Singapore: Metaverse Disputes – Navigating Jurisdictional Issues In The Metaverse

The Metaverse involves a confluence of cutting-edge technologies and is touted to become as revolutionary as the Internet when it was first brought into the mainstream. With a projected 25% of the global population spending at least an hour a day in the Metaverse and the size of the Metaverse market expecting to reach USD 758 billion by 2026,¹ fraud in the Metaverse is inevitable.

In this article, Danny Ong, Jason Teo, and Stanley Tan of Setia Law LLC consider some of the jurisdictional issues that could arise in the Metaverse which victims of fraud are likely to grapple with when seeking relief.

Introduction

The Metaverse brings together a gamut of cutting-edge technologies and has the potential to revolutionise how we fundamentally interact, learn, work, play, and live as a society.² With the confluence of virtual reality, artificial intelligence, blockchain, spatial, and cloud technology,³ the Metaverse is poised to usher in a new era of possibilities for commerce and development.

Yet, echoing the challenges faced with the advent of the Internet and cryptocurrency, the Metaverse is likely to form a new battleground and hotbed for fraud and criminal activity. This article considers some of the challenges that victims of fraud are likely to face in seeking redress, before discussing possible solutions to overcoming them.

What is the Metaverse?

No universal definition of the Metaverse yet exists.⁴ Indeed, given its nascence and the lack of clarity as to what forms and functions it will ultimately take and adopt, the Metaverse could be said to be currently incapable of precise definition. Nonetheless, one author, William G. Burns III,⁵ offers the following neat encapsulation of what the Metaverse is likely to be: "a collective virtual shared space, created by the convergence of virtually enhanced physical reality and physically persistent virtual space, including the sum of all virtual worlds, augmented reality, and the Internet."⁶

As Burns notes, no single Metaverse currently exists.⁷ However, various online platforms like Meta Platforms Inc's "Horizon Worlds" and VRChat Inc's "VRChat" could be described as early constituents of a Metaverse which users access through virtual reality equipment to interact, play games, and conduct business. While these platforms are operated by a central authority (i.e. the platform developer) in a relatively traditional manner, also on the rise are decentralised platforms like Decentraland, which operates through a Decentralised Autonomous Organisation ('DAO') without any central control.⁸

A decentralised Metaverse platform operated through a DAO makes decisions and implements platform policy and changes through a voting process involving the owners of crypto-tokens associated with the platform. For example, in Decentraland, any change to the platform has to be proposed by an owner of crypto-tokens known as MANA, NAMES or LAND, presented to the other owners of these crypto-tokens, and put to a vote.⁹ Proposals that have been passed by a majority are thereafter enacted by a "DAO Committee", which comprises trusted individuals appointed by the DAO and tasked with "enacting any passed votes with a binding action".¹⁰ The DAO committee members are capable of effecting these changes because they have access to the DAO's Smart Contracts which are essentially the programmes responsible for running the Decentraland platform.¹¹

The remainder of this article will consider the "Metaverse" in the forms outlined above.

Establishing Jurisdiction over Fraudsters in the Metaverse

Victims of fraud typically have to urgently commence a claim against the fraudster, and may seek freezing and/or proprietary injunctions against him. These typical asset recovery steps face unique challenges in the Metaverse.

As Metaverse platforms today generally allow their users to operate anonymously through avatars, identification of the fraudster presents a victim's first challenge. If the platform operator requires disclosure of users' real identities on account creation, pre-action discovery against the platform operator may be viable. However, many platforms have little or no user identification requirements, in which case victims will need to resort to commencing claims against "unknown defendants".

In this regard, numerous jurisdictions like Canada,¹² Hong Kong,¹³ Malaysia,¹⁴ Singapore,¹⁵ the United Kingdom¹⁶, and the United States of America¹⁷ already permit claims and injunctions to be obtained against unknown persons. The recent Singapore decision of Janesh s/o Rajkumar v Unknown Person ("CHEFPIERRE") [2022] SGHC 264 also allowed a claimant to identify the unknown defendant by his twitter pseudonym in the court action. By extension, it may be possible for victims of Metaverse fraud to identify the fraudster by his pseudonym, avatar, or any other unique identifying trait.

Service of process, which is often necessary to confer jurisdiction on the court to determine the claim,¹⁸ presents the next challenge for our hypothetical victim.¹⁹ Many Metaverse platforms do not require their users to provide any contact details, much less verify their true identities. For example, in the case of Decentraland, a user only needs to provide a private cryptocurrency wallet address before being allowed to enter and trade on the platform – no email, phone number, or other contact details are required.

Nevertheless, the unique features of this space provide opportunity for unique solutions. For instance, in D'Aloia v Person Unknown and others [2022] EWHC 1723 (Ch), the English Court allowed a claimant to effect service of the court papers on a defendant by sending a Non-Fungible Token ('NFT') containing the court documents to the defendant's wallet address. This method of service was also employed in LCX AG v. John Doe Nos. 1-25, No. 154644/2022 (N.Y.Sup.Ct. June 2, 2022).²⁰

Establishing jurisdiction over a fraudster operating in virtual space presents a further challenge. Victims will need to persuade a court that it is the appropriate court to determine their claims, notwithstanding the fact that jurisdiction is traditionally determined by "territorial connecting factors",²¹ which are less than apparent in the Metaverse.

That said, courts around the world have grappled with issues of jurisdiction in the virtual space before, and the legal principles established from resolving jurisdictional disputes in Internet and cryptocurrency disputes might assist in resolving those same issues in the Metaverse. For example, a victim of fraud in the Metaverse who wishes to establish the jurisdiction of the Singapore Court might be able to argue that the damages are suffered in Singapore if he resides or is domiciled in Singapore,²² or lost assets in the Metaverse that were funded by a Singapore bank account.²³ The victim might also be able to rely on how the fraudster has property in Singapore²⁴ if, for example, it is uncovered that the fraudster has assets and/or had transferred the stolen proceeds to a cryptocurrency exchange whose central management and control is based in Singapore.²⁵

Establishing Jurisdiction Over Metaverse Platform Providers

As alluded to above, victims of Metaverse fraud might also need to establish jurisdiction over Metaverse platform providers to seek disclosure orders, and later, to get assistance with enforcing a judgment against the fraudster.

While establishing jurisdiction against Metaverse platform providers operated by a central corporate entity would be relatively straightforward, difficulties arise when the Metaverse platforms are operated by a DAO because DAOs are not recognised as separate legal entities like corporations which can be sued in their own name, and their legal status remains a novel and unsettled issue²⁶ in most jurisdictions.²⁷

Furthermore, as decisions of a DAO are made through a voting process involving the owners of the crypto-tokens associated with the Metaverse platform, control over the platform might be said to be vested in all owners of the relevant crypto-token. Commencing a claim against all owners of the relevant crypto-token and seeking orders compelling them to pass a proposal enabling disclosure or enforcement against a fraudster's Metaverse assets, is far from practical for a multitude of reasons, not least because the owners of these crypto-tokens are likely to be constantly in flux as these tokens are usually publicly traded.

One potential solution is to seek recourse against the specific crypto-token owners tasked with enacting proposals that have been passed by the DAO (the 'DAO Committee Members'). As mentioned above, these individuals have access to the Smart Contracts which enable the functioning of the Metaverse platform, and they are therefore technically capable of "controlling" the platform in a way that enables them to comply with a Court order to, for example, transfer assets owned by the fraudster on the platform to the victim.

However, while these individuals might have the ability to access and transfer ownership of crypto-tokens associated with a Metaverse platform (like LAND in Decentraland)²⁸, they are unlikely to have access to other assets in the fraudster's private wallet address.

In addition, considerable expertise might be needed to alter the Smart Contracts of the platform to carry out a court order for disclosure or transfer of assets. If the relevant DAO Committee Members lack such expertise or willingness to do so, victims may need to engage their own independent expert to devise a code or program to make the necessary alterations, in which case the DAO Committee Members would only be ordered to execute the relevant code or program.²⁹

Conclusion

As we work towards achieving the exciting possibilities that the Metaverse offers, we should also remain grounded and be prepared for the reality that fraud and criminal activity will ride on the coattails of the Metaverse's success. Regulation of the Metaverse may eventually materialise to address these issues, but as was seen in the early days of cryptocurrency, it may come too slowly to provide adequate redress for victims, particularly early adopters of this new technology. Regulation may also prove to be of limited effectiveness in the case of decentralised Metaverse platforms, given their lack of a central governing entity. Nonetheless, as we have illustrated above, victims can take comfort in how Courts around the world are alive to the unique problems posed by novel technology and are willing to adopt equally innovative solutions.

Footnotes

1. Meghan Rimol, "Gartner Predicts 25% of People Will Spend At Least One Hour Per Day in the Metaverse by 2026" (Gartner, 7 February 2022); Don-Alvin Adegeest, "Global Metaverse market to be worth 758.6 billion dollars by 2026" (19 February 2022).

2. Matthew Ball, "The Metaverse will Reshape Our Lives. Let's Make Sure It's for the Better" (Time, 18 July 2022); Matthew Ball, The Metaverse: And How It Will Revolutionize Everything (Liveright Publishing, 2022).

3. Stylianos Mystakidis, "Metaverse", Encyclopedia 2022, Vol. 2(1), 486-497.

4. Cathy Hackl, "Defining the Metaverse Today" (Forbes, 2 May 2021).

5. William G. Burns III has been recognised by Forbes as a "Metaverse veteran" (see, supra note 4) and his profile and experience with the Metaverse can be found at (https://www.linkedin.com/in/wgburns/) accessed on 29 March 2023. William G. Burns III is also the co-author of a journal article titled "3D Virtual Worlds and the Metaverse: Current Status and Future Possibilities", ACM Computing Surveys, 2013, Vol. 45:3, 1-38.

6. William Burns III, "Everything You Know About The Metaverse Is Wrong" (26 August 2017), (https://www.linkedin.com/pulse/everything-you-know-metaverse-wrong-william-burns-iii/) accessed on 29 March 2023; See also supra note 4.

7. William Burns III, "Everything You Know About The Metaverse Is Wrong", supra note 6.

8. See Decentraland, "Building the foundations for a decentralized virtual world" (19 February 2020), (https://decentraland.org/blog/announcements/building-the-foundations-for-a-decentralized-virtual-world/) accessed on 29 March 2023.

9. See Decentraland, "Participation Requirements" (28 March 2023), (https://docs.decentraland.org/player/general/dao/overview/what-do-you-need-to-participate/) accessed on 29 March 2023 and Decentraland, "DAO User Guide" (28 March 2023), (https://docs.decentraland.org/player/general/dao/dao-userguide/), accessed on 29 March 2023.

10. See Decentraland, "How the DAO works" (28 March 2023) (https://docs.decentraland.org/player/general/dao/overview/how-does-the-dao-work/) accessed on 29 March 2023.

11. See Decentraland, "What is the DAO" (28 March 2023), (https://docs.decentraland.org/player/general/dao/overview/what-is-the-dao/) accessed on 29 March 2023 and Decentraland, "The DAO Smart Contracts" (28 March 2023), (https://docs.decentraland.org/player/general/dao/overview/what-smart-contracts-does-the-dao-control/) accessed on 29 March 2023.

12. Jackson v Bubela [1972] 5 WWR 80; Golden Eagle v International Organization of Masters [1974] B.C.J. No. 614; Busseri v John Doe [2014] O.J. No. 605; Voltage Pictures LLC v John Doe [2015] 2 F.C.R. 540

13. University of Hong Kong v Hong Kong Commercial Broadcasting Co Ltd [2016] 1 HKLRD 536; MTR Corporation Ltd v Unknown Persons [2019] 5 HKC 260.

14. Zschimmer & Schwarz GMBH & Co Kg Chemische Fabriken v Persons Unknown & anor [2021] MLJU 178.

15. CLM v CLN & others [2022] SGHC 46.

16. Cameron v Liverpool Victoria Insurance Co Ltd [2019] 3 All ER 1 at [13]; AA v Persons Unknown [2020] 4 WLR 35 ("AA") at [75]; Ion Science Limited v Duncan Johns [2020] EWHC 3688 (Comm) ("Ion Science") at [23].

17. Jim Wagstraffe, "To Doe or not to Doe in Federal Court" (LexisNexis, 2020).

18. See, for example, section 16(1) of Singapore's Supreme Court of Judicature Act (2020 Rev Ed).

19. See, for example, Order 6 rule 4 of the Singapore Rules of Court 2021, Rule 6.5 of the UK Civil Procedure Rules, or Order 10 rule 1 of the Hong Kong Rules of the High Court.

20. See LCX AG v John Doe Nos. 1-25, Index No. 154644/2022 (N.Y. Sup. Ct. 2022), (https://www.hklaw.com/-/media/files/generalpages/lcx-ag-v-doe/ordertoshowcause_15.pdf?la=en) accessed 29 March 2023. The relevant NFT containing a hyperlink to the court documents can be accessed here: (https://etherscan.io/nft/0xdc9ec0c966c3d3a552a228b3fe353848ce2f25f4/1) accessed 29 March 2023

21. Andrew Dickinson, "Cryptocurrencies And The Conflict Of Laws" in David Fox & Sarah Green (eds), Cryptocurrencies in Public and Private Law (Oxford University Press, 2019) at [5.08].

22. See paragraph 63(3)(f)(ii) of the Singapore Supreme Court Practice Directions 2021; Ion Science, supra note 16 at [13]; Tulip Trading v Wladimir Van Der Laan and others [2022] EWHC 667 at [145];

23. Ion Science, supra note 16 at [13]; AA supra note 16 at [68].

24. See paragraph 63(3)(a) of the Singapore Supreme Court Practice Directions 2021.

25. Andrew Dickinson supra note 21 at [5.109]; The Society of Trust and Estates Practitioners (STEP) UK Technical Committee, "STEP Guidance Note: Location of Cryptocurrencies – an alternative view" (3 September 2021); UK Law Commission, "Digital Assets: Consultation Paper" (28 July 2022) at p. 219.

26. See the UK Law Commission's public call for evidence about how DAOs can (and should) be characterised at The UK Law Commission "Decentralised Autonomous Organisations (DAOs)", (https://www.lawcom.gov.uk/project/decentralised-autonomous-organisations-daos/) accessed on 29 March 2023. See also, Cointelegraph, "The impact and rise of DAOs in the legal industry" at (https://cointelegraph.com/daos-for-beginners/impact-in-legal-industry) accessed on 29 March 2023.

27. The states of Wyoming and Tennessee in the United States of America have passed legislation recognising DAOs as separate legal entities, see Counsel for Creators LLP, "Wyoming DAOs as LLCs" (25 May 2022), (https://counselforcreators.com/log/wyoming-daos/#:~:text=Wyoming%20Senate%20Bill%2038%2C%20titled,the%20bill%20in%20July%202021) accessed on 29 March 2023 and Matthew S. Miller & Spencer Green, "Beyond a Reasonable DAOubt: Tennessee's Limited Liability Statute for Decentralized Autonomous Organizations (DAOS)" (4 August 2022), (https://www.natlawreview.com/article/beyond-reasonable-daoubt-tennessee-s-limited-liability-statute-decentralized) accessed on 29 March 2023.

28. See Decentraland, "Allow the DAO to recover lost assets" (25 August 2021) (https://governance.decentraland.org/proposal/?id=3f890970-052f-11ec-a4d1-8d5d2cba0825) accessed on 29 March 2023.

29. See David Goldman, "Apple's case against the FBI won't be easy" (25 February 2016), (https://money.cnn.com/2016/02/25/technology/apple-fbi-court-case/index.html?iid=EL) accessed on 29 March 2023.

Originally published July 22, 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.