Clifford Chance

In a recent landmark decision, the Singapore High Court in ByBit Fintech Ltd v Ho Kai Xin and others [2023] SGHC 199 has confirmed that Singapore law will recognise cryptoassets as a form of property capable of being held on trust.

This ruling provides welcome clarity on the legal nature of crypto assets, and confirms that parties in cases involving cryptoassets may apply traditional common law doctrines to protect their assets. The court's decision is also consistent with the position taken in other common law jurisdictions.  In April 2023, for instance, the Hong Kong Court of First Instance in Re Gatecoin Limited [2023] HKCFI 914 expressly confirmed for the first time that cryptocurrency is property under Hong Kong law capable of forming the subject matter of a trust (see our previous article Check before you click: Hong Kong's Gatecoin judgment focuses on T&Cs and expressly recognises cryptocurrency as property that can be held on trust.)

Background

The case concerned an application for summary judgment filed by ByBit Fintech Limited, a Seychellois company that operates a cryptocurrency exchange. ByBit's employees received part of their salary in the form of USD-denominated Tether tokens (USDT), a type of "stablecoin" pegged to the value of a fiat currency. Tether tokens could be redeemed for an equivalent value in USD by verified customers of the issuer, Tether Limited.

The defendant, Ms Ho Kai Xin, worked for the company that handled ByBit's payroll services and had exclusive access to Excel files containing employee payment details. Over a period from May to August 2022, Ho manipulated these files, leading ByBit to unknowingly transfer approximately 4,209,720 USDT into crypto wallets under her control. She then used the stolen funds to make extravagant purchases, including a penthouse apartment, a new car, and luxury items from Louis Vuitton.

Ho claimed that her cousin "Jason" was responsible for the fraud, alleging that he gained unauthorized access to her work laptop. However, the court found no evidence of "Jason's" existence and ruled in favour of ByBit by way of a summary judgment. In his judgment of Justice Philip Jeyaretnam, the court considered the novel legal question of whether to impose an institutional constructive trust on the stolen cryptoassets.

Are crypto assets property?

The court recalled that the courts in Singapore have, in granting interlocutory injunctions, previously recognised that there is a good arguable case that cryptoassets are property capable of being held on trust (see for instance our previous article Using Court orders to help recover stolen cryptocurrencies). In these cases it was not necessary to determine whether the cryptoassets in question were things in action or a novel type of intangible property.  In the current case, however, to grant judgment and declare a trust in favour of Bybit, the court had to decide (a) if the crypto assets in question, here USDT, were indeed property capable of being held on trust and (b) if so, what type of property they constituted.

The court cited various factors in support of its decision that USDT is indeed property capable of being held in trust:

• Accounting standards: Cryptoassets have not only been transferred for value but also, when held by companies, appear on their balance sheets, as the accounting profession develops standards for how to value and report them. 
• MAS consultation paper: The Monetary Authority of Singapore (MAS) recently issued a consultation paper on proposed amendments to the payment services regulations that will implement segregation and custody requirements for digital payment tokens: MAS, “Response to Public Consultation on Proposed Regulatory Measures for Digital Payment Token Services” published on 3 July 2023. These proposed amendments reflect the reality that it is possible in practice to identify and segregate such digital assets.
• Rules of Court 2021: General recognition has been given to cryptocurrency as property in the Singapore Rules of Court. In Order 22 of the Rules of Court 2021, which deals with the enforcement of judgments and orders, “movable property” is defined 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.
• Crypto assets can be defined and identified: Cryptoassets do manifest themselves in the physical world albeit in a way that humans are unable to perceive. The combination of Private Key with Public Key unlocks the previous cryptographic lock and in turn locks the unspent transaction output of the cryptoasset to the holder’s public address on the blockchain. While this physical manifestation at the level of digital bits and bytes is not permanent, and changes with every transaction, the court observed that “we identify what is going on as a particular digital token, somewhat like how we give a name to a river even though the water contained within its banks is constantly changing". Hence, cryptoassets, can be defined and identified by modern humans, such that they can be traded and valued as holdings.

In summary, the ruling rested on reasoning similar to how the law approaches other social constructs such as money, the court remarking that "It is only because people generally accept the exchange value of shells or beads or differently printed paper notes that they become currency. Money is accepted by virtue of a collective act of mutual faith."

What type of property are crypto assets?

The court held that the holder of a cryptoasset has in principle an incorporeal right of property recognisable by the common law as a thing (or chose) in action and so enforceable in court.  The court acknowledged that the common argument that cryptoassets should not be classified as things in action rests on the origin of this category as rights enforceable by action (in the sense of litigation in court) against persons, such as the right to be paid money or debts, or contractual rights. There is no individual counterparty to the crypto holder’s right. 

However, in its reasoning the court noted that over time the category of things in action has expanded to include documents of title to incorporeal rights of property, and ultimately incorporeal rights themselves. The category of things in action is broad, flexible, and not closed.

Decision in the case

In the case at hand, the court accepted the inference that "Jason" did not exist. As such, the evidence was compelling that Ho had fraudulently transferred cryptoassets to herself by taking advantage of her employment with WeChain which was engaged to handle ByBit's payroll. Given that cryptoassets can be considered property capable of being held in trust, the court declared an institutional constructive trust over the cryptoassets and ordered that Ho pay ByBit the sums equivalent to the value of the cryptoassets in question.

Conclusion

This judgment provides important guidance on the legal status of cryptocurrencies under Singapore law, which also aligns with the trend in other common-law jurisdictions. Recognising cryptocurrencies as property has various legal implications, such as determining their eligibility for lawful and effective transfer, the possibility of granting security over them, and their traceability in cases of breach of trust or fraud.

This case also emphasises the importance for businesses operating in the cryptocurrency industry and investors to familiarise themselves with the terms and conditions governing relationships between parties, especially concerning the nature of ownership (contractual or proprietary) and the rights of the parties involved, including customers. Awareness of these legal aspects is crucial for ensuring proper conduct and protection of interests within the cryptocurrency space.