Introduction
In May 2022, it was reported that the Singapore High Court in
Janesh s/o Rajkumar v Unknown Person (“chefpierre”) HC/OC 41/2022 issued a worldwide freezing injunction preventing the sale or transfer of a non-fungible token (“
NFT”)
1, setting a significant precedent for the recognition of NFTs as a protectable digital asset and form of legal property.
Brief facts
Based on news reports, the dispute revolved around the use of an NFT from the famed Bored Ape Yacht Club series as collateral against a loan for cryptocurrencies. The NFT in question is the Bored Ape Yacht Club No. 2162 (the “
BAYC NFT”). The plaintiff, Janesh Rajkumar, had entered into a loan agreement on 19 March 2022 with the defendant, an NFT collector under the alias of ‘chefpierre.eth’, whose real identity and physical whereabouts remain shrouded in mystery.
The loan took place on the community platform known as NFTfi, which allows NFT owners to use their NFTs as collateral to secure loans from other users. The plaintiff was reported to have often used the BAYC NFT as collateral to borrow cryptocurrencies on NFTfi and had successfully borrowed and repaid a number of cryptocurrency loans using this method. As part of the agreement with the defendant, the plaintiff agreed to use the BAYC NFT as collateral in exchange for borrowing cryptocurrencies. The BAYC NFT was then transferred to NFTfi’s escrow account until the plaintiff fully repaid his loan.
Interestingly, the loan agreement stipulated that the plaintiff would never relinquish ownership of the BAYC NFT and would repay the loan in full to get it back. In the event of a default, the agreement further stipulated that the plaintiff would inform the defendant of his inability to repay in time, and the defendant was to provide reasonable extensions of time to allow for repayment. The agreement also specified that the defendant should never exercise the foreclose option to take ownership of the BAYC NFT.
When the plaintiff could not repay the loan in time, he sought an extension of time to repay the borrowed sum, and the defendant reportedly offered to refinance the loan, which the plaintiff accepted. However, the defendant then refused to lend the plaintiff the additional sum and threatened to foreclose on the BAYC NFT if the plaintiff failed to repay the borrowed sum by 5.00 a.m. on 21 April 2022. This gave the plaintiff around seven hours to repay the loan, which he failed to do, prompting the defendant to foreclose on the BAYC NFT, which was released from NFTfi’s escrow account to the defendant’s digital wallet. The BAYC NFT was subsequently listed for sale by the defendant on OpenSea.
Against this background, the plaintiff contended that the defendant’s decision to foreclose on the BAYC NFT was,
inter alia, a clear breach of the terms of the loan agreement and commenced legal proceedings seeking various reliefs, including an order to compel the defendant to accept repayment of the loan and to transfer the BAYC NFT back to the defendant’s digital wallet.
The worldwide freezing injunction
It was reported that upon the application of the plaintiff, the Singapore High Court has granted a worldwide freezing injunction preventing the sale and transfer by the defendant of the BAYC NFT pending the outcome of the dispute between the parties.
Comments
While it remains to be seen how this case will ultimately turn out, especially given the mystery behind the defendant’s real identity, the ruling is significant as it marks the first instance in Asia where a judiciary explicitly recognises NFTs as legal property and digital assets with rights attached to them, mirroring a decision made by the English High Court recently
2.
As Singapore and Malaysia are both common law jurisdictions and given the Malaysian Courts’ history of citing Singaporean judgments, this decision may be persuasive to a Malaysian Court when a similar issue arises to be decided here.
Case summary by Natalie Lim (Partner) and Cheam Tat Sean (Associate) of the Intellectual Property Practice of Skrine.