On October 21, 2022, Singapore High Court recognized non-fungible tokens (NFTs) as property. It is the first written judgment on status of NFTs.
Essentially, a case for securing an injunction against the sale of an NFT by a Metaverse personality. Justice Lee Seiu Kin, in first of its kind judgement in the world, ordered an injunction to be the first in Asia to protect an NFT.
Justice Lee went on to clarify that his decision was based on an interlocutory application, which is a pre-trial request for a court order on procedural concerns, and that it should be read in that light.
“A different conclusion may well be reached with the benefit of fuller submissions,” he stated.
- An injunction was sought in May 2022 by Mr. Janesh Rajkumar, a Singaporean, to protect an NFT known as Bored Ape Yacht Club (BAYC) No. 2162 from an online entity labeled “chefpierre”, whose identity is not known according to court documents.
- BAYC is a limited collection of NFTs, each featuring an ape with distinctive attributes. Court documents stated that the NFTs within the collection were “hugely popular” and owned by a number of celebrities.
- The NFT was bought for 15.99 Ether and Mr. Rajkumar planned to keep it. However, due to its high monetary value and rareness, he used it as collateral to borrow cryptos on a community platform. The value of 15.99 Ether at the time of writing stood at around USD 21,600. He then borrowed some cryptocurrencies from a user called “chefpierre” in March 2022.
- He didn’t have the assets required to repay right away so he allegedly kept asking for an extension of time. However, since he was delayed in repayment of the loan, “chefpierre” took ownership of BAYC No. 2162. Mr. Rajkumar then decided to repay the loan in total, but “chefpierre” refused to take the money and blocked him.
KEY POINTS OF THE ORDER
- NFTs are property, and not merely just a code on the blockchain.
- However, they must meet certain legal standards, such as being readily distinct from one another and having owners who can be recognized as such by third parties.
- The judge also gave the grounds to explain why he granted an injunction in May 2022 to prevent the sale and transfer of an NFT.
- Singapore Courts can take jurisdiction over assets on the blockchain, despite blockchains being borderless and decentralized tokens.
- Code does not trump law. Smart contracts cannot operate outside real-world contracting principles.
- Freezing orders and legal papers can be served on a Metaverse personality, even if their actual identity is unknown.
With this the Court barred the sale and transfer of the Bored Ape NFT, making it the first court case which dealt with whether NFTs counted as assets.
Justice Lee also said that Mr. Rajkumar could serve court papers to “chefpierre” through Discord and Twitter since there were no possibilities for him to do otherwise.
He asserted that it is “perfectly possible to have concluded a contract with someone else online, where both parties have concealed their true identities using pseudonyms”.
NFTs are tokens that reside on blockchains, which are decentralized digital ledgers. They may be used to represent underlying assets such as artwork, films, and music, which can be digital or real.
There is an altruistic value to all this. The legal treatment to digital assets was unclear until this judgment came along. The court with this decision has clarified their position on digital assets. With this characterization of digital assets under Singapore law is clear. A message to the web3 world that Singapore is a jurisdiction that recognizes the proprietary nature of digital assets and is establishing ways to serve notices and summons to undisclosed identities.
This sends ripples into the world of Web3 and blockchain, while being decentralized in nature, it is not lawless. The injunction granted by Justice Lee is said to be the first in Asia and is also reportedly the first globally for a purely commercial dispute.
However, the question still stands – how they going to enforce it if it’s a decentralized permissionless protocol where only the user has access over their assets?
To read the judgment, click here.
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Sources: https://dataconomy.com, https://aibc.world,