Emerging Trends in Technology Disputes: Five Predictions
Recent developments in technology, in particular, the rise of digital assets and the metaverse, hold the promise to change the way we live, work and play. Unsurprisingly, these developments have brought along with them novel issues which challenge the way we understand and apply existing legal concepts and statutory frameworks. Fundamental questions such as whether digital assets may be considered as property and the category of property which such assets fall into, remain nascent or unsettled issues.
In the technology disputes space, these issues have also raised intriguing questions and challenges. For instance, courts have had to find ways to bring justice in cases of cryptocurrency fraud where an action is brought for relief against unknown parties. In this article five predictions are put forward based on emerging trends on the types of technology disputes which we will see in future.
- When a technology dispute arises, disputing parties will look to the law for a fair resolution. The constantly evolving technology landscape has thrown up a number of disputes which challenge the ability to arrive at just decisions as we continually try to adapt and apply our laws to govern these technology disputes.
- In the largely unchartered waters of technology disputes, we have seen trends emerging and put forward five predictions of the types of technology disputes we will see in future. As with the law, predictions are not an exact science – we have therefore approached this exercise as an art based on current data. Further, as with any technology product, our predictive output can only be as good as the information and data that we have had the opportunity to consider and analyse.
- Before diving into our predictions, we pause briefly to consider what makes a technology dispute. There have been various attempts to define a “technology dispute” including for example, the Draft Provisions for Technology-related Dispute Resolution (UNCITRAL Draft Technology Provisions) which proposed:
“Technology dispute means a dispute arising out of or relating to the supply, procurement, research, development, implementation, licensing, commercialization, distribution, financing, as well as to the existence, scope, and validity of legal relationships of or related to the use of emerging and established technologies.”
- The definition is arguably so wide as to generally apply to many forms of disputes, technology-related or not. A comment has been made that a dispute involving a plough (being a form of technology) could fall under the proposed definition on the premise that it is a dispute “of or related to the use of emerging and established technologies”.
- While an agreed definition of a “technology dispute” may remain elusive in the near term, there are at least some disputes which could generally be agreed on as “technology disputes”. These would include disputes involving cryptocurrency (usually involving fraud), disputes following cybersecurity and IT incidents, as well as disputes between metaverse users (such as the theft of digital assets in the metaverse).
Prediction One: Unknown Identities and Digital Identities Will Continue to Feature in Technology Disputes
- One feature of the new digital economy is the increased ability of individuals to hide their identities or adopt alternative digital identities in their virtual interactions or transactions. This has in turn raised new challenges when seeking to enforce legal rights.
- This is perhaps best illustrated in cryptocurrency fraud cases which typically involve the victim of a hack or cryptocurrency fraud seeking an injunction against an unknown hacker. The courts in Singapore and other common law jurisdictions have generally undertaken a practical approach to enable the legal pursuit of such anonymous wrongdoers by permitting proceedings against “Persons Unknown”. This is so long as the claimant can identify by description those coming within the class of defendant.
- Unknown (digital) identities also present associated challenges with effecting service. Traditional (non-digital) methods of direct service on defendants are clearly not possible when their identity or physical location cannot be ascertained. Again, we see how the courts in common law jurisdictions have sought to overcome the peculiar problems in the digital economy by permitting service via digital means. In D’Aloia v Persons Unknown, Binance Holdings Limited & Others  EWHC 1723 (Ch) the English High Court permitted the service of court documents by NFT which would “airdrop” the court documents into the two digital wallets connected with the persons unknown and embed the service in the blockchain.
- As the metaverse gains popularity, it is inevitable that there will be an increase in the adoption of digital identities through the creation of avatars. This may in turn present questions such as:
- If all that is known of the identity of a defendant is an avatar without any link to an actual identity, will it be (legally) possible to make an order against an avatar?
- Given that a number of digital assets are held by digital identities, could third-party crypto exchanges be compelled to provide relief?
Prediction Two: Businesses and Industry Players in the Digital Assets Ecosystem Will Be at Risk of More Claims
- As the users of digital platforms and networks increase, it is likely that more claims will be made against business and industry players in the digital assets ecosystem. This includes developers, creators and operators of digital asset platforms and networks. Even where the technology driving such platforms and networks perform as planned, disputes have arisen, and will continue to arise, where these platforms and networks have been breached by third parties or adversely impacted by IT incidents.
- In Tulip Trading Ltd v Bitcoin Association for Bitcoin SV (BSV) and others  EWHC 667 (Ch), the claimant could not access its digital currency assets allegedly due to a hack. The claimant filed its claim against a network and its developers, seeking a declaration that it owned certain digital currency assets as well as orders requiring that the defendants take steps to ensure that the claimant had access to and control of the digital currency assets, or for equitable compensation and damages. The claimant sought to do so on the grounds that the network and its developers owed fiduciary and tortious duties to users of the network.
- The High Court of Justice of England and Wales found that there was no realistic basis for the imposition of fiduciary duties on the defendants. In addition, the court found that the imposition of a duty of care of the nature sought by the claimant could not be realistically argued to be fair, just and reasonable.1The issues discussed in Tulip Trading were decided in the context of an application to challenge the jurisdiction of the court by some of the defendants, who were all served the claim form out of jurisdiction. In August 2022, the claimant in Tulip Trading was granted permission to appeal the decision of the High Court to the Court of Appeal.
- Tulip Trading stands out as possibly the first case in the common law jurisdictions to consider the roles and duties of a network developer vis-à-vis a user. Further, the claim pursued in Tulip Trading is notably different from the other cases involving a hack on cryptocurrency, as the claimant had not sought to pursue the wrongdoer. Instead, the claimant sought legal action to compel the parties who supposedly had the power to right the wrongs (i.e. the network and developers) to do so.2In June 2022, Bitcoin Association for BSV, one of the defendants in Tulip Trading that did not challenge the jurisdiction of the court, announced that it had agreed to a settlement with the claimant in proceedings following the High Court decision and will (a) release an updated version of the Bitcoin SV Node software that allows Bitcoin SV miners to freeze transaction outputs and act on court orders and (b) seek to procure a notary service provider to execute the notary aspects of the process as an independent entity.
- The trend of claims against networks, operators and developers can also be discerned in:
- B2C2 Ltd v Quoine Pte Ltd  4 SLR 17 where the plaintiff, an electronic market maker, sued the defendant, a company operating a currency exchange platform, for the alleged wrongful reversal of several trades made by the plaintiff on the defendant’s platform following an IT incident.
- A class-action lawsuit commenced by investors against entities associated with the lending platform MakerDAO for allegedly knowingly misrepresenting the risks of an investment.3https://www.coindesk.com/policy/2020/09/29/28m-makerdao-black-thursday-lawsuit-moves-to-arbitration/. The class action lawsuit has been stayed by the US Federal Court in light of the arbitration agreement in the platform’s terms and conditions.
- An arbitration reportedly commenced by a group of users against a cryptocurrency exchange under the Hong Kong International Arbitration Centre rules for losses suffered during a shutdown of many parts of its online trading platform.4https://cointelegraph.com/news/binance-lawsuit-claimants-mount-up-in-arbitration-for-decentralization.
Prediction Three: Legislative Reform May Be Introduced to Clarify the Legal Framework for Digital Assets
- A principal issue which has arisen in most cases involving digital assets is whether they may be considered property to enable the claimant to bring a proprietary claim. This question has so far been answered in the affirmative,5For example, in CLM v CLN and others (2022) SGHC 46, the General Division of the High Court of Singapore recognised and found that cryptocurrencies satisfied the definition of a property right. The Court found that the requisite elements for the grant of a proprietary injunction were satisfied on the facts and granted the proprietary injunction sought. with the result that claimants have in most cases been successful in seeking proprietary injunctions for digital assets. However, most of such decisions have proceeded on the basis of realistic arguability at interim hearings. Very few (if any) of those decisions have been the outcome of fully contested hearings between claimants and respondents.
- There are credible arguments to be made that cryptocurrency is not property, chiefly on the basis that they are not tangible in the normal sense. However, concluding that crypto currency is not property would significantly impair the rights of the holders of such assets. Perhaps then the best way forward could be, as the Law Commission of England and Wales has recently proposed, to recognise digital assets as a new category of personal property. While the Law Commission is of the view that “the common law of England and Wales is, in general, sufficiently flexible to accommodate digital assets”, it has provisionally proposed that a “third” category of personal property (distinct from things in possession and things in action) be explicitly recognised as “data objects”. The recognition of this new category of data objects is stated to be a useful legal development as it would allow for a “more nuanced consideration of new, emergent, and idiosyncratic things”.
- In Quoine Pte Ltd v B2C2 Ltd  2 SLR 20, the Singapore Court of Appeal observed that cryptocurrency may be regarded as property, stating that there “may be much to commend the view that cryptocurrencies should be capable of assimilation in the general concepts of property” but ultimately recognised that there were “difficult questions as to the type of property involved” and left this question open. While it appears that the Singapore courts are amenable to assimilating digital assets into the general established concepts of property, it is too early to conclude that such a direction, without legislative intervention, would suffice or be appropriate in the long term.
- It can be expected that more complex and novel issues relating to digital asset technology disputes will surface in the Singapore courts. While it is possible to consider developing the law relating to digital assets via the common law incrementally, a legislative framework setting out the relevant statutory framework may be beneficial for greater clarity of the applicable law pertaining to digital assets. A statutory framework can also allow the intended direction and purpose of the law to be set out, even before any such issue surfaces in the Singapore courts in a technology dispute.
- A legislative framework would also allow flexibility to depart from common law principles if Parliament decides that there is a purpose in doing so. For instance, in Reed, Michael v Bellingham, Alex  SGCA 60, it was held that Parliament had intended to displace the starting position at common law that emotional distress is not actionable in enacting the legislative provision for a private right of action under section 32 of the Personal Data Protection Act 2012 (PDPA)6Section 32 of the PDPA has since been repealed and re-enacted under section 48O of the PDPA pursuant to the amendments to the PDPA which came into force in February 2021..
Prediction Four: Arbitration Will Be Increasingly Adopted for Technology Disputes
- Much has been said about how arbitration is suitable for disputes where parties are concerned about secrecy. Therefore, when it comes to protecting the trade secrets around these technologies and disputes relating to their development, arbitration may be the preferred route to ensure preservation of secrecy.
- The popularity of arbitration for digital asset disputes can be seen in how arbitration agreements are often included in terms and conditions that users accept when they use a platform or service. Further, persons who deal and administer with digital assets tend to deal across borders. Jurisdictional issues which arise in claims between crypto counterparties may ultimately be more suitably determined in arbitration.
- Aside from conventional dispute resolution mechanisms, the rise of arbitration for technology disputes may also be discerned from the creation of on-chain arbitration systems. An example in this space is the Kleros Arbitration System, a crypto-based application providing for blockchain user “juries” who then conduct a vote on a dispute.7A majority vote determines the outcome of a dispute, and the jurors are provided with financial incentives to fall within the majority group of voters. The whole process (and its decision) is recorded on the blockchain. Kleros has been used in a real-world setting for arbitration on a tenant-landlord dispute.
- Notwithstanding the suitability of arbitration for a large number of technology disputes, we would also raise the following points in considering the most appropriate dispute resolution mechanism for a technology dispute:
- Arbitration requires parties’ consent. Accordingly, in the absence of such consent, such as in the case of cryptocurrency fraud, such claims will likely continue to be pursued by way of court litigation.
- Mediation is another option if confidentiality is a concern for parties in the dispute. Arbitration may however (tentatively) be preferred from an enforcement perspective due to the wide applicability of the New York Convention although this may change with increasing adoption of the Singapore Convention.
- As a matter of technical expertise, there is likely to be little to separate court litigation, arbitration, and mediation. Specialised decision makers may be appointed or be asked to preside over each of these proceedings. However, as parties generally have some latitude in appointing a tribunal or mediator in an arbitration and mediation respectively, arbitration and mediation may be more attractive to parties who prefer more freedom in appointing the specialised decision makers.
Prediction Five: Valuation of Digital Assets Will Become More Significant
- Digital assets are likely to be the subject of many technology disputes, raising the question of whether the remedy should be awarded in the form of the digital asset or fiat currency.
- The courts have appeared generally reluctant to award specific performance or remedy in the form of a digital asset. In B2C2 Ltd v Quoine Pte Ltd  SGHC (I) 03, the plaintiff’s claim for specific performance (of transfer of Bitcoin) was denied. Thorley IJ disagreed with the claimant’s submission that specific performance should be ordered because volatility of the markets made it difficult to ascertain the inherent value of Bitcoin. Thorley IJ also found that the defendant would suffer substantial hardship if required to buy cryptocurrencies for delivery to the plaintiff because of market movements in the intervening period. The plaintiff was therefore restricted to its remedy in damages.
- In Tulip Trading Ltd v Bitcoin Association for Bitcoin SV (BSV) and others  EWHC 141 (Ch), the High Court of Justice of England and Wales took the view that it was not acceptable for security for costs to be paid in the form of Bitcoin. The Court found that Bitcoin (as a form of security) would not result in protection for the defendants equal to a payment into court or a first-class guarantee. The Court was of the view that such a manner of security would expose the defendants to a risk to which they would not otherwise be exposed to with the usual forms of security, namely the fall in value of Bitcoin, which could result in the security becoming effectively valueless.
- Where an award is made in monetary damages (in lieu of cryptocurrency), potentially difficult questions regarding the valuation of the digital asset may arise. Considering the many different types of digital assets, the general volatility of the price of digital assets and the lack of a standard basis for the valuation of such assets, a valuation of digital assets may potentially turn out to be an exercise fraught with challenges.
- Such difficulties have however not prevented the courts from assessing the value of cryptocurrencies in issuing damages awards. In Diamond Fortress Technologies, Inc v EverID C.A. No. N21C-05-048 (Del. Super. Ct. April 14, 2022),8https://courts.delaware.gov/Opinions/Download.aspx?id=331980 the Delaware Superior Court issued a damages award in the sum of approximately US$25 million for the defendant’s breach of contract in failing to pay in cryptocurrency for certain IT services rendered. The court found first that the cryptocurrency should be classified as a security (since the payment was for services linked to an initial coin offering). From that basis, the court referred to CoinMarketCap as a “reliable cryptocurrency valuation tool” and using a well-established securities framework, found that the proper method for calculating damages to be the “highest value within a reasonable time”. The determination of the “reasonable time” was a question of law for the Court to determine. As the highest value of the cryptocurrency in question during the “reasonable time” period applicable to the case was US$2.01 as recorded and published on CoinMarketCap, the Court multiplied the 12.5 million coins which the claimants were to receive to arrive at its approximately US$25 million damages award.
- While case law currently favours awards denominated in fiat currency, the direction of travel may change. It has been observed that if the court in Diamond Fortress had found that the cryptocurrency was a “commodity”, it was likely that the claimant would have been entitled to delivery of the cryptocurrency. The Law Commission of England and Wales has provisionally concluded that there is an arguable case for law reform to provide courts with the discretion to make “monetary” awards “denominated in (a certain type) of crypto-token”9See the consultation paper on the recognition and protection of digital assets at https://www.lawcom.gov.uk/project/digital-assets/. The policy arguments advance in support of this reform include:
- By analogy to the awards expressed in a foreign currency, denominating awards in crypto-tokens may better reflect the parties’ losses.
- There is no compelling conceptual reason why secondary obligations ought always to be enforced as sums of money. This is demonstrated by the fact that parties may explicitly agree a specific obligation to transfer property on breach, which could be specifically enforced by the courts.
- Many of the key practical objections which might arise in relation to other commodities (such as fungibility, liquidity and storage/delivery costs) do not apply in relation to (certain types) of crypto-tokens. Such a reform would be consistent with the commercial expectations of relevant contracting parties.
- Until such reform has been introduced, it is likely that in the immediate and medium term, courts and experts will have to take on the increasingly fraught task of valuing digital assets.
- Whether for better or worse, technology development will continue and will no doubt create a host of conundrums in relation to parties who seek to monetise and capitalise on it. It is likely that technology disputes (however defined) will proliferate as users (and investors) of these digital assets increase.
|↑1||The issues discussed in Tulip Trading were decided in the context of an application to challenge the jurisdiction of the court by some of the defendants, who were all served the claim form out of jurisdiction. In August 2022, the claimant in Tulip Trading was granted permission to appeal the decision of the High Court to the Court of Appeal.|
|↑2||In June 2022, Bitcoin Association for BSV, one of the defendants in Tulip Trading that did not challenge the jurisdiction of the court, announced that it had agreed to a settlement with the claimant in proceedings following the High Court decision and will (a) release an updated version of the Bitcoin SV Node software that allows Bitcoin SV miners to freeze transaction outputs and act on court orders and (b) seek to procure a notary service provider to execute the notary aspects of the process as an independent entity.|
|↑3||https://www.coindesk.com/policy/2020/09/29/28m-makerdao-black-thursday-lawsuit-moves-to-arbitration/. The class action lawsuit has been stayed by the US Federal Court in light of the arbitration agreement in the platform’s terms and conditions.|
|↑5||For example, in CLM v CLN and others (2022) SGHC 46, the General Division of the High Court of Singapore recognised and found that cryptocurrencies satisfied the definition of a property right. The Court found that the requisite elements for the grant of a proprietary injunction were satisfied on the facts and granted the proprietary injunction sought.|
|↑6||Section 32 of the PDPA has since been repealed and re-enacted under section 48O of the PDPA pursuant to the amendments to the PDPA which came into force in February 2021.|
|↑7||A majority vote determines the outcome of a dispute, and the jurors are provided with financial incentives to fall within the majority group of voters. The whole process (and its decision) is recorded on the blockchain. Kleros has been used in a real-world setting for arbitration on a tenant-landlord dispute.|
|↑9||See the consultation paper on the recognition and protection of digital assets at https://www.lawcom.gov.uk/project/digital-assets/|