I. Introduction

In the recent case of ByBit Fintech Ltd v Ho Kai Xin and others [2023] SGHC 199 (ByBit), the Singapore High Court ruled that the holder of a crypto asset, what is commonly known as United States Dollar Tether or USDT, has a property right which was legally enforceable in common law. Observers of the Singapore Courts in this space saw this coming with a string of recent cases that keenly pointed in the direction that the cryptocurrencies and NFT in those cases were capable of being regarded by the common law to be property that was capable of legal protection.

Justice Philip Jeyaretnam held that crypto assets are things in action (or choses in action) and are capable of being held on trust, making this the first time a common law court, and a Singapore court, has made such a ruling. This decision marks a watershed moment in the area of law regarding cryptocurrency as it goes beyond the Singapore Court of Appeal’s decision in Quoine Pte Ltd v B2C2 Ltd [2020] SGCA(I) 02 which held that cryptocurrencies (or specifically bitcoin or BTC I in that case) have fundamental characteristics of intangible property and can be treated as property.

II. Background

The Claimant, a Seychellois company which owns and operates a cryptocurrency exchange, had engaged WeChain Fintech Pte Ltd (WeChain) for its payroll services to handle the remuneration of the Claimant’s employees which comprises traditional currency, cryptocurrency, or a mixture of both. The Defendant, an employee of WeChain, was responsible for the payroll processing of the Claimant’s employees.

The Claimant discovered that there were unusually large cryptocurrency payments made into four addresses where a total of 4,209,720 United States Dollar Tether (USDT) (the Crypto Asset) had been transferred. While these transactions were initially attributed by the Defendant as an inadvertent mistake, the Claimant subsequently discovered that the Defendant had prior knowledge of these four addresses and therefore suspected that the Defendant owned the wallets associated with these addresses. While the Defendant has accepted that the Crypto Asset belonged to the Claimant and that she was not entitled to the same, her defence was that she had no knowledge of such transactions.

The Claimant sought summary judgment against the Defendant, asserting that the Defendant had breached her employment contract by transferring the Crypto Asset to addresses controlled by herself. The main relief sought by the Claimant is a declaration that the Defendant holds the USDT in question on trust for the Claimant and sought an order for the return of the same.

As such, the key issue before the Singapore High Court was whether crypto assets are property capable of being held on trust and if so, the type of property they constituted. It is important to bear in mind that the crypto asset here is what is commonly described as a stablecoin, and is backed, by its issuer, with an equivalent value in fiat currency or other reserves which verified holders of such crypto asset have the right to redeem for fiat currency, i.e. USDT.

III. Whether USDT is property capable of being held on trust

In determining whether USDT is property capable of being held on trust, the Court firstly recognised that crypto assets were a form of property which were capable of being identified and segregated. Justice Jeyaretnam found that crypto assets have not only been transferred for value but were also recognised on the balance sheets of companies given that the accounting profession had developed standards for how to value and report them. Furthermore, the Court made reference to the recent consultation paper issued and published by the Monetary Authority of Singapore (MAS) entitled: MAS, “Response to Public Consultation on Proposed Regulatory Measures for Digital Payment Token Services” which proposed amendments to implement segregation and custody requirements for digital payment tokens. This serves to underline the possibility of identifying and segregating such digital assets and that it is legally possible to hold them on trust.

The Court also recognised that cryptocurrency has been given more recognition as evidenced in Order 22 of the Rules of Court 2021. Order 22 Rule 1(1) includes “cryptocurrency or other digital currency” in its definition of “movable property”, thus suggesting that cryptocurrency has been expressly recognised as a form of property capable of being the subject matter of an enforcement order.

Secondly, the Court clarified that while crypto assets are not categorized as physical assets given that they do not have a fixed physical identity, but would nonetheless manifest themselves in the physical world. The Court took guidance from Professor Kelvin Low who argued that the right that the holder of the private key has is “properly conceptualised as a narrow right to have the unspent transaction output of a crypto asset locked to a holder’s public address on a blockchain”. As such, while the Court acknowledged that the physical manifestation at the level of digital bits and bytes is not permanent and changes with every transaction, it likened a crypto asset to how a river is given a name despite the water contained within its banks constantly changing.

Furthermore, Justice Jeyaretnam acknowledged the scepticism regarding the value of crypto assets but noted that value is not inherent in an object but rather a judgement made by an aggregate of human minds. He proceeded to conclude that the exchange value tied to an object is by virtue of a collective act of mutual faith and noted that what is treated as money by the general consent of mankind is given the credit and currency of money to all intents and purposes.

As such, the Court concluded that crypto assets were capable of being defined and identified as they could be traded and valued as holdings, therefore finding that it falls squarely within the categorisation of property laid out in National Provincial Bank v Ainsworth [1965] 1 AC 1175 which states that the right affecting property must be “definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability”. 

IV. Can USDT be classified in the category of things in action (or chose in action)?

In determining whether USDT may be classified in the category of things in action, the Court acknowledged the general argument that such rights associated with things in action are often enforceable by action against persons. Justice Jeyaretnam cited the example of contractual rights and the right to be paid money, further noting that there is no individual counterparty to the crypto holder’s right. However, he noted that the category of things in action has evolved and expanded to also include both documents of title to incorporeal rights of property as well as incorporeal rights such as copyrights. The Court recognised the diversity of incorporeal property that has been classified as things in action and therefore found that the categories of things of action should not be closed off but rather broad and flexible. As such, the Court held that the holder of a crypto asset has in principle an incorporeal right of property recognisable by the common law as a thing in action and is therefore enforceable in court.

V. Conclusion

The Court ultimately declared a constructive trust over the USDT, finding that the Claimant was the legal and beneficial owner of such assets. As such, given the relative ambiguity surrounding the treatment of crypto assets in Singapore, this landmark decision in ByBit firmly establishes the principle that the holder of a crypto asset has a legally enforceable property right which can be recognised in common law as a thing in action. This provides welcome clarity to the status of crypto assets, that crypto assets can be held on trust, and the possibility of using crypto assets as collateral. This clarity provides greater guidance for players in this space on how they can be dealing with crypto assets vis-à-vis one another, and how their rights can be enforced.

That said, the world of crypto assets is not limited to tokens such as cryptocurrencies and include NFTs, convertible virtual currency products, and even forms of digital capital markets products such as digital debentures and crypto derivatives. The Singapore cases thus far involved cryptocurrencies (BTC, ETH, and USDT) and NFTs. Whether the same arguments, based on Justice Jeyaretnam’s reasoning, can be applied to all crypto assets, therefore classifying all of them as property, may be subject to further argument. The fast-developing nature, characteristics and types of digital and crypto assets, means that the body of jurisprudence in this area of law, can only continue to grow.