This article is produced by CMS Holborn Asia, a formal law alliance between CMS Singapore and Holborn Law LLC.
As the trading of virtual currencies becomes ever more rampant, disputes arising from such trades are inevitable. The Singapore International Commercial Court (“SICC") had an opportunity to consider one such dispute recently. We examine the SICC's decision and share our takeaways on its likely impact and repercussions.
The Defendant, Quoine Pte Ltd, is a Singapore company operating a currency exchange platform (the “Platform”) enabling third parties to trade virtual currencies for other virtual or fiat currencies such as US or Singapore dollars.
The Plaintiff, B2C2 Ltd, is a UK registered company trading as an electronic market maker, generating trading revenues through the active buying or selling of virtual currency pairs.
Traders who wish to use the Platform must open an account with the Defendant and agree to a set of Terms and Conditions (the “Agreement”) found on the Defendant’s website. The Plaintiff did so on 28 June 2015.
On 19 April 2017, the Plaintiff sought to buy and sell one virtual currency, Ethereum (“ETH”) for another, Bitcoin (“BTC”). Because of a “technical glitch” on the Platform, the ETH/BTC Quoter Program was unable to connect to a database necessary for it to perform market price updates.
As a result, the Plaintiff was able to execute seven trades for the sale of ETH for BTC at an exchange rate approximately 250 times the normal rate of BTC for ETH usually quoted.
The “technical glitch” affected other market traders involved in the ETH/BTC market, causing the Platform to erroneously make Stop Loss orders to sell the assets of certain Force-closed Customers as the only price available on the Platform was the price offered by the Plaintiff.
The Defendant was made aware of the technical glitch the next day and unilaterally reversed the Plaintiff’s trades, returning the BTC to the Force-closed Customers’ accounts and the ETH to the Plaintiff.
The Plaintiff’s application
The Plaintiff applied for summary judgment against the Defendant, alleging breach of contract and breach of trust by the Defendant:
- The Plaintiff’s allegation in breach of contract centres on the fact that the Agreement between the parties provides that “once an order is filled, you are notified via the Platform and such an action is irreversible”.
- Alternatively, the Plaintiff argues that there is a breach of trust as the Defendant had unilaterally deducted assets (i.e. the proceeds from the trades) belonging to the Plaintiff from its account, which the Defendant held on trust for the Plaintiff.
The Defendant’s defences
International Judge Simon Thorley QC (the “Court”) found that the Plaintiff had made out a prima facie case. To avoid summary judgment, the Defendant had to identify issues that raised a bona fide defence meriting a trial.
The Defendant canvassed various issues, two of which the Court found to have raised arguable defences:
- that certain terms of the Defendant’s Risk Disclosure Statement (“RDS”) had been incorporated into the Agreement giving the Defendant the right to reverse the trades; and
- that the trades were void because of a unilateral mistake at common law.
The Court’s findings
1. The RDS argument
The Court found that the RDS argument raises an arguable defence.
Clause (h) of the Agreement permits the Defendant to change “any of the terms, rights, obligations, privileges… with or without providing notice of such change.”
The RDS, which was uploaded onto the Defendant’s website on 22 March 2017, lists various risks associated with trading in virtual currencies and provides (amongst other things) that the Defendant could “forcibly execute a reversing trade” in the event that “the system [produces] an aberrant value for the buy or sell price of the virtual currency” (“aberrant value clause”).
Whilst questioning whether the way in which the Defendant had given itself the right to cancel transactions based on the aberrant value clause was effective, the Court recognises that it need not go into an analysis into the relative strengths of the parties’ arguments as long as an arguable defence has been raised.
2. Unilateral mistake at common law
The Defendant further contends that the Plaintiff’s trades were void under the doctrine of unilateral mistake.
Relying on the seminal Court of Appeal decision in Chwee Kin Keong and others v Digilandmall.com Pte Ltd  1 SLR(R) 502 (“Chwee”), the Defendant argues that there has been a sufficiently important or fundamental mistake as to the term of the contract and that the Plaintiff had actual knowledge of that mistake.
While Chwee was decided on human error, in this case, the trades were executed by a computer (i.e. the ETH/BTC Quoter Program). The Defendant however argues that the computer error was analogous to the human error in Chwee because it had arisen from a human mistake made by an employee of the Defendant’s.
The Plaintiff denies that there has been any mistake or that it had any knowledge of the technical glitch in the Platform as it could not have known whether the orders would have been fulfilled or not.
The Court accepted the Defendant’s arguments that the case on mistake is a “cogent one” and merits a “thorough investigation of the facts behind the setting of the abnormally high offer price” in order for the Court to assess the state of the Plaintiff’s knowledge.
As the Court found that the Defendant had raised arguable defences, the Plaintiff’s application for summary judgment was dismissed.
The dismissal of the Plaintiff’s summary judgment application serves as a prelude to a more detailed examination of the interesting factual and legal matters arising from this dispute.
Regardless of the ultimate outcome, this case is likely to prove important for various reasons:
- Apart from being the first crypto-currency dispute to be considered by the Singapore courts, this case also gives the Court the opportunity to further develop the law on unilateral mistake as established in Chwee.
- The Court’s decision is likely to affect how future courts or tribunals would regard mistakes involving computers and/or computer programmes.
Cases such as these invariably raise the SICC’s profile as an international commercial court of choice capable ofhandling complex, ground-breaking disputes.