B2C2 Ltd v Quoine Pte Ltd

• Jurisdiction: Singapore
• Judge: Simon Thorley IJ
• Judgment Date: 20 March 2018
• Neutral Citation: [2018] SGHC(I) 4
• Court: International Commercial Court (Singapore)
• Docket Number: Suit No 7 of 2017 (Summonses No 4 and 8 of 2018)
• Published date: 24 March 2018
• Year: 2018
• Hearing Date: 20 February 2018
• Plaintiff Counsel: Danny Ong, Sheila Ng and Rachel Low (Rajah & Tann Singapore LLP)
• Defendant Counsel: Paul Ong and Marrissa Karuna (Allen & Gledhill)
• Citation: [2018] SGHC(I) 4

Simon Thorley IJ:Introduction

On 27 December 2017, a judgment was handed down in this action dismissing an application by the Plaintiff for summary judgment pursuant to O 14 of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) (“Rules of Court”): see B2C2 Ltd v Quoine Pte Ltd[2017] SGHC(I) 11 (“the Judgment”). The present judgment arose out of consequential disputed applications by the parties: by the Defendant for production of documents under O 110 r 17 of the Rules of Court and by the Plaintiff for the appointment of a single court expert pursuant to O 40.

The underlying facts are set out in paragraphs 1–4, 10 and 15–22 of the Judgment which, for convenience, I repeat below:1This is an application for summary judgment pursuant to Order 14 of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) (“Rules of Court”) in an action for breach of contract and breach of trust. Following the hearing on 5 December 2017, I indicated that I would not be granting summary judgment and that I would give my reasons for refusing relief in writing. These are my reasons.2The Defendant is a Singapore registered company which operates a currency exchange platform (the “Platform”) enabling third parties to trade virtual currencies for other virtual currencies or for fiat currencies such as the Singapore or US dollars. The two virtual currencies involved in this action are Bitcoin (“BTC”) and Ethereum (“ETH”).3The Plaintiff is company registered in England and Wales trading inter alia as an electronic market maker. As an electronic market maker, the Plaintiff provides liquidity on exchange platforms by actively buying or selling at the prices it quotes for virtual currency pairs, thereby generating trading revenue.4In recent years, there has been a significant growth in virtual currencies of which Bitcoin is perhaps the best known. They are not linked to any particular country, nor regulated by any central monetary authority. They are traded for other virtual currencies or traditional currencies on computer networks such as the Platform.

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10The Platform uses order books to record orders from buyers and sellers for each pair of currencies being traded on the Platform. These are all displayed electronically on what is known as a “Trading Dashboard” which also contains a price chart indicating a current fair market price. It displays real time pricing data both for completed trades on the Platform and for trades on several other major virtual currency exchanges. This is achieved through a software program used by the Platform (the “Quoter Program”).

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15On 19 April 2017, the Plaintiff sought to buy and sell ETH for BTC. To that end, it placed 12,617 ETH/BTC orders of which only 15 were filled on that date, including seven orders which are the subject of this litigation. The orders were all limit orders. Save for the seven orders, the buy or sell orders were transacted at a price of around 0.04 BTC for 1 ETH.16In particular, at 23:29:35 on 19 April 2017 the Plaintiff sold 46.8384 ETH for BTC at an exchange rate of 0.03969496 BTC for 1 ETH.17According to the Defendant, sometime after 23:30 on that day, a “technical glitch” arose on the Platform. Changes had been made to the passwords and cryptographic keys to some of the Platform’s critical systems. But by an oversight, the Defendant’s operations team did not implement these changes to the login credentials for the ETH/BTC Quoter Program. This apparently caused the ETH/BTC Quoter Program to cease working as it was unable to connect to a database necessary to perform its market price updates. In consequence, all the orders which were on the ETH/BTC order book ceased to be available and no true market price could be set.18For reasons which have not been fully explained in the affidavits, between 23:52:52 and 23:54:33 (just over one and a half minutes), the Plaintiff placed seven orders for the sale of ETH for BTC at an exchange rate of between 9.99999 and 10 BTC for 1 ETH – ie, at a rate approximately 250 times the rate of about 0.04 BTC for 1 ETH previously being quoted.19In normal circumstances, this would no doubt have resulted in the orders not being fulfilled as, being limit orders, it was unlikely that the market would fluctuate so violently that the exchange rate would reach this limit level.20However, there were some market traders (the “Force-closed Customers”) involved in the ETH/BTC market at the time using ETH borrowed from the Defendant. Because the ETH/BTC Quoter Program could not access all the data necessary to establish a true market price, it sought to do so by reference to the only data available to it which were, in effect, only the data arising out of the Plaintiff’s seven orders. These new data caused the Platform to reassess the Force-closed Customers’ leveraged positions and detect that the Force-closed Customers’ collateral had fallen below the maintenance margins. The Platform thus automatically placed Stop Loss orders to sell the Force-closed Customers’ assets at the best available prices to repay the ETH loans.21However, because of the technical glitch, the only available price on the Platform was the price offered by the Plaintiff. Hence, the computer matched the Plaintiff’s seven orders with the BTC held by the Forced-closed Customers. In the event, an aggregate of 3092.517116 BTC was credited to the Plaintiff’s account and 309.2518 ETH debited from that account with corresponding amounts being debited from and credited to the Force-closed Customers’ accounts.22The following day, the Defendant became aware of the technical glitch and unilaterally reversed the trades, returning the BTC to the Force-closed Customers’ accounts and the ETH to the Plaintiff’s account.

By the Judgment, two issues were held to raise appropriately arguable defences. The first, an argument based upon a document known as “the Risk Disclosure Statement”, is not relevant to the matters currently before me. The second relates to a defence of unilateral mistake at common law which was ruled upon in paragraphs 44–61 of that judgment. Paragraphs 56–57 and 60–61, which address the question of knowledge in relation to unilateral mistake, read as follows:56So far as actual knowledge of the Plaintiff is concerned, the Defendant’s primary contention is that however the abnormally high limit order price came to be offered, it could not have represented a genuine offer to sell in a realistic market. The Plaintiff must have known that the price was wholly out of line with all the other prices it had been seeking to trade at during that day (all of which were more than 250 times lower). These factors, says the Defendant, are more than sufficient to raise a prima facie case that the “non-mistaken party is probably aware of the error made by the mistaken party” ([Chwee Kin Keong and others v Digilandmall.com Pte Ltd[2005] 1 SLR(R) 502] at [41]).57Indeed, the Defendant goes further and draws attention to the fact that it has sought particulars from the Plaintiff as to how the orders came to be made. However, their request has been refused and the Plaintiff’s evidence in reply does not condescend into any detail as to how the orders came to be made. In paragraph 10.2 of Ms [sic] Boonen’s second affidavit dated 19 October 2017, she [sic] states:

The Orders were placed automatically by the Plaintiff’s proprietary system which seeks to quote prices which are at or near the best available prices on the Platform at a particular point in time. If there were no or few other available orders to sell BTC at that time, then the Plaintiff’s system would naturally quote higher prices to sell BTC. …

This demands an investigation at trial to understand why the system quoted a high price but, more specifically, why it selected 10 BTC for 1 ETH as the exchange rate.

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60The doctrine of unilateral mistake is well developed in circumstances where the error is a human error and the knowledge or lack of it is directly ascertainable from the humans involved. Where computers are concerned, the law is less well developed. When can the workings of a computer or computer program constitute actual knowledge on the part of the programmer or operator of the computer? In his judgment at first instance in Chwee Kin Keong and others v Digilandmall.com Pte Ltd[2004] 2 SLR(R) 594, V K Rajah JC (as he then was) made the following observation at [102]:

Inevitably mistakes will occur in the course of electronic transmissions. This can result from human interphasing, machine error or a combination of such factors. Examples of such mistakes would include (a) human error (b) programming of software errors and (c) transmission problems in the communication systems. Computer glitches can cause transmission failures, garbled information or even change the nature of the information transmitted. This case is a paradigm example of an error on the human side. Such errors can be magnified almost instantaneously and may be harder to detect than if made in a face to face transaction or through physical document exchanges. Who bears the risk of such mistakes? It is axiomatic that normal contractual principles apply but the contractual permutations will obviously be sometimes more complex and spread over a greater magnitude of transactions. The financial consequences could be considerable. The court has to be astute and adopt a pragmatic and judicious stance in resolving such issues.

61In the present case, I do not consider that the Plaintiff’s responses to the Defendant’s arguments are sufficient to deny it the right to a trial. The Defendant’s case on the mistake itself is a cogent one and I accept that a more thorough investigation of the facts behind the setting of the abnormally high offer price is justified in order to place the court in a proper position fully to assess the state of...