Singapore court issues ‘major’ NFT ruling, allowing papers to be served via blockchain
Singapore’s High Court on Friday issued what some lawyers describe as a “tremendous decision” to confirm the court’s jurisdiction over a case involving a non-fungible token (NFT), despite the borderless and decentralized nature of blockchain networks that host NFTs.
The case involves a plaintiff who used a Bored Ape Yacht Club NFT as collateral for an Ethereum-based decentralized finance (DeFi) loan of $150,000 in March of this year, according to court documents. NFT was valued at USD 500,000 at the time.
The defendant, who is known only by the online pseudonym “chefpierre,” later foreclosed on the loan in a dispute over a refinancing of the debt and moved the NFT from an escrow wallet to a personal wallet, according to the court documents.
The judge in the case, Justice Lee Seiu Kin, issued an injunction in May to block any sale and transfer of the NFT in question – Bored Ape Yacht Club (BAYC) #2162 – and has now ruled that Singapore has jurisdiction over the matter.
“If the Singapore courts did not hear the case, there was no other appropriate forum. This was because the Bored Ape NFT existed as code stored on the Ethereum blockchain, which is essentially a decentralized network of ledgers maintained in computers around the world,” according to the latest ruling.
Shaun Leong, the lawyer for the plaintiff, said the decision has significant implications for the wider blockchain industry.
“For the very first time in a purely commercial dispute we now have a court … [send] a clear signal to NFT investors worldwide that they have rights that can be protected, Leong said in an interview with Discard.
Centralized?
While some advocates in the NFT, blockchain and cryptocurrency industries have argued against using centralized authorities to settle disputes, as the blockchain and Web3 industries grow and expand, regulators and courts are grappling with how to enforce authority in industries that are digital and limitless.
Leong, a partner in the International Arbitration & Litigation team at Singapore-based Withers KhattarWong LLP, told Discard The court ruled that it could take jurisdiction because the plaintiff was based in Singapore, despite the borderless nature of blockchain.
Hong Qi Yu, CEO of cryptocurrency Tokenize Xchange in Singapore which operates NFT marketplace Elemint, told Discard via email that this “groundbreaking” decision sets a precedent for the NFT industry that will encourage adoption.
“NFTs are here to stay, and NFT owners now have full legal protection as buyers and owners, which also serves to validate NFT creators in the creation of a true asset class,” he wrote.
Michael Bacina, a digital law specialist and partner at Australian commercial law firm Piper Alderman, said the case was significant but still in its early stages.
“As a preliminary ruling, a fact noted by the judge, it is not as strong a precedent as a case where both sides have had the opportunity to make submissions on the status of cryptoassets,” he said Discard by e-mail.
Like other jurisdictions, Australian courts are grappling with multiple cases regarding crypto asset disputes. Bacina said developments in the Singapore case could help inform other courts’ decisions.
“If the ratio (reasoning) in this case is followed in other jurisdictions, it will provide the same support in those jurisdictions for recognizing crypto-assets as having value and being property,” he said.
The UK Law Commission released a consultation paper in July proposing a new category of property rights to cover digital assets as courts increasingly deal with the issue. The hearing ends on 4 November 2022.
Blockchain Summons
In another first for the Singapore court, Justice Kin ruled that the order to freeze any potential sale of BAYC NFT could be served via the blockchain given that Chefpierre’s identity is unknown.
Leong, the lawyer, has used messaging features on the Ethereum blockchain, as well as Discord and Twitter, to serve the chefpierre newspapers.
This follows a UK court allowing legal papers to be served as an NFT sent into a person’s wallet in July.
“We’re seeing how uniquely and in very interesting ways the law is catching up with technology,” Leong said.
The Singapore High Court also found that NFTs are not just information or code on the blockchain, but also have the characteristics of property and therefore give the owner the same rights as any other property.
“[The] The nature of blockchain technology gives the owner the exclusive ability to transfer the NFT to another party, underscoring the owner’s ‘right’, according to the court decision.
“This is a great decision,” said Leong, “it shows that despite the fact that digital assets sit on the borderless blockchain, there are courts that can step in in appropriate situations to bring order, apply some legality to private transactions as people do on Web 3.0.”
“And I think that’s a great foundation to have,” he added.
