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

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.