Singapore Courts consider novel issues in the cryptocurrency space

2024 has been a significant year for the Singapore Courts in the cryptocurrency space. In this update, we look at three notable cases handed down by the Supreme Court.

1. Fantom Foundation Ltd v Multichain Foundation Ltd and another [2024] SGHC 173 

The General Division of the High Court in Fantom Foundation Ltd v Multichain Foundation Ltd and another [2024] SGHC 173 considered the question of how damages should be assessed in the case of cryptocurrencies. 

Cryptocurrencies often trade in an extremely unstable pricing environment where prices may dramatically fluctuate in an extremely short period of time for rather indiscernible reasons. Hence, the assessment of damages could be a difficult exercise. On the date of the hearing on 3 June 2024, the court found evidence that even as the hearing was ongoing, the value of 1 Fantom (FTM) shifted by about 2.5% within the space of about 30 minutes. 

Given such volatile price fluctuations, at which point in time should the court look at when determining the value of the cryptocurrency? 

In answering this, the court first stated that the general compensatory principle is to allow for a party to be put in as good a position as if the contract had been performed, subject to the limiting doctrines of causation and remoteness (citing iVenture Card Ltd v Big Bus Singapore City Sightseeing Pte Ltd and other [2022] 1 SLR 302 at [103]). Damages are then generally assessed by reference to the date of the breach of contract, although the court may depart from this general position if following it would give rise to injustice. 

Given the volatility of cryptocurrencies, valuing the quantum of loss at the date of the breach may in some situations be manifestly unfair, or fail to reflect the actual loss which the claimant suffered after mitigating its losses.

In the United States, the Delaware Superior Court in Diamond Fortress Technologies Inc v EverID Inc 274 A.3d 287 calculated the value of cryptocurrency by referring to the “highest market price of the security within a reasonable time of the plaintiff’s discovery of the breach”. The duration of the reasonable period of time is established “by resort to a ‘constructive replacement’ purchase”, i.e. how long it would have taken the plaintiff to replace the securities on the open market. As a general rule, a period of two or three months was generally accepted as a reasonable period of time. 

Similarly in the United Kingdom, Lord Leggatt JSC opined in Stanford International Bank Ltd (in liquidation) v HSBC Bank plc [2023] AC 761 that: 

“where there is an available market in which an adequate substitute can be obtained for goods or services of which the defendant's breach of duty deprived the claimant, damages are to be assessed as if the claimant entered the market and obtained such a substitute at the earliest reasonable opportunity whether or not the claimant in fact did so.”

The Singapore High Court ultimately did not decide the issue as the Claimants had elected to assess the loss of value with reference to the date of the breach, and the court found that on the facts, there was no injustice in adopting this approach. 

Nonetheless, the observations made by the court are likely to be persuasive in future cases. There is a strong argument to be made that in the case of commercial institutions which have the ability to replace the cryptocurrency assets in question, the duty to mitigate requires the aggrieved party to do so within a reasonable time.

2. Cheong Jun Yoong v Three Arrows Capital Ltd and others [2024] SGHC 21

In Cheong Jun Yoong v Three Arrows Capital Ltd and others [2024] SGHC 21, the claimant’s claim against the defendants concerned the ownership over certain cryptocurrency assets. The claimant had obtained the court’s approval to serve his Originating Claim on the defendants out of Singapore, and the defendants applied to set aside the court’s order. 

In deciding the application, the court had to consider if the Singapore court was the appropriate court to hear the action and one of its key considerations turned on the issue of where the cryptocurrency assets in question were located. 

Cryptoassets have no physical identity and are not associated with any physical object; it exists as a record in a network of computers associated with it. Hence, its location cannot be determined by physical presence.

The claimant submitted that there was a good arguable case that the presumptive owner of cryptoassets would be whoever controlled the wallet linked to the cryptoasset, and that the situs of a cryptoasset would be where its owner was resident. Since the controller of the private keys of the cryptoassets in question was resident in Singapore, the cryptoassets were situated in Singapore. 

The defendants submitted that the cryptoassets should not be considered as being located in Singapore because there is significant uncertainty on how the location of digital assets is to be determined. In this regard, the defendants drew the court’s attention to conflicting authorities on the issue. On the one hand, the English High Court decision of Lavinia Deborah Osbourne v Persons Unknown and another [2022] EWHC 1021 (Comm) held that cryptoassets are to be treated as located at the place where the owner is domiciled (at [15]–[16]). On the other hand, in the case of Bybit Fintech Ltd v Ho Kai Xin and others [2023] SGHC 199, the Singapore High Court decided that USDT were choses in action (at [4]), and the defendants argued that USDT ought to be treated as being located in the country where the right to redeem it could be enforced. This would be consistent with the general principle that choses in action are regarded as situated where they are properly recoverable or can be enforced. 

The court agreed with the claimant that the location of a cryptoasset is better determined by looking at where it is controlled. Following this, the residence of the person who controls the private key should be treated as the situs of the cryptoasset linked to that private key. The court was of the view that the residence of the person is a “better indicator” of where control is being exercised, and where the person resides is also normally where he can be sued. On the facts of the case, the court found that there was a good arguable case that the claim had a sufficient nexus to Singapore as the claim largely involved cryptoassets situated in Singapore. 

It is notable that the court was careful to state that the residence of the person may only be the “better indicator”. It is therefore not absolute. In the appropriate case, it may be possible to argue that the place of residence of the person who controls the private key should not be the only deciding factor in determining the situs of the cryptoassets. For example, some cryptocurrency exchanges may have substantial operations in Singapore, but situate their head offices and/or place of incorporation overseas. In such situations, solely looking at the place of residence of the person or entity which controls the private key may not be sufficient. 

Moreover, in the criminal context, due to the rules on territoriality and the understanding that the local police should generally avoid seizing property located in a foreign state (without the assistance of that foreign state), determining the situs of the cryptoassets with reference solely to the place of residence of the person who controls the private key may not be practicable in certain situations. 

3. Baizanis, Georgios v Snap Innovations Pte Ltd and another [2024] SGHC 200

In Baizanis, Georgios v Snap Innovations Pte Ltd and another [2024] SGHC 200, the court considered the scope of the actual, usual and ostensible authority of a person represented to be a “director” of a company.  

The plaintiff, a cryptocurrency investor, had invested in a Cryptotrage scheme – an investment scheme involving the arbitrage trading of cryptocurrencies. In doing so, the plaintiff allegedly entered into a Service Agreement signed on behalf of Snap Innovations by Wu Zhongyi (“Wu”) and Bernard Ong (“Ong”) for the Cryptotrage arrangement. The website of Snap Innovations held out both Wu and Ong as holding the office of “director”. 

Notably, Clause 1.2 of the Service Agreement contemplated that in the event of “internal fraud” by any staff of the group of companies involved in the Cryptotrage scheme, Snap Innovations would have to replace any cryptocurrencies “stolen by fraud” within five business days. 

Pursuant to the Cryptotrage scheme, the plaintiff deposited cryptocurrencies into accounts on Binance. Sometime thereafter, Wu apparently misappropriated the cryptocurrencies deposited by investors (including the plaintiff) under the Cryptotrage scheme and disappeared. 

Interestingly, in dismissing the plaintiff’s claim, the court held that Wu and Ong did not have the authority to enter into the Service Agreement. The court found that while Snap Innovations’ website may have represented to the world that Wu and Ong were its directors, the Service Agreement contained obligations that were so “unusual” that it “would not be reasonable for a counterparty to unthinkingly take an individual’s appointment as a director to imply that the individual possessed the usual authority to enter into a transaction such as the Service Agreement.” This was because: 

1. The Service Agreement embodied a corporate guarantee by Snap Innovations that would expose it to unlimited liability by obliging it to replace any cryptocurrencies which had been stolen, with no cap on quantum. Furthermore, the replacement had to be effected within an extremely tight turnaround timeframe of five business days. The court was of the view that this “bespoke obligation clearly posed tremendous business risk, with the potential to jeopardise [Snap Innovation’s] very viability.” 
    
2. The Service Agreement centred on an activity that patently fell outside the scope of Snap Innovations’ ordinary business. Snap Innovations provided information technology services, with particular focus on solutions assisting brokers and traders in their brokerage and trading activities. However, the Cryptotrage scheme entailed a fundamentally different business proposition, involving the onboarding of investor deposits, as well as the management of and trading in client funds.

Therefore, the court found that the Service Agreement was not a “run-of-the-mill commercial deal”, and that “[a]ny prudent person looking to extract an indemnity of this order from a company would have sought confirmation from the company’s board of directors.” 

This case illustrates the importance of ascertaining the counterparty’s authority when entering into transactions. Mere reliance on representations made by a company about the individual’s position may not be sufficient in certain circumstances.