Navigating Jurisdiction and Online Contracts in Group Litigation in Singapore

Following upon the collapse of Terra/Luna, which brought the onset of the crypto winter in 2022, a group of 377 individuals claiming to be purchasers of cryptocurrency tokens, TerraUSD (UST), filed a representative action in the Singapore Courts (the “suit”) against Do Hyeong and entities associated with him – Terraform Labs (“Terraform”) and Luna Foundation Guard. The claimants also sued a former employee of Terraform, Nikolaos Platias (“Platias”), who had initially penned white papers on the vision of the Terra Protocol and Anchor Protocol.

The claimants alleged that they were misled into purchasing UST and staking their UST on Anchor Protocol. A part of the claimants’ case was premised on certain representations made on a webpage (the “Terra Website”) and in a white paper (the “Terra White Paper”) accessible via a hyperlink on the Terra Website (the “Terra Representations”).

Terraform challenged the jurisdiction of the Singapore Courts on the basis that the claimants were bound to resolve the asserted claims by way of arbitration, based on an arbitration clause contained in the terms and conditions accessible via a hyperlink on the Terra Website (the “Terra Terms”). The claimants argued that the arbitration clause was not incorporated into the alleged unilateral contracts formed between them and Terraform upon their purchase of UST due to insufficient notice (drawing an analogy to “browse-wrap” agreements as users were not required to assent to the Terra Terms before using the Terra Website).

At first instance, Terraform’s jurisdictional challenge was dismissed on the primary basis that it failed to make out a prima facie case as to the existence of a valid arbitration agreement, upon which an appeal was pursued.

Two main issues arose on appeal: first, whether Terraform had waived its right to challenge the jurisdiction of the Singapore Courts. The judge found that Terraform had done so as its conduct amounted to a “step in the proceedings”. Terraform’s appeal was thus dismissed on this basis.

The second issue was whether the claimants would have been bound to resolve the claims by way of arbitration. The judge disagreed with the court below and found that Terraform had proved, on a prima facie basis, the existence of a valid arbitration agreement with the claimants on the basis of the Terra Terms. However, as Terraform was found to have taken a step in the suit, the finding as to the existence of the arbitration agreement did not assist Terraform.

The judge found that Terraform had taken multiple “steps in the proceedings”. First, Terraform filed a defence on the merits along with a counterclaim. While Terraform reserved its position as to jurisdiction expressly, the judge determined that this did not assist Terraform, finding that there is no longer any reason to file a defence on the merits coupled with a reservation under the Rules of Court 2021. The right approach, adopted by Platias in his jurisdictional challenge, is to simply file a defence on jurisdiction, without more.

Second, Terraform sought various reliefs under an omnibus summons (including further and better particulars, production of documents and the striking out of the suit), which the judge considered to have constituted a “step in the proceedings”, rejecting Terraform’s argument that these reliefs were “fall-back” applications.

As to the second issue stated above, the judge adopted a fact-sensitive approach in considering whether a prima facie case of actual or constructive notice of the arbitration clause could be established.

The claimants’ argument, that a reasonable user would not have noticed the hyperlink to the Terra Terms, was found to be a highly selective proposition of what a user would choose to read, since the claimants’ own pleaded case on misrepresentation was premised on their access to the Terra White Paper via a hyperlink on the Terra Website and going through other parts of the Terra Website to locate the Terra Representations. The judge concluded that it was certainly “at least arguable” that the claims in the suit were subject to the Terra Terms.

At a broader level, the judge also made valuable observations on the impact of arbitration agreements on the commencement of collective proceedings. This includes the practical issues of lack of evidence from represented claimants in determining the existence of prima facie arbitration agreements between them and the defendant and the potential lack of standing of the representative claimants in making such an argument on their behalves.

These issues have been addressed by the US Courts by way of conducting a threshold assessment and denying certification of a class action where some members of a putative class may be bound by arbitration agreements.

As there is no similar process of certification under Singapore law, the issue of whether a representative action in the Singapore Courts (where some claimants may be subject to an arbitration agreement) would be allowed to proceed is engaged in a jurisdictional challenge where the court will assess whether a prima facie applicable arbitration agreement exists between each individual claimant and the defendant.

Where collective proceedings are discontinued or stayed because some claimants may be subject to arbitration agreements, individual claimants may be hesitant in bringing their claims in the arbitral forum due to significant resource disparities between the individual claimants and the defendant-corporation and the relatively small value of individual claims. Would the existence of arbitration agreements then signal a death knell for representative actions and effectively preclude an individual claimant from vindicating their rights, given the significant costs involved in pursuing arbitration, and to what extent would this be an affront to one’s right to access justice?

Unlike in Canada, where the courts there have attempted to address this issue by striking down an arbitration agreement on the basis of unconscionability, it is presently unclear whether the Singapore Courts would follow the Canadian approach given that it would significantly extend the doctrine of unconscionability in Singapore.

How the Singapore Courts will deal with such an argument remains to be seen – this is ultimately a balancing exercise between the principles of access to justice against the primacy of party autonomy and Singapore’s pro-arbitration stance.

On incorporation of arbitration clauses in online contracts, the judge’s decision is much welcomed for the guidance provided as to the Singapore Courts’ position – that the court would look beyond the mere “categorisation” of the form of online contracts and instead adopt a fact-sensitive inquiry in determining whether a prima facie case of actual or constructive notice of the arbitration clause is established.

The decision is a timely reminder to website users of the need to be more alive to hyperlinked terms and conditions when visiting websites, and the real possibility that they may be bound by such terms and conditions, including the manner in which disputes are to be resolved, regardless of whether such terms and conditions were expressly brought to their attention. Indeed, in the context of digital assets, it is extremely common for issuers or service providers, such as exchanges, to prescribe for disputes with investors or users to be resolved by way of private arbitration.

Beyond prescribing for whether such disputes are to be resolved by way of arbitration or litigation, such terms and conditions may even prescribe for a waiver of class action or group litigation, thereby seeking to contractually limit the ability of individual claimants to tap into the class action or other group litigation regimes.
On jurisdictional challenges, the decision serves as a useful reminder as to the appropriate approach to be taken. When in doubt, it may be best to err on the side of caution, as a step too far may prove fatal to what is otherwise a valid challenge to the court’s jurisdiction.

The authors act for the third defendant, Nikolaos Alexandros Platias, in the suit.