulations. The provisions of Regulation (EU) 2023/1114 on markets in crypto assets (Markets in Crypto-Assets Regulation – MiCAR), which will apply by 30 December 2024 at the latest, will provide a comprehensive European regulatory framework for crypto assets. However, there are no specific reform efforts apparent yet in the area of civil procedural law and enforcement law.

As a starting point, it is recognised that crypto assets should not be inaccessible for enforcement of debts, i.e. there is no “flight into crypto assets”. However, the specific means available for enforcement have so far been largely unclear. The first higher court decisions have now provided some direction. A distinction must first be made as to whether creditors are seeking to enforce a monetary claim by drawing on crypto assets or whether they are seeking to enforce a claim for the transfer of crypto assets.

I. Enforcement by drawing on crypto assets on the grounds of monetary claims

If a creditor has obtained a payment title against a debtor whose assets are (also) held in crypto assets, the monetary claim can be enforced by drawing on those crypto assets.

The decisive factor for the legal classification is whether the crypto assets are held by a debtor or a third party, such as a crypto custodian. It is not always possible to easily answer this question because it may depend on the specific structure of the crypto custody, and the contractual details in the relationship between the debtor and the crypto custodian are often beyond the creditor's knowledge. In certain cases, it may therefore be advisable to initially pursue the enforcement of the debtor’s “own” crypto assets along with the enforcement of possible claims against third-party debtors who could hold crypto assets for the debtor.

1. Attachment of the debtor’s “own” crypto assets

If the debtor’s “own” crypto assets are concerned, the legal literature predominantly argues that these crypto assets can be attached as “other property rights” pursuant to or analogously to section 857 in conjunction with sections 829 et seq. of the German Code of Civil Procedure (Zivilprozessordnung). There has not yet been any published case law on this.

In a decision obtained by Noerr (case no. 24 W 36/23) on 6 December 2023, the Berlin Court of Appeal confirmed, evidently for the first time, that crypto assets are attachable like “other property rights” under section 857 of the German Code of Civil Procedure. As there is no third-party debtor regarding the crypto assets, according to the Court of Appeal, the attachment is effected in accordance with section 857(2) of the German Code of Civil Procedure by serving the attachment order on the judgment debtor stipulating that he refrain from disposing of it in any way. Insofar as the private key and other information are required for the realisation of the crypto assets, the debtor is obliged to provide that information in accordance with section 836 (3) of the German Code of Civil Procedure.

If the debtor disregards the attachment order and nevertheless transfers the attached crypto assets to a third party, this may constitute a criminal offence of obstruction of enforcement (section 288 (1) of the German Criminal Code (Strafgesetzbuch)).

2. Attachment of claims for the transfer of crypto assets

If the crypto assets are not allocated to the debtor, but to a third party (“third-party debtor”), an attachment under section 857 in conjunction with section 829 et seq. of the German Code of Civil Procedure may also be considered. The object of the attachment is then not the crypto assets themselves, but the debtor's claim for surrender or transfer of the crypto assets against the third-party debtor.

Unlike the attachment of the debtor’s own crypto assets, the attachment is not effective until the third-party debtor is served (section 857 (1) in conjunction with section 829 (3) of the German Code of Civil Procedure). In practice, this can lead to difficulties because the legal identity of the third-party debtor cannot always be established beyond any doubt and/or the third-party debtor is often domiciled outside Germany, meaning that the attachment order must be served abroad. From the creditor’s perspective, however, enforcement against crypto assets held by third-party debtors is advantageous insofar as the third-party debtor may no longer transfer the crypto assets to the debtor once the attachment has taken place (see section 829 (1) sentence 1 of the German Code of Civil Procedure). If the third-party debtor nevertheless transfers the crypto assets to the debtor, this has no debt-discharging effect vis-à-vis the creditor (see section 829 (1) sentence 1 of the German Code of Civil Procedure).

3. Realisation of crypto assets

Following the attachment, the creditor can apply for the realisation of the attached crypto assets or claims. In general, realisation by private sale (see section 857(5), possibly in conjunction with section 844 of the German Code of Civil Procedure) may be appropriate for this purpose. The enforcement court can order that the crypto assets be transferred to a trust account belonging to the bailiff and then exchanged into euros by the bailiff on any of the common crypto exchanges, which are then paid out to the creditor.

II. Enforcement of claims for the transfer of crypto assets

A different situation arises if the creditor does not seek to enforce a payment title, but instead a title claim that is aimed directly at the transfer of crypto assets. In such cases, it must be clarified whether the transfer of crypto assets is an “action that may be taken by others” (vertretbare Handlung – section 887 of the German Code of Civil Procedure) or an “action that may not be taken by others” (unvertretbare Handlung – section 888 of the German Code of Civil Procedure). The distinction has far-reaching consequences for both creditor and debtor.

In the case of an “action that may be taken by others”, the creditor can apply to be authorised to acquire the crypto assets owed at the debtor’s expense, for example via one of the common crypto exchanges (see section 887 (1) of the German Code of Civil Procedure). At the same time, the creditor can apply for the debtor to make an advance payment for this (section 887 (2) of the German Code of Civil Procedure).

This option is not available to the creditor in the case of an "action that may not be taken by others”. Instead, the creditor is reliant on the cooperation of the debtor, who must hand over the crypto assets to the creditor. In order to enforce the transaction, the debtor can be ordered to pay a penalty payment or be placed in punitive detention (section 888 (1) of the German Code of Civil Procedure). As the penalty payment is limited to €25,000 (section 888 (1) sentence 2 of the German Code of Civil Procedure), it is doubtful whether the penalty payment is still sufficient for enforcement in the case of crypto claims with a higher value, meaning that only detention may be considered. In view of these detriments, it will often be advantageous for all parties involved if the transfer of crypto assets is categorised as an “action that may be taken by others”.

Whether the transfer of crypto assets is an “action that may be taken by others” depends on whether it can also be carried out by a third party (section 887 (1) of the German Code of Civil Procedure). The specific constellations in which this requirement is met in the case of crypto claims have been disputed to date. In the first published decision in this regard, the Düsseldorf Higher Regional Court ruled on 19 January 2021 (case no. 7 W 44/20) that the obligation to transfer crypto assets was an “action that may be taken by others” (section 887 of the German Code of Civil Procedure) in the case in question. In doing so, the Higher Regional Court of Düsseldorf focussed primarily on the fact that it was of no economic significance to the creditor in the case in question as to by whom and how the crypto assets were transferred. Since there were no indications that the crypto assets had to be transferred from the debtor’s wallet, they could also be acquired elsewhere, for example via a crypto platform, according to Düsseldorf Higher Regional Court.

However, Cologne Higher Regional Court recently came to a different conclusion in its ruling on 26 June 2024 (case no. 11 W 15/24) and classified the transfer of crypto assets in the case in question as an “action that may not be taken by others” (section 888 of the German Code of Civil Procedure). The case was based on a trust agreement that specified that the debtor was to hold crypto assets in trust wallets for the creditor. The creditor then obtained a title for the handover of the crypto assets from the trust wallets. Cologne Higher Regional Court held that this specific obligation could not be performed by a third party because only the debtor could access the specific wallets.

The case law to date makes it clear that it is important for subsequent enforcement to clarify, when filing and enforcing crypto claims in court, whether there is a specific interest in receiving the crypto assets from a particular wallet or person. In most instances, this will likely not be the case and only the quantity of the crypto assets will be relevant. In such situations, it may be advisable to emphasise in the claim filing that it does not matter which wallet the crypto assets are transferred from. Alternatively, depending on the circumstances of the case, if the transfer of the crypto assets owed is refused, it may be possible for the claimant to procure them on a crypto exchange instead as a substitute and then obtain a claim for reimbursement of the money required to procure the crypto assets. It is therefore advisable to have the rights and options available in such cases carefully examined from a legal perspective.

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