Singapore High Court Provides Guidance on Remedies in Cryptocurrency Claims Amidst a Volatile Market

Introduction

Cryptocurrency investment is fraught with unique challenges, both in the investment process and in any subsequent legal disputes. In a cryptocurrency claim, a key issue is the scope of remedies that may be available to a claimant. For an investor, the availability of proprietary remedies can make a huge difference, particularly in preserving value amidst a volatile cryptocurrency market.

This issue was at the forefront of the Singapore High Court decision of Parastate Labs, Inc v Wang Li and others [2026] SGHC 178, where a cryptocurrency investor sought to hold the founder of a cryptocurrency service provider personally liable for the loss of its cryptocurrency investment following the collapse of the service provider. The Court dismissed the claims, declining to find that the service provider held the cryptocurrency assets on trust for the investor, or that any fiduciary relationship existed between the service provider and the investor. There being no fiduciary-related obligations owed or breached by the service provider, the investor thus could not establish dishonest assistance on the part of the founder in connection with such alleged breaches on the part of the service provider.

The Court’s decision has significant implications on the availability of proprietary remedies against cryptocurrency service providers. This is particularly relevant in circumstances where the service provider has entered insolvency, or where the value of the underlying cryptocurrency assets has been subject to substantial fluctuations. It also has broader implications on the nature of the relationship and the duties owed under similar investment services arrangements.

This Update provides a summary of the Court’s decision and highlights the key takeaways for cryptocurrency investors and investment service providers.

Brief Facts

The Babel group of companies (“Babel Group“) operated substantial businesses in cryptocurrency lending and asset management. The claimant, Parastate Labs, Inc (“Parastate“), entered into a Cryptocurrency Management Agreement (“CMA“) with Babel Asia Asset Management Private Limited (“BAAMPL“), a company which was part of the Babel Group, to invest 5 million USDT (“Management Asset“) into a cryptocurrency fund (“Alpha USDT Fund“). The Management Asset was transferred to a designated wallet and subsequently deposited into an account (“Alpha Sub-Account“) on the Deribit cryptocurrency exchange platform. 

In May 2022, the cryptocurrency market entered a severe downturn. Deribit began issuing margin calls and warnings to the Babel Group regarding shortfalls in several sub-accounts, and eventually consolidated all the sub-accounts and liquidated the trading positions, resulting in the complete loss of customers’ investments.

The Babel Group subsequently suspended all redemptions and withdrawals and later entered into a scheme of arrangement. Dissatisfied with the returns promised under the scheme, Parastate pursued its remaining claims against the co-founder of the Babel Group (Wang Li) personally, on the grounds of alleged dishonest assistance in breach of trust and/or fiduciary duty, fraudulent misrepresentation, and unlawful means conspiracy. 

Holding of the High Court

The Court dismissed Parastate’s claim in its entirety. In reaching its decision, the Court considered the following main issues:

1. Whether BAAMPL held the cryptocurrency assets on an express trust for Parastate;
2. Whether a fiduciary relationship existed between BAAMPL and Parastate; and
3. Whether Wang Li was liable for dishonest assistance, misrepresentation, or conspiracy.

Express Trust

The Court held that BAAMPL did not hold the assets on an express trust for the subscribers of the Alpha USDT Fund. 

The creation of an express trust requires the presence of three certainties: (i) certainty of intention; (ii) certainty of subject matter; and (iii) certainty of objects. While the Court was satisfied that the objects of the alleged trust were conceptually certain, it found that:  

1. Certainty of subject matterwas not established. Parastate failed to show a sufficiently defined fungible mass which the subscribers of the Alpha USDT Fund beneficially co-owned as equitable tenants in common. Parastate failed to prove: (i) that there had been a total investment of US$50 million into the Alpha USDT Fund; (ii) the number and type of cryptocurrencies which were held in the Alpha Sub-Account; and (iii) each beneficiary’s proportionate share of the mass of cryptocurrencies.
2. Certainty of intentionwas lacking. Parastate relied on the CMA to establish that a trust had been created over all the assets in the Alpha Sub-Account. However, the Court found that the CMA was “bereft of any language alluding to a trust structure”. Further, the segregation of assets into sub-accounts was merely an administrative arrangement, and not indicative of a trust intention. The Court found it commercially unrealistic to hold that the parties intended an express trust, given that the arrangement envisaged BAAMPL having “full” and “absolute” discretion to engage in trades with the invested assets.  

Fiduciary Relationship

The Court held that BAAMPL was not in a fiduciary relationship with Parastate.

Parastate relied on certain portions of the CMA to support its claims of a fiduciary relationship, including those stating that: (i) BAAMPL would undertake cryptocurrency management activities “on behalf of and for the benefit of” Parastate; (ii) BAAMPL would “always endeavour to act in [Parastate’s] best interests”; and (iii) “We have your best interest in mind”. However, the Court found that none of these portions of the CMA showed that the parties were in a fiduciary relationship. They amounted to a contractual “best endeavours” obligation at best, and not a fiduciary undertaking of loyalty.   

Parastate argued that it was in a position of vulnerability, but the Court held that Parastate had entered the CMA as a considered commercial decision with the benefit of legal advice, and had the right to receive weekly performance disclosures and to withdraw its investment. 

Personal Liability 

The Court dismissed the personal claims made against Wang Li.

1. Dishonest assistance: As no breach of fiduciary duty was established on the part of BAAMPL, there could be no dishonest assistance by Wang Li of such alleged breach. For completeness, the Court found that: (i) the element of assistance was not satisfied (Wang Li had in fact attempted to protect customers’ interests); and (ii) Parastate failed to show that Wang Li had acted dishonestly.
2. Fraudulent misrepresentation: Of some of the alleged representations, the Court found that: (i) they were not made; (ii) they constituted a “mere sales puff” and not an actionable misrepresentation; or (iii) they constituted statements as to the future and not actionable representations of an existing or past fact. In any event, Parastate failed to prove that any of the alleged representations (which broadly related to the financial performance and strategy of the Alpha USDT Fund) were false or made fraudulently.
3. Unlawful means conspiracy: Parastate had adduced no evidence of a combination, agreement, or understanding between the defendants, or of their intention to cause damage to Parastate. The claim was thus found to be legally and factually unsustainable. 

Concluding Words

The Court’s judgment has significant implications on the relationship between investors and cryptocurrency service providers, as well as the remedies available to investors. It suggests that proprietary remedies may not be as readily available as assumed, depending of course on the specific circumstances of the case.

One of the avenues would be via a trust relationship, which would allow for proprietary remedies, and would also help with obtaining priority over other creditors in the event of the service provider’s insolvency. However, the Court declined to find an express trust in this case based on its assessment of the provisions of the CMA and the arrangements regarding the holding of the assets. The Court’s decision indicates that, unless a trust is clearly indicated in the documents governing the parties’ relationship, it is unlikely to find the existence of a trust.

Another avenue for obtaining proprietary remedies would be via a fiduciary relationship. Here, the Court found that the CMA did not support Parastate’s claims of a fiduciary relationship. Similar to the existence of a trust, a fiduciary relationship should be explicitly stated in the underlying agreement; references to “best endeavours” and “best interests” are unlikely to suffice.

Notably, the events underlying the claims considered in the Court’s decision preceded the amendments to the Payment Services Act 2019 and Payment Services Regulations 2019 (“Amendments“) that became effective in stages from around April 2024 onwards. Amongst other things, these Amendments:

1. Regulated the provision of digital payment token (“DPT“) services in the form of: (i) transmission, and arranging the transmission, of DPTs; (ii) safeguarding of DPTs and carrying out instructions relating to such DPTs; and (iii) the provision of custodian wallet services; and
2. Required DPT service providers to implement measures to safeguard customers’ assets, including the segregation of customers’ assets and placing them in trust accounts for the customers’ benefit.

It remains to be seen whether the introduction of a “statutory trust” scheme through these Amendments may potentially affect the analysis in a similar case before the Singapore courts in the future.

If you have any queries on the above, please reach out to our team set out on this page.

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