Singapore High Court Finds NFTs As A Form Of Property

On October 21, 2022, the High Court of the Republic of Singapore (the Court) issued its reasons in Janesh s/o Rajkumar v Unknown Person (“CHEFPIERRE”), [2022] SGHC 264, explaining its decision in May 2022 to grant an injunction to prevent any potential sale of the non-fungible token (NFT) in issue and finding that NFTs are a form of property.

Janesh Rajkumar (the Claimant) owned an NFT from the Bored Ape Yacht Club collection (the Bored Ape NFT). The Claimant entered into a cryptocurrency loan transaction with a user operating under the pseudonym “chefpierre.eth” (the Defendant), using the Bored Ape NFT as collateral. In April 2022, the Defendant changed his mind on a refinancing agreement with the Claimant and exercised an option to “foreclose” on the Bored Ape NFT, thereby transferring the NFT into his own cryptocurrency wallet.

The Claimant filed a suit against the Defendant claiming, inter alia, that he had an “equitable proprietary claim” over the Bored Ape NFT. The Claimant also made an urgent application to the Court for a proprietary injunction prohibiting the Defendant from dealing with the Bored Ape NFT until after the trial of the originating claim.

The Court first found that it had jurisdiction to hear the application despite the decentralised nature of blockchains, noting that the primary connecting factor in this case was the fact that the Claimant was located and carried on his business in Singapore.

The Court then considered the granting of an interim proprietary injunction, which depended on whether (a) there is a serious question to be tried; and (b) the balance of convenience lies in favour of granting the injunction. In considering the first issue, the Court engaged in a detailed analysis on whether the Bored Ape NFT, or NFTs in general, were capable of giving rise to proprietary rights which could be protected by an injunction. The Court cited National Provincial Bank Ltd v Ainsworth, [1965] AC 1175 (Ainsworth), and applied the four-part Ainsworth test in determining whether NFTs could be considered as property.

The Court held that the first Ainsworth requirement that an asset must be “definable” or “capable of being isolated from other assets…and thereby identified” was satisfied, as each NFT is distinguishable by its metadata. Additionally, the second requirement that an asset must have “an owner being capable of being recognised as such by third parties” was met, as whoever controls the digital wallet linked to the NFT would be the presumptive owner. The third requirement that “the right must be capable of assumption by third parties” (which means that third parties must respect the rights of the asset owner, and the asset must be potentially desirable) was also met; blockchain technology grants the owner the exclusive ability to transfer the NFT to another party (which underscores the “right” of the owner), and NFTs are actively traded. Finally, the Court found that the requirement of “some degree of permanence or stability” was satisfied, as NFTs have “as much permanence and stability as money in bank accounts”, which now primarily exist in the form of ledger entries. The Court therefore concluded that NFTs satisfied the Ainsworth criteria, and held that such assets could be characterized as property.

Lastly, the Court determined that the balance of convenience fell in favour of granting the injunction. The Court noted that if the Bored Ape NFT were transferred to third parties, the Claimant might never be able to recover it; thus, any proprietary remedy ordered by the Court would be “writ in water”.

The Court therefore allowed the Claimant’s application and granted the interim proprietary injunction.

Summary By: Steffi Tran