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[From Singapore Office] Singapore Courts allow digital assets to be protected as “property”

NO&T Dispute Resolution Update

NO&T Asia Legal Review

Author
Kara Quek, Kei Kajiwara, Munetaka Takahashi (Co-author)
Publisher
Nagashima Ohno & Tsunematsu
Journal /
Book
NO&T Dispute Resolution Update No.8/NO&T Asia Legal Review No.71 (November, 2023)
Notes

A PDF file of the bilingual version is also available by clicking on “Download full text (PDF)”. For details on our Dispute Resolution Team at the Singapore Office, please refer to this PDF file.

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*Please note that this newsletter is for informational purposes only and does not constitute legal advice. In addition, it is based on information as of its date of publication and does not reflect information after such date. In particular, please also note that preliminary reports in this newsletter may differ from current interpretations and practice depending on the nature of the report.

Introduction

In recent years, digital assets have been popular targets for investment. However, despite their growing market prevalence, digital assets are still relatively novel to the law. Just last year, the High Court of Singapore decided for the first time the question of whether cryptocurrency may be considered “property”.

Since then, several more cases have come before the Court, requiring it to contemplate the nature of cryptocurrency and other digital assets. This article will explore in brief three such cases:

  • CLM v CLN※1 (“CLM”): Decided that Ethereum, a form of cryptocurrency, could be “property” for the purposes of an interim injunction.
  • Janesh s/o Rajkumar v Unknown Person (“CHEFPIERRE”)※2 (“Rajkumar”): Decided that a non-fungible token (“NFT”) could be “property” for the purposes of an interim injunction.
  • Bybit Fintech Ltd v Ho Kai Xin and ors※3 (“ByBit”): Decided that Tether, a stablecoin,※4 could be “property” capable of being held on trust.

The Singapore Courts’ recognition of digital assets as property will allow owners of digital assets to receive stronger protection for their assets under Singapore law, as certain types of remedies, such as injunctions, are only available to assets that are recognised as “property”. This should provide owners of digital assets with some comfort, as they will be better able to seek appropriate remedies in the event their digital assets are misappropriated, or their property rights otherwise affected.

Why is it important to recognise digital assets as “property”?

At law, when a claimant suffers a wrong, they may seek either: (1) personal remedies; or (2) proprietary remedies. A personal remedy can be enforced against a specific person – for example, a claim for monetary damages.

A proprietary remedy, however, can be enforced against a specific property – for example, an injunction to prevent any persons from dealing with a specified property. Even if the property passes to a third party, the proprietary remedy is still enforceable. For this reason, proprietary remedies are considered more ‘durable’ than personal remedies.

Because a proprietary remedy is enforced against a specific property, if something does not qualify as “property”, the claimant cannot seek a proprietary remedy in respect of it.

Digital assets as “property” under the Ainsworth test

The traditional definition of property is set out in National Provincial Bank Ltd v Ainsworth : property “must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability” (the “Ainsworth test”).※5

In CLM and Rajkumar, the Court found that cryptocurrency and NFTs could be considered property under the Ainsworth test, for the following reasons:※6

  • 1. Cryptocurrencies / NFTs are definable. Cryptocurrencies consist of computer-readable strings of characters recorded on the blockchain, and are distinct enough to be capable of being allocated to an account holder. Similarly, an NFT consists of metadata which is stored on the blockchain, and such metadata distinguishes one NFT from another.
  • 2. Cryptocurrencies / NFTs are identifiable by third parties. The owner of a cryptocurrency / NFT can exclude third parties from using / benefitting from the cryptocurrency / NFT by use of their “private key”, which is required to record transfers from one account to another.
  • 3. Cryptocurrencies / NFTs are capable of assumption by third parties, as evident from the fact that many cryptocurrencies and NFTs are the subject of active trading markets.
  • 4. Cryptocurrencies / NFTs have some degree of stability, as they are hosted on the blockchain.

The nature of digital assets as “property”

At common law, besides satisfying the Ainsworth test, property must also fall into one of two categories: (a) a physical asset; or (b) a chose in action. It is clear that digital assets are not physical assets as they are not tangible. However, whether they may be considered choses in action is more controversial, as traditionally a chose in action is a right enforceable by (court) action against a counterparty, such as a right to be paid money. It is unclear if digital assets, having no direct counterparty, can be considered a chose in action. If they cannot be considered a chose in action, it would be difficult to properly consider them “property” under common law.

In CLM and Rajkumar, the Court skirted this issue and merely applied the Ainsworth test. It was able to do this as those two cases concerned interlocutory applications, where the Court only needs to find a “seriously arguable case” that the digital asset could be considered property. This exercise does not require the Court to engage in complex questions of fact or law.※7

More than a year after CLM and Rajkumar, the Court had an opportunity to reconsider whether digital assets could be “property” in ByBit, where it had to decide whether stablecoin could be held on trust. As this was not an interlocutory application but rather a substantive issue on the merits, the Court had to go one step further than in CLM and Rajkumar, and consider whether digital assets could be considered a chose in action.※8

The Court in ByBit noted that the category of things considered choses in action is “broad, flexible, and not closed”. In fact, over the years the definition of a chose of action has expanded, and now includes incorporeal rights of property such as copyright.※9 The Court noted that the holder of a digital asset also possesses an incorporeal right of property, i.e. their right to have the specific digital asset ‘locked’ to their public address on the blockchain.※10 Accordingly, the Court concluded that such right can be considered a chose in action, and thus, “property”, under the law.※11

Conclusion

CLM, Rajkumar, and ByBit are at the forefront of development of the law concerning digital assets. ByBit in particular represents the first time a common-law court has decided – in a non-injunction context – that digital assets may be considered “property” under the law and protected accordingly. These authoritative statements by the Court should provide digital asset owners with greater confidence that they can seek legal remedies should their precious digital assets be compromised.

Endnotes

*1
[2022] 5 SLR 273.

*2
[2023] 3 SLR 1191.

*3
[2023] SGHC 199.

*4
Stablecoin is a type of cryptocurrency which value is pegged to the value of an existing currency, commodity, or other financial instrument, in order to minimise fluctuations in value. In the case of Tether, its value is pegged to that of the United States Dollar.

*5
National Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1248.

*6
CLM at [45]; Rajkumar at [69]-[72].

*7
CLM at [39]-[40].

*8
ByBit at [3].

*9
ByBit at [34]-[35].

*10
ByBit at [31].

*11
ByBit at [31], [36].

This newsletter is given as general information for reference purposes only and therefore does not constitute our firm’s legal advice. Any opinion stated in this newsletter is a personal view of the author(s) and not our firm’s official view. For any specific matter or legal issue, please do not rely on this newsletter but make sure to consult a legal adviser. We would be delighted to answer your questions, if any.

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