Singapore Courts – ‘cryptoassets may be subject to a trust’

Introduction

In the rapidly evolving digital landscape, legal frameworks are constantly being tested and evolving.

The question of whether cryptocurrency can be held on trust is gaining significant attention, and recent developments shed light on this question.

The ByBit Case

A notable case that captured the spotlight is ByBit Fintech Limited v Ho Kai Xin (hereafter, “ByBit”) in Singapore.

This case, along with comparable scenarios in other common law jurisdictions, has sparked discussions about the property nature of cryptocurrency and its potential to be held on trust.

Here, the owner of ByBit, a crypto exchange, owner took legal action against an employee who had misappropriated USDT (Tether), a fiat-backed stablecoin pegged to the US Dollar, in addition to fiat currency.

The central question was whether USDT could be classified as property and therefore subject to a constructive trust.

The Singapore High Court’s verdict held that USDT qualifies as a chose in action, a type of property that can be the subject of an enforcement order.

The Court’s rationale rested on several factors:

1. Singapore’s Monetary Authority’s proposal to implement segregation and custody rules for digital payment tokens, implying the practical identifiability and segregation of digital assets, rendering them suitable for trust.
2. Cryptocurrency’s acknowledgment as property in the Singapore Rules of Court, permitting enforcement orders.
3. Crypto’s definable and tradable nature, aligning with the criteria for property defined in the National Provincial Bank v Ainsworth case.
4. The expansion of the category of things in action over time to include diverse types of incorporeal property, showcasing its adaptability and inclusiveness.

In a significant move, the Singapore Court recognised that crypto assets embody an incorporeal right of property, thus enabling their enforceability in court as things in action.

Consequently, the Court imposed a constructive trust over the misappropriated crypto assets, setting a significant legal precedent.

The perspective from the English courts

English law has also had to navigate similar questions.

In Zi Wang v Graham Darby the English courts established that individual cryptocurrencies, such as Tezos, can indeed constitute property subject to trust.

The case involved a disagreement between cryptocurrency traders and deliberated over whether a trust was formed. While the existence of a trust wasn’t unanimously accepted, the principle that cryptocurrencies can be deemed property was firmly established.

However, asserting that crypto exchanges inherently operate as constructive trustees is nuanced. A subsequent case underscored that this proposition must be approached carefully, depending on individual circumstances.

Conclusion

The acknowledgment that cryptocurrency is property, particularly choses in action, brings further clarity the legal position.

This recognition impacts on asset tracing, enforcement, protection in insolvency cases and tax.