SINGAPORE - The Singapore High Court has ruled that non-fungible tokens (NFTs) can be considered as property, in its first written judgment on a case involving an NFT.
NFTs are tokens that exist on decentralised digital ledgers called blockchains. They can be used to represent underlying assets, which can be digital or physical, such as artwork, videos and music.
In his grounds of decision issued last Friday, Justice Lee Seiu Kin held that NFTs could be considered as property as they fulfilled certain legal requirements, such as being easily distinguishable from one another and having owners capable of being recognised as such by third parties.
He issued the grounds to explain why he had granted an injunction in May to stop any potential sale and ownership transfer of an NFT.
But he emphasised that the injunction application was an urgent one where one of the parties in the case was not required to be present at the court hearing, and therefore he did not have the benefit of hearing arguments from that side.
Justice Lee added that his decision was over an interlocutory application – a pre-trial request for a court order, usually on procedural matters – and so should be read in the proper context.
“A different conclusion may well be reached with the benefit of fuller submissions,” he said.
The injunction granted by Justice Lee is said to be the first in Asia. It is also reportedly the first globally for a purely commercial dispute.
It was sought by Mr Janesh Rajkumar, a Singaporean, to protect an NFT known as Bored Ape Yacht Club (BAYC) No. 2162. BAYC is a limited collection of NFTs, each featuring an ape with distinctive attributes such as facial expressions, clothing and accessories.
They are seen as a highly coveted status symbol, with some reportedly owned by celebrities such as Justin Bieber and Madonna.
Mr Janesh is seeking to repossess BAYC No. 2162 from an online persona named “chefpierre”, whose identity is stated as unknown in court documents. His lawsuit, commenced in Singapore, is ongoing.
He bought the NFT on Aug 6, 2021, with the intention of keeping the token for himself.
Mr Janesh would use the NFT as collateral to borrow cryptocurrencies on a community platform known as NFTfi, due to its rarity and high monetary value. But he would specify in loan agreements with lenders that he was not willing to relinquish ownership of the NFT, and would make full repayment of the loan to redeem it.
In the event that Mr Janesh was unable to repay the loan in time, he would inform the lender, who should provide reasonable extensions of time for repayment.
He also specified in the loan agreements that the lender should never use the “foreclose” option, which was available if repayment was not made in time, to take ownership of BAYC No. 2162.
Mr Janesh had entered into a loan agreement with chefpierre on March 19, and subsequently asked for an extension of time to repay the borrowed sum.
The two parties then began discussing the terms of another loan, which eventually led to chefpierre offering to refinance the March 19 loan, and Mr Janesh agreeing.
But chefpierre subsequently refused to lend the additional sum to Mr Janesh, and threatened to use the foreclose option to seize the NFT if the March 19 loan was not fully repaid by 5am on April 21.
This gave the Singaporean just under seven hours to repay the loan, which he failed to do so, leading to chefpierre taking ownership of BAYC No. 2162. Mr Janesh later repaid part of the loan, but chefpierre returned the sum and blocked the Singaporean from making any further repayments.
In his decision, Justice Lee allowed Mr Janesh’s request to serve court papers on chefpierre through Twitter and chat platform Discord, as well as the messaging function of the persona’s cryptocurrency wallet address.
Not allowing Mr Janesh to do so would deprive him of the only practical manner of serving the papers on chefpierre, said the judge.
Justice Lee noted Mr Janesh’s claims that chefpierre would post regularly on Twitter and that it would be possible, given time, to obtain the persona’s real identity.
He also held that the Singapore courts could hear cases related to blockchains despite their decentralised nature.
He said the description of BAYC No. 2162 by Mr Janesh’s lawyers – that it is a very unique artwork, and the only one in existence – was “not quite accurate”.
“The picture of the… NFT exists as an image file which can be copied many times over,” he said.
“What is truly unique, and irreplaceable here is the string of code that represents the… NFT on the blockchain.”
Withers KhattarWong lawyer Shaun Leong, who leads the team that represents Mr Janesh, said the court’s decision paves the way to reinforce Singapore’s status as a legal and blockchain hub.