Singapore high court grants proprietary and injunctive relief

The Singapore High Court has for the first time in CLM v CLN [2022] SGHC 46 recognised the following possibilities for injunctive relief in relation to cryptocurrencies:

• The Court has jurisdiction to grant injunctive relief against persons unknown;

• A proprietary injunction may be obtained against persons unknown prohibiting them from dealing with, disposing of, or diminishing the value of identified cryptoassets;

• A worldwide freezing injunction against persons unknown with the same prohibitions; and

• Ancillary disclosure orders i.e. Bankers Trust orders against foreign exchanges to assist in the tracing of stolen cryptoassets and identifying the persons unknown.

We set out below a number of takeaways for future litigants seeking to obtain such reliefs in the Singapore Courts.

Persons Unknown

As a starting point, the Court does not need a defendant to be specifically named in proceedings. However, the description of any unknown defendants must be sufficiently certain to identify both those who are included and those who are not.

It would be helpful in future cases to note the formulation that was accepted in CLM v CLN. In this case, the Court considered the following description to be sufficiently certain: “[A]ny person or entity who carried out, participated in or assisted in the theft of the Plaintiff’s Cryptocurrency Assets on or around 8 January 2021, save for the provision of cryptocurrency hosting or trading facilities.”

Proprietary Injunction

An applicant for a proprietary injunction must satisfy the Court that (1) there is a serious question to be tried; and (2) the balance of convenience lies in favour of granting the injunction.

Limb (1) is satisfied so long as the plaintiff can show a seriously arguable case that they have a proprietary interest in the assets in respect of which proprietary injunctive relief is sought.

In CLM v CLN, the Court held, following the analysis in the New Zealand case of Ruscoe v Cryptopia Ltd [2020] 2 NZLR 809, that cryptocurrencies satisfy the definition of a property right in National Provincial Bank Ltd v Ainsworth [1965] AC 1175. This case held that such rights must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.

On this basis alone, the Court held that limb (1) was satisfied. But the Court may have conflated the question “Does the plaintiff have a seriously arguable case that the stolen cryptoassets are property” with the question “Does the plaintiff have a seriously arguable case that it has a proprietary interest to the cryptoassets”. It is submitted that the latter question would be the question to ask in future applications of this nature. The Court did not address the latter question in its judgment, but this can hardly be criticised on the basis that the plaintiff’s undisputed case is that the monies were stolen; title in stolen goods would not ordinarily pass to a thief and so everything before the Judge turned upon the former, instead of the latter, question.

On limb (2), it was unclear what factors persuaded the Court that the balance of convenience clearly lay in favour of the plaintiff as against the other six defendants in granting the injunction. These defendants comprised of foreign nationals, cryptocurrency exchanges and a digital payment services company. According to the Court, the sole factor appeared to be that there would be a real risk of dissipation of the stolen cryptoassets if the injunction were not granted, with the only other factor being the losses the first defendants may suffer arising from their inability to deal with the stolen cryptoassets. No other factors pertaining to the remaining 6 defendants were discussed.

Mareva Injunction

The Court accepted the evidence of the plaintiff in holding that there was a real risk of dissipation. This was because the first defendants had dissipated the stolen cryptoassets through a series of digital wallets that appear to have been created solely for the purpose of frustrating the plaintiff’s tracing and recovery efforts, and which had either no or negligible transactions other than the deposit and withdrawal of the stolen cryptoassets: at [54].

The risk of dissipation was also heightened because of the nature of cryptocurrencies: they are transferred by the click of a button, through digital wallets that may be anonymous or untraceable to the owner.

These are key factors that future litigants ought to consider advancing when applying for worldwide freezing injunctions.

Comments

One feature of the case that did not receive any discussion in the judgment was the fact that the identity of the parties to the case were entirely redacted. It is not evident from the judgment why this was the case. One possibility may have been to increase the chances of successful enforcement and to avoid alerting the alleged perpetrator in circumstances where, if his or her identity(ies) was or were known, that would increase the risk of dissipation of the stolen cryptoassets.

One unexplored possibility was for the Court to make a “self-identification order” i.e. a requirement that the persons unknown identify him/herself and provide an address for service. Such an order is necessary if, in the event the claim succeeds, the remedies to which the plaintiff would be entitled are to be effective. This is a further tool available to victims of fraud perpetrated by unknown actors. There are cases where unknown defendants have complied with such orders: see NPV v QEL [2018] EWHC 703 (QB).

CLM v CLN is ultimately a decision that aligns Singapore jurisprudence with that of other jurisdictions in the realm of cryptocurrency disputes. It would be a good idea for litigants to consider this precedent as well as the matters set out above in future disputes, all of which may increase the chances of recovery in circumstances where the victim’s prospects of success are already frighteningly uncertain (such as the recent hack against Ronin, the blockchain underlying popular game Axie Infinity).