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    1 ETH for 10 BTC: Singapore Court Decides on a Unique Crypto Exchange Deal and Why It Matters

    Summary: On February 24, 2020, the appellate court in Singapore made a decision on the first case involving cryptocurrency and the trading of virtual assets on exchanges. In his article, Illia Shenheliia provides overview of the court ruling and explains what impact it has on the industry


    Illia Shenhelia

    Associate partner


    On February 24, 2020, the appellate court in Singapore made a decision on the first case involving cryptocurrency and the trading of virtual assets on exchanges. In his article, Illia Shenheliia provides overview of the court ruling and explains what impact it has on the industry.

    What Happened?

    In April 2017, due to software malfunctions, Quoine exchange (also known as Liquid) closed seven trades through the OTC platform B2C2, buying BTC with ETH at a rate approximately 250 times lower than the market price. Consequently, B2C2 acquired 3,092 BTC for 309 ETH (10 BTC for each ETH), whereas at market rates, they would have received approximately 12.4 BTC.

    The next day, Quoine unilaterally canceled all seven transactions and refused to transfer the acquired Bitcoin to B2C2.

    B2C2 argued that the exchange breached its own user agreement terms and abused the trust.

    Quoine, in turn, claimed that the aforementioned transactions were not executed at fair market prices and, therefore, were made in error, which gives the exchange the right to cancel the transactions unilaterally.

    Since both the exchange and B2C2 set the rates and executed transactions automatically using software algorithms, the human error factor was absent in the transactions.

    What Did the Court Decide?

    The court primarily had to determine whether there was a breach of contract (user agreement terms) and if there was an abuse of trust by the exchange.

    The appellate court affirmed the first-instance court's decision that Quoine's cancellation of transactions with B2C2 was a breach of the user agreement terms.

    Significantly, the court did not require the exchange to return the aforementioned sum to B2C2 but ordered it to compensate for losses. It considered that due to the significant rise in BTC value (from around $1,200 at the time of the transaction cancellations to more than $9,889 at the time of the court decision), making the exchange pay back the amount in bitcoins would be unfair to Quoine.

    Now, the parties must agree on the amount of damages, or else the issue will be resolved by the court at the next hearing.

    Why Is This Important?

    According to the user agreement terms of Quoine, all transactions on the exchange are irreversible. Despite this, the exchange canceled the transactions, citing that they were made in error, as the parties to the transactions believed they were dealing at market prices.

    To resolve the issue, the court had to establish whether the doctrine of mistake could apply to fully automated transactions.

    The court recognized that the parties indeed made a mistake, believing that the transactions were carried out at market prices. However, according to the Anglo-Saxon model of mistake, the second party, which was not mistaken (i.e., B2C2), should have known about such an erroneous belief of the first party and taken advantage of it.

    This could only be possible if B2C2's software was purposefully exploiting a mistake or intentionally searching for vulnerabilities in the exchange's software.

    To investigate, the court called the developer who had created the respective software for B2C2 as a witness. During the questioning, the court established that the developer was not and could not have been aware of such an error in the exchange's software.

    B2C2's programmer had incorporated algorithms into the software that allowed B2C2 to conduct transactions at the most favorable rate. Therefore, when the opportunity arose to purchase BTC at a very low price on the exchange, the algorithm completed the transaction. The use of such algorithms, undoubtedly, is not a violation of any norms and standards.

    Consequently, the court ruled that in this situation, there was no mistake, and the exchange's cancellation of transactions constitutes a breach of the user agreement terms.

    The issue of abuse of trust by Quoine is intriguing. It's important to clarify that the abuse of trust, or specifically, the breach by the trustee, i.e., the exchange, of its obligations to manage the property, can only occur in relation to the property which is under fiduciary management.

    The court in its decision indicated that cryptocurrency has all the necessary attributes to be considered intangible property (an asset), thus reaffirming the legality of cryptocurrency circulation in Singapore.

    Despite this, the appellate court ruled that the unlawful debiting of funds from B2C2's account does not constitute a breach of fiduciary duties by the exchange, as there was no fiduciary relationship between Quoine and B2C2.


    The decision of the Singapore appellate court is interesting for several reasons:

    • The court confirmed the legality of cryptocurrency circulation in Singapore, which can be considered as intangible property (an asset);

    • The doctrine of mistake cannot be applied to automated transactions (transactions without human involvement) provided that the software developer was unaware of the error or system vulnerability of the other;

    • Due to the high price difference in BTC, the court did not obligate Quoine to return the bitcoins, but rather to compensate B2C2 for the losses incurred as a result of the transaction cancellations.

    This ruling is a landmark in clarifying the legal treatment of automated transactions in the blockchain era. It reinforces the binding nature of smart contracts and signals the need for exchanges to have robust error detection and resolution mechanisms in place.

    It also underscores the courts' increasing willingness to engage with complex technological issues and to develop the common law in a way that reflects the realities of the digital economy.

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