Lynette Koh Peter Huang September 20 2022 Courts and regulators set out framework for disputes with major crypto players Helmsman LLC | Litigation - Singapore Lynette Koh, Peter Huang Litigation IntroductionWhether crypto assets are considered propertyWhether cryptocurrencies are held on trust by exchanges for usersWhether updated versions of standard terms applyPreventative measuresCommentIntroductionRecently, the crypto world has been tumultuous with several popular players halting withdrawals and going insolvent. In Singapore alone, the likes of Hodlnaut, Three Arrows, Torque and Zipmex have all sought some form of insolvency protection, and it is possible that more companies will follow suit. In August 2022, the courts granted three-month moratoriums (or extensions) to both Zipmex and Vauld.Many participants in the crypto space have been burnt and wonder what to look out for when they want to pursue a claim against crypto platforms in Singapore. This article revisits some of the key legal issues that have been addressed by cases and regulations in Singapore to guide parties involved in cryptocurrency-related disputes.Whether crypto assets are considered propertySingapore courts, as with other leading common law courts, have recognised that crypto assets can be property in the legal sense of the word. In Quoine Pte Ltd v B2C2 Ltd,(1) the Singapore Court of Appeal was amenable to the view that general concepts of property apply to cryptocurrencies.Non-fungible Tokens (NFTs) have also received similar affirmation from both the Singapore High Court and the regulators in Singapore. In May 2022, the Court granted an injunction to freeze the sale and ownership transfer of a Bored Ape Yacht Club NFT, recognising it as legal property. This recognition ties in with parliamentary statements made earlier this year by the minister of finance in Singapore – that personal income tax may be chargeable over income generated through trading NFTs.Notwithstanding the above, however, the regulators have clarified their stance on cryptocurrencies. On 29 August 2022, the Managing Director of the Monetary Authority of Singapore (MAS) stated that the MAS does not see cryptocurrencies as being suitable for use as money.Whether cryptocurrencies are held on trust by exchanges for usersIn an insolvency scenario, establishing whether assets belong to the insolvent company or are held on trust for the creditors is crucial in determining whether the users would be able to recover their crypto assets.The key to solving this puzzle is the platform terms and conditions that govern the legal relationship between the exchanges and the consumers. Another factor to consider is whether the crypto tokens were held separately from the exchange's general assets.In the Quoine case, the Singapore Court of Appeal decided that the cryptocurrencies of the users were not held on trust by the exchange. The Court referred to the risk disclosure statement of the exchange, that specifically provided that the assets of the customer will not be returned upon bankruptcy. The Court held this to be contrary to an intention to create a trust. The Court also found that there was no separation of assets between the exchange and its customers and, even if there were, the separation alone, while necessary, was not sufficient to evince an intention to create a trust.Whether updated versions of standard terms applyUpdated versions of standard terms do apply, but only if sufficient notice has been given. In the Quoine case, the Court found that simply posting an updated version of the risk disclosure statement on the exchange's website was not sufficient to incorporate an amended clause into the contract with the users. This was the case despite there being an express clause in the platform's terms providing that the exchange may change its terms from time to time without notifying the users. Nevertheless, the Court held that this presupposes that the exchange would have given the users an opportunity to consider the change. In short, unnotified and unilateral changes by the exchange will unlikely be considered effective when incorporated into the standard terms.Preventive measuresIt is clear that the regulators are concerned and are trying to manage the scale of the potential influx of crypto disputes, especially in the current environment. Earlier this year, MAS banned advertisements on cryptocurrency platforms to the Singapore public. MAS said that it will consider further measures to safeguard the average person in the street. These measures may include customer suitability tests and the restriction of the use of leverage and credit facilities for cryptocurrency trading.CommentThe courts and regulators have remained robust in clarifying the legal issues surrounding crypto-related disputes. While Singapore continues to aspire to establish itself as a fintech hub, this will not happen without further measures to protect the average consumer from the risks of dabbling in cryptocurrencies in a speculative manner.Although regulators have expressed their reservations about treating cryptocurrency as a viable form of money or investment asset, the courts continue to lay down the framework to protect users should they end up in a dispute with major crypto players. But while business models and operations have quickly adapted to technological advances, the challenge continues as the law is still trying to catch up, resulting in sometimes unintended disjoints in setting out the new law and marrying the new law with reality.Given the regulators' stance, it is likely that the courts will continue to take a cautious and curated approach to this topic.For further information on this topic please contact Lynette Koh or Peter Huang at Helmsman LLC by telephone (+65 6816 6660) or email ([email protected] or [email protected]). The Helmsman LLC website can be accessed at www.helmsmanlaw.com.Endnotes(1)  SGCA(I) 2.