Resolving disputes in the new digital world
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While there continues to be debate on whether the metaverse is the new world and whether one day we will all become avatars, owning and “carrying” our assets and possessions while traveling around different metaverses, there is no doubt that blockchain and cryptocurrency have already marked their place in the commercial world and even everyday lives. Inevitably, disputes may arise out of transactions and dealings with these new concepts and assets. How can such disputes be resolved? Are courts willing to recognize rights and obligations arising out of the new digital age?
Recognizing digital assets
In the common law world, courts are recognizing digital assets as capable of qualifying as property. The English courts have been recognizing cryptocurrencies and NFTs1 as property under English law since the turn of the decade.
In Hong Kong, the courts have also been willing to grant injunctions to freeze defendants’ assets and, in one case, a proprietary injunction in respect of Bitcoins in a claim alleging that certain Bitcoins had been stolen for another type of cryptocurrency.2 A court, in another case, was equally willing to come to the view that a defendant could hold on trust unsold Bitcoins, proceeds from the sale of Bitcoins and the fruits thereof. Propriety remedies have also been granted against a defendant.3 The Hong Kong courts further confirmed that cryptocurrencies are property under Hong Kong law.4 The decision followed the approach in other common law jurisdictions such as Australia, England and Wales, New Zealand and the US.
All of these cases confirm that the courts are willing to recognize that digital assets are property and that the legal principles, trust and injunctions apply equally to Bitcoins and other cryptocurrencies (and, by extension, digital assets) as a novel asset class.
Similarly, the Singapore High Court has confirmed that cryptocurrencies could qualify as property and that injunctive relief can be granted accordingly.5 Not only does a Singapore court have jurisdiction to grant the injunctive relief, it has jurisdiction to grant such relief against persons unknown and such injunction can be obtained against such persons unknown, prohibiting them from dealing with, disposing of or diminishing the value of identified crypto assets.
In the Singapore courts, crypto assets are considered to be things in action, which are enforceable by bringing legal action and capable of being subject to a trust.6
In contrast to the Singapore judicial view, however, the UK Law Commission does not consider digital assets (including crypto-tokens and crypto assets) to be things in action and instead suggested a new third category of property for “data objects” in its final report on digital assets.7 This approach appears to suggest there will be no statutory definition of a digital asset, as it is felt that any legislative definition would be too rigid, compared to the flexibility which the common law can offer.
Service, Enforcement and Arbitration
Traditionally, court actions require personal service on the defendants and it poses a real challenge where a defendant’s whereabouts or identity is unknown to the plaintiff. In recognizing this challenge in the digital world, where anonymity is one of the main features, the courts in the various common law countries have not found it difficult to allow service through digital means. In particular, the courts are quite willing to depart from established service requirements to allow service by airdropping NFTs into digital wallets. The effect of imprinting a verifiable record of service on the blockchain allows the courts to be comfortable that the service requirement is satisfied.
While the service requirement is less of a concern in the case of arbitrations, one needs to ensure that there is a valid arbitration agreement before bringing the disputes to be resolved by arbitration. In these circumstances, the issue of anonymity may well create arguments as to whether a valid arbitration agreement has been formed in the new digital world.
Another issue to note is the ability to enforce any award (or judgment in the case of a court action). In that regard, the fact that arbitration awards can potentially be enforced in all New York Convention jurisdictions is helpful, but at the same time, in light of the decentralized features of crypto assets, where one can enforce a valid award or judgment can also become challenging.
Footnotes
1. Osbourne v. Persons Unknown [2022]EWHC 1021
2. Yau Yu Ying v. Leung Wing Hei [2022]HKCFI 1660
3. Nico Constantijn Antonius Samara v. Stive Jean-Paul Dan [2019]HKCFI 2718 [2022] HKCFI 1254
4. Re Gatecoin Limited [2023] HKCFI 914
5. CLM v. CLN [2022] SGHC 46
6. Bybit Fintech Ltd v Ho Kai Xin and others [2023] SGHC 199
7. UK Law Commission’s Final Report on Digital Assets (Law Com No 412, HC 1486)
