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Should NFTs be legally regarded as personal property?
A judgment in Singapore’s High Court has acknowledged that Non-Fungible Tokens (NFT) are forms of personal property. Two lawyers weigh in on the implications for Australia.
Jess Feyder
In the case of Rajkumar v Unknown Person ("CHEFPIERRE") [2022], the Honourable Lee Seiu Kin considered an injunction of sale sought over the claimants ‘Bored Ape’ NFT, which His Honour granted in an interlocutory decision, preventing its sale.
Justice Lee Seiu Kin used the traditional Ainsworth test, which sets out the definition of a property right, to conclude whether an NFT — which in its essence is a file containing a string of code — can be legally recognised as property.
It could be argued that all that is acquired when one buys an NFT is merely information, His Honour reflected, with a common objection being that they are not tangibles nor choses in action, which are the only two classes of property recognised in common law.
It was His Honour’s conclusion that crypto-assets would have to be classified as choses in action, when analysed by the Ainsworth criteria.
The first consideration in the criteria is that the asset must be ‘definable’ — which he concluded is through NFT metadata.
The second is that the owner must be capable of being recognised by third parties — which is verifiable seeing as the owner controls the wallet linked to the NFT.
The third requirement, that the asset must be capable of assumption by third parties, is met, as the nature of blockchain technology gives the owner exclusive ability to transfer the NFT to another party.
The final requirement underscores that the asset must have some degree of permanence or stability. This is a low threshold, His Honour concluded, seeing as a ticket to a football match can have a short life yet is regarded as property.
While His Honour noted that the decision is not as strong a precedent as a case where both sides would have had the opportunity to make submissions about the status of crypto-assets, it still has significant implications, stated Michael Bacina, partner at Piper Alderman.
“It supports the hard work of some leading UK legal minds in identifying crypto-assets as property, which has been a key debate between lawyers, and in the US has been seen in the tension between tokens as securities or commodities,” he submitted.
“The case raises some interesting issues around how the law can cope (or not) with new technologies,” reflected Alana Kushnir, founder and director of Guest Work Agency and Guest Club.
“The discussion around whether NFTs qualify as ‘information’ vis a vis ‘property’, found that in the case of NFTs, the answer depended on the function of the information, rather than it being information per se,” she mused.
“The judgment unveiled the point that NFTs don't quite fit within any pre-existing category of legal classification (be it property, or intellectual property, or information, or securities etc),” she submitted.
Mr Bacina noted that the decision gives further confidence to crypto-asset holders and businesses that Singaporean Courts will protect their property rights contained in crypto-assets and NFTs.
“This is a key protection for holders when disputes arise, as things on the blockchain can go wrong from time to time,” he added, it is his view that crypto-assets should be recognised as a kind of property.
Mr Bacina detailed another significant aspect of the case, “Increasingly, we see that courts are willing to allow service of court processes via communication channels such as social media.
“The decision permitted service on a defendant via Blockchain, specifically by a transaction message being sent to a crypto-wallet — which is a novel way of serving process on a party.”
For Australia, even dipping our toes into the water of these issues as part of court proceedings is miles ahead us, Ms Kushnir posited.
“There are no Australian courts — to my knowledge — that have had the opportunity to sink their teeth into NFTs so far,” she stated, “but I’m certainly looking forward to it when the time comes.”
