Singapore Trustees’ Association Conference 2022
KEYNOTE ADDRESS ON TRUSTEE CUSTODIANSHIP OF CRYPTO ASSETS
1. I don’t know about you but when I hear the word “custodian” the first image that enters my mind is of the “big, strong and friendly” jagas that used to guard banks in the fifties, sixties and seventies. Many of them were former policemen in the Sikh contingent of the police force which disbanded after World War II. You knew your savings were safe because they stood guard every night. Today, the assets that need guarding are often not physical but exist only in the form of electronic bits and bytes. Consequently, good custodians no longer need to be physically big and imposing, but they still need to be trustworthy and vigilant. My topic today is trustee custodianship of crypto assets. The custodial aspect of trusteeship lies in holding assets safely and securely on behalf of another, receiving income and dividends on those assets, providing statements of account to that other and in due course making payments or distributions as directed. Such a barebones description does insufficient justice to the importance of custodianship in the modern world. It is custodians (as so many of you here today are) who enable the safe and secure holding of new and emerging assets by persons unfamiliar with the challenges of doing so directly, as well as facilitating intergenerational transfers.
2. In my address, I will cover three aspects:
(a) Crypto assets as property
(b) Segregation of crypto assets
(c) Trustee duties in relation to crypto assets
II. Crypto assets as property
3. Property rights, the Scottish Enlightenment philosopher David Hume famously suggested, fulfil a social need because resources are scarce. There is not such abundance or bounty of nature that all can have whatever they want. At the same time, there is not such extreme scarcity that those in want and need would respect no rules. Hume went further and considered private property essential to human flourishing.
4. With this in mind, it is not unexpected that in the digital realm there is also a desire for ownership and social recognition of ownership. If people give a name to and ascribe a value to something whether it is tangible or intangible, then people will start wanting to possess it and to trade it. In this way, they come to treat it as an object of ownership. If we take a step back, literally or metaphorically, we realise that even with objects much of their value is really in the mind. Take an assemblage of materials that a human might perch on. Whether it is a chair and not just a random assemblage depends on whether we think it is a chair and use it as one. Moreover, how expensive it is depends on whether it looks good to us, or appears comfortable to sit on. Value is not inherent in the object. While we speak of expensive materials, with gold being more valuable than wood, this is again a judgment made by an aggregate of human minds, and may vary with circumstances. One would rather have a chair that can float, if on a ship that is sinking, or a chair that can be broken up into fuel if one is freezing, than a solid gold chair in either eventuality.
5. Moreover, the concept of property itself is relational: it is a social concept. We own something when we have the right as against others to do what we want with or to it. In Ancient Rome, whose ways of legal thinking remain pervasive even today, the core right of ownership was the right to destroy the owned object with impunity and immunity. Sadly, the archetypal property in those bygone days was the captured slave. Today, not only have we moved on from slavery but the idea that ownership entails an unfettered right to waste or destroy the owned object is greatly attenuated. To take just one example, the owner of a Good Class Bungalow that falls within a tree conservation area (as almost all of them do) may not unilaterally chop down his tree on his land if it exceeds a metre in girth. Yet he remains within his rights to refuse to share with anyone the fruit it bears, even if the crop exceeds his household’s appetite and the mango or durian must otherwise go to waste.
6. This preamble brings me to the point that the right questions to ask concern how these intangible things that we have named and given value to are stored, transferred in practice and used by people. These are matters both of technology and custom. It is these characteristics that we must consider when working out whether and how we apply concepts such as trust law to them. Trust law too is something made by humans and subject to change by humans. One way of looking at the law is in terms of what remedies courts will grant to petitioners, and it is these remedies that reveal the rights that people have.
7. In the first wave of digitalisation, when money began to be moved and stored electronically rather than counted in paper or gold bullion, this presented little difficulty for the law of trusts. It was mostly about converting paper ledgers and records into electronic ones. But it is worth remarking on a question that arose in relation to shares in companies. I am referring to the English Court of Appeal decision in Hunter v Moss  1 WLR 452 (“Hunter v Moss”). In that case, the defendant had declared himself trustee for the plaintiff of 5% of the issued share capital of a company in which he held 950 out of a total issued share capital of 1,000 shares. The defendant argued that the 50 shares had not been segregated and identified to the trust, and the trust therefore failed for lack of certainty of subject-matter. He compared shares to tangible goods: it is trite law that an agreement for sale of X number of units of an identified bulk cargo does not pass title in them until those X units are set aside and appropriated to the contract.The court distinguished shares of a single class in one company, as these were, from such bulk goods, because they all carried identical rights. Accordingly, the court held that the trust did not fail for want of certainty of subject matter, for the 50 shares were capable of satisfying the trust without identifying any particular 50 shares. Another way of looking at this is that in the case of shares in a company, the shareholders are co-owners of a single asset namely the company. One 5% share in a company is the same as any other 5% share in that company.
8. By contrast, a year later, in relation to tangibles, the Privy Council held that a proportion of a fluctuating stock of gold bullion was insufficiently identifiable to constitute the subject-matter of a trust: see Re Goldcorp Exchange Limited (in receivership)  1 AC 74. Ultimately, it came back to the “very nature of things”. Lord Mustill quoted from Lord Blackburn’s treatise on The Effect of the Contract of Sale (1845), pp. 122-123:
The first of [the rules] that the parties must be agreed as to the specific goods on which the contract is to attach before there can be a bargain and sale, is one that is founded on the very nature of things. Till the parties are agreed on the specific individual goods, the contract can be no more than a contract to supply goods answering a particular description, and since the vendor would fulfil his part of the contract by furnishing any parcel of goods answering that description, and the purchaser could not object to them if they did answer the description, it is clear there can be no intention to transfer the property in any particular lot of goods more than another, till it is ascertained which are the very goods sold.
9. That the law responds to “the nature of things” emphasises the importance of understanding crypto technology and how people use it.
10. I am sure this audience is quite familiar with the most significant litigation to date concerning crypto coins in Singapore. I refer to Quoine Pte Ltd v B2C2 Ltd  2 SLR 20 (“Quoine”). This case involved an intermediary, namely a cryptocurrency virtual exchange platform operated by a company called Quoine. Importantly, Quoine also functioned as a market-maker by using an algorithmic computer program to automatically place buy and sell orders on its platform. This was done with the aim that its market-making trades maintained liquidity on the platform. Unfortunately, a glitch created inadvertently during an operating system upgrade resulted in an appearance of illiquidity that triggered forced sale orders against two margin traders who had borrowed on the exchange.
11. B2C2 was a trader on the Quoine platform. It also used proprietary algorithmic trading software to place buy and sell orders on the platform. The appearance of illiquidity made the deep price in B2C2’s trading software become effective. B2C2’s orders at this deep price were then matched with those of the margin traders and the trades were settled by the platform. Unfortunately, the deep price was approximately 250 times the then going rate in the market. In the proceedings that followed, the question of whether the cryptocurrencies constituted property arose.
12. At first instance in the SICC, the court concluded that neither of the cryptocurrencies concerned were money, and certainly “not legal tender in the sense of being a regulated currency issued by government”. But they met the “classic definition of a property right” outlined in National Provincial Bank v Ainsworth  AC 1175 at 1247–1248, namely: “[Property] must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.” On appeal, Chief Justice Sundaresh Menon concluded:
There may be much to commend the view that cryptocurrencies should be capable of assimilation into the general concepts of property. There are, however, difficult questions as to the type of property that is involved. It is not necessary for us to come to a final position on this question in the present case.
13. The courts in Singapore have also on numerous occasions granted proprietary injunctions over crypto assets, holding that it is seriously arguable that they are intangible property.It has not proved necessary for any court as yet to define the type of intangible property.
14. Thus, Singapore is aligned with other common law jurisdictions in the view that crypto assets are intangible property. As for what kind of intangible property and what their nature or attributes might be, this remains to be worked out. There has been much academic debate over whether they come within choses in action or are a new form of intangible property. Choses in action were the creation of the medieval common law, and became foundational to much of modern commerce, in a multitude of forms such as negotiable instruments, shares, policies of insurance and bills of lading. Advocates for a new form of intangible property say that crypto assets do not fit within the definition of choses in action, because there is no counterparty, no person to sue. Advocates of the contrary position suggest that in any event crypto assets will be defined by the remedies granted in respect of them, and so in that sense they can be classed with choses in action.
15. I should also note that while cryptocurrencies have not been assimilated as money in any common law jurisdiction, some states have adopted cryptocurrencies as legal tender. For example, last year El Salvador adopted Bitcoin as legal tender, as has the Central African Republic this year. Moreover, money is not necessarily the preserve of governments. Historically, the use of money predates authorities that issue it. At common law, recognition of a currency as money does not depend on a government having issued it. This is reflected in Lord Mansfield’s famous observation in Miller v Race (1758) 1 Burr 452 at 457, that what is treated as money “by the general consent of mankind” is given “the credit and currency of money, to all intents and purposes”. As of now, no cryptocurrency has come close to such “general consent”.
16. It is worth considering why it might be that thus far no case that requires a court to determine what kind of intangible property crypto assets are has come up for decision. I would venture one reason. The disputes coming before the court principally concern remedies following hacking of crypto assets. For this kind of matter, there is nothing material or relevant in determining the nature of crypto assets more specifically.
17. Instead, parties’ concerns, and hence the issues for courts, have concerned procedural matters such as how to identify and serve the hackers, as well as jurisdictional questions including the location of the crypto assets.
18. A recent case that is of interest resulted from an attempt to remedy a hack by proceedings not against the hackers but against the developers of the crypto-asset. I am referring to the English case of Tulip Trading Ltd (a Seychelles company) v Van Der Laan and others  EWHC 667 (Ch).
19. The claimant (“Tulip”) claimed it had lost access to bitcoin it owned following a hack on the home computer of its CEO. The private keys were deleted and Tulip had no other record of them. Tulip claimed against the developers (or controllers) of the software in respect of certain digital asset networks, seeking orders that the developers take steps to create and apply a ‘patch’ that would allow it to regain control of its bitcoin. I pause to note that the premise of the claim was that it is possible technically to bypass the use of a private key. Tulip put its case on the basis that the developers owed it tortious or fiduciary duties. A number of the developers, who had been served abroad, challenged the jurisdiction of the English courts. The court ultimately allowed the challenges and set aside service on the ground that while there was a serious case to be tried on Tulip’s claim of ownership and on the question whether the hack had occurred, there was no serious issue to be tried on the question whether the developers owed Tulip the alleged tortious and fiduciary duties.
20. Two interesting points that were dealt with were the location and consequently the lex situs of the bitcoin. These are points that are important for trustees and for tax professionals.
21. When considering the lex situs of personal property, the proper law under private international law is that of the place where that property is, if a chose in possession, or where the right of action may be enforced, if a chose in action. Where the property is tangible, it is a straightforward inquiry. If one wants to transfer ownership of a car in Singapore, one applies the law of Singapore. But it is not so straight-forward when the asset is somewhere out there in the ether, and there is no right of action that would bring it into possession. On the question of location, the court noted that Tulip did not rely on the fact that the private keys had been stored in England, as the keys were not themselves property. Tulip argued that the place of residence of the person controlling the bitcoin determines its location. Tulip was resident in England. The defendant developers argued that the place of domicile of the person owning and controlling the bitcoin is what matters, and so it should be Tulip’s place of incorporation, namely the Seychelles. The court held that the place of residence of the controller was determinative, and hence the bitcoin was located in England and governed by English law. One may expect this question of locationto be considered further as more cases come before the courts.
III. Segregation of crypto assets
22. For the valid formation of a trust, three certainties are required. The first is certainty of intention to create a trust. This does not require use of the word “trust” so long as it is objectively clear that the creator of the trust wanted someone to hold property for the benefit of another person, imposing an obligation on that other person to do so. A trust is not created when something is given to someone else with the hope that they use some or all of the gift to look after someone else. The second certainty is certainty of subject-matter. The subject-matter of the trust must be described in such a way that what is subject to the trust is clearly identifiable. The third certainty is certainty of objects, meaning clarity as to who the beneficiaries are to be or in the case of a charitable purpose trust, what the designated purpose is.
23. It is whether the second certainty, certainty of subject-matter, has been met that poses the hard questions for crypto assets. This is where the issue whether the crypto assets have been segregated or are capable of segregation is relevant. Segregation may also bear on the question of certainty of intention, because the putative trustee’s act of segregating property from his own may support the inference that he intended to create a trust over that segregated property.
24. In order to ensure that we are thinking, more or less, of the same thing when we speak of crypto assets, it might be helpful to cite the United Kingdom’s Revenue and Customs’ Cryptoassets Manual for a working definition:
Cryptoassets (also referred to as ‘tokens’ or ‘cryptocurrency’) are cryptographically secured digital representations of value or contractual rights that can be:
• traded electronically
While all cryptoassets use some form of Distributed Ledger Technology (DLT) not all applications of DLT involve cryptoassets.
25. The Manual describes four types of crypto assets: Exchange Tokens (for example bitcoin); Utility Tokens (which have specific uses, in particular giving access to goods or services on a platform); Security Tokens (which are meant to give holders particular rights or interests in a business or other real world asset); and Stablecoins (crypto assets that are pegged to some other asset such as gold or a government-backed currency, either by the workings of an algorithm or by being collateralised by actual holdings of that other asset).
26. In relation to certainty of intention, the Singapore Court of Appeal in Quoine and the New Zealand High Court in Ruscoe v Cryptopia Ltd (in liq)  2 NZLR 809 (“Cryptopia”) came to different conclusions on the specific facts of two differently set up exchanges. The differences are illuminating.
27. In Quoine the exchange stored cryptocurrencies in offline wallets. However, these did not match what might have been recorded in Quoine’s database in respect of users of its platform. Indeed, it was expressly agreed that in the event of Quoine’s insolvency users would not necessarily get back their cryptocurrencies. The Court of Appeal considered that the lack of segregation and the express language of the agreement meant that there was no intention to create a trust. The Court of Appeal observed that:
…the only amount which a user was concerned with was what was reflected on Quoine’s database. The actual amount in the cold storage wallet did not matter because, if there were insufficient assets to meet the account balance reflected in the database, Quoine would simply purchase the required amount from other sources to make up the shortfall. We find this arrangement to be more akin to deposits being made with a bank.
28. In Cryptopia, on the other hand, there were express trust provisions. Moreover, the exchange operated differently, in terms of its internal accounting of the cryptocurrencies that were stored. Significantly, the exchange maintained (until the computer hack that precipitated its liquidation) quantities of cryptocurrencies that matched the wallets of its users. This degree of separation was considered sufficient to create a trust over the crypto assets.
29. I would suggest that what segregation can or should mean in the virtual realm of crypto assets depends on the technology and also on how that technology is used and operated. This is also important when we consider the second certainty, certainty of subject-matter. One approach as suggested by Kelvin Low in his article “Trusts of Cryptoassets” would be segregation by separate public addresses. However, as the author notes, this immediately runs into the concern that such an arrangement is wholly impractical for any exchange to undertake and manage. If this were how the exchange operated, then any trade would require a transfer on the blockchain, instead of the cheaper method of a credit and debit in the exchange’s database account. Indeed, this difference in cost and efficiency between the on-chain transaction and the off-chain one is what gives exchanges a useful intermediary role. As an aside, it also demonstrates a failure of the original crypto concept of trading without trusted intermediaries.
30. However, acknowledging the practical difficulty of segregation by separate public addresses does not mean that alternatives such as the use of wallets to store the public-private key combination in fact achieves the requisite segregation, if the law were focused on identifying the specific crypto-coin or fraction of crypto-coin subject to the trust. Moreover, there is no guarantee that the custodian holds the only copy of the public-private key combination.
31. This brings us back to Hunter v Moss as pointing the way to a solution. It takes us away from trying to identify a specific crypto-coin or fraction thereof. The question would be whether crypto assets can be analogised to shares in a company. Shares in a company might be described as tradable representations of fractional co-ownership. There are some resemblances. When a crypto-currency is issued, limits are placed upon how many there are at the start and on how the quantity will increase (by way of mining). The units are not individually identifiable, as they have no unique serial number, unlike say banknotes. So far so good, but as we think about it further the analogy begins to fray at the edges. What exactly is the property of the user of an exchange who is said to hold on that exchange’s database, say 3.25 bitcoin, but who does not himself retain the private key to any of those bitcoin? What is that user able to point to as the identified subject of the holding?
32. Thus, I would suggest that the unspoken premise of Cryptopia, that the crypto coins in the digital wallet were held by the exchange in tenancy in common on behalf of all the account holders in proportion to their equitable interests as recorded in Cryptopia’s ledgers, may not be one that can be applied routinely to holdings by trustee custodians for multiple trusts and the beneficiaries of those different trusts.
33. Of course, if trust law does not bite, then the legal relationship of exchanges and users would be principally limited to the contractual. Where the user is itself a custodian representing multiple clients or investors, then similar considerations apply in determining whether the relationship between custodian and investor is contractual only, or involves a trust relationship. As ever, the difference between a trust relationship and a contractual one becomes of major practical significance not when all is going well but when there is insolvency, which could happen because of a computer hack.
IV. Trustee duties in relation to crypto assets
34. One of a custodian’s key selling points for clients is that digital assets such as crypto will be held securely and safely. Naturally, this is the custodian’s principal legal duty to its client. Unfortunately, hacking is rife. One solution is to employ cold storage solutions such as digital wallets stored offline, ie, with no internet connectivity. However, this makes legitimate access by clients harder, requiring additional steps and manual human intervention. But hot or online storage carries substantial cybersecurity risks. The more successful a custodian is in attracting assets the more tempting a target it presents for hackers. And cybersecurity is a never-ending arms race between hackers and defenders.
35. Consequently, risk controls and obtaining appropriate and adequate insurance in respect of insurable risks have become essential aspects of the business of the digital custodian. If the risk of loss due to hacking could be adequately insured at reasonable cost (which is a rather big “if”), then the concerns of the user might be addressed in practice.
36. Moreover, custodians have considerable regulatory burdens, including in relation to Know Your Customer checks, Anti-Money Laundering and Combating Financial Terrorism. One important question for custodians is what regulations apply to which digital or crypto assets. While there has been some alignment across regulators in different jurisdictions, there remain differences. These differences return to the foreground the question of location of crypto assets, a question discussed, as I have mentioned, in the recent case of Tulip. There, the residence of the controller determined the location of the crypto assets. Where a custodian holds crypto assets for another, it is arguably the custodian who would be the controller of them for the purpose of determining the lex situs. That would fit with the commercial reality that custodians would locate themselves in jurisdictions that have appropriate legal and regulatory frameworks in respect of crypto assets, such as Singapore, and customers who may be located elsewhere would for sound and legitimate business reasons seek out custodians in such jurisdictions.
37. Certainly, there remain open questions. One such is the question in the United States of America of whether or when crypto assets are securities and so potentially subject to the jurisdiction of regulators such as the US Securities and Exchange Commission (“SEC”). The lawsuit brought by the SEC against Ripple in respect of XRP will decide whether virtual currencies amount to “investment contracts” and hence securities, within the four-prong test established in SEC v WJ Howey Co 328 US 293 (1946). The four prongs are (1) the investment of money (2) in a common enterprise (3) with the expectation of profit (4) to be derived from the efforts of others.
38. Finally, where one is not merely a custodian but a trustee with active powers and duties of investment, it will be essential to keep in mind whether crypto assets are authorised investments, and even if they are whether the crypto assets in question satisfy the applicable investment criteria for that trust.
39. This has been a broad sweep of legal issues and considerations for trustee custodians in connection with crypto assets. The common law develops by judges’ deciding only the case put before them. How that case is framed depends in turn on the creativity and resourcefulness of counsel. And importantly it enables the steady incremental development of the law, responsive to the changing needs of business in the light of technological advancements. The law has already travelled some distance in relation to crypto assets but there is still a way to go before all the difficult questions are fully worked out and answered. I would venture to suggest too that both the technology relating to crypto, as well as judicial understanding of that technology, will continue to evolve and develop.
40. Thank you for your attention, and I wish you a fruitful remainder of the conference.
 I am grateful to my law clerk Lai Weng Han for his assistance in the research for and preparation of this address.
 Shaun Koh and Ganesh Vijayan, “That big, strong and friendly man” The Straits Times (Singapore, 16 May 1982) at page 13.
 Section 14 of the Parks and Trees Act 2005 (2020 Rev Ed)
 Hunter v Moss  1 WLR 452 at 459.
 Re Goldcorp Exchange Limited (in receivership)  1 AC 74 at 90.
 B2C2 Ltd v Quoine Pte Ltd  4 SLR 17 at .
 Quoine Pte Ltd v B2C2 Ltd  2 SLR 20 at .
 See, for instance, CLM v CLN and others  SGHC 46 and Janesh s/o Rajkumar v Unknown Person (“CHEFPIERRE”)  SGHC 264.
 “Bitcoin: El Salvador makes cryptocurrency legal tender”, BBC (9 June 2021).
 “Bitcoin becomes official currency in Central African Republic”, BBC (27 April 2022).
 Tulip Trading Ltd (a Seychelles company) v Van Der Laan and others  EWHC 667 (Ch) at .
 Tulip Trading Ltd (a Seychelles company) v Van Der Laan and others  EWHC 667 (Ch) at –.
 The State-Owned Company Yugoimport SDPR (also known as Jugoimport-SDPR) v Westacre Investments Inc and other appeals  5 SLR 372 at .
 Guy Neale and others v Nine Squares Pty Ltd  1 SLR 1097at –.
 HM Revenue & Customs, Cryptoassets Manual (30 March 2021) <https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto10100>.
 Quoine Pte Ltd v B2C2 Ltd  2 SLR 20 at –.
 Ibid, at .
 Ruscoe v Cryptopia Ltd (in liq)  2 NZLR 809 at – and .
 Kelvin F.K. Low, “Trusts of Cryptoassets” (2021) 34(4) Trust law International 191 at 203-204.
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