Using Court orders to help recover stolen cryptocurrencies
Singapore High Court grants a proprietary injunction over stolen BTC and ETH
Cryptocurrency investors can take some comfort knowing that the Singapore Courts are willing to protect victims of crypto-fraud.
On 4 March 2022, the Singapore High Court in CLM v CLN  granted a proprietary injunction over stolen cryptocurrency assets against persons unknown, along with ancillary disclosure orders against cryptocurrency exchanges to assist in tracing the assets. This is the first reported Singapore decision on this issue.
Discussion on the legal treatment of cryptocurrency often centres on the themes of (i) its relative anonymity compared with other payment systems; (ii) traceability; and (iii) whether it can properly be defined as "property". The Singapore Court dealt with each of these issues in its crypto-friendly judgment.
Facts in CLM v CLN
The plaintiff commenced an action to trace and recover 109.83 Bitcoin (BTC) and 1497.54 Ethereum (ETH) (collectively, the Stolen Cryptocurrency Assets) that were allegedly misappropriated from him by unidentified persons (the 1st defendants). The value of the Stolen Cryptocurrency Assets was US$7,089,894.68. A portion of the Stolen Cryptocurrency Assets had been traced to digital wallets controlled by cryptocurrency exchanges with operations in Singapore (the 2nd and 3rd defendants).
In the Singapore Courts, the plaintiff applied for:
- a proprietary injunction prohibiting the 1st defendants from dealing with, disposing of, or diminishing the value of the Stolen Cryptocurrency Assets;
- a worldwide freezing injunction prohibiting the 1st defendants from dealing with, disposing of, or diminishing their assets up to the value of the Stolen Cryptocurrency Assets;
- ancillary disclosure orders against the 2nd and 3rd defendants to assist in the tracing of the Stolen Cryptocurrency Assets and the identification of the 1st defendants.
The plaintiff kept his Stolen Cryptocurrency Assets on two separate digital wallets, controlled by two software applications on his mobile phone known as "Exodus" and "BRD" (Private Key Apps). The Private Key Apps do not themselves hold cryptocurrencies but rather manage the private key through which a user can access those cryptocurrencies. While the plaintiff had locked both his Exodus and BRD wallets with a password, both wallets employed recovery seeds that could be used to recover the passwords and could therefore allow him to gain access to the cryptocurrencies if his mobile phone was lost or destroyed.
The plaintiff alleged that his Stolen Cryptocurrency Assets were misappropriated when the 1st defendants accessed his safe deposit box (having overheard the safe combination recited out loud on a phone conversation), and obtained access to his recovery seeds. This allowed the 1st defendants access to his private keys and, consequently, his Stolen Cryptocurrency Assets. Following the plaintiff's investigations and tracing efforts, he determined that the 1st defendants had dissipated the stolen assets through a series of digital wallets of which 15 BTC was transferred to a wallet controlled by the 2nd defendant, and 0.3 BTC into a wallet controlled by the 3rd defendant.
The Singapore Court's findings
In granting the requested orders, the Singapore High Court decided on three interesting issues:
Jurisdiction against persons unknown:
- The court found that it had jurisdiction over persons unknown, taking reference from the UK Civil Procedure Rules, Malaysian Rules of Court, and various cases from the UK and Malaysia, where injunctions against unidentified persons were granted.
- Nevertheless, the description of the 1st defendants must be sufficiently certain as to identify both those who are included and those who are not. This follows the UK position in Bloomsbury Publishing Group Ltd and another v News Group Newspapers Ltd and others  1 WLR 1633.
Cryptocurrency as 'Property':
- The court found that the cryptocurrency could be regarded as 'property' which could be subject of a proprietary injunction.
- In doing so, it had regard to:
- The classic definition of a 'property' right in National Provincial Bank Ltd v Ainsworth  AC 1175 (Ainsworth): "[I]t must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability".
- The New Zealand case of Ruscoe v Cryptopia Ltd (in liq)  2 NZLR 809, where the court examined cryptocurrency against the Ainsworth definition and found that cryptocurrencies could be treated as 'property';
- The Singapore Court of Appeal's observation in Quoine Pte Ltd v B2C2 Ltd  2 SLR 20 that “[t]here may be much to commend the view that cryptocurrencies should be capable of assimilation into the general concepts of property”.
- The court caveated its holding by stating that it did not engage in complex questions of law or fact at the interlocutory stage.
Disclosure orders against cryptocurrency exchanges:
- The court granted the plaintiff disclosure orders requiring the 2nd and 3rd defendants to disclose:
- The current balances of the cryptocurrency exchanges' accounts that were credited with the stolen BTC;
- Information and documents collected by the cryptocurrency exchanges in relation to the owners of the relevant accounts;
- Details of all transactions involving the relevant cryptocurrency exchange accounts from the dates on which the Stolen Cryptocurrency Assets were credited against the accounts.
- It was held that the information would facilitate the identification of the 1st defendants (or persons acting in concert) and for the plaintiff to understand what remained of the Stolen Cryptocurrency Assets.
Given the increasing adoption of cryptocurrency and use of cryptocurrency exchanges, the court's willingness to adapt and apply traditional common law doctrines so as to protect cryptocurrency investors is important
Cryptocurrency exchanges ought also to be mindful that they can be subject to disclosure orders requiring them to disclose information concerning their account holders and ensure that there is a method to the separation of funds held on their behalf.
It should also be noted that this case has only recognised BTC and ETH as cryptocurrency that could be recognised as 'property'. Coinmarketcap, a popular cryptocurrency price tracker, lists over 9,500 cryptocurrencies, each with its own unique characteristics and it may be that other types of cryptocurrency do not fall so easily within the classic definition of a 'property' right in Ainsworth. For instance, factored into the court's analysis in CLM v CLN was the fact that BTC and ETH were capable of assumption by third parties (an Ainsworth requirement) because they are the subject of active trading markets, showcasing their desirability. It therefore remains to be seen how Singapore courts will treat other cryptocurrencies with far less monetary value (at the material time) in deciding whether it is 'property'.
Another implication of defining cryptocurrencies as 'property' could be how cryptocurrency is treated within Singapore's insolvency regime, given that companies globally (e.g. Tesla, Square, and Coinbase) are increasingly holding cryptocurrency as a form of realisable asset on their corporate balance sheets.
Finally, the Singapore Court's finding (albeit at an interlocutory stage) that the cryptocurrency assets in this case were capable of giving rise to proprietary rights is potentially important. A large number of cryptocurrency fraud cases involve fraudsters moving the stolen assets through multiple accounts held with different cryptocurrency exchanges. For example, in January 2018, hackers broke into a cryptocurrency exchange called Coincheck Inc. and made off with nearly US$500 million in digital tokens. It was subsequently identified that the 523 million of the stolen coins ended up in 11 accounts. Following CLM v CLN, cryptocurrency investors can take some comfort in the fact that courts will employ and adapt traditional legal mechanisms to help trace stolen cryptocurrency assets.