The Singapore High Court case in CLM v CLN and others  SGHC 46 is the first reported Singapore decision on the grant of an injunction against persons unknown to freeze cryptocurrency.
The court granted the injunction over the stolen cryptocurrency of approximately 109 bitcoins (BTC) (approximately more than RM17 million in value based on current price of 1 BTC to ~RM160,000) and 1,497 ether (ETH) tokens (approximately more than RM16 million in value based on current 1 ETH to ~RM11,000).
Summary of the Decision and Significance
The plaintiff individual had his cryptocurrency stolen by unknown persons. Unknown persons had gotten access to his recovery seed phrase and emptied his cryptocurrency wallets. The plaintiff sought injunctions and disclosure orders to aid in the freezing and tracing of his stolen cryptocurrency.
First, the court agreed that it had the jurisdiction to grant an injunction against persons unknown. Among others, the court cited the Malaysian persons unknown decision of Zschimmer & Schwarz.
Second, the court granted the proprietary injunction based on the American Cyanamid principles. The court agreed that cryptocurrency can give rise to proprietary rights which could be protected via a proprietary injunction.
Third, the plaintiff had also obtained ancillary disclosure orders against the second and third defendants in this case. The second and third defendants were cryptocurrency exchanges and where the stolen cryptocurrency had been traced to wallets held by these exchanges. The disclosure order was for, among others, information and documents collected by the second and third defendants in relation to the owners of the relevant accounts/wallets.
Fourth, the court dealt with how to effectively serve the court papers out of jurisdiction and electronically by email.
This case is significant in outling how cryptocurrency can satisfy the definition of a property right. Hence, cryptocurrency is property that can be subjected to freezing under a proprietary injunction.
As an introduction to the parties, the plaintiff is a national of the United States of America and an entrepreneur. The plaintiff stated that he was the owner of the stolen cryptocurrency assets.
The first defendants are persons unknown, which refer to any person or entity who carried out, participated in, or assisted in the there of the stolen cryptocurrency assets, save for entities involved in the provision of cryptocurrency hosting or trading facilities in the ordinary course of business.
The second and third defendants were entities who operated cryptocurrency exchanges with operations in Singapore. Portions of the stolen cryptocurrency assets were traced to digital wallets in the exchanges operated by the second and third defendants.
Prior to the theft, the plaintiff held two digital wallets allowing access to his cryptocurrency. The wallets were under the software applications on his phone called “Exodus” and “BRD”. Exodus and BRD are decentralised “hot” wallets (i.e. wallets that are connected to the internet) that are accessible through a free mobile application.
Exodus and BRD provide users with a public wallet address and allow the private key to be stored directly on the user’s phone. Exodus and BRD wallets do not themselves hold cryptocurrencies but rather manage the private key through which a user can access those cryptocurrencies.
While the plaintiff locked both his Exodus and BRD wallets with a password, both wallets employed recovery seed phrases that could be used to recover the passwords.
In January 2021, the plaintiff and seven acquaintances were on vacation at his apartment in Mexico. On 7 January 2021, the plaintiff had requested a member of his group to help the plaintiff access the plaintiff’s safe. This was to retrieve some cash in that safe. That safe had also contained the plaintiff’s recovery seed phrases. The plaintiff read out the safe combination and other members of the group could have also heard the safe combination.
On 8 January 2021, the plaintiff accessed his Exodus and BRD wallets and discovered his BTC and ETH had been withdrawn without his knowledge.
Subsequently, the plaintiff’s investigations and tracing efforts determined that the first defendants (being persons unknown) had dissipated the stolen cryptocurrency through a series of digital wallets.
Ultimately, the relevant transfers out of the stolen cryptocurrency showed that 15.0 BTC could be traced to a wallet address controlled by the second defendant, and 0.3 BTC could be traced to a wallet address controlled by the third defendant.
The plaintiff sought a proprietary injunction and a worldwide freezing injunction against the first defendants. Further, the plaintiff sought ancillary disclosure orders against the second and third defendants for information and documents relating to the accounts that were credited with the 15.0 BTC and 0.3 BTC that are traceable to the stolen assets.
Jurisdiction against persons unknown
The identity of the first defendants were unknown at the time of the filing and hearing of the injunction application.
The court first had to deal with the preliminary issue on whether it had the jurisdiction to grant interim orders against the first defendants even though their identities were unknown at the time.
The court agreed that it had the jurisdiction to grant interim orders against persons unknown. Among others, the court adopted the approach of the Malaysian High Court decision in Zschimmer & Schwarz BmbH & Co KG Chemische Fabriken v Persons Unknown & Anor  7 MLJ 178.
The court noted that the description of the first defendants must be sufficiently certain to identify both those who are included and those who are not. The court was satisfied that the description in this case had sufficient certainty.
In deciding on whether to grant a proprietary injunction, the court had to consider whether there was a serious question to be tried and the balance of convenience.
The important issue was whether cryptocurrency was capable of giving rise to proprietary rights which could be protected via a proprietary injunction.
The court referred to various authorities and especially the analysis in the New Zealand cryptocurrency case of Ruscoe v Cryptopia Ltd (in liq)  2 NZLR 809. The court held that cryptocurrencies satisfied the definition of a property right.
The balance of convenience did lie in favour of granting the proprietary injunction.
Mareva freezing injunction
The court also granted the worldwide freezing injunction to restrain the first defendants from dealing with, disposing of, or diminishing the value of, their assets up to the value of approximately US$7 million, being the value of the stolen cryptocurrency assets.
Disclosure orders against the cryptocurrency exchanges
The court granted the ancillary disclosure orders requiring the second and third defendant cryptocurrency exchanges to disclose
- The current balances of the accounts that were credited with the 15.0 BTC and 0.3 BTC respectively, that are traceable to the stolen cryptocurrency assets.
- Information and documents collected by the second and third defendants in relation to the owners of the relevant accounts.
- Details of all transactions involving the relevant accounts in the second and third defendants from the dates on which the stolen assets were credited against the accounts.
As a result of the plaintiff’s subsequent investigations and disclosure by the second and third defendants, the plaintiff managed to identify further parties to be added to the proceedings.
Service Out of Jurisdiction
One interesting aspect on service out of jurisdiction was where the plaintiff had to show that Singapore is the proper forum to hear the substantive dispute.
The court placed a lot of weight on the fact that the second and third defendant cryptocurrency exchanges are based in Singapore and had complied with the disclosure orders.
Substituted Service Out of Jurisdiction
The plaintiff had to effect substituted service of the court papers and certain individuals who had opened accounts with the second and third defendant cryptocurrency exchanges.
The court found that one important reason for allowing for substituted service by way of service by email. The individuals had opened the accounts via email. The operative contact point was always their email addresses as all communications between them and the cryptocurrency exchanges were done by way of email. It was clear that service by email would most certainly bring the Writ to the attention of the account holders.
This decision in CLM v CLN adds to the growing body of multi-jurisdictional case law to allow courts to freeze and trace cryptocurrency.
While the fraudsters themselves may try to hide behind VPNs or hide their digital tracks, the public nature of the blockchain allows for tracing of the movement of the cryptocurrency. Some of these transfers would then lead to cryptocurrency exchanges and these entities can then be subject to court orders for disclosure.
We can anticipate more cryptocurrency-related disputes, fraud and the need for asset recovery.
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