District Judge Vince Gui:
Introduction
An Initial Coin Offering (“ICO”) is a fundraising method that gained significant traction in recent years. It typically entails companies, especially startups working on blockchain and cryptocurrency projects, selling digital tokens to consumers in exchange for fiat or virtual currency.
Due to its recent advent, significant segments of ICOs were unregulated. Regulators and commentators have warned consumers to proceed with caution. That however did not stop ICOs from becoming a hotbed for investments and speculation. In its heyday, ICOs across the globe reportedly raised almost US$7 billion in the first quarter of 2018. Bullish investors and punters jumped onto the bandwagon, in hopes that blockchain and cryptocurrency demand would continue to flourish and in turn provide opportunities to flip their purchases for outsized profits. These euphoric sentiments were, at least in part, fuelled by the meteoric rise of mainstream cryptocurrencies such as Bitcoin and Ethereum, whose prices soared to astronomical heights just years after their launch. The rise of blockchain and cryptocurrency heralded a gold rush of sorts in the hunt for yield.
But for many, the gold rush turned out to be short-lived. Various ICOs were widely reported to have gone bust, leaving investors and punters high and dry. The Plaintiff in the present case found himself caught in a similar quagmire. But unlike public investors, he made his purchase at the pre-ICO stage in exchange for bonus tokens. He signed a private contract with the Defendants and paid US$100,000 in March 2018. As it turned out, the promise and hopes did not materialise. The blockchain network failed to launch. The 1st Defendant, the company tasked to launch the network, was wound up in 2019. The 2nd Defendant, who introduced and sold the project to the Plaintiff, told the Plaintiff that the monies could not be refunded as they had been spent preparing the network for launch.
Dissatisfied with the explanation, the Plaintiff commenced legal action. After learning that the 1st Defendant had been wound up, he dropped the claim against the 1st Defendant and took the 2nd Defendant to trial which came before me. The Plaintiff alleged that the 2nd Defendant oversold the prospect of the project by, amongst others, falsely claiming that there was a flurry of investments from C-suites of various conglomerates and that the network was at the cusp of launching. He also claimed that he was entitled to a refund since the network launch did not proceed. The 2nd Defendant vigorously resisted the allegations, claiming instead that the launch was never guaranteed, and that the Plaintiff was a seasoned investor who knowingly took the plunge.
This is my judgment. I begin with the facts.
Background facts
I first narrate the undisputed background facts before turning to the parties’ respective allegations.
The Plaintiff, Pun Kwan Lum (David), a Hong Kong resident, is the Chief Executive Officer (“CEO”) and Chairman of Evisu, a Japanese clothing company that specialises in denim wear. Before joining Evisu in 2010, David was an executive director at a hedge fund called Indus Capital.
The 2nd Defendant, Chinworth Yao, an American citizen living in Shanghai, China, describes himself as an entrepreneur. According to the 2nd Defendant, he was particularly interested in the music industry and was the former Chairman of Ocean Heights Media, a boutique artist management company representing international artists in China and other parts of Asia.
The Plaintiff and the 2nd Defendant were friends. The Plaintiff first met the 2nd Defendant on or about 11 September 2017 at an event and remained in touch after the event. On 25 February 2018, the 2nd Defendant broached the topic of investing in an up-and-coming blockchain project. The exchange, which took place over WeChat messenger, may be summarised as follows: The 2nd Defendant asked if the Plaintiff was interested to take up “great investment opportunities” from a “personal standpoint” aside from investing in Evisu. The Plaintiff replied that he was “opportunistic” to investment opportunities outside of Evisu. The 2nd Defendant replied that he had “something amazing” to share with him and get him involved. He invited the Plaintiff to chat more over a call.
Parties hopped on a call on 2 March 2018. The 2nd Defendant shared his plans to launch a blockchain network leveraging on his connections in the music industry. He explained that investors would receive digital tokens to be issued by a company.
After the call, the Plaintiff asked whether there was a coin offering document for review. He also offered to approach a few friends if the 2nd Defendant required more investors. The 2nd Defendant agreed to send over some materials. He however explained that the materials would not be as thorough as what he shared over the call. He was also open to the Plaintiff bringing on board accredited and credible investors who were able to make decisions fast.
The 2nd Defendant sent the Plaintiff an email on 3 March 2018, expressing his delight that they were able to catch up and his desire to get his “smartest and most connected friends on board”. In the email, he shared further details of the project, which can be summarised as follows: The project would be done through a Singapore company. The project seeks to leverage on blockchain technology, smart contracts and token economy to disrupt the global entertainment and celebrity market. The “demo” would be ready in two weeks. The project team comes with “deep domain expertise”. The team has deep international artist relationships, including “Maroon 5 … Asap Rocky, Flo Rida, Tiesto … and many more”. It is a “real team” seeking to be the “#1 global player attacking a 1 trillion-dollar addressable market opportunity”. The team includes “top Hollywood insiders” and “world reknown [sic] blockchain experts”. The target for the private fundraising round is US$6 million. The offering is to issue tokens at the pre-ICO stage. The plan is to list its own token on an exchange in 30 days. The project had “committed investors” including “Former Chairman UBS Asia, Former Chairman Singapore Telecom, Chairman Singapore Airlines, Chairman DBS Bank, Chairman & CEO major tech company and on Board of world’s largest entertainment company, Billionaire Biotech Entrepreneur, GP of Top Crypto Fund in China”.
The 2nd Defendant also sent the Plaintiff a pitch deck on the same day. The pitch deck described the project as one that aims to help artists issue their proprietary tokens and manage their own assets using blockchain technology. It seeks to disrupt the traditional model by allowing content creators to monetise their creations without having to pay high intermediatory fees. Proprietary tokens, called “AboutU tokens” would be issued along with the artists’ own tokens through an independent blockchain system. As artists become more popular, their tokens would also become more valuable. It was envisaged that the tokens could be exchanged for products such as concert tickets, albums and potentially cash.
The Plaintiff had another call with the 2nd Defendant on 6 March 2018, joined by the Plaintiff’s brother, Theodore Pun (“Theodore”), this time. The 2nd Defendant told them that if they commit to the investment and provide the funds, they would be allocated bonus AboutU tokens as part of an early bird promotion when the network is eventually launched. After the call, the 2nd Defendant messaged the Plaintiff over WeChat to let him know what they decide. He elaborated that they “have started to tell people zero bonuses now” but since he had already mentioned this to them and if they can confirm by tomorrow with “commitments to wire” immediately, they could still honour the promotion. He also said they could otherwise take their time but they would not offer bonus tokens anymore and the tokens would be allocated on a first-come-first-served basis.
The Plaintiff messaged the 2nd Defendant the next day on 7 March 2018 committing to an investment of US$100,000, subject to a few questions that Theodore had. On 9 March 2018, the Plaintiff messaged the 2nd Defendant asking for the next steps. The 2nd Defendant followed up by sending the Plaintiff an email on 10 March 2018, attaching a draft of the contract and the wiring instructions. The 2nd Defendant informed the Plaintiff that because the company was still being incorporated, the Plaintiff was to wire the monies to “an individual account” authorised by the 2nd Defendant. The said account, based in Hong Kong, was maintained in the name of an individual called “Jin Xiulan”.
The Plaintiff signed the contract and transferred the sum of US$100,000 (the “Purchase Monies”) to the designated bank account on 12 March 2018.
The contract was entered into between the Plaintiff as the “Purchaser” and the 1st Defendant, AboutU Pte Ltd, as well as the 2nd Defendant, collectively as “Sellers” (the “Contract”). The Contract stipulated that the 1st Defendant was desirous of launching a “network for the distribution of music and entertainment licences estimated to be on or about [March 15, 2018]”. It further stipulated that the Plaintiff had “agreed to purchase and the Sellers have agreed to issue to the [Plaintiff] the right to receive … AboutU tokens … on the terms set out [therein]”.
The salient terms of the Contract may be summarised as follows: After the event of a “Network Launch” (defined as being “on or about March 15, 2018”), the 1st Defendant shall issue to the Plaintiff a total of 28,841,717 AboutU tokens, provided that the Plaintiff executes the Contract and wires US$100,000 to the Seller by March 12, 2018 (clauses 3.1 and 3.2). The Contract will expire and terminate, without relieving the 1st Defendant of any obligations arising from a prior breach of or...
