Introduction

The dust has now settled on the landmark judgment of CLM v CLN [2022] SGHC 46, which reflects the adaptability of the common law.

For the first time, the General Division of the High Court of Singapore granted a proprietary injunction, and a worldwide freezing injunction against persons unknown. While breaking new ground in Singapore, such an injunction had already found support in other common law jurisdictions.

Many commentators were also quick to highlight the cryptocurrency dimension to the judgment. There are however other dimensions to the judgment that bear further examination. How do you deal with wrongdoers who have effectively masked their identities and whisked your valuable assets halfway round the world in a few minutes? How do you do so without causing collateral damage? Several issues still surround legal action involving perpetrators being persons unknown. In examining these issues, a clear parallel can be drawn with injunctions granted in cases involving fiat currency.

A quick look at CLM

The Court responded to evidence of wrongdoing facilitated by cryptocurrency’s ease of seemingly anonymous transacting across national boundaries. One of the main criticisms of cryptocurrency has always been how easily it facilitates transactions that involve criminal conduct.

The landmark judgment starts off with a description of the cryptocurrency assets as the “Stolen Cryptocurrency Assets” [1] – [2]. On the facts, it would not have been controversial that the dissipated cryptocurrency assets were considered stolen – indeed, it is arguable that this would have been easily established on both the balance of probabilities (the civil standard) or beyond a reasonable doubt (the criminal standard). It seemed to be a complex asset-shifting scheme to part the plaintiff with his valuable cryptocurrency after the plaintiff somehow divulged the possible keys to his assets: 109.86 Bitcoin, and 1497.54 Ethereum – worth approximately S$14 million at the time of writing.

Because all the transactional evidence of the transfers was on the respective blockchains, there was therefore a trail that could be traced. Just as much as cryptocurrency can facilitate ease of transacting, legally speaking, it is also a treasure chest for records and evidence.

Available remedies when your assets are stolen

While criminal law deals with unknown or unidentified perpetrators on a regular basis for offences under the Corruption, Drugs and Serious Offences Act 1992, it is also true that victims of many love scams, for instance, are not able to act quickly enough on their own, and find themselves out of pocket. Some perpetrators are never found. Victims often have to rely on coordinated action being taken by the police and banks, which may have territorial challenges and issues of banking secrecy. That said, a swift report to the Singapore Commercial Affairs Department and notice to the bank may assist in managing further dissipation.

Following CLM, one can expeditiously seek relief from the Courts with a hope to better manage dissipation in cryptocurrency-related scams. In terms of setting up the claim, one would not be expected to establish the act of stealing using the more technical criminal law definition, nor to meet the standard of proof (beyond reasonable doubt) in criminal proceedings. These issues could be addressed in concurrent criminal proceedings.

CLM also highlighted once more our globalised world: not only was there a real risk of the dissipation of the stolen assets, but there was a risk of dissipation beyond Singapore to frustrate the enforcement of any court judgment. In that sense, the judgment is not surprising in its application of first principles on injunctions, as it set out and applied well-established criteria for granting such injunctions, albeit with greater attention and urgency given to the international dimension of the case.

The reason why the judgment is unprecedented is also its most interesting aspect: that the injunction was against persons unknown.

Drawing a parallel with ‘persons unknown’ in summary proceedings, the Court in CLM stated that case law requires that the ‘persons unknown’ must be described with adequate certainty as to who falls within and outside the description. This then begs the question: how does one clearly categorise the persons unknown so that the relief is effective, if these persons are unknown and cannot be clearly located?

The essence of blockchain is that it is a ledger with an enormous volume of records – how does one discern, locate, and define a category of persons from that sea of records? The problem does not lie with identifying the chain of transactions. While this may have complications for bank-based transactions and their corresponding records given banking secrecy laws, the issue with blockchain is understanding the records available. Most of the most common blockchains do not carry authenticated identity information. One would need to pick up the clues usually extraneous to the blockchain.

When coupled with the disclosure orders that are available to plaintiffs, and as granted in CLM, the Court has ameliorated the above concerns regarding sufficient information from transaction records to trace the perpetrators.

The crux of the issue is that these are persons unknown after all, and one can only expect that identifying them is only when things go awry. Here, there is a clear parallel with fiat currency: email spoofing scams.

In a typical case of email spoofing involving fiat currency, an unwitting victim, Mr A, responds to an email that has been convincingly designed to have originated from someone, Ms B, whom the victim usually transacts with.

The victim then transfers money to the purported Ms B, except that the account belongs to Entity C in reality. Entity C is then called by the fraudster, and the fraudster attempts to trick Entity C into believing that it is part of its normal business dealings. Unless Entity C is also on its guard, and wondering why it received such monies, Mr A is now on the back foot and will be slow (in comparison to the scammer) to realise this.

Subsequently, Mr A finds out that the email was spoofed, and takes action immediately to claw back money from whoever received it. But the money may not be there anymore.

It is apparent where the parallels are with the cryptocurrency situation. Just replace fiat currency with cryptocurrency. However, there is one key difference: one can ascertain wallet numbers from the blockchain very quickly for the purposes of an injunction, and to apply for disclosure orders at the same time while continuing one’s own further investigations (as was done in CLM). However, the same cannot be always said for fiat currency because it is common for fraudsters to move funds around at the click of a mouse, and then withdraw them at various ATMs or otherwise convert stolen monies to cash. Disclosure (or Norwich Pharmacal) orders may be required before one applies for injunctive relief. Further, there are no issues of banking secrecy for cryptocurrency so long as no banks are involved.

CLM is a good example that timely and effective legal and technical advice is necessary to ameliorate these issues. Further investigations conducted by the plaintiff using experts, as well as the subsequent disclosure of transaction records by the second and third defendants (entities with cryptocurrency-related operations here in Singapore), allowed the plaintiff to identify further entities.

These were later joined as the fourth and fifth defendants to the case. The records provided also allowed the plaintiff to identify further entities that the plaintiff believed to be innocent third parties. They were joined as defendants only pursuant to the disclosure orders.

Access to quick legal advice of the essence

While speed is of the essence, it will also be important to balance that with expeditiously identifying potentially innocent third parties who may be involved in the dissipation scheme in order to prevent the plaintiff from being unnecessarily exposed to losses or damages arising from the usual undertaking for injunctive relief. As always, the devil will be in the details – in this era, the details will be in the blockchain’s records, and the extraneous details that accompany them.

As a global firm, Dentons is well-placed to provide that expertise across jurisdictions, and we have extensive experience with the more traditional spoofing claims involving fiat currency, as well as the new-fangled cryptocurrency frauds.