English and Singapore High Courts address the correct date for assessing damages in crypto claims

In both England and Singapore, the purpose of an award for breach of contract is to compensate the injured party.  The award is generally meant to place the claimant in the same position as if the contract had been performed.  The courts will typically assess damages by reference to the date on which the contract was breached, unless this would result in an injustice.

The English and Singapore High Courts have both recently handed down judgments that award damages for breach of contract in cryptocurrency cases.  In both judgments, the courts have shown they are alive to the particular risk that taking a traditional approach to assessing damages in cryptocurrency cases could result in injustices, given the volatile nature of some cryptocurrencies.  Reassuringly, both courts have demonstrated that they will ensure that injured parties are awarded fair compensation.

We provide a detailed examination of the English High Court’s decision in Southgate v Graham [2024] EWHC 1692 (Ch) and the Singapore High Court’s decision in Fantom v Multichain [2024] SGHC 173:

Southgate v Graham

Background

This case concerned a dispute as to the terms of an oral agreement under which Mr Southgate had advanced ETH 144 to Mr Graham in June 2018.  Mr Southgate had made this advance in the context of Mr Graham’s need for £50,000 to meet his financial responsibilities.  Mr Graham had later paid £6,000 to Mr Southgate, which Mr Southgate had applied to discharge Mr Graham’s obligation to return ETH 42.71, leaving ETH 115.69 outstanding.

Mr Southgate’s case was that he had agreed with Mr Graham that the Ether (or an equivalent number of Ether) plus a 10% premium would be returned to him in due course.  By contrast, Mr Graham’s case was that the substance of the agreement was for a loan of £50,000 and that his obligation was to return that sum plus a 10% premium to Mr Southgate.

Mr Southgate sought specific performance of what he said was Mr Graham’s obligation to return ETH 115.69, in order words an order requiring Mr Graham to purchase ETH 115.69 and return it to him within a reasonable amount of time.  Alternatively, Mr Southgate sought damages equivalent to the value of ETH 115.69 at the date of judgment.  The fiat value of ETH 115.69 was said to be as much as £350,000 at that date.

County Court judgment

The County Court judge found that the terms of the oral agreement were for Mr Graham to repay ETH 144 plus a 10% premium within a reasonable time of demand, which he determined was by midday on 1 October 2019.  The judge found that Mr Graham had been in continuing breach of the oral agreement to the extent of a failure to return ETH 115.69 since that date.

In terms of the relief sought, the judge refused to grant specific performance.  He noted that specific performance is a discretionary remedy to be based on all the circumstances of the case.  In this case, the judge considered that specific performance could result in hardship for Mr Graham, mainly because ordering Mr Graham to purchase ETH 115.69 at a price up to £350,000 would be setting him up to fail.  Instead, he ordered Mr Graham to pay damages valued at 1 October 2019, the date of breach.  This resulted in a lower award of damages than Mr Southgate had sought.

Mr Southgate appealed the judge’s findings on relief on the grounds he was wrong to refuse specific performance, alternatively that he was wrong to direct that the valuation date for the assessment of damages should be 1 October 2019. 

High Court appeal

Specific performance

In the High Court, Justice Trower found that the County Court judge had not been wrong to refuse specific performance as relief.  He noted that specific performance was not a remedy available to a claimant as of right, and that there had been sufficient evidence to justify the judge’s finding.  Trower J noted that if the judge had ordered specific performance, and if Mr Graham had failed to purchase and repay the Ether, this could have led to (criminal) proceedings against Mr Graham for contempt of court.

Trower J thought it was possible that the County Court judge had considered the fact that the oral agreement was not in relation to a specific item of property. Mr Graham had not been obliged to return the specific Ether he had borrowed and could instead return Ether to the same value. Trower J found that whilst a contract for the return of cryptocurrency could be specifically performable, it had been open to the County Court judge to decide that the nature of this agreement meant that Mr Graham’s failure to return the Ether could be compensated in damages.

Valuation date

By contrast, Trower J found that the County Court judge had been wrong to reach a settled view that the correct valuation date for assessing damages was 1 October 2019, the date of breach.  This was because the judge had not been presented with sufficient evidence on the correct date for valuation.

Trowers J considered that the fair outcome was to allow the appeal in respect of the valuation date, with the issue of the correct date to be remitted to a remedies hearing at which the judge could be given fuller evidence.  He provided a steer that whilst the date of breach is often thought to be the general rule for valuing loss caused by a breach of contract, such a rule should not be rigidly applied.  What matters is that the court should seek to ensure that the wronged party is adequately compensated.

Fantom v Multichain

Background

The claimant Fantom Foundation Ltd (“Fantom”) entered into agreements with Multichain Pte Ltd (“Multichain”) to integrate its blockchain with Multichain’s platform.  On 6 July 2023, Fantom then deposited source assets with a value of USD 61,829.70 into the Multichain bridge to create the value-equivalent of wrapped assets on the other side.  On 7 July 2023, in a well-published security breach, assets were moved out of the Multichain bridge wallet.  This resulted in the loss of the Fantom’s deposits.

Fantom routinely provided liquidity to Multichain on request.  Fantom provided Multichain with FTM on its side of the Multichain bridge, and, in return, Multichain gave Fantom wrapped FTM on the other side (the “liquidity facility”).  On 14 April 2023, Fantom provided Multichain with FTM 4.175m which was not returned.

Fantom went on to obtain default judgment against Multichain and a group company in relation to its loss of the deposits (the “damages claim”) and the unrepaid FTM (the “FTM claim”).  Fantom was awarded damages to be assessed in the damages claim; it was awarded an order that Multichain deliver up FTM 4.175m (or its value) in the FTM claim.  The recent judgment of the Singapore High Court related to these awards.

The damages claim

Fantom asserted that it should be awarded damages to return it to the position it would have been in had the breach not occurred. It sought damages of USD 58,620.55, arising from the difference between the value of the source assets it had deposited into the Multichain bridge on 6 July 2024 (immediately before the breach) and the current value of the wrapped assets it had received in return (which had declined to USD 3,209.12).  Judicial Commissioner Mohamed Faizal accepted this approach.

The FTM claim

Faizal JC was content to value the FTM claim at 14 April 2023, representing the notional date on which Multichain breached the liquidity facility. 

In giving judgment, Faizal JC thought it sensible to comment that “Given the volatility of cryptocurrencies, the breach date rule may not always represent the best assessment methodology to value cryptocurrencies in all circumstances”.  He predicted that whilst he had not needed to grapple with the valuation date in this particular claim, it would only be a matter of time before the courts – in Singapore and globally – would have to do so.  

Takeaway

These recent decisions of the English and Singapore High Courts casts the spotlight on the issue of the correct valuation date for the assessment of damages in cryptocurrency claims.  What is clear is that the approach is by no means settled or uniform, and is likely to continue to evolve as courts see an increase in the number of cryptocurrency lawsuits. 

Drafted with assistance from Sylvia Moschona, CMS UK