In Rio Christofle v Tan Chun Chuen Malcolm [2023] SGHC 66 the Court held that parties that engaged in a peer-to-peer transaction of cryptocurrency did not contravene the Payment Services Act 2019, even if they lacked the license to carry on a business providing a payment service.
Director Lin Shumin discusses this High Court decision in our Legal Update.
INTRODUCTION
The Plaintiff's company agreed to sell Bitcoin to the Defendant's company. The Defendant's company agreed to sell Bitcoin to a third party with whom the Defendant had been in contact with via the Telegram app. The Plaintiff transferred the Bitcoin to the Defendant, who then transferred to the third party. However, after the Defendant made the transfer, the third party disappeared and the Defendant refused to make payment to the Plaintiff.
The High Court held that as the agreement was between the Plaintiff's company and the Defendant's company, the Plaintiff had no standing to sue the Defendant. Importantly, the High Court addressed the object and reach of the Payment Services Act 2019 ("PSA") in the context of peer-to-peer ("P2P") cryptocurrency transactions.
BACKGROUND
In 2019, the Plaintiff set up GCXpress Commerce Pte Ltd ("GCX") to conduct the business of "over-the-counter" trading of cryptocurrencies. He was the sole director and shareholder of GCX. GCX was exempted from holding a license under the PSA for the provision of a digital payment token service until 28 July 2020.
On 1 December 2020, the Defendant, the managing director of Qrypt Technologies Pte Ltd ("Qrypt"), contacted the Plaintiff to ask if the latter had some S$320,000 worth of Bitcoin to sell. The Plaintiff confirmed that he had, and arrangements were made for the transfer that very afternoon. On the Defendant's end, he had agreed to sell 11.982443 Bitcoin to a third party. That afternoon, the Plaintiff, the Defendant, and three individuals who collectively informed the defendant that they were there to purchase Bitcoin from GCX met. The three individuals had brought the S$320,00 in cash.
The Plaintiff transferred 12.14 Bitcoin to the Defendant's company's cryptocurrency wallet address as directed by the Defendant. However, as soon as the Defendant informed the third party buyer on Telegram of the completed transfer, the third party deleted his message history with the Defendant. The buyers at the premises refused to give the Plaintiff the S$320,000 as they claimed that they had not received the Bitcoin. The Defendant refused to pay for the Bitcoin which the Plaintiff had transferred and returned 0.157557 Bitcoin to the Plaintiff. The Plaintiff eventually left without the S$320,000 and bereft of 11.982443 Bitcoin.
The Plaintiff commenced proceedings against the Defendant for breach of contract for failing to pay the agreed price. The Defendant's defence was that the agreement was not between them as individuals, but between their respective companies, therefore, both the Plaintiff and Defendant were not proper parties to the contract.
The Defendant further claimed that the Agreement between them was illegal given that neither the Plaintiff nor the Plaintiff's company held the requisite license to operate as a Payment Service Provider under the Section 5 of the PSA.
THE HIGH COURT'S DECISION
The High Court dismissed the Plaintiff's claim and rejected the Defendant's argument that the Agreement was illegal.
KEYPOINT: P2P transactions without license or exemption are not necessarily in breach of the PSA
The High Court found that the Agreement was not illegal and did not have an illegal object.
Section 5 of the PSA prohibits a person from carrying on a business providing any type of payment service in Singapore unless the person has a license to do so or is an exempt payment service provider.
The High Court explained that there are three factors the Court looked at to ascertain if the Plaintiff was carrying on such a business:
- whether the Plaintiff has made a profit
- the number of transactions the Plaintiff was involved in, and
- the role played by the Plaintiff in the transaction(s).
The final factor is the important factor that distinguishes bona fide trading in cryptocurrencies from providing an unlicensed digital payment token service.
In this case, the Court found that the Plaintiff was not providing any type of payment service or carrying on a business of providing a payment service. The Plaintiff was merely selling the Bitcoin in his possession to the defendant, without taking a commission or engaging in multiple transactions. Accordingly, the Plaintiff had not breached section 5 of the PSA.
The High Court also held that both the Plaintiff and the Defendant were not the proper parties to the contract as they were not acting in their personal capacities. Rather, they had been acting on behalf of their respective companies. The High Court suggested that the Plaintiff ought to have included GCX as a 2nd Plaintiff and Qrypt as 2nd Defendant in pursing this claim.
COMMENTARY
Businesses or consumers engaging in P2P cryptocurrency transactions should be mindful of the three factors articulated above, to determine whether they are in breach of the PSA. As the purpose of the PSA is to tackle significant money laundering and terrorism financing risks, the mere buying and selling of cryptocurrency would not automatically expose one to liability under Section 5 of the PSA.
Parties should also be mindful of who the contracting parties are, as this will affect who the proper parties to an action should be.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
