Singapore High Court issues injunctions against unknown individuals for cryptocurrency theft

Wednesday 23rd March 2022

A. What happened between the parties?

The plaintiff held Bitcoins and Ethereum tokens (the Stolen Cryptocurrency Assets) in two digital, decentralized “hot” (i.e., online) wallets accessible by mobile phone applications and protected with passwords. Both wallets utilized the “recovery seed” methodology to recover passwords and allow access to the wallets in case the plaintiff’s mobile phone was lost or destroyed.

In January 2021, while on vacation with friends in Mexico, the plaintiff gave an acquaintance the combination to his safe to retrieve cash. This safe also contained the recovery seeds to his digital wallets. The acquaintance repeated the safe combination aloud in a room with other people.

The next day, the plaintiff discovered that the Stolen Cryptocurrency Assets, worth approximately $7 million, were withdrawn from his digital wallets without his knowledge or consent. The plaintiff believed that the unknown persons who withdrew the Stolen Cryptocurrency Assets (the First Defendants) obtained the recovery seeds from the safe and used them to transfer the Stolen Cryptocurrency Assets.

The plaintiff’s investigations and tracing efforts indicated that the Stolen Cryptocurrency Assets were transferred to digital wallets that were held at two cryptocurrency exchanges with operations in Singapore (the Second and Third Defendants).

The plaintiff then commenced proceedings in Singapore and requested the High Court to grant the following orders:

• A proprietary injunction prohibiting the First Defendants from dealing with, disposing of, or diminishing the value of the Stolen Cryptocurrency Assets.

• Disclosure orders requiring the Second and Third Defendants to assist with the tracing of the Stolen Cryptocurrency Assets and the identification of the First Defendants.

B. What did the Court decide?

The Court granted the proprietary injunction and the disclosure orders. The Court also granted a worldwide freezing injunction against the First Defendants, even though the identities of the First Defendants were unknown. A summary of the Court’s decision and analysis is set out below.

The Court has jurisdiction over unknown persons

The Court held that it had jurisdiction to grant injunctions against unknown persons as Singapore’s Rules of Court do not require the identity of the defendant to be known. In reaching this decision, the Court referred to English and Malaysian cases decided on similarly worded procedural rules.

Nevertheless, the Court noted that the description of the unknown person(s) must be sufficiently certain as to identify those who do and do not fall within it. In this case, the First Defendants were described as “any person or entity who carried out, participated in or assisted in the theft of the plaintiff’s [Stolen] Cryptocurrency Assets on or around 8 January 2021, save for the provision of cryptocurrency hosting or trading facilities.” The Court held that this description met the required standard of certainty.

Cryptocurrency can be protected by proprietary injunctions as cryptocurrency assets are capable of giving rise to proprietary rights

To obtain the proprietary injunction order, the plaintiff had to show that cryptocurrency assets are capable of giving rise to proprietary rights. This issue had been left open by the Singapore Court of Appeal in Quoine Pte Ltd v. B2C2 Ltd [2020] 2 SLR 20.

The Court held that the Stolen Cryptocurrency Assets are assets capable of giving rise to proprietary rights for the following reasons:

• cryptocurrencies are “definable” as they are computer-readable strings of characters recorded on purpose-built computer networks and are sufficiently distinct that they can be allocated to individual account holders on a network;

• cryptocurrencies are “identifiable by third parties” as owners are allocated private keys, which are required to record a transfer of cryptocurrencies from one account to another;

• cryptocurrencies are “capable of assumption by third parties” as they are the subject of active trading markets; and

• cryptocurrencies have “some degree of permanence or stability” as the blockchain methodology underlying the cryptocurrency system provides stability to them, and cryptocurrency tokens stay fully recognized, in existence and stable unless and until spent, which may never happen.

In reaching this decision, the Court also referred to other common law jurisdictions regarding cryptocurrency assets, in particular, the New Zealand High Court decision in Ruscoe v. Cryptopia Ltd [2020] 2 NZLR 809, which recognized cryptocurrency as a form of property. Further, the decisions of the English High Court in Elena Vorotyntseva v. Money-4 Ltd [2018] EWHC 2596 and the Supreme Court of British Columbia in Copytrack Pte Ltd v. Wall [2018] BCSC 1709 were also instructive as both cases implicitly accepted that cryptocurrency may be regarded as property.

Further and on the facts, the Court had little hesitation in holding that the balance of convenience “clearly lay in favour” of granting the proprietary injunction, as there was a real risk that the First Defendants would dissipate the Stolen Cryptocurrency Assets.

Disclosure orders

The plaintiff sought disclosure orders requiring the Second and Third Defendants to provide the following information:

• the current balance of the Second and Third Defendants’ accounts that were credited with the Stolen Cryptocurrency Assets;

• information and documents collected by the Second and Third Defendants relating to the owners of those accounts; and

• details of all transactions involving those accounts from the dates on which the Stolen Cryptocurrency Assets were credited against those accounts.

The Court held that it was just and convenient to grant the disclosure orders as they were needed for the plaintiff to understand what remained of the Stolen Cryptocurrency Assets as well as the whereabouts of these assets. Further, the information sought would facilitate the identification of the First Defendants or any other persons that may have assisted or acted in concert with them.

C. What does this decision mean for you?

This is a welcome decision as it indicates that the Singapore Courts are prepared to recognize and protect cryptocurrencies as properties by granting proprietary injunctions against cryptocurrency theft, even where the identity of the perpetrators is unknown. This decision also demonstrates that Courts are prepared to make disclosure orders against cryptocurrency exchanges that are based or have operations in Singapore, so that victims of cryptocurrency theft or fraud are able to access critical information to assist them in freezing and tracing the stolen assets.

For cryptocurrency exchanges that are based or have operations in Singapore, this decision means that there is now a possibility of being served with disclosure orders issued by the Singapore Courts to disclose information relating to user accounts and freezing injunctions to freeze cryptocurrency held in user accounts. Such Court orders will override any contractual terms between an exchange and its users, for example, terms relating to the user’s ability to transact in the cryptocurrency and the exchange’s duty of confidentiality in relation to user information.

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