In brief
The plaintiff in CLM v CLN [2022] SGHC 46 commenced an action to trace and recover 109.83 Bitcoin and 1497.54 Ethereum that were allegedly misappropriated from him by unidentified persons, a portion of which had been traced to digital wallets that were controlled by cryptocurrency exchanges with operations in Singapore.
The General Division of the High Court (“Court“) ultimately held that cryptocurrency could be classified as property that could be protected via proprietary injunctions. In addition, the Court granted the first reported freezing injunction against persons unknown in Singapore for SGD 9.6 million worth of cryptocurrency assets stolen from the plaintiff.
Key takeaways
- As the identity of the first defendants were unknown at the time of the filing and hearing of the injunction application, the preliminary issue was whether the Court had the jurisdiction to grant interim orders. The Court agreed that it had the requisite jurisdiction to do so but stressed that the description of such unknown persons had to be sufficiently certain. This was satisfied in this case.
- The Court found that cryptocurrencies satisfied the definition of a property right in classic definition of a property right in National Provincial Bank Ltd v Ainsworth [1965] AC 1175 (“Ainsworth“) and so were capable of giving rise to proprietary rights which could be protected by a proprietary injunction. Further, the balance “clearly lay in favour of granting” the injunction as there was a real risk of dissipation of the stolen cryptocurrency. The Court granted the proprietary injunction on this basis.
- The Court, in granting an additional worldwide freezing injunction to restrain the first defendants, observed that the risk of dissipation was heightened by the very nature of cryptocurrency, which could “be easily dissipated and hidden in cyberspace”.
- The decision ultimately indicates that greater protection may be afforded to cryptocurrencies as property in Singapore.
Jurisdictions against persons unknown
The preliminary issue was whether the Court had the jurisdiction to grant interim orders as the identities of the first defendants were unknown at the time of the hearing. Having reviewed the relevant English and Malaysian case law, the Court agreed that it had the requisite jurisdiction to do so, but stressed that the description of such unknown persons had to be sufficiently certain to identify both those who fell within and outside of the description. This was satisfied in this case, where the first defendants were described as follows:
“[A]ny person or entity who carried out, participated in or assisted in the theft of the Plaintiff’s Cryptocurrency Assets on or around 8 January 2021, save for the provision of cryptocurrency hosting or trading facilities.”
Cryptocurrency as property
A subsequent key issue was whether cryptocurrency was capable of giving rise to proprietary rights which could be protected by a proprietary injunction, as the plaintiff sought to prohibit the first defendants from dealing with, disposing of, or diminishing the value of the stolen cryptocurrency assets. The Court had to determine if, firstly, there was a serious arguable case that the Plaintiff had a proprietary interest and, secondly, whether the balance of convenience lay in favour of granting the injunction.
On the first limb of the test, the Court referred to the Court of Appeal decision of Quoine Pte Ltd v B2C2 Ltd [2020] 2 SLR 20 (“Quoine“), where the Court of Appeal canvassed in detail the authorities in support of treating cryptocurrency as property and observed that “[t]here may be much to commend the view that cryptocurrencies should be capable of assimilation into the general concepts of property”, but did not make any definitive finding on this point. The Court in CLM v CLN then referred to the New Zealand decision of Ruscoe v Cryptopia Ltd (in liq) [2020] 2 NZLR (“Ruscoe“), where the High Court had examined the four requirements in the classic definition of a property right in Ainsworth:
“[I]t must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.”
In Ruscoe, the High Court of New Zealand had found that cryptocurrencies satisfied this definition:
- Definable: The asset must be capable of being isolated from other assets whether of the same type or of other types and thereby identified. To this end, cryptocurrencies are computer-readable strings of characters which are recorded on networks of computers established for the purpose of recording those strings, and are sufficiently distinct to be capable of then being allocated to an account holder on that particular network.
- Identifiable by third parties: The asset must have an owner being capable of being recognised as such by third parties. An important indicator is whether the owner has the power to exclude others from using or benefiting from the asset. Excludability is achieved in respect of cryptocurrencies by the computer software allocating the owner with a private key, which is required to record a transfer of the cryptocurrency from one account to another.
- Capable of assumption by third parties: Third parties must respect the rights of the owner in that asset, and the asset must be potentially desirable. Cryptocurrencies meet these requirements, evidenced by the fact that many cryptocurrencies are the subject of active trading markets.
- Degree of permanence or stability: Blockchain methodology which cryptocurrency systems deploy provides stability to cryptocurrencies, and a particular cryptocurrency token stays fully recognised, in existence, and stable unless and until it is spent through the use of the private key, which may never happen.
Having considered the case law and the above analysis in Ruscoe, the Court found that cryptocurrencies satisfied the definition of a property right in Ainsworth, a development from the position of the Court of Appeal in Quoine. The plaintiff was thus able to prove a serious arguable case that the stolen cryptocurrency assets were capable of giving rise to property rights which could be protected via a proprietary injunction, satisfying the first limb of the test.
On the second limb of the test, the Court held that the balance clearly lay in favour of granting the injunction as there was a real risk of dissipation of the stolen cryptocurrency. If the injunction was not granted, there would be a real risk that the first defendants would dissipate the stolen cryptocurrency assets, which would prevent the plaintiff from recovering those assets even if he successfully obtained a judgement in his favour. The Court also considered that even if the plaintiff’s case were later refuted, the first defendants would only suffer losses arising from their inability to deal with the stolen cryptocurrency assets, which could be compensated by way of damages.
As the requisite elements for the grant of a proprietary injunction were satisfied, the Court granted the proprietary injunction.
Worldwide freezing injunction
In addition to the proprietary injunction, the Court granted a worldwide freezing injunction to restrain the first defendants from dealing with, disposing of, or diminishing the value of, the stolen cryptocurrency assets. Notably, in doing so, the Court observed that the risk of dissipation was heightened by the very nature of cryptocurrency, which was “susceptible to being transferred by the click of a button, through digital wallets that may be completely anonymous and untraceable to the owner, and can be easily dissipated and hidden in cyberspace”. The Court also considered that the first defendants would likely not have sufficient assets in Singapore to satisfy an award for damages, as only a fraction of the stolen cryptocurrency assets were known to have been transferred to digital wallets controlled by cryptocurrency exchanges with operations in Singapore.
Greater protection for cryptocurrencies
The decision is a significant development on numerous fronts, and demonstrates a willingness and ability of the Singapore courts to apply traditional legal rules in the cryptocurrency space to provide legal remedies to victims of theft and scams. In particular, the Court’s recognition of cryptocurrencies as property and its willingness to grant injunctions even against unknown persons indicates that a greater degree of protection may now be afforded by Singapore Courts to cryptocurrency as property in Singapore.
