Dominique Hogan-Doran SC
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Singapore International Commercial Court Collection

Singapore International Commercial Court Collection

SICC to Hear First Cryptocurrency Case

Dominique Hogan-Doran SC

In July 2018, the Singapore International Commercial Court is set to hear the first cryptocurrency case to come to the courts in Singapore.

Cryptocurrencies are essentially de-centralised virtual currencies, which are not linked to any particular country, nor regulated by any central bank or monetary authority. Two of the most prominent cryptocurrencies are Bitcoin and Ethereum, which were developed as alternatives to fiat currency as a means of exchange, but are frequently traded as a commodity or store of value. 

The plaintiff is an English electronic market maker providing liquidity on the exchange platform by buying and selling virtual currencies at the prices it quotes for virtual currency pairs. The defendant is a Singapore incorporated company operating a currency exchange platform which enables third parties to trade Bitcoin and Ethereum for other virtual currencies or for fiat currencies such as the Singapore or US dollar. 

The plaintiff agreed to a set of terms and conditions available on the defendant exchange platform’s website. On 19 April 2017, the plaintiff placed 12,617 Bitcoin and Ethereum orders - of which only 15 were filled. 8 of the orders were buy or sell orders transacted at a price of around 0.04 Bitcoin for one Ethereum  (specifically, the Plaintiff sold 46.8384 ETH for BTC at an exchange rate of 0.03969596 BTC for 1 ETH). 7 others were sell orders that were effected at an exchange rate of around ten Bitcoin for one Ethereum. These were filled after the defendant's exchange suffered a "technical glitch" and was unable to perform its market-price updates.

All the orders on the relevant order book were not available so that no true market price could be set. However, because of the glitch, the plaintiff ’s price was the only one available on the defendant’s platform and this was matched by the computer system with Bitcoin held by forced sale customers (traders involved in the ETH/BTC market which were using ETH borrowed from the defendant).

The plaintiff was credited with a large number of Bitcoin with the exchanged amount of Ethereum debited. The forced sold customers had their accounts correspondingly debited and credited, after the Platform automatically placed stop loss orders to sell the force-closed customers’ assets at the best available prices, in order to repay the ETH loans. 

The plaintiff stood to gain almost 250 times the amount of Bitcoin that the pre-glitch exchange rate of Bitcoin for Ethereum would have given them.

The defendant exchange platform tried to unilaterally reverse the transaction on the following day, purporting to rely on a term in the risk disclosure document. It returned the BTC to the traders’ accounts and the ETH to the plaintiff’s account.

In late 2017, in B2C2 Ltd v Quoine Pte Ltd [2017] SGHC(1) 11, Justice Simon Thorley QC dismissed an application for summary judgment pursuant to O 14 of the Rules of Court for breach of contract and breach of trust. An applicant for summary judgment must establish a prima facie case for summary judgment. It is then for the respondent to establish that there is a fair or reasonable probability that he has a real or bona fide defence. Thorley J decided that this raised an arguable defence and refused to grant summary judgment.

Another basis for the refusal was the doctrine of unilateral mistake, which the judge acknowledged was less developed where computers were concerned. In Chwee Kin Keong and others v Pte. Ltd. [2005] 1 SLR(R) 502 it was held that to succeed in rendering a contract void on the basis of unilateral mistake, the defendant must show that there was a sufficiently fundamental mistake as to a term of the contract, of which the plaintiff seeking to enforce the contract was aware.

Thorley J thought that a more thorough investigation of the facts behind the setting of the high offer price was needed in order to assess the state of the plaintiff’s knowledge, particularly in relation to the facts behind setting the abnormally high offer price (which the plaintiff argued was simply “placed automatically by the Plaintiff’s proprietary system which seeks to quote prices which are at or near the best available prices of the Platform“), and the state of the plaintiff’s knowledge. The law of unilateral mistake could properly be revisited at trial when all the facts had been fully established.

In March 2018 the parties were back before the Court for determination of disputed applications by both parties: by the defendant for production of documents under O 110 r 17 of the Rules of Court (related to the unilateral mistake issue and the plaintiff's claim of confidentiality as to the workings of its automated trading system) and by the plaintiff for the appointment of a single court expert. Order 40 allows the Court to appoint an expert, preferably a person agreed by the parties, to inquire into and report upon questions of fact or opinion (not involving questions of law or of construction). In this area of technology, the parties are competitors, and the plaintiff wanted to maintain confidentiality in the workings of its automated trading system. The court declined to appoint a single expert, and instead establish a process for restricted inspection by an independent expert should the plaintiff's expert prepare an opinion based on confidential information: B2C2 Ltd v Quoine Pte Ltd[2018] SGHC(I) 04.

The matter is set for trial in July 2018. No dollar value for that amount of Bitcoin was provided in the lawsuit but according to cryptocurrency exchange CoinDesk, the amount translated to US$3.78 million based on an exchange rate of US$1,226.94 for a bitcoin on April 19. Since then, increased interest from institutional investors resulted in Bitcoin surging in price. It currently sits at US$6,1131.72.