What’s the case about?
Is Tether “property” capable of being held on trust?
Background
In ByBit Fintech Limited v Ho Kai Xin and others [2023] SGHC 199, Justice Philip Jeyaretnam of the High Court of Singapore considered whether Tether (USDT) was property capable of being held on trust.
The issue arose from an interesting set of facts. Ms Ho, the first defendant, was employed by a Singaporean company which provided payroll services for ByBit Fintech Limited (ByBit). ByBit remunerated its employees with traditional currency, cryptocurrency or a mixture of both.
In September 2022, ByBit discovered that eight unusual cryptocurrency payments had been made, involving large payments of USDT into four addresses totalling 4,209,720 USDT.
Upon being confronted with investigations undertaken by ByBit, Ms Ho said that she did not own the wallets associated with the four addresses and that her cousin was responsible for undertaking the transactions in question.
ByBit successfully obtained interim relief, including a worldwide freezing order against Ms Ho and a proprietary injunction in respect of the cryptocurrency in the four addresses.
The basis of Ms Ho’s defence was that her cousin stole the USDT from ByBit without her knowledge.
ByBit then made an application for summary judgment, being the application to which this judgment relates. Ms Ho did not file any affidavits disputing the application, nor did she file any submissions or attend any of the hearings of the application.
ByBit’s arguments
ByBit’s submissions focused on the USDT and its arguments were:
- Ms Ho’s cousin was an outright fabrication;
- disclosed transaction records proved that Ms Ho owned and controlled the wallet associated with address 1 and likely owned and controlled the wallets associated with the other three addresses;
- USDT was comprised of choses in action and was therefore property capable of being the subject matter of a trust, on the following basis (at paragraph [26]):
This is because USDT grants a verified customer of Tether Limited the contractual right to redeem USDT for an equivalent value in fiat currency. ByBit submits that Address 3 is associated with a Self-Custodial Wallet, meaning that Ms Ho has direct access to the relevant Private Key and therefore direct control over Address 3 and the USDT therein, which can be held on trust as a chose in action. For Address 1, 2, and 4, these are associated with Custodial Wallets. In the case of Custodial Wallets, access to the Private Keys is kept by the service provider rather than the user of the Custodial Wallet. Instead, the user of the Custodial Wallet is contractually entitled to instruct the service provider to transfer cryptocurrency between Addresses. ByBit likens this to a bank account, where the cryptocurrency balance stated in the Custodial Wallet (equivalent to an account balance) is a chose in action against the service provider (equivalent to the bank). The relevant property is therefore also a chose in action, being the right to instruct the service provider in respect of the credit balance of USDT.
- Ms Ho held the USDT as constructive trustee, or alternatively that Ms Ho was unjustly enriched in the sum of the USDT.
Is USDT a chose in action?
At the start of the judgment His Honour noted that the courts in Singapore and elsewhere have, in granting interlocutory injunctions, recognised that there is at least a serious question to be tried or a good arguable case that crypto assets are property capable of being held on trust. However, it has not been necessary to determine whether crypto assets are things in action or a novel type of intangible property. Here, it was necessary to decide whether USDT was capable of being held on trust and, if so, what type of property it is.
In conducting that analysis, His Honour considered:
- a recent consultation paper issued by the Monetary Authority of Singapore on proposed amendments to the payment services regulations that would implement segregation and custody requirements for digital payment tokens. His Honour noted that the proposed amendments “reflect the reality that it is possible in practice to identify and segregate such digital assets, and hence support the view that it should be legally possible to hold them on trust”;
- that general recognition has been given to cryptocurrency in the Singapore Rules of Court, noting that cryptocurrency has thus been expressly recognised as a form of property capable of being the subject matter of an enforcement order;
- crypto assets can be defined and identified by modern humans, such that they can be traded and valued as holdings. Crypto assets certainly meet Lord Wilberforce’s oft-quoted dictum in National Provincial Bank v Ainsworth [1965] 1 AC 1175 at 1248:
Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.
His Honour then considered whether USDT can be classed in the category of things in action.
In doing so, His Honour noted the argument that crypto assets should not be classified as things in action rests on the origin of that category as rights enforceable by action against persons, such as the right to be paid money or debts, or contractual rights. There is no individual counterparty to the crypto holder’s right.
The judgment notes that over time the category of things in action has expanded to include documents of title to incorporeal rights of property and ultimately to incorporeal rights themselves, such as copyrights. His Honour noted that the diversity of incorporeal property that has been classed as things in action suggests that the category of things in action is broad, flexible and not closed.
On this issue, His Honour concluded (at [36]):
My conclusion is therefore that the holder of a crypto asset has in principle an incorporeal right of property recognisable by the common law as a thing in action and so enforceable in court. While it might be said that this conclusion has an element of circularity in that it could also be said that the right to enforce in court is what makes it a thing in action, this type of reasoning is not strikingly different from how the law approaches other social constructs, such as money. It is only because people generally accept the exchange value of shells or beads or differently printed paper notes that they become currency. Money is accepted by virtue of a collective act of mutual faith. This is reflected in Lord Mansfield’s famous observation in Miller v Race (1758) 1 Burr 452 at 457, that what is treated as money “by the general consent of mankind” is given “the credit and currency of money to all intents and purposes”.
ByBit also relied on the current terms of service for USDT, which provided for a contractual right of redemption. ByBit tendered a legal opinion which opined that under BVI law a holder of USDT who is a verified customer of Tether Limited has a contractual right to redeem USDT which may be enforced by way of suit against Tether Limited. His Honour stated that feature of USDT may constitute an additional thing in action that the holder of USDT may have, but its presence was not necessary to his conclusion that the right represented by the USDT is itself a thing in action.
Ultimately, His Honour declared a constructive trust (an institutional constructive trust) over the USDT and fiat assets, with ByBit as the legal and beneficial owner of the USDT. In light of that finding, His Honour did not deal with the alternative bases of remedial constructive trust and unjust enrichment.
Take aways:
- High Court of Singapore finds, on a summary judgment application, that Tether is a chose (or thing) in action;
- The decision contains principled reasoning as to the basis on which Tether was found to be a chose in action (at paragraphs [29]-[36]), rather than by reference to decisions in other jurisdictions. The judgment does not refer to the UK Law Commission’s final report on Digital Assets (which was only released in the month prior to the judgment);
- The Tether terms of service, providing for a contractual right of redemption, may also constitute a chose in action, however this issue was not decided.
Where can I find the case? [2023] SGHC 199
Proof of Case 