Bitcoin bother puts crypto platform on trial

Singapore International Commercial Court decided that cryptocurrencies are properties traded with trust.

Cryptocurrencies can now be considered as property, according to Singapore’s courts, after a landmark ruling by the Singapore International Commercial Court’s (SICC) with regard to Quoine, a currency exchange platform which was involved in a case with one of its traders. Due to a software glitch, seven trades of Ethereum for Bitcoin were mistakenly placed by trader B2C2 with its counterparties at 250 times the prevailing rate or 1 ETH to 10 BTC. When Quoine realised the glitch the following morning, ​it cancelled the seven trades and reversed the debit card transactions.

​T​his triggered B2C2 to commence action against Quoine, alleging that by unilaterally reversing the seven trades, Quoine was in breach of the terms and conditions governing their trade. The trader also claimed that by unilaterally withdrawing the proceeds credited to B2C2’s account, Quoine was in breach of trust.

​​Q. Can a trust be created over cryptocurrencies?
​​“To create a trust, there must be certainty of intention, certainty of subject matter and certainty of objects. For certainty of subject matter, the SICC held that cryptocurrencies have the fundamental characteristic of intangible property and can be the subject matter of a trust,” said Joy Tan, joint head - commercial & corporate disputes practice, WongPartnership.

She added that regarding certainty of objects, the intended beneficiaries must be identifiable. In this case, the beneficiaries were identifiable from the individual accounts of each user held by Quoine.

The dispute on this issue centred on the requirement of certainty of intention to create a trust, said Rajah & Tann in a legal note. “Quoine contended that there was no such intention, on the basis that there was no provision to that effect in the Terms and Conditions, and further on the basis that certain statements were made to the effect that assets deposited by customers were not deposited in a separate account with a trust bank.”

Q. How can a breach of trust occur in cryptocurrency deals?
The SICC found that there was an intention to create a trust, Tan noted. This meant that if Quoine was not entitled to reverse the trades, the unilateral removal by Quoine of Bitcoin from B2C2’s account held with Quoine was a breach of trust.

SICC held that the decisive factor, in this case, was that the assets were held separately as customers’ assets, rather than as part of the Quoine’s trading assets. According to Rajah & Tann, this was “a clear indication that Quoine claimed no title to them and intended to hold them on trust for the customers.”

In the premises, given that the Quoine had no entitlement to reverse the trades, SICC held that the Quoine’s actions in unilaterally removing the BTC sales proceeds from the B2C2’s account was in breach of trust, he added.

​​Q. Can trade orders be reversed on the basis of terms being implied into the governing contract? What is meant when a contract states that fulfilled trade orders are “irreversible”?
A term could be implied into a contract if it does not contradict an express term of the contract, and is necessary to give business efficacy to that contract and to give effect to the intention of the parties. Tan noted that one of the terms and conditions between Quoine and users of the Platform expressly provides that “once an order is filled, you are notified via the Platform and such an action is irreversible”.

“Quoine sought to rely on certain implied terms including one which would enable it to reverse any trades executed at an abnormal rate or price as a result of any technical or system failure or error affecting the Platform. Quoine also argued that the word ‘irreversible’ was meant for the contracting parties who traded on the Platform but did not preclude Quoine from reversing trades,” Tan said.

​​She added that the SICC disagreed and held that the word “irreversible” was not qualified in any way, and when read in its context, extended to all parties (including Quoine) so as to ensure certainty for all parties. “The SICC also held that the terms sought to be implied by Quoine would contradict an express clause of the Agreement and cannot be implied. Further, there was no necessity for such terms to be implied to give business efficacy to the Agreement or to give effect to the intention of the parties,” she concluded.