Crypto Asset Freeze Injunctions Imposed in Landmark Singaporean Case

A Singapore court recently awarded proprietary and asset-freezing injunctions against suspected perpetrators of cryptocurrency theft.

The Singapore High Court case CLM v CLN and others [2022] SGHC 46 is the first decision in the city-state to grant an injunction to freeze the cryptocurrency belonging to unidentified individuals. According to Singapore Legal Advice, “An injunction is a court-ordered remedy awarded to a plaintiff to restrain a defendant from doing an act. Injunctions are usually awarded where damages (or monetary recompense) would be inadequate to compensate the plaintiff.”

The injunction will result in the freezing of about 109 BTC and 1,497 ETH allegedly stolen from the plaintiff’s Exodus and BRD wallets, both secured with passwords.

The plaintiff, an American entrepreneur, was on holiday with a few acquaintances at his apartment in Mexico in January 2021, during which he requested a member of the group to access his safe. The safe contained cash and recovery seed phrases for the plaintiff’s two crypto wallets. The plaintiff called out the combination to the safe within earshot of all group members, and on Jan. 8, 2021, he discovered funds missing from both his Exodus and BRD wallets. After further investigation, the plaintiff found that his stolen funds had passed through many digital wallets by unknown parties (the first defendants).

Ultimately, 15 BTC was traced to a wallet address under the control of a second defendant, and 0.3 BTC was traced to a wallet address controlled by a third defendant. The second and third defendants are crypto exchanges, while the identities of the primary defendants are unknown.

Key rulings on crypto injunctions

Following the plaintiff’s investigation, after discovering reduced balances in his account, he sought proprietary and worldwide injunctions against the first defendants, requiring the court to determine whether it possesses the powers to grant interim orders against unknown defendants. The court agreed that it did retain jurisdiction to make the ruling, using a Malaysian High Court decision, Zschimmer & Schwarz BmbH & Co KG Chemische Fabriken v Persons Unknown & Anor [2021] 7 MLJ 178. The main issue to clarify was whether they could sufficiently distinguish between those included in the definition of unknown defendants and those who are not, which they succeeded at doing.

The next issue was whether to grant a proprietary injunction, for which the court referred to a New Zealand cryptocurrency case Ruscoe v Cryptopia Ltd (in liq) [2020] 2 NZLR 809. According to Mills & Reeve, “Proprietary injunctions are a useful tool where a claimant believes that they are the rightful owners of certain property that the defendant holds.  A proprietary injunction must specify the particular property in question.  The applicant must establish that it has an arguable case that the assets are its property.”

The court then determined that cryptocurrencies satisfied the definition of a property right and granted the proprietary injunction.

After that, the court granted the worldwide freezing injunction to prevent the first defendants from disposing of and diminishing the value of their assets up to $7M. This is also known as a Mareva injunction.

The plaintiff also wanted ancillary disclosure orders against the last two defendants for information relating to the accounts credited with 15 BTC and 0.3 BTC of stolen assets. The court also granted the ancillary disclosure orders, compelling the cryptocurrency exchanges to reveal the balances of the accounts to which the 15 BTC and 0.3 BTC were added, information on the owners of the accounts, and details of all transactions made from the dates on which the stolen crypto appeared as a credit on each owner’s account.

According to Singaporean law:

“An ancillary asset disclosure order would be granted in aid of a Mareva injunction. This is to provide the victim with a snapshot of the perpetrator’s assets and to ensure that the assets are not dissipated (further). The perpetrator is required to disclose all of his or her assets, and not only such assets limited to the value of the injunction. Where the disclosure is inadequate or fails to comply with the disclosure order, a victim can apply to cross-examine the perpetrator on his or her assets.”

Who has the right to rule on the injunctions?

It was critical for the plaintiff to demonstrate why Singapore is the proper forum to hear the case. The fact that the second and third defendants were living in Singapore tipped the decision in favor of the plaintiff.

This decision is the latest in a series of cases where courts are given the authority to freeze and trace cryptocurrency, thanks in no small part to the public nature of the blockchain. Many exchanges recently balked at the notion of blanket freezing of Russian crypto assets, following a request from the Vice Prime Minister of Ukraine. It also sets a precedent for what legal grounds can compel an exchange to disclose customer transaction information and freeze crypto-assets globally.