Category: The Brief

By Susan Tay of OTP Law Corporation

This is part 2 of my article on the case of UZN v UZM. In Part 1 of my article here, I gave some background on the rationale behind dividing matrimonial assets.

You can read the one from the perspective of a forensic accountant, Wan Yew Fai of Strix Strategies Pte Ltd, here.

Both Wan Yew Fai and I are part of PracticeForte Advisory, a multi-disciplinary grouping of professionals. We often work as a team in matrimonial cases especially when the matrimonial estate comprises of more complex portfolios like shares, equity in companies, real estates in different countries and intricate family businesses.

This is thus a joint effort to give 2 perspectives on the recent Court of Appeal case of UZN v UZM. One from the accounting expert and one from a family lawyer. I also split my article into 2 parts.

Here I will dive straight into the case of UZN v UZM.

Facts of UZN

In UZN v UZM [2020] SGCA 109, the Court of Appeal dealt with how it should draw an adverse inference against a spouse who failed to provide full and frank disclosure of his assets.

This is a case of a 14-year childless marriage when the husband had initiated divorce. Highly acrimonious, by the time of the Court of Appeal (CA) judgment, proceedings had been ongoing for 6 years. With no children issues, the ancillary matters dealt mainly with how matrimonial assets should be split, maintenance and costs. The wife was working in the husband’s law firm for 13 years as a manager before she found out about his affair. She was apparently sacked around the same time.

The long and short of it is this: the wife was awarded S$763,440.88 or 40% of the matrimonial asset in the High Court of Singapore as her share in the matrimonial pool.  This amount was increased to S$1,129,181.58 (at only 32% of the matrimonial pool) after she appealed to the CA.

What actually happened in the two courts that caused the difference?

It was how the CA drew adverse inference differently from the High Court.

Disclosure Obligations

The CA sets out the absolute duty of disclosure by spouses in divorce proceedings as follows:

Unlike proceedings in civil trials, the determination of the pool of matrimonial assets in family proceedings takes place in the absence of cross examination (unless, exceptionally, cross-examination is specifically ordered by the court). …. these procedural constraints result in the parties’ duty of full and frank disclosure taking on particular significance. Each party’s discovery obligations must be strictly observed; since it is ultimately for the court to decide which of the parties’ assets belong in the matrimonial pool, it is not for the parties to tailor the extent of their disclosure in accordance with their own views on what constitutes their matrimonial assets …(emphasis added)

Undervaluation of Assets

It then went on to explain the four different types of undervalue of matrimonial assets as:

1. Inadvertence
2. Intentional concealment
3. Wrongful dissipation
4. Innocent dissipation

Differences in the category of undervaluation may have different consequences where the court is concerned.

Adverse Inference

In a case where a spouse hid assets beyond the reach of the other spouse by refusing to disclose the full extent of his/her worth, the one recourse for the other spouse has always been adverse inference. Simply put, it is akin to drawing a negative conclusion against the non-disclosure spouse.

The court does this in 2 ways:

1. The quantification approach where the court adds back into the pool of assets what it believes to be the worth of assets that the non-disclosure spouse tries to hide or
2. The uplift approach where the court increases the percentage of the other spouses’ entitlement to the pool of assets.

In the example of UZN, after the High Court went through the parties’ assets based on their respective accounting experts’ reports, it drew adverse inference against the husband using the uplift approach. The wife’s proportion was increased by an additional 8% to 40% instead of 32%. This was despite the High Court agreeing with the expert that the cash balance in the Husband’s bank account cannot be a mere S$500. The High Court also made a finding that the husband’s undisclosed assets came up to some $1.62m in cash. It did not add into the pool this discrepancy which would have been the quantitative approach. The matrimonial pool size was calculated to be just over $1.9m without the discrepancy.

In the CA however, the treatment was to use the quantitative approach instead. Not only did the CA add back into the pool the said $1.62m, it also added a whole host of other expenses like legal costs, expenses for the upkeep of the firm, and jewellery. These added yet another $200,000 into the matrimonial pool and the matrimonial pool size bloated to $3.73m.

Using the quantitative approach and without increasing the wife’s percentage entitlement, the wife got, as a result, almost one third more.

My Observations

In my view, adverse inference using the uplift method often yield unsatisfactory outcomes. A percentage uplift in the region of 10% is hardly enough of a dent to dissuade a spouse who is determined to dissipate the assets.

Look at the case in UZN. If the High Court had adopted the quantification approach and added what it deemed to be the size of the undisclosed assets i.e. $1.62m, the total pool of assets would have been S$3.52m. At 32% of $3.52m, the wife’s share would have been S$1.126m which is really quite a bit more than 40% of $1.9m.

It is interesting to note that the High Court also treated his adverse inferences between the spouses differently. There was a hybrid of both approaches as he also drew adverse inference against the wife for the S$10,000 legal costs she spent. This he used the quantitative approach by adding the amount back into the pool. It would have been consistent if he also used the quantitative approach for the husband’s assets.

It is clear that the quantitative approach yields a better and perhaps more equitable split for the other spouse. I use the word equitable also to reflect that adverse inference should have a real negative effect on the non-disclosure spouse.

The CA has made it clear that a quantitative approach is the more appropriate approach to take when there is a finding on the value of the undisclosed assets:

When a court makes findings in respect of the value of undisclosed assets, those findings should be reflected in the manner in which the court gives effect to the adverse inference. This is true whether the court’s findings provide a basis for making a reasonable estimate of the value of the undisclosed assets, or are direct pronouncements on what the undisclosed assets are worth.

Legal and accounting experts’ help thus played a critical role for the wife in this case as the Courts were able to make the necessary findings on the values, resulting in a quantitative approach that gave her more.

By PracticeForte co-founder Susan Tay

This is my article on the case of UZN v UZM. You can read the one from the perspective of a forensic accountant, Wan Yew Fai of Strix Strategies Pte Ltd, here.

In this article, I will share my perspective as a lawyer.

Before I start on the case proper, I think some background on the rationale of dividing matrimonial assets may be useful.

Why Should I Split My Assets with The One I Am Going to Divorce?

I often hear this from clients, whether husband or wife: it is not fair, this is my money, earned solely by me OR these are assets bought solely with my hard-earned money, why should I share this with that fella (by the time of divorce, these clients can’t even speak the other spouse’s name),  especially when that fella is the unfaithful spouse, the irresponsible one who gambles/squanders away all our hard-earned money not contributing anything to the marriage.

Sometimes, although not often, and quite ironically, this same party feels a sense of entitlement when it comes to the other spouse’s assets. It’s a case of your money is my money but my money is my money.

Having said that, I think we will all appreciate how negative we can feel about a person when relationship breaks down, even between friends, relatives, colleagues. And how at that point of time, it is easy to forget all the good and remember only the nasty. And if we are asked then to share even just a piece of cake, not to mention what we think we have acquired over many years, with this same person, the kind of vitriol and resentment is possibly similar.

So Why Must We be Made to Split Our Assets?

Well, because when we calm down from the fits of anger and despair, and think back at the good things, those great moments, yes, I mean specifically the contributions by our spouses to our marriages, most of us will accept that that there are indeed contributions.

It is precisely these contributions that the family laws in Singapore will acknowledge when it comes to division of matrimonial assets.

How Can We Be Assured That It Will be a Fair Split?

The overriding principle of a matrimonial assets split is a just and equitable division. When 2 people marry, it is often with the starting point that both will contribute to the marriage and family. In some families, one spouse is the homemaker and the other the breadwinner. More common these days, both will work and share their part in homemaking either with the help of parents or a helper or a day care for the children.

When the court decides on what is fair and equitable, it looks at contributions by the parties. These contributions can be financially or from efforts. E.g. the homemaker may not have the money but he /she will have made contributions by the effort in taking care of the family/household/children. The homemaker should not be disadvantaged because the couple’s decision was that he/she would not work. A non-financial contribution is just as real as the financial contribution.

In the unfortunate event that the marriage breaks down and the couple heads for a divorce, the court will then have to ascertain the total matrimonial pool of assets acquired by the parties and then give a percentage to each party’s contributions.

The court will consider, through examining a series of factors whether a party truly contributes to the marriage. A diehard gambler or an irresponsible parent, or an alcoholic, or a violent spouse will have factors weighed against them and the percentage ascribed to this spouse can be reduced.

Of course, a judge can only do its duties effectively if the full set of facts are presented before the court. This is the full disclosure duty of the parties when it comes to divorce proceedings. Honesty is expected not only when you want to speak of the ills of the other party but also of the gains.

These gains will be viewed as assets acquired during the marriage due to the efforts of both spouses. It is therefore only right that at the point when the marriage is over and the assets are no longer to be enjoyed by both parties as if they are still married to each other, that these assets be split.

In Part 2 of the article, I will share a case on what the High Court and subsequently the Court of Appeal did when it was found that one party has failed to disclose his assets.

Article By PracticeForte Advisory Affiliate Wan Yew Fai, CA (Singapore), CPA (Australia), B. Acc (Singapore)

In matrimonial cases, it is not uncommon that one spouse will hide assets from the other spouse, especially when the marriage is on the rocks. If this were a corporate or commercial case, that would likely have been classified as “cheating” and be deemed a criminal act.

Between a husband and wife however, the recourse for the party being deprived of these hidden assets is adverse inference.

In this article, I will share my analysis of how the High Court and subsequently the Court of Appeal applied adverse inference in the case of UZN v UZM [1]. I will also demonstrate how the quantitative method may be a more equitable method than the uplift method.

 Using income and expenditure to establish the extent of marital assets

Instead of just listing down all the assets of both husband and wife, the parties used the unusual method of income less expenditure to establish the extent of their marital assets. The Court of Appeal stated that this method should not be used as a matter of course but may be used in cases where there is already good reason to suspect, upon a preliminary overview, that there is a mismatch between a party’s assets and their means. [2]

How then was it used?

In a nutshell, the accounting expert’s analysis showed that the Husband’s income from 2000 to 2016 was $4.55 mil against which his expenditures were $4.12 mil. Of the $4.12 mil expenses, also over the same period, the Husband claimed that his living expenses alone were $2.045 mil. Deducting the income from the expenditure, the expert opined that the cash balance should have been at least $0.43mil. However, the Husband said he only had $500 left. Expert also added that he could only substantiate $1.16 mil out of the alleged $2.045 mil living expenses, leaving a sum of $0.885 mil that he could not verify.

Range of opinion and expert’s duties

In this case, the parties and the High Court Judge were content to rely on the expert’s analysis to determine whether the Husband had any assets which he had failed to disclose.[3] The conclusion was that the cash balance should be $0.43 mil instead of a mere $500.

Is this however really the case? In my view, it may be more equitable to go a few steps further.

First, the expert should have given an opinion on the range of the Husband’s cash balance.

According to Order 40A Rule 3(e) of the Rules of Court, “An expert report must, where there is a range of opinion on the matters dealt with in the report, summarise the range of opinion and give reasons for this opinion.”

So, in this particular case, the range from the expert’s analysis could have been as follows:

1. Lower end: $0.43 mil cash that the Husband should at least have; to
2. Higher end: $1.315 mil (i.e. $0.43 mil plus the $0.885 mil living expenses that he could not verify).

2^nd, the expert should have gone into some details relating to each bigger ticket expense item to assist the court.

Instead, the High Court Judge had to go through line by line in the expense listing to make a determination about the amount that should be included in the matrimonial pool without any further guidance and analysis from the expert.

I therefore believe it is also the duty of the expert to state the reasons for the range of values and then shed some further light on each of the individual expense items with respect to the nature of these expenses in order to assist in how the expenses should be classified. From the classification, one can then conclude whether they should be part of the matrimonial pool.

At the High Court, certain expenses were in fact added back into the matrimonial pool. Examples of these expenses are the amounts spent on pilgrimage trips, gifts to various relatives, traffic accident repairs, legal costs and astrological advice.

The High Court Judge also drew adverse inference against the Husband and applied the uplift method by increasing the Wife’s share by another 8% up. The Wife was awarded 40% instead of 32% with the uplift method. The Wife appealed the decision on concerns whether the Judge was correct to have given effect to the adverse inference in this manner, as well as the true extent to which the Husband has failed to disclose his assets.

Classification of various reasons for undervaluation

The Court of Appeal gave the following 4 reasons that result in an undervaluation of the matrimonial pool:

1. Inadvertence
2. concealment (g., arising due to intentional non-disclosure),
3. wrongful dissipation (g., falling under s 132 of the Women’s Charter) or
4. innocent dissipation

Techniques used to deal with adverse inference

The Court of Appeal also provides two methods that the court may use to deal with adverse inference:

a) Quantification Approach – “The court may make a finding on the value of the undisclosed assets based on the available evidence… and include that value in the matrimonial pool for division.”

b) Uplift Approach – “The court may order a higher proportion of the known assets to be given to the other party.”

In my 20 odd years’ experience as a forensic accountant, most if not all of my matrimonial cases dealt with substantial sums being dissipated or concealed. I dare say if someone bothers to take steps to keep assets undisclosed and out of reach of the other spouse, we are usually dealing with significant amounts. I will not be surprised if the undisclosed amount averages 4 times the disclosed amount. Needless to say, this is not always the same for every case and it can go higher or lower.

If the amount stashed away is way larger, then a better and more equitable approach, I surmise, will be the quantitative approach.

To illustrate, we use a case where a judge orders that the matrimonial asset to be divided 50:50 for a disclosed pool of $1 mil. For the uplift approach, unless the Judge gives the extreme uplift of 100% (which I don’t believe will happen) by adding another 50% to the injured spouse, the resulting award will only yield that party $1mil.

Now, if we apply my analysis that non-disclosed assets can amount to 4 times of disclosed assets, then what we are talking about will be $4 mil undisclosed assets not subject to any application of any percentage. It is clear that the quantitative approach of adding the undisclosed asset and then applying 50% (half of $5 mil =$2.5 mil) will mean more financially for the injured spouse.

In the case of UZN v UZM, the wife got S$763,440.88 with the uplift approach in the High Court. The quantification approach was not used.  Had it been used, her entitlement would have been S$1,129,181.58.  That’s a substantial increase of S$365,740.70. In fact, at the Court of Appeal, because of the quantitative approach adopted and additional expense items that the CA disallowed and added back into the matrimonial pool,  the wife got even more at  $1,195,102.20. Below is a table I have created to illustrate the computation:

__________________

[1] UZN v UZM [2020] SGCA 109; UZM v UZN [2019] SGHCF 26

[2] Ibid, para 25

[3] Ibid, para 5

Article by: Lim Seng Siew of OTP Law Corporation
This articles was first published on www.otp.sg

The Start-up and the Lawyer

The life journey of a start-up is fraught with much uncertainties. Where is the next round of funding coming from? How do I make sure that I am complying with the law when I employ my first employees? Is the area of business that I want to get into regulated? Am I fair to my new investors without being unfair to my employees and my initial investors? 

In a series of articles, we hope to help you answer some of these and other questions. As a start-up, we understand that cash is often tight. Endless important issues demand a start-up’s limited resources. To assist, we will be having free templates that a start-up can use to cover the important basics. We also have plans to add to this introduction with a series of simple-to-understand articles. They are an important resource to help you think about typical issues a start-up may face. As a generic set of documents, they are not (and cannot be expected to be) tailored for specific issues that you may be facing. For these issues, you probably need to speak to a lawyer, whether as a formal engagement or catching up over a cup of coffee. 

First off, start-ups are not just tech companies, although tech start-ups have unique characteristics. If you have a new business model or idea, you are a start-up. Even lawyers who want to practice law in a ‘non-traditional’ way is a start-up. In this day and age, almost everyone you meet either has founded a start-up, is involved in a start-up, or wants to start a start-up.

Next off, standard documents intended for elsewhere may not be suitable for Singapore. One example is the SAFE (Simple Agreement for Future Equity) financing documents introduced by Y Combinator in 2013. It is very popular in the USA for its start-ups. SAFEs are intended for funding raised from family and friends, (ie pre-series A funding) based on a deferred issuing of equity. It is not a debt. However the concept of deferred issuing of equity in Singapore is different from that in the USA. Therefore using SAFE financing documents in Singapore is very ‘unsafe’. Instead we have an equivalent in Singapore called CARE (convertible agreement regarding equity). More about CARE later.

Typically, we help start-ups put in place the basics of corporate governance that investors expect to see. These will include the company’s constitution, a shareholders’ agreement and/or a co-founders’ agreement. Sometimes we also advise on the corporate or group structure, especially when risk management is one of the primary concerns of the start-up.

When the start-up is ready for business, we can help prepare or vet supplier’s contracts, employment letters, the start-up’s office/employee manuals, customer’s contracts and T&Cs of your product.

The Cradle: Starting a Start-Up

One key characteristic of tech start-ups is that they aim for ‘hyper-growth’, becoming a very very large company in a very very short time. Think Google and Facebook. To achieve this, tech start-ups need four key ingredients: a great idea, a great product, a great team, and great execution. There is a fifth ingredient that no one has any control over, luck. I will leave it to the start-up gurus to deal with these ingredients.

Instead, I will be touching on the boring bits of a start-up, that is its legal mechanics. You don’t need to know the details, but you need to know the basics. You concentrate on building and growing your business. Let the professional accountants and lawyers handle the details. That is what we are trained in and that is what we do, day in and day out. What I have to say applies to all start-ups, tech or non-tech.

If nothing else, my first advice is keep things simple. Use standard stuff where possible. Keep the paperwork organised. Know what you are doing but you don’t need to know the details.

My next advice is incorporate.  Don’t run a start-up using your own name. If things go wrong (and they can), you don’t want your family home and your bank account to be taken by creditors.

Incorporation means setting up a company under the Companies Act. The company is a legal entity separate from the founders. You and your co-founders will be shareholders of the company. Some of you may be directors. The shareholders are ‘owners’ of the company. The directors are the people responsible for the important decisions in the company.  Some directors will be working directors. Working directors will handle the day-to-day decisions and the operations of the company.

It is possible for your start-up to take other forms; such as partnerships or LLPs. But remember my first advice. Keep things simple and use standard stuff.

After deciding to set up a company, your next decision is how many shares (ie equity) to each of the founders?

It is always good to talk when relationships between the founders are good. Don’t delay. If relationships turn sour, things left unsaid and undocumented will always get blown way out of proportion and take on an entirely different meaning.

Having said that, what would be a fair distribution of the initial shares (ie equity allocation) among the founders?

Many start-up gurus say “Execution has a greater value than the idea.” Of course you have other gurus who ask “What valuable company is nobody building?”, implying that good ideas are rare. My take on this? It’s all about balance. A good idea with bad execution has zero value. Good execution of a bad idea is exactly the same.

So resist the urge to give away too much shares to the founder who came up with the idea. Give him a fair number as recognition that the original idea came from him. But remember that all founders pulling together in the same direction to grow the company is also important. So if one or more founders in a start-up has a disproportionate number of shares, will all the founders be pulling in the same direction? Maybe or maybe not. Most likely not because of the disproportionate rewards some will have.

Do take into consideration the contributions of the individual founders; ie Who developed the application? Who raised the initial funding? Who spent sleepless nights rallying the team together? Value all of these but don’t overvalue each of them. However this means that the discussion about each founder’s contribution cannot start too early when each founder’s role and contribution, hence his value, is not yet clear. Discussing a theoretical contribution is of little value. 

So the bottom-line, discuss equity allocation when each founder’s value becomes clear. It doesn’t have to be equal equity allocation to each of the founders but the difference should not be too large to ensure that all founders pull together in the same direction. Think Google again. When Google IPOed, Larry Page and Sergei Brin had almost equal number of shares.

Another important advice, once it has been agreed and why the shares were allocated the way they were allocated, document them in a founders agreement.

If you have plans to raise funds from family and friends, consider using CARE (convertible agreement regarding equity). CARE is part of a suite of model agreements called “VIMA” or Venture Capital Investment Model Agreements launched in October 2018 by the Singapore Academy of Law (SAL) and the Singapore Venture Capital and Private Equity Association (SVCA). Depending on the details, the funds raised can be treated either as equity or as debt.

After the documents have been signed, keep them safe. You do not want to have to scramble to find the documents (or discover that they are missing) when venture capitalists are knocking at your door and doing their due diligence. Telling venture capitalists that key documents are missing will not in-still any confidence in the founders ability to manage the start-up.

In the next part of this series, I will be dealing with the First Baby Steps of a Start-Up.

By Susan Tay, Co-Founder of PracticeForte and Founder of OTP Law Corporation

This is the 4th part of a series on therapeutic justice and how it may be applied in family cases in Singapore. You may read Part 1 here, Part 2 here, Part 3 here.

In these parts, we dealt 1stly with how the essence of Therapeutic Justice for family cases is in the healing. The next parts involve the perspectives and roles of the different players involved and they are namely, The Lawyer, The Accountant and in this article, The Mediator.

In the context of these articles, family cases will be restricted to divorces and the issues arising out of a divorce i.e. property division, financial support and importantly, children’s matters including custody, care and control, access.

Therapeutic Justice and Mediation, A Common Ground [1]

Therapeutic justice and mediation have been described as sharing striking similarities [2] . Both advocate an alternative approach which argues for an opportunity to use the law and the legal system in a way which brings about positive therapeutic effects on individuals’ well-being.”[3]. A mouthful.

Allow me therefore to simplify: mediation is championed as a key therapeutic approach and if I may paraphrase Professor Omer Shapira (whose views I share), the following are the therapeutic values inherent in the mediation process:

• To mediate instead of litigate definitely reduces the fatigue, anxieties, anger and any other negative psychological effects for parties in dispute. These exhausting feelings are your constant companions if you are compulsive about trying to prove all the “I am Right and You are Wrong”. That obsession is unfortunately, an inevitable part of adversarial legal proceedings.
• To mediate means you exercise control and power over the terms that will govern how you move forward. You actively participate in all decision making. Good mediated outcomes generate high satisfaction from a perception of a fair process while litigation often means feelings of frustration and disempowerment since it is someone else telling you what is right/wrong. Personally, I have had enough experiences with litigation to know that what a judge orders can often be what none of the parties really want.
• To mediate a dispute toward a settlement often result in enduring resolution. Parties tend to stick to the terms of a mediated settlement well, because of the earlier mentioned values like perception of fair, satisfied, my own decision. This means the dispute is put to rest with no need of future litigation, thus dousing all the emotional stress involved.
• To mediate will mean the focus is on satisfying the parties’ needs, not on their legal rights. We can address psychological and emotional needs, which is often the problems parties want solved. Most will agree that what the law says is really often secondary to parties’ real wants.

• To mediate will teach parties how to manage a dispute, which in turn will benefit them in handling future issues. Problem solve between themselves, no more resorting to court again. This educational experience, according to Prof Shapira, may be considered a therapeutic outcome of the participation in mediation.
• To mediate can reduce the damage to the relationship and often, can repair, restore, rehabilitate and eventually, heal.

Those are all sound reasons why mediation is used as the 1^st port of call for family disputes. The healing potential is real.  One day soon, it will also be expected of all family mediators to not just focus on parties reaching a settlement.  Our aim must be for parties to strive for improved relationships, to be great co-parents, toward better understanding and respect.

Mediation, An Essential Tool

That mediation is an essential instrument in the tool cabinet of Therapeutic Justice is therefore obvious.

A good mediation process can be likened to having eggs for breakfast: Inexpensive to buy, easy to prepare, and completely healthy.

In the Singapore Family Justice Courts, mediation twinned with counselling are often the default pathways for a peace approach to resolving disputes.

Mediation, the Start Line to Rebuilding Trust?

Now don’t get me wrong. Mediation is not all about rebuilding trust alone.  We want to problem solve and which mediator does not want a settlement, signed and sealed by the end of the mediation session? It is how a mediator is traditionally assessed after all.

Nevertheless, a settled agreement without understanding the root of the problem may unravel any agreement in less time than you can say “mediation”. I had a settlement that came undone the very next day. My holy grail is truly the pursuit of enduring agreements.

As a practitioner focused on resolving family disputes, all my acrimonious cases came with deep seated distrust of each other.  A whole load of problems spiralling into a tornado ensued as a result.

For me therefore, the real power of mediation must be beyond just the process itself. Importantly, a good mediator must move parties toward a journey of rebuilding trust.  

Just 2 important ingredients before we can serve up a good mediation outcome:   1^st, sincere participants who will engage in the process honestly. 2^nd, a skilled mediator who is interested in maximising the parties’ well-being, not just in pressuring for a quick settlement agreement.

Mediator, An Important Player

It seems like a Herculean task, perhaps even an impossible one. How can mediators be expected to suddenly generate trust between two parties who have completely lost their faith, maybe even love or respect for each other in short mediation sessions? And when trust is severely breached and damaged?

There are 3 things crucial to this trust building exercise an effective mediator must make happen:

1. Tool, Not Weapon: Guide the parties toward a new way to communicate with each other. The process itself is already designed for open, hopefully honest conversations. The confidentiality obligations ensure a safe space to share; whatever information or unaccepted offers exchanged during mediation cannot be used in litigation. Private sessions with one party provide an added layer of confidentiality where even the mediator cannot share with the other party whatever you tell the mediator. But a good mediator will be able to encourage even more openness starting with parties making small arrangements between themselves. In one Hague Convention case where a parent took their child out of the country, we managed small steps like sending presents by the left behind parent to the child and opening the presents through video calls so the child’s reaction can be witnessed. Encourage dealings that stop short at blames, openness without hurtful words; accepting feedback without suspicions. Parties must understand that they can talk about and check information and that there is nothing wrong with that. That information is no longer a weapon against the other but a tool to help one another.
2. Well-being, Not Necessarily Best Interest: In mediation, we help parties to remember that being able to trust will mean peace of mind. Trust? How? That’s the intuitive response, because in most broken marriages, one party often felt betrayed by the other. It’s because I trusted too much! I was so stupid! Well, that was the past, as spouses, maybe. For the way forward, perhaps as co-parents, they must recognise the critical importance of trust or no resolutions will be enduring. You think you have a settlement but any kind of distrust will destroy it in a second. And without an enduring settlement, there cannot be peace. In other words, make a joint and conscious decision to put some faith in the process and TRUST. Put aside best interest, because what’s my best interest may not be yours. Invest in well-being instead because peace is universal and will need two to clap. This commitment is both sides, not just one side. We always say: Give this a chance; and then the next step and the next and before you know it, you are walking that pathway to trust, then peace, then healing, a step at a time.
3. Legal, Not Points of Law – Contrary to popular understanding about legal proceedings, this is an important element in your trust journey. Good legal advice can help us formalise the agreement such that it is enforceable. Trust may take longer than the rebuilding of Rome to re-establish. The security to the parties are that they are not just relying on each other to keep their word. They will also have the law behind them. Being prepared to commit to an enforceable agreement definitely is an important step to give the assurance that you are serious about keeping your word.

Nobody expects trust to be rebuild in one day but remember, we must never underestimate the power of planting a seed.

________________________

[1] “Joining Forces in Search for Answers: The Use of Therapeutic Jurisprudence in the Realm of Mediation Ethics” Pepperdine Dispute Resolution Law Journal, Vol. 8, Iss. 2 [2008], Art. 2 by Omer Shapira

[2] Ibid at pg 3

[3] Ibid at pg 4

This is the 4th part of a series on therapeutic justice and how it may be applied in family cases in Singapore. You may read Part 1 here, Part 2 here, Part 3 here.

In these parts, we dealt 1stly with how the essence of Therapeutic Justice for family cases is in the healing. The next parts involve the perspectives and roles of the different players involved and they are namely, The Lawyer, The Accountant and in this article, The Mediator.

In the context of these articles, family cases will be restricted to divorces and the issues arising out of a divorce i.e. property division, financial support and importantly, children’s matters including custody, care and control, access.

Therapeutic Justice and Mediation, A Common Ground [1]

Therapeutic justice and mediation have been described as sharing striking similarities [2] . Both advocate an alternative approach which argues for an opportunity to use the law and the legal system in a way which brings about positive therapeutic effects on individuals’ well-being.”[3]. A mouthful.

Allow me therefore to simplify: mediation is championed as a key therapeutic approach and if I may paraphrase Professor Omer Shapira (whose views I share), the following are the therapeutic values inherent in the mediation process:

• To mediate instead of litigate definitely reduces the fatigue, anxieties, anger and any other negative psychological effects for parties in dispute. These exhausting feelings are your constant companions if you are compulsive about trying to prove all the “I am Right and You are Wrong”. That obsession is unfortunately, an inevitable part of adversarial legal proceedings.
• To mediate means you exercise control and power over the terms that will govern how you move forward. You actively participate in all decision making. Good mediated outcomes generate high satisfaction from a perception of a fair process while litigation often means feelings of frustration and disempowerment since it is someone else telling you what is right/wrong. Personally, I have had enough experiences with litigation to know that what a judge orders can often be what none of the parties really want.
• To mediate a dispute toward a settlement often result in enduring resolution. Parties tend to stick to the terms of a mediated settlement well, because of the earlier mentioned values like perception of fair, satisfied, my own decision. This means the dispute is put to rest with no need of future litigation, thus dousing all the emotional stress involved.
• To mediate will mean the focus is on satisfying the parties’ needs, not on their legal rights. We can address psychological and emotional needs, which is often the problems parties want solved. Most will agree that what the law says is really often secondary to parties’ real wants.

• To mediate will teach parties how to manage a dispute, which in turn will benefit them in handling future issues. Problem solve between themselves, no more resorting to court again. This educational experience, according to Prof Shapira, may be considered a therapeutic outcome of the participation in mediation.
• To mediate can reduce the damage to the relationship and often, can repair, restore, rehabilitate and eventually, heal.

Those are all sound reasons why mediation is used as the 1^st port of call for family disputes. The healing potential is real.  One day soon, it will also be expected of all family mediators to not just focus on parties reaching a settlement.  Our aim must be for parties to strive for improved relationships, to be great co-parents, toward better understanding and respect.

Mediation, An Essential Tool

That mediation is an essential instrument in the tool cabinet of Therapeutic Justice is therefore obvious.

A good mediation process can be likened to having eggs for breakfast: Inexpensive to buy, easy to prepare, and completely healthy.

In the Singapore Family Justice Courts, mediation twinned with counselling are often the default pathways for a peace approach to resolving disputes.

Mediation, the Start Line to Rebuilding Trust?

Now don’t get me wrong. Mediation is not all about rebuilding trust alone.  We want to problem solve and which mediator does not want a settlement, signed and sealed by the end of the mediation session? It is how a mediator is traditionally assessed after all.

Nevertheless, a settled agreement without understanding the root of the problem may unravel any agreement in less time than you can say “mediation”. I had a settlement that came undone the very next day. My holy grail is truly the pursuit of enduring agreements.

As a practitioner focused on resolving family disputes, all my acrimonious cases came with deep seated distrust of each other.  A whole load of problems spiralling into a tornado ensued as a result.

For me therefore, the real power of mediation must be beyond just the process itself. Importantly, a good mediator must move parties toward a journey of rebuilding trust.  

Just 2 important ingredients before we can serve up a good mediation outcome:   1^st, sincere participants who will engage in the process honestly. 2^nd, a skilled mediator who is interested in maximising the parties’ well-being, not just in pressuring for a quick settlement agreement.

Mediator, An Important Player

It seems like a Herculean task, perhaps even an impossible one. How can mediators be expected to suddenly generate trust between two parties who have completely lost their faith, maybe even love or respect for each other in short mediation sessions? And when trust is severely breached and damaged?

There are 3 things crucial to this trust building exercise an effective mediator must make happen:

1. Tool, Not Weapon: Guide the parties toward a new way to communicate with each other. The process itself is already designed for open, hopefully honest conversations. The confidentiality obligations ensure a safe space to share; whatever information or unaccepted offers exchanged during mediation cannot be used in litigation. Private sessions with one party provide an added layer of confidentiality where even the mediator cannot share with the other party whatever you tell the mediator. But a good mediator will be able to encourage even more openness starting with parties making small arrangements between themselves. In one Hague Convention case where a parent took their child out of the country, we managed small steps like sending presents by the left behind parent to the child and opening the presents through video calls so the child’s reaction can be witnessed. Encourage dealings that stop short at blames, openness without hurtful words; accepting feedback without suspicions. Parties must understand that they can talk about and check information and that there is nothing wrong with that. That information is no longer a weapon against the other but a tool to help one another.
2. Well-being, Not Necessarily Best Interest: In mediation, we help parties to remember that being able to trust will mean peace of mind. Trust? How? That’s the intuitive response, because in most broken marriages, one party often felt betrayed by the other. It’s because I trusted too much! I was so stupid! Well, that was the past, as spouses, maybe. For the way forward, perhaps as co-parents, they must recognise the critical importance of trust or no resolutions will be enduring. You think you have a settlement but any kind of distrust will destroy it in a second. And without an enduring settlement, there cannot be peace. In other words, make a joint and conscious decision to put some faith in the process and TRUST. Put aside best interest, because what’s my best interest may not be yours. Invest in well-being instead because peace is universal and will need two to clap. This commitment is both sides, not just one side. We always say: Give this a chance; and then the next step and the next and before you know it, you are walking that pathway to trust, then peace, then healing, a step at a time.
3. Legal, Not Points of Law – Contrary to popular understanding about legal proceedings, this is an important element in your trust journey. Good legal advice can help us formalise the agreement such that it is enforceable. Trust may take longer than the rebuilding of Rome to re-establish. The security to the parties are that they are not just relying on each other to keep their word. They will also have the law behind them. Being prepared to commit to an enforceable agreement definitely is an important step to give the assurance that you are serious about keeping your word.

Nobody expects trust to be rebuild in one day but remember, we must never underestimate the power of planting a seed.

________________________

[1] “Joining Forces in Search for Answers: The Use of Therapeutic Jurisprudence in the Realm of Mediation Ethics” Pepperdine Dispute Resolution Law Journal, Vol. 8, Iss. 2 [2008], Art. 2 by Omer Shapira

[2] Ibid at pg 3

[3] Ibid at pg 4

By PracticeForte Advisory Affiliate Shirley Tay of 10.10 Consultants Pte Ltd.

Law, divorce, litigation, suits — nobody would ever consider these circumstances ‘therapeutic’. These terms are more likely to induce stress, anger, fights, arguments, disputes and many other negative emotions. So how did the concept of Therapeutic Jurisprudence [or “TJ”] come to be, what role does therapy play in the judiciary, and how can accountants adopt TJ in their work?

TJ takes into account the emotional and psychological impact the law has on parties involved. At its core, TJ offers an interdisciplinary, non-adversarial approach, using law as a potential therapeutic agent, where a team of key players come together to assist a party to make positive changes. Some examples include adopting a therapy-centred legal process, or even steering parties towards healing their relationship as opposed to punishing each other.

Forensic accountants play a major role in TJ as well; we are engaged to investigate complex financial and accounting issues like identifying, tracing and assessing the values of assets, or collating evidence that withstands cross examination or scrutiny. Here, we’ll focus on matrimonial disputes.

When couples come together, their world is flowered with romance and love. Unsexy topics like money and finance are rarely openly discussed. Most times, the party deemed more financially (and digitally) savvy is tasked to handle money. In the long-run, because it is an awkward subject that is not properly worked through, it often leads to mistrust or unhappiness. So, it’s not surprising that financial matters can quickly turn into sore points that form the basis of long-drawn matrimonial fights.

In divorce matters, accountants are often brought in for ancillary matters like maintenance and division of assets. We recommend TJ to encourage parties to mediate before going to trial. At the negotiation table, the dollars and cents are naturally a mainstay issue. How would a forensic accountant apply TJ in his or her role as a financial specialist in such cases?

Consider all sides

While we are engaged through solicitors representing one side, accountants have to consider proposals and numbers tabled from all parties. By referencing and comparing the documents and figures supporting the submissions of every side, we can highlight the main areas of disagreement, and assess the reasonableness of the sums against documentary proof of the same, effectively shortening the negotiation process while engaging parties to narrow their differences and work towards an agreement.

Asking the right questions

Different couples will adopt different ways to manage funds and contributions. From joint accounts to sharing of burden according to ability-to-earn, or in the case of a single-income family, full reliance on the breadwinner. In the last scenario, even when the marriage isn’t working out, the party without an income stream may be reluctant to pursue divorce as they cannot imagine how they can cope financially in the aftermath.

That these non-income earners don’t handle the family finances would also explain why most don’t know how to obtain information about, much less how much money or what assets exist. This is also where forensic accountants can help alleviate their anxiety. From examining just basic information, we’re able to lead clients to ask the right questions for more information, and from analysing numbers, we can also help prove misstatements or find relevant undisclosed facts.

Systematically working through complex financial issues

With globalisation and high volumes of cross-border trades, financial transactions have also become more sophisticated, especially for high net-worth individuals whose assets may include corporate shares, overseas investments, bank borrowings or even non-financial institutions and other elaborate financial arrangements. These can be very intricate and require tracing and analysis, and forensic accountants work systematically through these issues, and present our findings to the clients with a goal to find the simple within the complex.

Joining the dots to understand the motivation

Forensic accountants provide independent, objective analysis, not only by paying attention to detail, but also connecting dots. From the numbers we work with, we’re able to explain the “who, what, when and how”. And to apply TJ in our work, we also have to find and understand the “whys” that reveal motivations behind behaviours, so we can help parties in dispute work towards resolution or settle grievances.

Presenting the numbers in comprehensive manner

A good piece of work needs to be presented simply and comprehensively for easy understanding, especially for subjects such as finance. As such, our reports summarise main facts into tables, present trends in graphs, and use simple language that is easy to digest.

While lawyers use words to paint the picture, accountants believe numbers tell the story. Whichever the case, to create positive change, the legal route need not have the negative effects most clients would come to expect. By collaborating with a team of professionals comprising accountants, counsellors, lawyers and mediators, such as that assembled under PracticeForte Advisory, we can adopt TJ to steer parties towards healing and amicable settlement.

By Susan Tay, Co-Founder of PracticeForte and Founder of OTP Law Corporation.

This article was first published by OTP Law Corporation.

This is the 2nd part of a series on therapeutic justice and how it may be applied in family cases in Singapore. You may read Part 1 here where I wrote about how the essence of Therapeutic Justice for family cases is in the healing.

The next 5 parts involve the perspectives and roles of the different players involved and they are namely, The Lawyer, The Accountant, The Mediator, The Mediation Advocate, The Neutral Evaluator  and The Counsellor.

In the context of these articles, family cases will be restricted to divorce and the issues arising out of a divorce i.e. property division, financial support and importantly, children’s matters including custody, care and control, access.

My Perspective

As a concept, there is really no faulting Therapeutic Justice. It has all the right sound bites: resolving underlying causes, addressing emotional needs, or simply helping parties to “heal”.  In practice however, players engaged in the traditional arena of the strictly legal, like lawyers, flounder.  

Therapeutic Justice requires that we venture into the unknown, into the “touchy feely” of psychological needs, the “messiness” of managing emotions. We are not mental health experts and we must not pretend to be! Lawyers protest. Our reluctance to deal with them does not however make any of the emotions go away. Quite the other way. For disputes between family members in particular, these cases are so vehemently charged, they will often break bonds, frequently lifelong and even for generations. 

There are therefore to be no more excuses for us. Lawyers MUST acquire the skills necessary for managing client’s emotional welfare, understanding underlying causes and recognising psychological effects.  In addition, we NEED to collaborate with the different disciplines, like accountants, counsellors, mediators so that we are equipped to provide even the most basic but completely essential care packs.

My Duties

I place 3 aspects of my duties as paramount: Counsel, Care, Protect, even more now in Therapeutic Justice. For me, the three duties are like Siamese Triplets that cannot be separated.

If I may, I’d like to demonstrate this by giving a background of my own journey as a family lawyer.

My Journey

I did not start my legal career focused on Family Law.  Instead, I was trained as a litigation lawyer for commercial disputes. Quite frankly, my cases in those fledgling years escape me.

I do however remember my 1^st ever family case rather vividly. It was in my 2^nd year of practice and I had just ventured out as my own boss in Ong Tay & Partners.

That case was a divorce based on separation, no children, a HDB flat; it was straight forward, uneventful and after some negotiations, by consent. It is amazing but for someone embarrassingly horrendous with names and faces, I can even see my client in my head now, a young lady, with no make-up except for that pair of lined eyes. Cases like this should not have left any impression but it did because I remember the feelings. She was sad in our 1^st meeting but pleased in our last. Thanked me profusely for resolving an otherwise painful parting smoothly.

It was especially gratifying for me and I remembered thinking idiotically, where are these appreciative clients in my other cases?

Then there was the case that haunted me such that for many years in my 30s, I rejected representing parents ferociously fighting over their kids. This case was a particularly acrimonious access case that I still cite when I share about how a child can suffer long term adverse effects from a bitter litigation between parents.

The parents were not married and they went their separate ways when the child was born.  This Child did not meet her dad until she was just about to go to primary school. Mother refused access after Father made it clear that there was no prospect of them getting back together. She said he should not confuse the Child with access especially as he had been absent for so long. Altercations were aplenty and Mother even took out a private summons for assault. Personal Protection Orders did not, and still do not protect against non-family members and back then, there was no POHA. It was a fight that lasted years with the Father finally granted access including overnight.

Fast forward 10 years, the child is now a troubled teen who self-mutilates to soothe. Parents still don’t get along and I get the occasional calls from my client to complain about the other parent.

It is particularly heart breaking as the parents were not fighting over custody, not even care and control. It was only for access by the Father.

My Meaning

I made the decision to focus on family law late in my career although it felt like I had been a family lawyer since forever. I felt I could finally be a good one as I acquired the necessary wisdom, both in life and at work. Mainly, I felt I was ready because I could finally summon the courage for my conviction. 

This is the reason why I have not left practice. This calling of a family lawyer is my meaning.

I did not realise for quite a while that the meaning stopped coming from winning the battles in court. Instead, it came from clients I represented so many years ago turning up and telling me how what I did changed their lives. It is at once deeply humbling and immensely gratifying.

My Role

My sister once asked me what kind of clients I prefer. Mothers or Fathers? Wives or Husbands? I told her I like the kind of clients I instinctively feel like I want to care and protect. These are clients I think are good people, with good intentions who truly come from a good place. They are of course, no less susceptible, like any other human, to emotions like anger, anxieties, sadness which sometime made them act out in ways which seem unthinking, even selfish. I have since understood that these actions are hardly ever irrational but are instead stem from distrust and fear.

I am not alone in this. Those of us who view family law as a calling see ourselves as a trusted counsel and we do as its name suggest, counsel then care and protect.

We counsel and advise on what the law is; and then give a perspective on what will be regarded as the reasonable thing to do, especially for the long run. Our clients let us know what matter to them and what they will therefore need; and we fiercely protect their interests. Importantly, we are needed to help our clients navigate through the many pathways to a resolution, quite often a personal painful journey even as we, the lawyers don’t see it, while doing our utmost in our care of their well-being.

As the lawyer and trusted advisor and maybe even the professional with the most interactions with the client, I recognise that I wield tremendous influence. With great power comes a greater responsibility.

My aspiration therefore, beyond all that I have described as duties of a lawyer, will be to always advocate for the pursuit of lifelong peace for my clients and healing relations with their families.

This we do, not only with the wisdom of having seen through so many broken relations and as many happy resolutions; but also with the courage to tell the client the things they don’t really want to hear or do the things they really loathe to do.

Susan Tay founded OTP Law Corporation (its predecessor, Ong Tay & Partners) in 1991. She celebrated her 30th year in practice this April, 2018.

Susan’s practice primary focus is family and matrimonial law. Also a litigation lawyer with special interest in employment, shareholders’ disputes and trust law, her experience extends as well to commercial transactional work, conveyancing and real property. Calling on the amalgamation of her diverse experiences, she has served clients in complex cross border matrimonial work involving extensive and complicated portfolios of matrimonial assets.

Susan is an accredited mediator with the Singapore Mediation Centre and a certified mediator with the Singapore International Mediation Institute. She currently mediates on various panels including the Singapore Mediation Centre, Law Society Mediation Scheme, the Family Panel of the Law Society Mediation Scheme, the MiKK e.V International Mediation Centre for Family Conflict and Child Abduction and the Thailand Arbitration Centre . Susan is also a trained parenting coordinator with the Family Justice Courts, Singapore. Susan is on the Community Justice Centre’s panel of Primary Justice Lawyers. She is an accredited Collaborative Family Lawyer. 2019, Susan was selected by MiKK to participate in a special training supported by the European Commission for the inclusion of children in family mediation.

In 2015 Susan co-founded PracticeForte Pte Ltd with Mylene Chua. 6 months after, the 1st grouping of 3 small law firms, including OTP Law Corporation came together as PracticeForte Advisory. Today, the Advisory has 17 firms and counting from cross disciplines and 7 affiliate members cross continents, closing the ASEAN- EU connect. A daring pursuit for the banding of the small, to build both expertise and peace, around the world.

Article by Eric Lip, an associate of OTP Law Corporation. This article was first published by PracticeForte Advisory Affiliate OTP Law Corporation.

While the legal status of cryptocurrencies has always been hazy, it seems the fog around it will be cleared soon. The past year has seen a substantial growing body of case law amongst common law jurisdictions. One question that has plagued the community has been whether cryptocurrency is regarded as “property” in the eyes of the law. Thankfully, the New Zealand High Court in David Ian Ruscoe & Malcolm Russell Moore v Cryptopia Limited (in liquidation) [2020] NZHC 718 (“Cryptopia”), which deals directly with this issue.

Brief Facts

Cryptopia is a cryptocurrency exchange online platform. It is designed principally to allow users to trade pairs of cryptocurrencies between themselves while Cryptopia charges fees for trades, deposits and withdrawals. In January 2019, Cryptopia’s servers were hacked, with about 9 to 14 percent of its cryptocurrency, valued at around NZD 30 million, stolen. In May, Cryptopia’s shareholders resolved by special resolution to place the company in liquidation. The liquidators have estimated that Cryptopia held around NZD 170 million worth of cryptocurrency.

The liquidators then made the current application to the courts in New Zealand for directions on:

• the legal status of the cryptocurrencies held by Cryptopia, and
• whether the cryptocurrencies are held on trust by Cryptopia.

The court’s answers to these questions would, in turn, determine the legal rights of the creditors and account holders of Cryptopia respectively.

“Property”

When discussing property in common terms, a distinction is typically drawn between real and personal property. Real property refers to interests in land and the fixtures upon the land. Personal property may further be split between tangible and intangible properties. The legal rights that one has over a tangible, real world physical property is also referred to as a “chose in possession”. This arises from the fact that physical possession can be taken of the thing or property in question.

In contrast, the legal rights over intangible or “incorporeal” property are typically referred to as “choses in action”. Such rights are created by law and can only be enforced through legal action. A common example of such intangible rights would be intellectual property rights, such as copyright. Another example would be bank accounts. Your deposit in a bank account, which represents the debt owed by the bank to you, is also a chose in action you have against the bank and you do not have ownership over the money in the said bank account.

As for the legal test in determining whether something can be considered as “property”, Lord Wilberforce’s definition in National Provincial Bank Ltd v Ainsworth [1965] AC 1175 is often cited. The definition outlines four requirements for a “property” interest:

1. Identifiable subject matter;
2. Identifiable by third parties;
3. Capable of assumption by third parties; and
4. Some degree of permanence or stability.

After considering a few cases relating to cryptocurrencies, including the Singaporean case of Quoine Pte Ltd v B2C2 Ltd, the New Zealand High Court then went on to hold that that Lord Wilberforce’s definition for “property” has been met in Cryptopia’s case.

Briefly, we’ll take a look at some of the cases discussed.

Quoine Pte Ltd v B2C2 Ltd [2020] SGCA(I) 2

While the facts of the case are complex, a brief summary is as follows:

Quoine operated a cryptocurrency exchange, on which B2C2 was trading on. B2C2 employs an algorithimic trading software to perform trades. Due to an error in the programming by Quoine, trades, which were performed automatically, were executed at a rate of 250 times its appropriate price. Quoine then became aware of the mistake and reversed the trades, which led to the litigation.

B2C2 sued Quoine for breach of contract as well as breach of trust. For a breach of trust argument to succeed, the cryptocurrencies in question must be a species of “property” that can be capable of being a subject matter of a trust. Before Thorley IJ in the Singapore International Commercial Court, Quoine did not dispute the issue of whether cryptocurrencies could be the subject of property rights. Accordingly, Thorley IJ considered that cryptocurrencies meets the requirements set out by Lord Wilberforce, but did not consider the issue further. Both the breach of contract and breach of trust arguments succeeded.

On appeal, the Court of Appeal overturned Thorley IJ’s decision on the breach of trust on the basis that the three certainties of trust had not been met. On the “property” question, the Court of Appeal suggested that the cryptocurrencies are capable of “assimilation into the general concepts of property”, although the court ultimately did not find it necessary to decide on this point.

Elena Vorotyntseva v Money-4 Ltd t/a Nebeus.Com, Sergey Romanovskiy, Konstantin Zaripov [2018] EWHC 2596 (Ch)

Here, Nebeus, a trading platform, was holding cryptocurrency worth an aggregate of 1.5 million GBP for the claimant Vorotyntseva. When risk of dissipation of the cryptocurrency arose, the claimant then applied for a worldwide freezing order against Nebeus and its directors. The issue of whether cryptocurrency could be a form of property was not raised and thus was not a matter before the court. However, the case is noteworthy for the willingness of the court to grant a proprietary order over the cryptocurrency.

AA v Persons Unknown [2019] EWHC 3556

More recently, the English High Court in AA v Persons Unknown recognised cryptocurrencies as “property” by granting an interim proprietary injunction. This injunction was against a cryptocurrency exchange over cryptocurrencies, which represented proceeds of ransom monies worth USD$950,000.00, paid out to a hacker in exchange for the decryption tool. In this case, only the claimant, who was the English insurer of a Canadian insurance company, was represented at the hearing. As such, no issues on the legal status of cryptocurrencies was properly canvassed. Nevertheless, the court carefully considered the legal statement by the UK Jurisdiction Task Force on Crypto assets and Smart contracts (“UKJT”) and adopted a similar view in arriving at the conclusion that (1) cryptocurrencies meet the four criteria set out by Lord Wilberforce; and (2) cryptocurrencies do not fall neatly within the traditional categories of choses in possession or choses in action.

Application in Cryptopia

Applying Lord Wilberforce’s definition, the court in Cryptopia then held the following on cryptocurrencies:

“They are a type of intangible property as a result of the combination of three interdependent features. They obtain their definition as a result of the public key recording the unit of currency. The control and stability necessary to ownership and for creating a market in the coins are provided by the other two features – the private key attached to the corresponding public key and the generation of a fresh private key upon a transfer of the relevant coin.”

The court further went on to deal with two common counter-arguments against characterising cryptocurrencies as “property”

1. Cryptocurrencies are neither choses in action or choses in possession.

The traditional dichotomy between choses in action and choses in possession was regarded to be a “red herring” argument. The court opined that cases discussing this dichotomy should not be regarded as setting limits as to what can be recognised as “property”, but rather as an attempt to categorise all examples of property into one of the two categories. As such, this was not an impediment to the recognition of “property” that do not fit squarely into the traditional dichotomy.

2. Information is typically not recognised as “property”

While it has been previously stated that “information is not property at all” as it is “normally open to all who have eyes to read and ears to hear”, a distinction should be drawn between such mere information which may be infinitely duplicated, and cryptocurrencies, which functions as an item of tradeable value and not to simply record or impart information. Notwithstanding the fact that cryptocurrencies are essentially intangible computer code, this data on the blockchain making up cryptocurrencies give rise to a relationship and system of transfer, which also has an element of exclusivity. As such, the argument that cryptocurrency is mere information incapable of being property was dismissed as simplistic.

Having concluded that cryptocurrencies can be regarded as “property”, the court in Cryptopia then went on to discuss the question of whether cryptocurrencies were held on trust for the account holders. The court held that the three certainties of a trust were met on the facts of the case and answered the question in the affirmative.

Concluding thoughts

The world of cryptocurrencies is constantly evolving and presents new regulatory and legal challenges. Cryptocurrencies defy blanket definitions as there are often unique or distinctive features. For instance, some cryptocurrencies may require multiple signatures and the control over these assets are shared by a number of private key holders. Even if property rights are attached to cryptocurrencies, there may also be practical difficulties arising from, for instance, the anonymity or pseudoanonymity and traceability issues from the ownership of cryptocurrencies.

Nevertheless, Cryptopia has provided a clear and direct indication that the prevailing opinion in the common law world is that cryptocurrencies are to be treated as “property”. This is important in establishing legal certainty that cryptocurrencies are capable of being the subject matter of a trust while also being particularly relevant for the insolvency regime. However, the precise nature of this property right requires further clarifications, given that traditional categorisations are clearly inadequate to fully accommodate cryptocurrencies.