In Singapore, the High Court has awarded recognition to cryptocurrency as property. The High Court has issued proprietary injunctions against unknown individuals suspected of stealing cryptocurrency. The Court also issued disclosure orders against cryptocurrency exchanges that held the cryptocurrency, requiring them to provide materials to aid in asset tracing.
In a case involving the alleged theft of bitcoin (BTC) and ethereum (ETH) worth USD 7 million, the court has ordered two unnamed crypto exchanges where the stolen cryptoassets were stored to provide the judiciary with materials that could help track down the assets. An analysis for Lexology.com was prepared by a group of lawyers from the international law firm Reed Smith LLP.
According to the analysis, the plaintiff kept Bitcoins and Ethereum tokens (the Stolen Cryptocurrency Assets) in two digital, decentralized “hot” wallets. The hot wallet was accessible via mobile phone apps and was password-protected. Both wallets used the “recovery seed” methodology to recover passwords and allow access to the wallets in the event that the plaintiff’s phone was lost or destroyed.
While on vacation with friends in Mexico in January 2021, the plaintiff gave an acquaintance the combination to his safe in order to retrieve cash. The recovery seeds for his digital wallets were also kept in this safe. In a room with other people, the acquaintance repeated the safe combination aloud.
The plaintiff discovered the following day that the Stolen Cryptocurrency Assets, worth approximately $7 million, had been withdrawn from his digital wallets without his knowledge or consent. The plaintiff believed that the unidentified individuals who drew the Stolen Cryptocurrency Assets (the First Defendants) obtained the recovery seeds from the safe and used them to transfer the Stolen Cryptocurrency Assets.
According to the plaintiff’s investigations and trace efforts, the Stolen Cryptocurrency Assets were transferred to digital wallets held by two cryptocurrency exchanges with operations in Singapore (the Second and Third Defendants).
The plaintiff then filed suit in Singapore, requesting that the High Court to issue orders. The orders plaintiff wanted to be issued were a proprietary injunction prohibiting the First Defendants from dealing with, disposing of, or depreciating the Stolen Cryptocurrency Assets and an order requiring the Second and Third Defendants to assist in tracing the Stolen Cryptocurrency Assets and identifying the First Defendants.
As per the analysis, the court granted the order of proprietary injunction and disclosure. The Court also issued a worldwide freezing injunction against the First Defendants, despite the fact that their identities were unknown. The Court determined that it had jurisdiction to issue injunctions against unknown individuals because Singapore’s Rules of Court do not require the defendant’s identity to be disclosed. The Court relied on English and Malaysian cases decided on similarly worded procedural rules in reaching this decision.
Nonetheless, the Court stated that the description of the unknown person(s) must be specific enough to identify those who do and do not fit it. In this case, the First Defendants were described as “any person or entity who carried out, participated in or assisted in the theft of the plaintiff’s Stolen Cryptocurrency Assets on or around 8 January 2021, save for the provision of cryptocurrency hosting or trading facilities.” The Court determined that this description met the required level of certainty.
According to the analysis, the court’s decision marks a positive development for the crypto industry. It is so because it shows that Singapore’s courts are willing to recognize and protect cryptocurrencies as property by granting proprietary injunctions against cryptocurrency theft even when the perpetrators’ identities are unknown. This decision also demonstrates that courts are willing to issue disclosure orders against cryptocurrency exchanges based or operating in Singapore so that victims of cryptocurrency theft or fraud can obtain critical information to assist them in freezing and tracing stolen assets.
According to the analysis done by the lawyers, this decision means that cryptocurrency exchanges based or operating in Singapore may now be served with disclosure orders issued by the Singapore Courts to disclose information relating to user accounts, as well as freezing injunctions to freeze cryptocurrency held in user accounts. Such Court orders will take precedence over any contractual terms between an exchange and its users, such as terms relating to the user’s ability to transact in cryptocurrency and the exchange’s duty of confidentiality in relation to user information.