Singapore High Court Recognises Cryptocurrency as Property Capable of Being Held on Trust

In the recent decision of ByBit Fintech Ltd v Ho Kai Xin and others [2023] SGHC 199, the Singapore High Court held that cryptocurrency is property capable of being held on trust. This decision marks the first time that the Singapore courts have made such a ruling.

Background

ByBit is the owner of the ByBit cryptocurrency exchange. ByBit remunerates its employees with cash, cryptocurrency, or a mixture of both. WeChain Fintech Pte Ltd (WeChain) provides payroll services for ByBit and related entities. Ho Kai Xin was employed by WeChain and was responsible for the payroll processing of ByBit employees.

As part of her duties, Ho maintained Microsoft Excel spreadsheets that tracked the cash and cryptocurrency payments due to ByBit’s employees each month. These spreadsheets list the “Address,” which is understood to be an encrypted digital “folder” that can “receive” and “store” cryptocurrency, designated by ByBit’s employees for the receipt of cryptocurrency payments. Ho was singularly responsible for the spreadsheets whenever a ByBit employee updated his or her designated Address and was the only person with access to these spreadsheets.

On 7 September 2022, ByBit discovered that eight unusual cryptocurrency payments had been made between 31 May 2022 and 31 August 2022 involving large payments of Tether (USDT), a type of stablecoin, into four Addresses. In total, 4,209,720 USDT had been transferred. Ho alleged that the wallets associated with the four Addresses belonged to her cousin and that she had become involved in a scheme proposed by her cousin under which she would assist in transferring cryptocurrency to him.

ByBit succeeded in obtaining several items of interim relief, including a worldwide freezing order against Ho and a proprietary injunction in respect of the cryptocurrency in the four Addresses. ByBit took out an application for summary judgement and, amongst other submissions, submitted that cryptocurrency is composed of choses in action and is therefore property capable of being the subject matter of a trust. This is because USDT grants a verified customer of Tether Limited the contractual right to redeem USDT for an equivalent value in fiat currency.

On this issue, ByBit submitted that

• Address 3 is associated with a self-custodial wallet, meaning that Ho had direct access to the relevant private key and therefore direct control over Address 3 and the USDT therein, which can be held on trust as a chose in action.
• Addresses 1, 2, and 4 are associated with custodial wallets whereby access to the private keys is kept by the service provider rather than the user of the custodial wallet. Instead, the user of the custodial wallet is contractually entitled to instruct the service provider to transfer cryptocurrency between Addresses. ByBit likens this to a bank account: consider the cryptocurrency balance stated in the custodial wallet (equivalent to an account balance) is a chose in action against the service provider (equivalent to the bank). The relevant property is therefore also a chose in action, being the right to instruct the service provider in respect of the credit balance of USDT.

Court Decision

The Singapore High Court held that ByBit is entitled to summary judgement and, amongst other things, held that USDT is property capable of being held on trust based on the following:

• The Monetary Authority of Singapore (MAS) has recently issued a consultation paper on proposed amendments to the payment services regulations that will implement segregation and custody requirements for digital payment tokens. The proposed amendments reflect the reality that it is possible in practice to identify and segregate such digital assets, and hence support the view that it should be legally possible to hold them on trust.
• Moreover, general recognition has been given to cryptocurrency as property in the Rules of Court. In Order 22 of the Rules of Court 2021, which deals with the enforcement of judgements and orders, Rule 11 defines “movable property” to include “cash, debt, deposits of money, bonds, shares or other securities, membership in clubs or societies, and cryptocurrency or other digital currency.” Cryptocurrency has thus been expressly recognised as a form of property capable of being the subject matter of an enforcement order. While the drafters of the Rules of Court 2021 did not specify a precise method for carrying out such an enforcement order, the procedures for serving a notice of seizure on the persons or entities having possession or control of movable property or on the persons or entities that register the ownership of intangible movable property are logically extendable to cryptocurrency or other digital currency. Cryptocurrency has therefore been expressly recognised as a form of property capable of being the subject matter of an enforcement order.
• In considering the question of whether USDT can be classified as a chose in action, the court held that while there is no individual counterparty to the crypto holder’s right, over time the category of choses in action has expanded to include documents of title to incorporeal rights of property and ultimately incorporeal rights themselves such as copyrights. The category of chose in action is broad, flexible, and not closed. Therefore, the court concluded that the holder of a crypto asset has, in principle, an incorporeal right of property recognisable by the common law as a chose in action and thus enforceable in court.

Conclusion

This is the first time that a Singapore court has expressly recognised that cryptocurrency is a form of property capable of being held on trust and represents further development of Singapore law in the area of crypto assets.

Prior to this, the courts in Singapore had only granted interlocutory injunctions recognising that there is at least a serious question to be tried or, at the least, a good arguable case that crypto assets are property capable of being held on trust but had not yet made any determination as to whether crypto assets are choses in action or are instead a novel type of intangible property. In the present decision, the court has gone further and decided that the crypto assets in question are indeed property capable of being held on trust and can be classed as a chose in action.

The express holding by the court in this regard brings certainty and clarity to the legal nature of crypto assets and the court’s approach means that cryptocurrency owners are likely to have more options when seeking to enforce their rights in respect of their crypto assets. For example, proprietary equitable remedies such as constructive trusts may be available if cryptocurrency assets are misappropriated. In an insolvency situation, the holder of cryptocurrency assets, which are subject to custody or trust arrangements, may attempt to claim ownership of such assets, which may potentially place the claimant above secured and unsecured claims.