By Nickolaus Ng
Introduction
A considerable amount of global discussion has centred around the legal classification of cryptocurrency assets. In the case of ByBit Fintech Ltd v Ho Kai Xin (“ByBit Fintech”),[1] Philip Jeyaretnam J was tasked with addressing this issue and determining whether crypto assets could be the subject of a trust. ByBit Fintech Ltd ("ByBit") asked the court to officially declare that Ho Kai Xin ("Ms. Ho") was holding cryptocurrencies that didn't belong to her. ByBit believed that the cryptocurrencies were stolen, and they wanted the court to confirm that Ms. Ho was holding them on behalf of ByBit. ByBit consequently pursued an order for the returning of these assets or their traceable proceeds, or alternatively, compensation equal to the value of these assets.
Jeyaretnam J conclusively ruled that crypto assets are considered property, particularly as choses in action, and can be held in trust. Choses in action refer to valuable rights that a person holds but are not physical or tangible items. Instead, they are legal claims or entitlements that can be enforced through legal action to receive its benefits or value. While historically, choses in action referred to rights enforceable through legal action against individuals, their scope has evolved to encompass title documents and even intangible property rights like copyright.[2]
This landmark decision marks the first instance where a common law court explicitly recognises such a classification. The prevailing trend in recent cases worldwide has consistently leaned towards regarding cryptocurrencies as property, making Jeyaretnam J's ruling align with this growing consensus.
This article begins with an introduction to the topic at hand, providing context for the subsequent discussion. The article then offers a concise overview of the case in question, outlining its key facts and legal issues. Finally, the article proceeds to present some insights and opinions on the significance and implications of the decision of the court that cryptocurrencies are assets.
Facts
The claimant, ByBit, is a company based in Seychelles that operates a cryptocurrency exchange. ByBit compensates its employees using a combination of fiat currency, cryptocurrency, or both. ByBit contracted WeChain Fintech Pte Ltd, a Singaporean company, to manage the payroll for its employees.[3]
The defendant, Ms. Ho, was employed by WeChain and was responsible for processing the payroll for ByBit's employees. Her duties included maintaining Microsoft Excel spreadsheets to track the payments owed to ByBit's employees each month. These spreadsheets consisted of two sets: the "Fiat Excel Files," which tracked payments in fiat currency, and the "Crypto Excel Files," which tracked cryptocurrency payments. The Crypto Excel Files contained the designated "Addresses" where employees received cryptocurrency payments. Employees regularly updated their designated Addresses by informing Ms. Ho, who then updated the Crypto Excel Files accordingly. Ms. Ho had exclusive access to the Crypto Excel Files, although they were submitted to her direct superior for approval each month.[4]
On 7th September 2022, ByBit unearthed eight cryptocurrency transactions totalling 4,209,720 USDT across four addresses (referred to as the "Anomalous Transactions"). Initially deemed inadvertent, further scrutiny revealed irregularities, such as payments to employees who exclusively received fiat currency. Suspicions heightened upon the discovery of emails containing the addresses in Ms. Ho's personal account, subsequently deleted but later retrieved. Additionally, she received a substantial payment into her bank account in May 2022.[5]
ByBit conducted interviews with Ms. Ho, during which she disavowed any access to the wallets linked to the addresses, attributing ownership to her cousin, Jason Teo. While admitting involvement in his scheme, she declined to sign an acknowledgment. Following this, she severed communication with ByBit and WeChain.[6]
By 12th October 2022, ByBit secured freezing orders against Ms. Ho and injunctions against the assets. Despite Ms. Ho acknowledging that the USDT belonged to ByBit, she maintained ignorance regarding Jason's actions. Subsequent investigations uncovered suspicious expenditures, including a penthouse apartment and luxury items, contradicting her claims of inaccessible trading accounts.[7]
Disclosure from a wallet service provider implicated Ms. Ho as the owner of one address, implying ownership of the remaining addresses.[8] ByBit contended that Ms. Ho held the assets as a constructive trustee, acquired in breach of the freezing order, and sought a tracing order from the court.[9]
Crypto assets are property and choses in action
To establish the status of crypto assets as property, Justice Jeyaretnam initially acknowledged their recognition as identifiable and segregable forms of property. This recognition stemmed from the fact that cryptocurrencies are routinely transferred for value and are accounted for on company balance sheets according to evolving accounting standards.[10] Additionally, reference was made to a recent consultation paper by the Monetary Authority of Singapore, proposing amendments to implement segregation and custody requirements for digital payment tokens.[11] These proposed amendments affirmed the feasibility of identifying and segregating digital assets, supporting the notion that they can be held on trust.
Furthermore, cryptocurrency's classification as property was reinforced by several compelling factors. Firstly, statutory recognition has been accorded to cryptocurrency as a form of property, as stipulated under Order 22 Rule 1(1) of the Rules of Court 2021. This provision defines "movable property" to encompass various assets, including cryptocurrency and other digital currency.[12]
Secondly, crypto assets possess characteristics that allow humans to define and identify them, facilitating trading and the maintenance of value. Although crypto assets lack a fixed physical identity, they manifest in the physical world, albeit imperceptibly to humans. As explained in Low's article, the holder's right to the private key can be conceptualized as the right to have the unspent transaction output (UTXO) locked to their public address on a blockchain.[13] Though the physical manifestation of crypto assets fluctuates with each transaction, they remain identifiable and tradable, akin to tangible property.[14] Jeyaretnam J likened it to the practice of naming a river, despite the constantly changing water within its banks.[15] This analogy aligns with the well-established principle of property, which necessitates it to be definable, identifiable by third parties, capable of being assumed by third parties, and possessing some level of permanence or stability.[16]
Jeyaretnam J also considered cryptocurrencies as choses in action, which has been described above. This broad interpretation indicates that choses in action are adaptable and not rigidly defined, aligning with Fry LJ's assertion in Colonial Bank v Whinney[17] that all personal property falls into either possession or action categories.[18] Jeyaretnam J recognized the circularity in defining choses in action, where the right's enforceability in court determines its classification. However, this circularity parallels the treatment of other social constructs such as money, where consensus dictates its acceptance as a medium of exchange.
Significance and implications
Jeyaretnam J's initial findings bear resemblance to previous rulings granting interim injunctions involving cryptocurrencies. In England, Bryan J determined in AA v Persons Unknown[19] that Bitcoin meets the criteria established in National Provincial Bank v Ainsworth (“Ainsworth”)[20] when assessing its eligibility as property subject to a proprietary injunction. This reasoning was echoed by the court in Zi Wang v Graham Darby.[21]
In Singapore, Simon Thorley IJ, in B2C2 Ltd v Quoine Pte Ltd,[22] acknowledged that cryptocurrencies possess the fundamental characteristic of intangible property, constituting an identifiable asset of value, aligning with the definition of property rights in Ainsworth.[23] On appeal, the Singapore Court of Appeal, referencing the UK Jurisdiction Taskforce’s "Legal Statement on Cryptoassets and Smart Contracts," affirmed that cryptocurrencies exhibit all the hallmarks of property.[24] While the Singapore Court of Appeal suggested that cryptocurrencies could feasibly fit within the broader framework of property concepts, it did not conclusively determine their legal nature due to the absence of a trust intention, resulting in the failure of B2C2’s breach of trust claim.[25] Lee Seiu Kin J, in Janesh s/o Rajkumar v Unknown Person (“CHEFPIERRE”), relied on the same Ainsworth criteria and concluded that non-fungible tokens can be considered as property.[26]
The landmark judgment in ByBit Fintech provides valuable clarity, confirming that individuals holding cryptocurrencies possess a legally enforceable property right recognized as a chose in action. This ruling enhances legal protections for cryptocurrency owners, suggesting that crypto assets can indeed be held in trust, whether explicitly or implicitly. As illustrated in ByBit Fintech, this acknowledgment that cryptocurrencies are assets also facilitates tracing of assets, which is a crucial step in seeking additional remedies.
However, it is noteworthy that the UK Law Commission released a report in 2023 titled "Digital Assets: Final Report,"[27] which proposed reforms to the legal framework concerning digital assets. Their perspective diverged from that of Jeyaretnam J in ByBit Fintech. While the Commission acknowledged the possibility of recognizing choses in action as a broader category encompassing items not categorized as choses in possession, they raised concerns about the practicality and desirability of this approach. They also highlighted the potential risks of diluting or confusing the defining characteristics of choses in action. Instead of expanding the definition of choses in action to include assets like cryptocurrency, the UK Law Commission recommended allowing legal principles specific to such assets to develop independently. This suggests a departure from the traditional categorisation and may introduce uncertainty into the legal landscape. It remains to be seen whether the Singapore Court of Appeal will entertain such arguments and consider adopting the recommendations put forth by the UK Law Commission. However, it is suggested that implementing the UK’s recommendations in Singapore’s context could introduce additional complexity as the law concerning this new category of property would be in its nascent stage.
Nevertheless, it is observable that there is a growing trend of acknowledging cryptocurrencies in diverse legal contexts and situations. For instance, in the case of Re Babel Holding Ltd,[28] which pertained to cryptocurrency restructuring, Aedit Abdullah J granted sealing applications to safeguard the identities of creditors. This was aimed at preventing adverse market reactions to their exposure to the Babel Finance Group.[29]
Similarly, in Rio Christofle v Tan Chun Chuen Malcolm,[30] Lee Seiu Kin J interpreted the objectives of the Payment Services Act 2019 and its provisions, determining that the Act does not explicitly or implicitly prohibit contracts involving the sale and purchase of cryptocurrency.[31] These instances highlight the ongoing evolution of various legal domains involving cryptocurrencies. As cryptocurrencies continue to develop, it is clear that courts will confront numerous issues regarding their nature and enforcement.
Ultimately, the ruling in ByBit Fintech provides valuable insights into the legal status of cryptocurrencies under Singaporean law, reflecting similar advancements seen in other common law jurisdictions.[32] Advocates and proponents of cryptocurrencies are likely to welcome this decision, as it showcases the Judiciary's ongoing efforts to adapt the legal framework to address the distinctive complexities arising from the evolving nature of cryptocurrencies as an asset class.[33]
The acknowledgment of established cryptocurrencies as property brings forth significant implications, such as their recognition for lawful and enforceable transactions, the possibility of utilizing them as collateral, and the establishment of methods for tracing them in cases involving breaches of trust or fraud given that they can be classified as assets.
References
[1] [2023] SGHC 199
[2] W.S Holdsworth, “The History of the Treatment of ‘Choses’ in Action by the Common Law” (1920) 33(8) Harvard Law Review 997–998
[3] ByBit Fintech Ltd v Ho Kai Xin [2023] SGHC 199, [7]
[4] ByBit Fintech Ltd v Ho Kai Xin [2023] SGHC 199, [7]–[8.
[5] ibid [9]–[10]
[6] ibid [11]–[12]
[7] ibid [13]-[16]
[8] ibid [25]
[9] ibid [27]
[10] ByBit Fintech Ltd v Ho Kai Xin [2023] SGHC 199[29]
[11] Monetary Authority of Singapore, “Response to Public Consultation on Proposed Regulatory Measures for Digital Payment Token Services” (3 July 2023).
[12] ByBit Fintech Ltd v Ho Kai Xin [2023] SGHC 199,[30]
[13] Kelvin Low, “Trusts of Cryptoassets” (2021) 34(4) Trust Law International 191.
[14] ibid
[15] ByBit Fintech Ltd v Ho Kai Xin [2023] SGHC 199, [31]
[16] National Provincial Bank v Ainsworth [1965] 1 AC 1175, 1248
[17] (1885) 30 Ch D 261.
[18] ByBit Fintech Ltd v Ho Kai Xin [2023] SGHC 199 at [35], referring to Fry LJ in Colonial Bank v Whinney (1885) 30 Ch D 261 at 285.
[19] [2020] 4 WLR 35
[20] [1965] 1 AC 1175
[21] [2021] EWHC 3054 (Comm)
[22] [2019] 4 SLR 17
[23] B2C2 Ltd v Quoine Pte Ltd [2019] 4 SLR 17, [142]
[24] Quoine Pte Ltd v B2C2 Ltd [2020] 2 SLR 20, [143]
[25] Quoine Pte Ltd v B2C2 Ltd [2020] 2 SLR 20, [144]
[26] [2023] 3 SLR 1191
[27] United Kingdom Law Commission, “Digital Assets: Final Report” (Law Com No. 412,
27 June 2023).
[28] [2023] 5 SLR 900
[29] Re Babel Holding Ltd [2023] 5 SLR 900, [10]–[11]
[30] [2023] 5 SLR 684
[31] Rio Christofle v Tan Chun Chuen Malcolm [2023] 5 SLR 684, [53] and [55]–[59]
[32] Pinar Caglayan Aksoy, “The Applicability of Property Law Rules for Crypto Assets: Considerations From Civil Law and Common Law Perspectives” (2023) 15(1) Law, Innovation and Technology 185.
[33] Ben Chester Cheong & Joshua Chan, “Cryptocurrency Lender Allowed Extended Creditor Protection in Singapore – Implications of the Decision on Separate Legal Entity, Sealing Applications, Scheme of Arrangement, and Future of Debt Repayment” (2024) 45(1) Company Lawyer 3-9.
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