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- Supreme Court of Singapore in Rio Christofle vs. Malcolm Tan Chun Chuen [2023] SGHC 66 concludes that the bona fide buying and selling of cryptocurrency without a license or waiver should not be in violation of the licensing provisions where there is no "execution of a business providing any type of payment service."
- Three indications suggest that a person is conducting a business providing a payment service: (1) if benefits have been obtained; (2) the number of transactions in question; and (3) whether the person is acting as an intermediary.
The facts of the case relate to arrangements for a consecutive purchase and sale of Bitcoins ("BTC“) that went wrong. Mr. Rio Christofle (“Demanding“) had reached an agreement, evidenced through WhatsApp messages with Mr. Malcolm Tan Chun Chuen (“Accused“) to sell 12.14 BTC to the Defendant for SGD 320,000 (“Agreement“). Respondent was a managing director of Qrypt Technologies Pte Ltd (“crypt“), who “had an exemption from holding a license under the [Payment Services Act 2019 (“PSA“)] for the provision of a digital payment token service”, and the Claimant was a director and shareholder of GCXpress Commerce Pte Ltd (“GCX“), which, according to the Claimant, had already ceased its activity at the time the Agreement was entered into.
The defendant had arranged a later transfer of BTC to someone who identified himself as Kenneth ("traditional knowledge“), and the parties (and/or their representatives) met in person on December 1, 2020 for the corresponding exchange. The Claimant first made the transfer of BTC to Qrypt. Qrypt then transferred the BTC to TK, after which TK deleted all of its Telegram message history with Defendant and TK's representatives refused to deliver the cash to Claimant.
Plaintiff, having failed to receive cash payment for the BTC sold, sued Defendant for breach of the Settlement. Respondent raised various arguments and, in particular, the argument that the Agreement should be unenforceable due to illegality; Neither the Claimant nor GCX had a license or exemption to operate as a payment service provider under the Payment Services Act 2019 ("PSA“).
Section 5 of the PSA prohibits a person from carrying on a business providing any type of payment service in Singapore unless the person holds a valid license to do so or is otherwise exempt ("Section 5“).
In fact, Respondent's argument about the illegality of the Settlement was not alleged, but only raised in the final submissions. Therefore, Lee Seiu Kin J had to consider whether the Court could invoke illegality ex officio and, in doing so, considered two issues:
- Whether the Agreement was ex facie illegal, specifically whether Section 5 expressly or by implication prohibits contracts for the sale of cryptocurrency.
- If the Agreement had an illegal object.
If the Agreement was illegal and unenforceable
On question (1), the Court held that the Agreement was not illegal ex facie, as the purpose of Section 5 is to penalize those caught providing cryptocurrency trading or exchange services without the required license or exemption, and not prohibit all contracts formed in cases where a person has breached Section 5.
On question (2), the Court held that the Settlement did not have an illegal object because there was no violation of Section 5. In reaching this decision, Lee Seiu Kin J identified three indicia, based on the case of Public Ministry against Lange Vivian [2021] SGMC 11 (“lange vivian“), which suggest that a person is conducting a business:
- That a profit had been made
- The number of transactions
- The role the person plays in the transactions, particularly if they were acting as an intermediary. This was considered to be an important factor distinguishing bona fide cryptocurrency trading from the provision of digital payment token services without a license, which would expose it to criminal liability under Section 5.
It was held that the Claimant was selling BTC in his possession to the Defendant (acting in his personal capacity or on behalf of Qrypt), and that this would not constitute the provision of any kind of payment service, let alone the conduct of a business in the provision of a paid service. Therefore, there was no violation of Section 5 and, consequently, the Agreement did not have an illegal object.
The appropriate parts of the Agreement
Notwithstanding the foregoing, the High Court dismissed Plaintiff's claim on the grounds that Plaintiff and Defendant are not legitimate parties to the Settlement. GCX, and not Plaintiff, is the proper party to the Settlement. The Claimant communicated with the Defendant via GCX Chat, a chat group operated by GCX to facilitate cryptocurrency transactions and stated, among other things, "thank you for trading with GCX", and there was nothing in the Claimant's messages that would suggest that Claimant was trading in his personal capacity.
Furthermore, Qrypt, and not Defendant, was the proper other party to the Settlement. It was Qrypt that held the exemption from holding a license under the PSA for the provision of a digital payment token service, and Defendant could not have intended to enter into the Agreement in its personal capacity. In addition, Defendant provided Qrypt's bank details for the transaction.
The decision of the High Court in Rio Christofle vs. Malcolm Tan Chun Chuen [2023] SGHC 66 is the second (after Lange Vivian) to discuss cryptocurrency transactions and the scope of licensing provisions under the PSA. The decision also provides a warning to people who trade cryptocurrencies over-the-counter, who should keep the following non-exhaustive issues in mind when doing so:
- When the agreement is entered into and recorded in electronic communications, consideration must be given to who the counterparty to the agreement is. You may be communicating with someone who is not the counterparty, but is acting as an agent or representative of the counterparty.
- If the counterparty is identifiable, plus the counterparty's wallet address. This is to ensure that in the event of a dispute, there is a person against whom the party can bring legal recourse.
- If the parties, and the intermediaries involved in the trade, carry out a business of providing payment services. If so, whether those persons are licensed under s 5 of the PSA or are exempt from doing so.
If you have any questions about the implications of this decision or would like to discuss this further, please contact us for more information.
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