Introduction
Whether crypto-assets are considered property
Whether cryptocurrencies are trusted by exchanges for users
Whether updated versions of the Terms and Conditions apply
Preventive measures
Comment
Introduction
Recently, the crypto world has been tumultuous with several popular players halting withdrawals and becoming insolvent. In Singapore alone, companies like Hodlnaut, Three Arrows, Torque and Zipmex have all sought some form of insolvency protection, and it’s possible other companies will follow suit. In August 2022, the courts granted three-month moratoriums (or extensions) to Zipmex and Vauld.
Many participants in the crypto space have been burned and wondering what to look out for when wanting to pursue a claim against crypto platforms in Singapore. This article reviews some of the major legal issues that have been resolved by cases and regulations in Singapore to guide parties involved in cryptocurrency disputes.
Whether crypto-assets are considered property
Singapore courts, like other major common law courts, have recognized that crypto-assets can be property in the legal sense. In Quoine Pte Ltd v B2C2 Ltd,(1) the Singapore Court of Appeal favored the idea that general concepts of ownership apply to cryptocurrencies.
Non-fungible tokens (NFTs) also received a similar assertion from the Singapore High Court and Singapore regulators. In May 2022, the court granted an injunction to freeze the sale and transfer of ownership of a Bored Ape Yacht Club NFT, recognizing it as legal property. This acknowledgment is linked to parliamentary statements made earlier this year by Singapore’s finance minister – that personal income tax may be charged on income generated from NFT trading.
Notwithstanding the above, however, regulators have clarified their stance on cryptocurrencies. On August 29, 2022, the Chief Executive of the Monetary Authority of Singapore (MAS) stated that the MAS does not consider cryptocurrencies as suitable for use as currency.
Whether cryptocurrencies are trusted by exchanges for users
In an insolvency scenario, establishing whether assets belong to the insolvent company or are held in trust for creditors is crucial in determining whether users would be able to recover their crypto assets.
The key to solving this puzzle lies in the platform’s terms and conditions that govern the legal relationship between exchanges and consumers. Another factor to consider is whether the crypto tokens were held separately from the general assets of the exchange.
In the What case, the Singapore Court of Appeal ruled that users’ cryptocurrencies were not held in trust by the exchange. The court referred to the exchange’s risk disclosure statement, which specifically provided that client assets would not be returned in the event of bankruptcy. The Court held that this was contrary to an intention to create a trust. The Court also concluded that there was no separation of assets between the exchange and its customers and, even if there was, separation alone, although necessary, was not sufficient to demonstrate an intention. to create a trust.
Whether updated versions of the Terms and Conditions apply
Updated versions of the Terms and Conditions apply, but only if sufficient notice has been given. In the What case, the Court concluded that the mere posting of an updated version of the risk disclosure statement on the exchange’s website was not sufficient to incorporate an amended clause into the contract with users. This was the case despite the existence of an express clause in the terms of the platform providing that the exchange may change its terms from time to time without notifying users. Nevertheless, the Court held that this presupposes that the exchange would have given users the opportunity to consider the change. In short, unnotified, unilateral exchange changes will likely not be considered effective when incorporated into the terms and conditions.
It is clear that regulators are concerned and trying to manage the magnitude of the potential influx of crypto litigation, especially in the current environment. Earlier this year, MAS banned advertisements on cryptocurrency platforms to the public in Singapore. MAS said it would consider other measures to protect the average person on the street. These measures may include client suitability testing and restricting the use of leverage and credit facilities for cryptocurrency trading.
Courts and regulators have remained strong in clarifying legal issues surrounding crypto-related disputes. As Singapore continues to aspire to establish itself as a fintech hub, it will not happen without new measures to protect the average consumer from the risks of getting into cryptocurrencies speculatively.
Although regulators have expressed reservations about treating cryptocurrency as a viable form of money or investment asset, courts continue to set the framework to protect users if they end up in a dispute. with major crypto players. But while business models and operations have quickly adapted to technological advances, the challenge continues as the law is still trying to catch up, sometimes resulting in unintended disjunctions in establishing new law and adapting the new law to reality.
Given the stance of regulators, it is likely that the courts will continue to take a cautious and organized approach to this.
For more information on this subject, please contact Lynette Koh or Peter Huang at Helmsman LLC by phone (+65 6816 6660) or email ([email protected] Where [email protected]). The Helmsman LLC website can be accessed at www.helmsmanlaw.com.
Endnotes
