In a landmark ruling, the Singapore High Court on 26 January 2024 issued a judgement outlining the framework to determine the location of crypto assets in a cross-border dispute.
In Cheong Jun Yoong v. Three Arrows Capital Ltd and others, Mr. Cheong Jun Yoong (Mr. Cheong) filed a claim against Three Arrows Capital (3AC), claiming that 3AC was holding the DeFiance Capital Fund (DC Fund) on trust for the benefit of Mr. Cheong and other DC Fund Investors. 3AC is an investment fund incorporated in the British Virgin Islands (BVI) that deals in cryptocurrency and other digital assets. In June 2022, 3AC was placed under liquidation.
Mr. Cheong had an arrangement with the founders of 3AC and its group of companies (3AC Group), whereby the 3AC Group would provide Mr. Cheong and the DC Fund access to the 3AC Group’s middle and back-office infrastructure in exchange for certain fees. Mr. Cheong kept full control over the management of and the assets in the DC Fund, with the fund’s assets segregated in designated accounts and cryptocurrency wallets in Mr. Cheong’s control. However, because the DC Fund is not a legal entity, investment contracts relating to the DC Fund were entered into by 3AC.
When the 3AC Group’s operations were relocated to Dubai, Mr. Cheong established a company in Singapore, DeFiance Ventures Pte Ltd (DVPL), and had most of the DC Fund’s assets transferred from the 3AC Group to DVPL. However, some investment contracts and shares issued to 3AC pursuant to those investment contracts remained with 3AC.
3AC was served in the BVI with court papers relating to Mr. Cheong’s claim, on the basis that the Singapore court is the appropriate court to hear the action. An issue arose as to whether such service outside Singapore was proper.
To demonstrate that the Singapore court is the appropriate court in this case, Mr. Cheong must show, among others, that there is a sufficient nexus with Singapore. 3AC argued that Singapore is an improper forum because the assets subject of the claim are in the BVI, and therefore had no sufficient nexus in Singapore.
The Singapore High Court ruled that the location of the cryptocurrency is the place of business or residence (not domicile) of the person controlling the private key of the wallet where such cryptocurrencies are stored. Citing authorities, the court said that the location is best manifested through the exercise of control over the cryptocurrency and such control is shown by whoever controls the private key. In this case, the private key to the wallet was being controlled by DVPL, whose sole shareholder is Mr. Cheong. Both DVPL and Mr. Cheong are resident in Singapore.
While the court recognised that there are other cases using other tests to determine the location of crypto assets, it attributed this fact of diverging approaches to the evolution of the rules regarding crypto assets because it is a new type of property with no physical presence.
The court’s ruling is vital to companies and individuals with crypto assets involved in cross-border transactions as this may dictate how courts will exercise jurisdiction in a transnational dispute. While the court acknowledged that rules regarding crypto assets may evolve, companies and individuals with crypto assets should still be mindful of this ruling to assess and manage their exposure to possible cross-border litigation.
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Disclaimer: This article is for general information only and does not constitute legal advice.
