Case: Janesh s/o Rajkumar v Unknown Person (“CHEFPIERRE”) [2022] SGHC 264 General Division of the High Court — Originating Claim No 41 of 2022 (Summons No 1800 of 2022)
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BRIEF BACKGROUND
The claimant was the proud owner of an NFT known as the Bored Ape Yacht Club (the NFT). The NFT was often used by the claimant as collateral for loans, however, the claimant lost “possession” of the NFT after the defendant refused to honor the terms of a prior loan arrangement between the claimant and the defendant. Accordingly, the claimant sort an injunction to prevent the defendant from dealing with the NFT.
The Court considered, amongst other things:
whether the Court had jurisdiction to hear the case, given the decentralised nature of cryptocurrencies;
whether the NFT granted a proprietary interest in the claimant capable of enjoining the defendant from any further dealing with the NFT; and
given the defendant was known only pseudonymously by a Twitter account and metaverse personality, whether the Court had jurisdiction against an unknown person.
On jurisdiction
The claimant argued that, notwithstanding the fact that the domicile, residence and present location of the defendant was unknown, the Singapore court was the appropriate court to hear the application for the injunction on the basis that there was sufficient nexus to Singapore. The claimant was a Singapore citizen who carried on business from Singapore and owned property in Singapore. Further, the claimant entered the transactions concerning the NFT in Singapore.
On the proprietary interest of the claimant
In determining whether the claimant had a proprietary interest in the NFT, the court considered the four principles in the Ainsworth test:
The first being that the right must be “definable” – essentially, the asset “must hence be capable of being isolated from other assets whether of the same type or of other types and thereby identified”. This requirement is easily fulfilled as metadata is central to an NFT. It is this metadata which distinguishes one NFT from another.
The second requirement is that the “asset must have an owner being capable of being recognised as such by third parties”. Where NFTs are concerned, the presumptive owner would be whoever controls the wallet which is linked to the NFT. Similar to cryptocurrencies, excludability is achieved because one cannot deal with the NFT without the owner’s private key.
The third requirement is “that the right must be capable of assumption by third parties, which in turn involves two aspects: that third parties must respect the rights of the owner in that asset, and that the asset must be potentially desirable”. In the present case, the court was of the view these requirements would be met. Firstly, the nature of the blockchain technology gives the owner the exclusive ability to transfer the NFT to another party, which underscores the “right” of the owner. Secondly, such NFTs are clearly the subject of active trading in the markets.
The fourth, and final, requirement is that the “right and in turn, the asset, must have “some degree of permanence or stability”, although this is a low threshold since a “ticket to a football match which can have a very short life yet unquestionably it is regarded as property”. The NFT concerned has as much permanence and stability as money in bank accounts which, nowadays, exist mainly in the form of ledger entries and not cold hard cash.
The court considered its earlier decision (CLM v CLN [2022] SGHC 46) that it was possible for cryptocurrencies to be held on trust, and that the defendant in that case did hold BTC on trust for the plaintiff. In so holding, the court reasoned that cryptocurrencies meet the four requirements set out in Ainsworth and “have the fundamental characteristic of intangible property as being an identifiable thing of value”.
Key takeaways
1. Although the world of cryptocurrencies/NFTs is decentralised, it is not one without laws and:
"While the decentralised nature of blockchains may pose difficulties when it comes to establishing jurisdiction...there had to be a court which had the jurisdiction to hear the dispute".
2. Freezing orders and legal papers can be served on a metaverse personality (who happens to also be a famous Twitter influencer), even if the actual identity is unknown.
3. NFTs are not merely information or code on the blockchain, but also have the attributes of property. In particular, the Court considered that:
An NFT with its unique metadata is definable.
An NFT with its private keys would be an asset with an owner being capable of being recognised as such by third parties.
An NFT comes with a right that is capable of assumption by third parties, which in turn involves two aspects, that third parties must respect the rights of the owner in that asset, and that the asset must be potentially desirable. The Court held that the "nature of the blockchain technology gives the owner the exclusive ability to transfer the NFT to another party, which underscores the “right” of the owner. Secondly, such NFTs are clearly the subject of active trading in the markets".
An NFT has a relevant degree of permanence and stability.
To characterise NFTs as mere information would ignore the unique relationship between the encoded data and the blockchain system which enables the transfer of this encoded data from one user to another in a secure, and verifiable fashion. The real objection to treating information as property depends on the functions it is used for rather than on the plain fact that it is information.
Source: https://www.elitigation.sg/gd/s/2022_SGHC_264#
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