Singapore froze trade with NFT in commercial dispute
On May 13, 2022, a Singaporean man won a worldwide injunction banning the transfer of ownership of a non-functioning token (NFT) at the center of a dispute between him and an online persona with the screen name “chefpierre”. The ban, ordered by the Singapore Supreme Court, attracted global attention in the blockchain and NFT business and legal circles because it appears to be the first time a court has frozen trading in an NFT in a commercial dispute.
What is the dispute about?
On March 19, 2022, Janesh Rajkumar, a cryptocurrency and NFT investor, entered into a “chefpierre” loan agreement with NFTfi, a cryptocurrency lending marketplace that gives NFT owners access to liquidity (specifically Wrapped Ethereum (wETH) and DAI). by noting NFTs as security. When he was unable to repay the loan on time, Rajkumar asked for an extension, and the two parties discussed the possibility of refinancing the loan. On April 20, Mr. Rajkumar and “chefpierre” entered into a refinancing agreement. As part of the second agreement, Mr. Rajkumar pledged as security Bored Ape Yacht Club (BAYC) NFT No. 2162.
NFT is part of a series of BAYC NFTs that currently have a floor price of 89 ETH (approximately $ 95,000 USD) on OpenSea, an online NFT marketplace. In April alone, the BAYC NFTs reached a record high of 152 ETH (about $ 434,000 USD). Mr. Rajkumar transferred BAYC No. 2162 to NFTfi’s escrow account with the mutual understanding that NFT would remain there until the full repayment of the loan. The agreement also stipulated that “chefpierre” would never exercise his exclusion option and take ownership of BAYC No. 2162. Instead, if Mr. Rajkumar was unable to repay the loan on time, he would inform “chefpierre”, who in turn would provide reasonable extensions of the repayment period.
“chefpierre”, however, refused to release the additional amount agreed in the refinancing agreement and threatened to seize the ownership of BAYC No. 2162 if Mr. Rajkumar did not repay his entire loan on April 21. The deadline imposed by the “chefpierre” gave Mr. Rajkumar about seven hours to return the borrowed money. When Mr. Rajkumar failed to meet the deadline, “chefpierre” excluded by transferring BAYC No. 2162 to his personal cryptocurrency wallet and list NFT for sale on OpenSea. Mr. Rajkumar later repaid part of the loan, but “chefpierre” returned the amount paid and prevented Mr. Rajkumar from paying him further on NFTfi.
Among other claims, Mr. Rajkumar is seeking an order to force “chefpierre” to accept repayment of the loan and transfer BAYC No. 2162 to Mr. Rajkumar’s cryptocurrency wallet.
The significance of the case
The decision in Janesh s / o Rajkumar contributes to a small but growing legal investigation which concludes that NFTs mediate enforceable property rights, the nature of which is still the subject of further analysis. For example, in January this year, the High Court of England and Wales in Lavinia Deborah Osbourne v (1) Persons Unknown (2) Ozone Networks Inc. traded as Opensea [2022] EWHC 1021 (Comm) ruled that NFTs, although not the underlying content they represent, are “legal property”. The court granted an order to freeze ownership transfers of two NFTs stolen by hackers from a woman’s cryptocurrency wallet.
Conclusion
Although the Singapore Supreme Court has not yet ruled on Mr Rajkumar’s other demands, the injunction issued in May is certainly a victory for NFT owners seeking redress in a world of increased decentralization. ArentFox Schiff closely monitors developments in this case and other legal issues that arise in metaverse, cryptocurrency and NFT space. The company uses its experience to advise customers in similar cases.
* Lubna Kayyali was a summer employee in 2022 at ArentFox Schiff’s NY office.
