On May 13, 2022, a Singaporean man won a global injunction prohibiting the transfer of ownership of a non-fungible token (NFT) at the center of a dispute between him and an online figure with the screen name “chefpierre “. The injunction, ordered by the High Court of Singapore, has drawn global attention in blockchain and NFT business and legal circles, as it appears to be the first time a court has frozen trading in an NFT in a trade dispute.
What is the dispute about?
On March 19, 2022, Mr. Janesh Rajkumar, a cryptocurrency and NFT investor, entered into a loan agreement with “chefpierre” on NFTfi, a cryptocurrency lending marketplace for NFT owners to access the liquidity (specifically, Wrapped Ethereum (wETH) and DAI) by registering their NFTs as collateral. Unable to repay his loan on time, Mr. Rajkumar asked for an extension, and the two parties discussed the possibility of refinancing the loan. On April 20, Mr. Rajkumar and “Chefpierre” entered into a refinancing agreement. As part of the second agreement, Mr. Rajkumar pledged security to Bored Ape Yacht Club (BAYC) NFT No. 2162.
The NFT is part of a series of BAYC NFTs that currently have a floor price of 89 ETH (around $95,000) on OpenSea, an online NFT marketplace. In April alone, BAYC NFTs hit an all-time high of 152 ETH (about $434,000). Mr. Rajkumar transferred BAYC No. 2162 to NFTfi’s escrow account on the understanding that the NFT would remain there until the loan was repaid in full. The agreement also stipulated that “chefpierre” would never exercise his foreclosure option and would become the owner of BAYC No. 2162. Instead, if Mr Rajkumar was unable to repay the loan on time, he would inform “chefpierre”, which in turn would provide reasonable extensions of repayment terms.
However, ‘chefpierre’ refused to release the additional sum agreed in the refinancing agreement and threatened to seize BAYC property No. 2162 if Mr Rajkumar did not repay his loan in full by April 21. The deadline imposed by “chefpierre” gave Mr. Rajkumar around seven hours to return the borrowed money. Following Mr. Rajkumar’s failure to meet the deadline, “chefpierre” seized by transferring BAYC #2162 to his personal cryptocurrency wallet and listing the NFT for sale on OpenSea. Mr. Rajkumar later repaid part of the loan, but “chefpierre” returned the amount paid and prohibited Mr. Rajkumar from making further payments to him on NFTfi.
Among other demands, Mr. Rajkumar is seeking an order to compel “chefpierre” to accept repayment of the loan and transfer BAYC #2162 to Mr. Rajkumar’s cryptocurrency wallet.
Importance of the case
The Janesh s/o Rajkumar judgment contributes to a small but growing body of judicial studies concluding that NFTs confer enforceable property rights, the nature of which is still the subject of further analysis. For example, in January this year, the High Court of England and Wales in Lavinia Deborah Osbourne v (1) Persons Unknown (2) Ozone Networks Inc. trading as Opensea  EWHC 1021 (Comm) ruled that NFTs, while not the underlying content they represent, are “legal property”. The court granted an injunction to freeze transfers of ownership of two NFTs stolen by hackers from a woman’s cryptocurrency wallet.
While the Singapore High Court has yet to rule on Mr. Rajkumar’s other claims, the injunction issued in May is certainly a victory for NFT owners seeking remedies in a world of increased decentralization. ArentFox Schiff is closely following developments in this case and other emerging legal issues in the metaverse, cryptocurrency, and NFT spaces. The firm capitalizes on its experience to advise its clients on similar subjects.
*Lubna Kayyali was a summer 2022 partner in the New York office of ArentFox Schiff.