Introduction

In a landmark decision, the General Division of the High Court of Singapore issued a proprietary injunction and a worldwide Mareva injunction against unidentified persons to prevent the dissipation of cryptocurrency assets that were claimed to have been stolen. It also ordered two centralised cryptocurrency exchanges to disclose information on the accounts credited with the allegedly stolen cryptocurrency assets.

The case of CLM v CLN & Ors [2022] SGHC 46 (“CLM”) highlights the legal remedies available to victims of digital asset theft or scams and the importance of seeking expeditious legal relief.

Background

The plaintiff commenced the action to recover of 109.83 Bitcoins (BTC) and 1497.54 Ethereum (ETH) (collectively, the “Cryptocurrency Assets”) valued at US$7.08 million at the time. The plaintiff these Cryptocurrency Assets had been stored in two digital wallets which were accessible through a seed phrase (a string of 64 numbers and alphabets known only to the wallet owner).

The plaintiff alleged that unknown person(s) (the “Unknown Perpetrators”) had accessed his physical safe and used the seed phrase to access his digital wallets and transferred the Cryptocurrency Assets therein.

Subsequent tracing efforts revealed that the Cryptocurrency Assets had been dissipated through various digital wallets, including wallets held at two centralized cryptocurrency exchanges with operations in Singapore (the “Centralized Exchanges”). The plaintiff’s action listed the Unknown Perpetrators and the Centralized Exchanges as defendants in the proceedings and sought the following interlocutory relief against them:

• a proprietary injunction and a worldwide freezing injunction against the Unknown Perpetrators to prevent them from dealing with, disposing of, or diminishing the value of the stolen Cryptocurrency Assets; and
• a disclosure order against the Exchange Defendants for information on the accounts credited with the stolen Cryptocurrency Assets.

The plaintiff’s application was heard before the Honourable Justice Lee Seiu Kin and His Honour identified 2 novel issues which arose from the said application:

• First, does the Court have jurisdiction to grant interim orders against persons unknown?
• Second, could the stolen Cryptocurrency Assets be the subject of a proprietary injunction?

We examine the learned Judge’s decision below.

The first issue: Orders against Person(s) Unknown

The learned Judge considered cases in the United Kingdom and Malaysia where orders against persons unknown had been made and found that these authorities were “readily applicable to Singapore’s legal context”.

Further, the learned Judge noted that Singapore’s Rules of Court 2014 do provide for situations where a defendant may be described as “persons unknown” if the identity of the defendant is unknown to the plaintiff at the time proceedings are commenced.

However, the learned Judge noted that “person’s unknown” must be described such that it is possible to identify, with sufficient certainty, those who fall within that category.

In this case, the learned Judge held that the following description formulated by the plaintiff was sufficiently certain:

“Any 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.”

Accordingly, the learned Judge was satisfied that the Court had jurisdiction to grant an interim injunction order against the Unknown Perpetrators.

The second issue: Proprietary Injunction

The learned Judge found that a proprietary injunction was warranted in the circumstances because there was a “seriously arguable case” that the stolen Cryptocurrency Assets could constitute property and consequently give rise to proprietary rights. In coming to this decision, the learned Judge observed that stolen Cryptocurrency Assets meet the classic features of “property” set out in National Provincial Bank v Ainsworth [1965] 1 AC 1175 (“Ainsworth”).

The above is consistent with the approach taken in other jurisdictions such as New Zealand (see David Ian Ruscoe and Malcom Russell More v Cryptopia Limited (in Liquidation) [2020] NZHC 728) and the United Kingdom (see A v Persons Unknown [2019] EWHC 3556) where cryptocurrencies were held to give rise to proprietary rights. A table comparing the classic features of property and the features of cryptocurrencies is set out below:

The features of property set out in Ainsworth	The features of cryptocurrencies	Satisfied?
Is the property definable?	Cryptocurrencies are computer-readable strings of characters which are recorded on blockchains and are sufficiently distinct to be capable of then being allocated to an account holder.	Yes
Is the property identifiable to third parties or capable of being excluded from third parties?	Excludability is achieved by allocating the owner with a unique private key, which is required to record a transfer of the cryptocurrency from one account to another.	Yes
Is it capable in its nature of assumption by third parties?	Cryptocurrencies (certainly BTC and ETH) are actively traded.	Yes
Is there some degree of permanence or stability?	Blockchains provide stability to cryptocurrencies and a token stays fully recognised until it is spent through the use of the private key.	Yes.

Given the above, learned Judge held that the Cryptocurrency Assets satisfied the definition of a property right in Ainsworth. However, we should point out that the learned Judge went to state at [46] in CLM that the plaintiff had proven “a serious arguable case” that the Cryptocurrency Assets were capable of giving rise to proprietary rights, which suggests that this view may yet change after the Court hears full arguments on the issue.

Practical Implications

The ease of anonymous cross-border transfer of cryptocurrencies (and other digital assets) renders them susceptible to dissipation and difficult to trace. The decision in CLM is therefore welcomed as it shows that the Court is prepared to grant injunctive relief to victims of theft or scams involving digital assets.

Indeed, after CLM, the High Court of Singapore granted injunctive relief on another occasion blocking the sale of a Non-Fungible Token from the Bored Ape Yacht Club series.

However, the question as to whether digital assets (such as BTC and ETH) give rise to proprietary rights remains an issue at large under Singapore law. While the Singapore Court of Appeal indicated in Quoine Pte. Ltd. v B2C2 Ltd [2020] SGCA(I) 02 that there “may be much to commend the view that cryptocurrencies should be capable of assimilation into the general concepts of property. There are, however, difficult questions as to the type of property that is involved.”

One should also consider that tracing the Cryptocurrency Assets in CLM might have been more difficult if the stolen Cryptocurrency Assets had been dissipated through decentralized cryptocurrency exchanges (where assets may be traded in an unregulated and anonymous fashion). In those circumstances, injunctive and disclosure orders may prove less effective.

This problem is, to some extent, ameliorated by the Monetary Authority of Singapore’s cryptocurrency “travel rule” which has been in effect since 28 January 2020.

With the implementation of the “travel rule”, cryptocurrency assets on centralized exchanges will not be transferable unless the sender provides information for both outgoing and incoming cryptocurrency transfers. While the “travel rule” is a measure intended to combat money laundering and financing of terrorism, its implementation will make the tracing of stolen cryptocurrency assets easier.

Conclusion

As with most new technologies, cryptocurrencies and blockchains operate under a cloud of legal uncertainty. However, coupled with the enactment of increasingly comprehensive regulatory safeguards, the CLM decision represents a positive step towards establishing law and order in the metaverse.

If you have any queries, please feel free to contact Mr Bryan Tan.