Singapore courts’ first written judgment on NFTs

The High Court of Singapore (Lee Seiu Kin J) has granted an ex parte proprietary injunction over an NFT and granted leave for service on “Chefpierre”, identifiable only by his online alias and associated accounts. James Ramsden KC, Lisa McCreath and Harmish Mehta consider Rajkumar v Unknown Person (“Chefpierre”), thought to be Singapore’s first written judgment concerning NFTs, and parallels to be drawn between the emerging bodies of case law in Singapore and England and Wales.

Background

To recap, “NFT” stands for “non-fungible token”. NFTs are digital assets recorded on a blockchain that can be bought and sold online. They have unique identifying codes and therefore different values, unlike tokens of a cryptocurrency which are all identical in value. NFTs have gained notoriety in recent years as an increasingly popular way to buy and sell digital artwork.

In this case, Rajkumar (“R”) had obtained a series of loans from an unknown person identifiable only by their online alias, “Chefpierre” (“UA”). R utilised NFTfi, which is a platform functioning as an NFT-collateralised cryptocurrency lending marketplace. In this instance, R agreed to transfer an NFT, known as Bored Ape Yacht Club #2162, to NFTfi’s escrow account to be held until the loan was agreed. The agreement was captured by an electronic smart contract, which is a computer programme that automatically carries out set instructions on fulfilment of pre-conditions. In terms of this contract, UA had the option to unilaterally “foreclose” the NFT in the event that R defaulted on the loan. However, it was also agreed that UA would not “foreclose” the NFA until R had been afforded a reasonable opportunity to pay.

R took out a loan in March 2022 for a period of 30 days. It became apparent that R would be unable to repay the outstanding amount and UA agreed to refinance the loan rather foreclose the NFT. Notwithstanding this agreement, UA changed his mind, demanded immediate repayment and, when R failed to do so, UA elected to “foreclose” the NFT, which was consequently transferred from NFTfi’s escrow account to UA’s cryptocurrency wallet.

It came to R’s attention that the NFT had been listed for sale. Whilst a substantive claim had been raised (in contract, tort and equity), given the risk of dissipation, the Court was asked to grant interim remedies including:

  1. A proprietary injunction prohibiting the defendant from in any way dealing with the NFT, until after the trial of originating claim; and

  2. Leave for service of the originating claim on UA by (a) their Twitter Account, (b) Discord Account, and (c) the messaging function on UA’s cryptocurrency wallet.

Jurisdiction

R argued that the requirements for permission to serve the proceedings outside Singapore were satisfied on the basis that the Singaporean court was the appropriate one to hear the application. In order to succeed in this application R must demonstrate that the following criteria are satisfied:

  1. there is a good arguable case that there was sufficient nexus to Singapore, by reference to a non-exhaustive list of factors;

  2. Singapore is the forum conveniens; and

  3. there is a serious question to be tried on the merits (Supreme Court Practice Directions 2021, Direction 63).

The corresponding criteria in England and Wales are similar, except that instead of “nexus” there must be a good arguable case that the claim falls within one or more classes of case set out in CPR PD6B, paragraph 3.1.

Lee Seiu Kin J considered the first two criteria and “was satisfied that the court had the jurisdiction to hear the present application. While the decentralised nature of blockchains may pose difficulties when it comes to establishing jurisdiction, to my mind, there had to be a court which had the jurisdiction to hear the dispute…that court was the Singapore court. The primary connecting factor was the fact that the claimant was located in Singapore, and carried on his business here.

The extent to which this passage addresses requirement (a) or requirement (b) is unclear. As applied to requirement (b), the reasoning is uncontroversial. The “connecting factor” is one commonly used to identify the forum conveniens. However, as applied to requirement (a), nexus, the reasoning is somewhat strained. Whilst the factors in Singapore’s Direction 63 are expressly non-exhaustive, none refer (at least on plain reading) to the characteristics of the claimant. They appear to require a greater connection to Singapore than the mere fact of the claimant’s location in the jurisdiction.

The reasoning, whilst it might appear strained, could be because Direction 63 and Singaporean case law have not yet adapted to challenges posed by blockchain technology. No attempt was made to argue that the NFT was, for the purposes of Direction 63(i), “movable property…situated in Singapore”. This would have required the claimant to demonstrate that, as has been found in England and Wales in an interim decision (Osbourne v Persons Unknown [2022] EWHC 1021 (Comm)), an NFT is situated in the place where its owner is situated. R did raise, as a connecting factor, the fact that he had entered into the smart contract in Singapore. This appears to have been an attempt to argue that the smart contract was, for the purposes of Directive 63(d), “made in Singapore”. Lee Seiu Kin J did not address this argument, potentially because smart contracts have not yet been substantively considered by Singaporean courts either.

Before setting out his reasoning, Lee Seiu Kin J gave a detailed summary of the conclusions of the High Court of England and Wales (Falk J) in Tulip Trading v Bitcoin Association for BSV & Ors [2022] EWHC 667. Lee Seiu Kin J appears to have modelled his observations on “primary connecting factor” on the passages in Falk J’s judgment which identified “primary connecting factors” leading to the conclusion that England and Wales was forum conveniens. This is even though it was Falk J’s analysis of paragraph 3.1 of CPR PD6B, not forum conveniens, that engaged principles relating to cryptocurrency.

NFTs as property

Lee Seiu Kin J also held that the NFTs are capable of giving rise to proprietary rights which could be protected by an injunction. This aspect of his judgment is extensively reasoned, making reference to academic commentary and significant cryptocurrency judgments from various jurisdictions, including Elena Vorotyntseva v Money-4 Limited t/a Nebeus.com and ors [2018] EWHC 2596 (Ch) and Ruscoe v Cryptopia Ltd [2020] 2 NZLR 809 (New Zealand).

Whilst this is thought to be the first judgment of this kind in Singapore, the courts in England and Wales have consistently held that cryptocurrencies constitute property, and have extended this reasoning to NFTs. In reaching this conclusion the courts in England and Wales have largely referenced the UK Jurisdiction Taskforce (“UKJT”) November 2019 Legal Statement, rather than giving their own extensive reasoning. That Legal Statement did not address NFTs, but the UKJT is due to release a further statement concerning smart contracts. It remains to be seen how much the UKJT’s position on NFTs will have similarities to Lee Seiu Kin J’s analysis.

Alternative service

Lee Seiu Kin J also granted permission for proceedings to be served by alternative means, on the defendant’s Twitter and Discord accounts, and on the messaging function of his cryptocurrency wallet. Lee Seiu Kin J had no difficulty in accepting that alternative service was needed; he considered that to refuse permission would “deprive the claimant of the only practical manner of effecting service”.

Anonymity online is not a new concept but it does create a host of challenges for litigation of tech-disputes, including how to ensure administrative steps are taken without creating an unnecessary barrier to claims. The methods set out in this case are one example of adapting to these challenges. A parallel may be also drawn between Chefpierre and D’Aloia v Persons Unknown [2022] EWHC 1723 (Ch), in which the High Court of England and Wales granted permission, without qualm, for service to be effected by airdrop of an NFT into cryptocurrency wallets associated with the defendants. Courts have so far been accommodating of blockchain-powered means of service, but this approach is yet to be tested by borderline cases.

The judgment in Chefpierre is available here.

The information provided in this article is of a general nature and does not constitute, nor should be relied on, as legal or professional advice.

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