- The High Court issued the grounds for its judgement on the barring of sale and transfer of an NFT on Friday (Oct 21)
- The injunction was issued by the Singapore High Court on May 13 and is said to be the first in Asia to protect an NFT called the Bored Ape NFT
- It is the first court case here which dealt with whether NFTs were counted as assets.
The High Court has ruled that a non-fungible token (NFT) is a form of property and not merely information or code on the blockchain.
It has also ruled that it has the jurisdiction to hear cases of dispute involving blockchains despite its borderless and decentralised nature, and that a legal claim can be brought on a person whose identity is hidden behind a pseudonym.
These were the key points from Judge Lee Seiu Kin's grounds of judgement, which the court issued on Friday (Oct 21), on the barring of sale and transfer of an NFT called the Bored Ape NFT — the first court case here which dealt with whether NFTs counted as assets.
The injunction was issued by the High Court on May 13 and was said to be the first in Asia to protect an NFT.
THE CASE
The claimant in this case is Mr Janesh Rajkumar, a Singaporean who owned an NFT from the Bored Ape Yacht Club. He had used it as collateral for a loan to borrow cryptocurrencies from a Twitter user with the handle “chefpierre.eth”.
Mr Janesh had bought the NFT from another user on Aug 6, 2021 for 15.99 Ether, a form of cryptocurrency. The value of 15.99 Ether as of the time this article is published is about S$30,000.
He would often enter into loan transactions with other users to borrow cryptocurrencies using NFTs as collaterals.
However, as the Bored Ape NFT was precious to him, Mr Janesh would “take special care” when using it, such as only dealing with reputable lenders highly ranked by the platform’s ranking system.
He would also inform lenders that they should not use the “foreclose” option on the platform without allowing him reasonable opportunities to make full repayment of the loan.
However, this did not go as planned when he was dealing with the defendant, “chefpierre.eth”.
Mr Janesh had reached out to him sometime in early January to discuss the possibility of obtaining a loan.
After entering a deal and successfully paying off the loan, Mr Janesh entered into another deal with the defendant in March.
When he requested for extra time to repay the loan, "chefpierre.eth" agreed at first and reassured him that the NFT would be returned once the loan was repaid in full.
However, the defendant later changed his mind and told him that he would use the “foreclose option” on the platform if the full sum was not repaid in full by April 21.
This would mean that ownership of the NFT would be transferred to the defendant.
When Mr Janesh did not repay him in time, the defendant then transferred the NFT into his own wallet.
Since then, the claimant discovered that the defendant had listed his NFT for sale on an online NFT marketplace.
Devastated by his loss, Mr Janesh then filed a suit against "chefpierre.eth", claiming that he had an equitable proprietary claim over the NFT.
He also made an urgent application to the court for an injunction, as there was "a real risk of dissipation and disposal" of the NFT.
To protect the NFT, the Singapore High Court issued an injunction on May 13.
GROUNDS FOR THE INJUNCTION
Judge Lee said that he was "satisfied" that the court had the jurisdiction to hear Mr Janesh's application.
"While the decentralised nature of blockchains may pose difficulties when it comes to establishing jurisdiction, to my mind, there had to be a court which had the jurisdiction to hear the dispute," he wrote in his grounds of judgement.
"In the present case, based on the available facts before me, that court was the Singapore court. The primary connecting factor was the fact that the claimant was located in Singapore, and carried on his business here."
The claimant’s lawyer, Mr Shaun Leong of Withers Khattarwong, said the judgement shows that the rule of law prevails even though the world of Web3 and blockchain is decentralised.
“Where disputes may arise over digital assets sited in the borderless, decentralised blockchain, the Singapore Courts can take jurisdiction over such disputes,” he said.
Judge Lee also deemed that the present case has demonstrated that it is "perfectly possible to have concluded a contract with someone else online, where both parties have concealed their true identities using pseudonyms".
“Should a claimant be barred from seeking interim relief, or bringing a claim, unless he is able to name the defendant, instead of using his pseudonym? I think not.”
Judge Lee also ruled that NFTs have the attributes of property and are not merely information or code on the blockchain.
“Ultimately, the court found that our client's NFT was worth protecting and issued a worldwide proprietary injunction to protect the NFT,” Mr Leong noted.
Speaking to TODAY on Friday, the executive director of That.Legal LLC Mark Teng said that the case was ground-breaking as it provided an explicit recognition of NFTs as a legal or proprietary asset.
“This is amazing news for everyone involved in the NFT space, but especially so for NFT owners,” said Mr Teng.
He added that the newly elevated status of NFTs means that they are protectable under the law.
This development in case law is also significant because of the precedent that it sets.
“If NFTs are recognised legal assets, then all valid contracts, deals and agreements pertaining to them will also be legally recognised,” he said.
According to Mr Teng, there was much uncertainty in this area prior to this.
“Now, the NFT space will be able to flourish to its fullest potential, with parties knowing that their assets are protected by the law,” he said.
