London, UK – 2 July 2024 – In a significant victory for our client, Mr. Southgate, the Chancery Division of the High Court, has issued a favourable ruling in the case of Oliver Southgate v Adam Graham [2024] EWHC 1692 (Ch). Our successful litigation case centered on a dispute arising from a loan agreement involving a cryptocurrency.
The initial court decision found Adam Graham, the founder of Airtasker copycat app, Justfix, in breach of the agreement but did not grant specific performance for the return of the ETH tokens and instead ruled it would award monetary damages. The original court’s chosen valuation date for assessing damages was disputed. We argued it did not adequately compensate Mr. Southgate for the loss incurred due to the date selected by the learned Judge.
Mr Justice Trower sitting in the Chancery Division of the High Court, has handed down judgment in Southgate v Adam Graham – an appeal against the date of valuation of damages determined in the judgment of HHJ Saggerson at the County Court at Central London. Our appeal related to the date on which loss, impacted by the value of a cryptocurrency token, was to be determined in circumstances where the Court refused to order injunctive specific performance of a contractual token repayment obligation.
The appeal court acknowledged the inadequacy of the initial valuation date which the court agreed did not accurately reflect Mr. Southgate’s actual losses. They instructed the lower court to consider alternative dates, including the date of judgment, for a more accurate assessment.
Key Points:
- Southgate advanced 144 Ethereum tokens to Graham under an oral agreement.
- The court had to determine the terms of the agreement and the appropriate relief for breach.
- The court found in favour of Southgate on the primary issue but refused specific performance.
- Damages were to be assessed at a later remedies hearing.
- The original court’s chosen valuation date for assessing damages was disputed.
- Mr Justice Trower instructed the lower court to redetermine the correct valuation date.
While the High Court affirmed the trial court’s denial of specific performance, it overturned the decision regarding the damages assessment date. The timing of valuation can substantially influence the damages awarded in cryptocurrency disputes, given their market volatility. Southgate v Graham underscores that the assessment date is not fixed and may be adjusted depending on specific case circumstances and the litigation strategy adopted.
Background to the ETH Litigation Case
In the underlying litigation, our Claimant client sued to recover Ethereum (“ETH”) tokens that he had loaned to the Defendant and the Defendant had failed to return. Given the rise in the value of ETH, the Defendant formulated a disingenuous and totally without merit defence argument that his obligation was to return the GBP equivalent of the value of the ETH loaned to him at the date of the loan; not to return the ETH (in spite of evidence of him clearly agreeing to return ETH) nor to return ETH at the later or current GBP value equivalent. HHJ Saggerson ruled in favour of our client on the critical question that the loan was to be repaid in ETH not GBP but declined to order injunctive relief instead opting for damages in lieu of specific performance. However the learned judge erred in determining the correct date for assessing loss, in this case the valuation of the ETH.
The ETH had risen significantly in its price since the date of the loan. The trial Judge preferred our client’s version of events, holding that the agreement required the return of the ETH as opposed to payment in GBP to the value of the ETH loaned (as at the date of the agreement). However, the trial Judge refused to order specific performance of the obligation to return the ETH and instead awarded damages in lieu of specific performance.
The question then arose as to what date those damages in lieu of specific performance should be valued. Following what he described as the “date of breach rule” the Judge held that the damages fell to be valued at the date of the breach of the obligation to return to the ETH: a date in 2019. That meant that our client, the successful party, would be very significantly out of pocket since the value of the ETH was significantly less than it is worth now. Consequently, our client appealed against that finding. His appeal was successful.
Ethereum Loan Dispute – County Court Claim
Our client, the claimant in the case, loaned a specific amount of Ethereum (ETH) tokens to the defendant in 2018, with the expectation of receiving them back at a later date. However, a disagreement arose regarding the terms of the agreement. The borrower, defendant in the case, refused to return the ETH which led to a claim in the County Court.
The court proceedings involved a claim initiated by our client on 6 January 2022, seeking the return of Ethereum Tokens from the Defendant. After hearing arguments from both parties, the court ruled that the Claimant was entitled to the return of the cryptocurrency tokens. However, the court decided to award damages in lieu of specific performance. The assessment of damages was to be based on the value of ETH as of midday on 1 October 2019. Our client was also entitled to recover any associated transaction fees incurred during the ETH token transfer.
Our client argued that the appropriate date for assessing damages was the date of the judgment. However, the judge concluded that the damages should be quantified based on the date of the breach of the contractual obligation to return the cryptocurrency, which he determined to be in October 2019.
LEXLAW lodged an appeal with the High Court, due to the rise in the value of ETH, using the breach date of 1 October 2019, for quantification would significantly disadvantage our client. We argued for a more appropriate valuation date, one that accurately reflected the true extent of the loss sustained by our client.
Cryptocurrencies and Ethereum Explained
Cryptocurrency is a digital payment system that does not rely on banks to verify transactions. Instead, it uses cryptography (complex math) to secure transactions and control the creation of new units of currency. Cryptocurrencies are decentralised, meaning they are not controlled by any single government or financial institution.
Here are some key features of cryptocurrency:
- Digital: Cryptocurrencies exist only electronically. There are no physical coins or bills.
- Decentralised: Transactions are verified and recorded on a distributed public ledger called a blockchain, which is not controlled by any one entity.
- Secure: Cryptography makes it very difficult to counterfeit or steal cryptocurrency.
- Pseudonymous: Transactions are linked to unique digital addresses, but these addresses typically don’t reveal the identity of the person behind them.
Ethereum is a specific type of cryptocurrency, often referred to as a platform cryptocurrency. It not only functions as a digital currency (called Ether, or ETH), but also allows developers to build applications on its blockchain network.
Here’s what makes Ethereum different from other cryptocurrencies like Bitcoin:
- Smart Contracts: Ethereum allows for the creation of self-executing contracts called smart contracts. These contracts can automate the execution of agreements according to predefined terms.
- Decentralised Applications (dApps): Developers can build applications on the Ethereum network, creating a platform for various decentralised services like finance (DeFi) and non-fungible tokens (NFTs).
Appeal to the High Court
Recognising the inherent unfairness in the County Court’s decision, we lodged an appeal at the High Court. The High Court carried out a detailed analysis of the case law relating to the time at which the Court values loss.
The Court found that the case law – identified by LEXLAW – made clear:
(i) that the date of breach rule should not be rigidly applied when it does not adequately compensate the innocent party; and
(ii) that the case law in relation to s50 of the Senior Courts Act 1981 also supported the conclusion that the starting point when valuing damages in lieu of specific performance is to take the date of judgment as the correct date of valuation. That is because the Court is awarding damages for the loss of the right to specific performance; and that such a loss ordinarily falls to be determined at the date of the refusal to provide specific performance.
Instead, the Court found that the burden is on the Defendant to show that the Claimant failed to mitigate his loss by continuing to pursue the remedy of specific performance.
Significance of the Case
This case sets a valuable precedent for future disputes involving cryptocurrency transactions and breach of contract claims. It underscores the importance of a fair valuation date for damage calculations, particularly in volatile markets. Additionally, it clarifies the court’s flexibility in awarding damages alongside or instead of specific performance, depending on the specifics of the case.
Download the Judgment here
![Between:
Oliver Southgate
Appellant
and
Adam Graham
Respondent
[2024] EWHC 1692 (Ch)
Before:
THE HONOURABLE Mr Justice Trower
Case No: CH-2023-000212
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY APPEALS
ON APPEAL FROM THE COUNTY COURT AT CENTRAL LONDON
ORDER OF HHJ SAGGERSON DATED 28 SEPTEMBER 2023
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Christopher Snell (instructed by Lexlaw Solicitors & Advocates) for the Appellant
Rupert Beloff (instructed by Ashtons Legal) for the Respondent
Hearing date: 21 June 2024
Approved Judgment
This judgment was handed down remotely at 10.30am on Tuesday 2 nd July 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Mr Justice Trower Mr Justice Trower
1
This is an appeal against parts of an order made by HHJ Saggerson (the “Judge”) on 28 September 2023. The order was made at the conclusion of the trial of a dispute as to the terms of an oral agreement under which the Appellant advanced cryptocurrency to the Respondent in the form of 144 Ethereum tokens (“ETH”) sent to him in two tranches on 7 and 13 June 2018 and the consequences of its breach by the Respondent.
2
The advance was made in the context of what the Judge called the Respondent's need for £50,000 to deal with certain financial responsibilities which he had with third parties. The Appellant's case was that he agreed with the Respondent that the ETH, or an equivalent number of the ETH (there is no suggestion that it had to be the same tokens), supplemented by a further 10%, would be returned to him in due course.
3
The Respondent's case was that the substance of the agreement was for a loan of £50,000. He said that his obligation was to repay that sum to the Appellant plus a premium of 10%. As the Judge put it, the Respondent said that the ETH was merely the mechanism by which the Appellant intended to allow the Respondent access to the equivalent sterling sum of £50,000.
4
On the issue with which the trial was primarily concerned, the Judge found for the Appellant. As he explained in paragraph 45 of his judgment:
“Accordingly I find, this was a contract for the provision of a funding option for the defendant in the form of 144 Ethereum tokens on the basis that the Ethereum tokens would be returned or re-transferred or their equivalent re-transferred to the claimant by way of repayment in due course.”
5
The Judge also found that, pursuant to the terms of the oral agreement, the 144 ETH plus 10% (i.e., 158.4 ETH) were to be repaid within a reasonable time of demand made by the Appellant. Demand was made in July 2019. Having regard to the obligation to repay within a reasonable time of demand, the Judge concluded that the Respondent was under an obligation to re-transfer 144 ETH plus 10% by midday on 1 October 2019.
6
In late September 2019, the Respondent transferred £6,000 to the Appellant which was applied by the Appellant in discharge of the Respondent's obligation to return 42.71 of the ETH, leaving 115.69 ETH outstanding. The Judge's order recorded his further finding that, taking into account the £6,000 credit, the Appellant was entitled to the return of 115.69 ETH no part of which has since been returned. The Judge therefore found that the Respondent has been in continuing breach of the oral agreement to the extent of a failure to return 115.69 ETH since 1 October 2019.
7
The Judge's findings on these aspects of the dispute are not challenged by either party on this appeal. Furthermore, it was not said by either party that the oral agreement was terminated by the Appellant's acceptance of the Respondent's repudiatory breach at any time prior to the delivery by the Judge of his judgment. Likewise, the Respondent does not dispute that his obligations under the oral agreement in the form they took on 1 October 2019 remained unperformed.
8
Having determined the primary issue in the Appellant's favour, the parts of the Judge's order which are challenged by the Appellant relate to his decisions on the relief sought. This was specific performance of the Respondent's obligations under the oral agreement and damages in the alternative. The Appellant's particulars of claim made a specific averment that any damages should be assessed as at the date of judgment and gave as the best available particulars a value of £322,816.75 for the 115.69 ETH as at the date the statement of case was prepared.
9
In his defence, the Respondent joined issue with the claim to specific performance, alleging that it would cause him hardship and/or would be inequitable. He did not identify any form of inequity other than the anterior allegation of hardship. He did not plead to the Appellant's case on the appropriate assessment date for damages in lieu of specific performance, but limited himself to a bare denial that the Appellant was entitled to damages at all.
10
The Judge refused to grant specific performance of the Respondent's obligation to return the 115.69 ETH. He made an order for damages in lieu of specific performance to be assessed at a remedies hearing and directed that such hearing be listed for the first available date after 1 December 2023 with a time estimate of one day. One of the recitals to his order provided that the assessment of damages “must be based upon the value of the 115.69 Ethereum tokens as of midday, 1 st October 2019”, i.e., the time at which he had found that the Respondent was in breach of his obligation to return the ETH to the Appellant.
11
The grounds of appeal are that the Judge was wrong to refuse specific performance and alternatively that he was wrong to direct that the valuation date for an assessment of any damages in lieu should be 1 October 2019. Permission to appeal was granted by Meade J on 18 January 2023, who also extended until the determination of this appeal an order made by Edwin Johnson J on 20 October 2023 granting a stay of that part of the Judge's order which directed the listing of a remedies hearing.
12
The reason the Judge refused specific performance was explained in paragraphs 48 and 49 of his judgment. He pointed out that it is always a discretionary remedy to be based on all the circumstances of the case. He went on to hold that it would be an inept remedy in the present case “mainly because it would do no more than set up the Respondent to fail”. He went on to explain that setting up this Respondent to fail might be regarded as nobody's fault but his. However, to set him up to fail in circumstances where it may simply not be possible for him to comply within a reasonable time with an order requiring him to purchase the outstanding ETH (which he said may now be worth as much as £350,000), backed no doubt in due course by a penal notice, would be unfair, disproportionate and unnecessary.
13
The reference to a penal notice indicates that the Judge had in mind that non-compliance with an order for specific performance might lead to contempt proceedings in due course, while a money judgment for damages would not have the same potentially punitive effect.
14
In the light of the way that the appeal has been argued, it is relevant to note that not only was hardship the only identified ground on which the Respondent pleaded that specific performance should not be granted; it was also the essence of the](https://lexlaw.co.uk/wp-content/uploads/Southgate-v-Graham-CH-2023-000212-Approved-judgment-02-07-2024-724x1024.jpg)
Expert Cryptocurrency Dispute Lawyers
If you find yourself in a similar situation, where you have loaned cryptocurrency and the borrower fails to return it as agreed, LEXLAW Solicitors and Barristers can help. Our experienced team of legal professionals can guide you through the legal process, ensuring your rights are protected and you receive the compensation you deserve.
Legal Precedent for Cryptocurrency Loan Disputes
This case serves as a precedent for similar situations involving cryptocurrency and breach of contract. It emphasises the importance of carefully selecting the valuation date when calculating damages in lieu of specific performance, particularly in cases where the value of the cryptocurrency fluctuates significantly. LEXLAW Solicitors and Barristers are here to help you navigate the complexities of cryptocurrency litigation and ensure you receive fair compensation for your losses.
How can we help you?
The crypto landscape is still largely unregulated, however, our experienced team at LEXLAW has kept itself abreast with the latest changes in the Crypto-landscape to provide our clients with the best possible advice and representation in order to help people get their money back. Our Barristers and Solicitors have decades of experience in dealing with loan disputes. If you have fallen prey to cyber fraud or in a loan dispute, please do not hesitate to contact us, so we can provide you with the best possible advice and help that you may need.
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