Singapore International Commercial Court

1 This 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.

2 The 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").

3 The 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.

4 In 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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10 The 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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15 On 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.

16 In 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.

17 According 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.

18 For 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.

19 In 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.

20 However, 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.

21 However, 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.

22 The 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.

56 So 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]).

57 Indeed, 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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60 The 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.

61 In 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 the Plaintiff's knowledge. Equally, after the full facts are established, it will be possible to examine the law on unilateral mistake where computers are involved in greater detail than was possible on an application for summary judgment.

17.- (1) The requesting party may, within 14 days after being served a notice of objection, apply to the Court by summons for an order to produce the documents objected to.

(2) In an application under paragraph (1), the Court may order the production of the documents objected to if -

( a ) the request to produce was made in accordance with Rule 15(3); and

( b ) none of the following objections apply:

(i) lack of sufficient relevance to the case or materiality to its outcome;

(ii) legal impediment or privilege;

(iii) unreasonable burden to produce the requested document;

(iv) loss or destruction of the document that has been shown with reasonable likelihood to have occurred;

(v) grounds of commercial or technical confidentiality that the Court determines to be compelling;

(vi) grounds of special political or institutional sensitivity (including evidence that has been classified as secret by the Government, a foreign government or a public international institution) that the Court determines or the Attorney-General certifies to be compelling;

(vii) such considerations of procedural economy, proportionality, fairness or equality of the parties as the Court determines to be compelling.

[emphasis added in bold]

13 Parties may be competitors in a highly competitive market. Where confidential information or trade secrets are involved, the court has to balance the rights of the parties and the due administration of justice. On the one hand, each party is entitled to discovery of all documents that the other party may place before the court for adjudication. On the other, each party is entitled to be protected against infringements and its confidential information or trade secrets. If the defendant is in fact infringing, it should not be permitted to shelter behind a plea of secrecy. If, however, he is not infringing, he is entitled to have the secrets associated with its process maintained intact. ( Warner-Lambert v Glaxo Laboratories Ltd [1975] RPC 354 at 356, lines 7-14)

14 In Roussel Uclaf v Imperial Chemical Industries plc [1990] RPC 45, the English Court of Appeal adopted the principles in Warner-Lambert Co v Glaxo at page 49, lines 36-50:

"Each case has to be decided on its own facts and the broad principle must be that the court has the task of deciding how justice can be achieved taking in to account the rights and needs of the parties. The object to be achieved is that the applicant should have as full degree of disclosure as will be consistent with adequate protection of the secret. In so doing, the court will be careful not to expose a party to any unnecessary risk of its trade secrets leaking to or being used by competitors. What is necessary or unnecessary will depend on the nature of the secret, the position of the parties and the extent of the disclosure ordered. However, it would be exceptional to prevent a party from access to information which would play a substantial part in the case as such would mean that the party would be unable to hear a substantial part of the case, would be unable to understand the reasons for the advice given to him, and in some cases, the reasons for the judgment. Thus what disclosure is necessary entails not only practical matters arising in the conduct of the case but also the general position that a party should know the case he has to meet, should hear matters given in evidence and understand the reasons for the judgment." (page 49, lines 36-50, per Aldous J; page 54, lines 39-40, per Nourse LJ)

15 The starting point is that there should be full disclosure of the parties to the litigation of all those materials which are going to be considered and which may be put before the court. The onus is on the party seeking to restrict disclosure to justify it and to show why, in all the circumstances, notwithstanding onerous undertakings as to confidentiality and the like, nevertheless documents should not be shown to the litigant on the other side. Dyson Ltd v Hoover Limited (No.3) [2002] RPC 42, at pp 848-849, §§34-35.

16  The Warner-Lambert case , Roussel Uclaf case and Dyson case all involve intellectual property rights. They show that trade secret is no bar to discovery. The court may direct disclosure to selected individuals upon terms aimed at securing that there will not be either use or further disclosure of the information in ways which might prejudice the party making disclosure.

Where it is said that the documents are confidential, it may be accepted that the fact that the documents are confidential will not ordinarily be a sufficient reason to deny inspection by the opposite party. In most cases, the fact that the documents may not be used except for the purposes of the litigation concerned will be sufficient protection to the party producing them. But where, as here, the party obtaining discovery is a trade rival of the person whose secrets it is proposed should be revealed by discovery and inspection, other considerations arise.

Once the documents are inspected by the principals of the trade rival the information which is revealed is known to the trade rival and cannot be forgotten. Confidentiality is destroyed once and for all (at least so far as the particular trade rival is concerned). To say that the trade rival is bound not to use the documents except for the purposes of the action concerned is, in a case such as this, to impose upon that trade rival an obligation that is impossible of performance by him and impossible of enforcement by the party whose secrets have been revealed. How is the trade rival to forget what internal rate of return the competitor seeks to achieve on a new investment of the kind in question? How is the party whose hurdle rate has been revealed to know whether the rival has used the information in framing a tender? Thus, if the trade rival may inspect the documents concerned, the confidentiality of the information in them is at once destroyed. Is that necessary for the attainment of justice in the particular case?

Conclusions

The above case law all seems to demonstrate that the restriction which the defendants seek to place on disclosure of the material namely, only to be seen by the experts or alternatively only by experts and the legal advisers but to deny it to even a limited number of persons in the plaintiffs' organisation is exceptional. Such restriction can be ordered but it is unusual. If such a restriction is to apply, there must be exceptional circumstances which would justify it.

These conditions will include:

(i) An undertaking on oath from the nominated officer of the plaintiffs that the material disclosed will not be used for any purpose other than the conduct of this litigation.

(ii) That the documentation will at all times remain within the custody of the plaintiffs' solicitors who must give an undertaking to the court that they will not part company with such material or allow it to be copied in any way without the defendants consent or leave of the court. They must also undertake on oath that the material will not be used for any purpose other than the conduct of this litigation.

(iii) The access to be had by the named officer of the plaintiff to the material will have to be in the presence of the plaintiffs' solicitors.

(iv) That a record be kept of the material examined by that officer and the dates, times and duration of such examination.

(v) At the conclusion of the litigation, the material will be returned in its entirety to the defendants' solicitors.

§5.11 COMMERCIAL OR TECHNICAL CONFIDENTIALITY

[A] Introduction

The issue of commercial and technical confidentiality is underestimated by a considerable part of the arbitration literature which tends to focus more on the legal professional and settlement privileges as well as on the confidentiality of arbitral proceedings. However, commercial and technical confidentiality is an important reason to limit document production in practice.

This objection must be seen against its economic background. Companies can protect their know-how through two different methods: either by registering a patent or by keeping the know-how secret. The first method has the disadvantage that the know-how becomes public, but the benefit of exclusivity for a limited period of time. In the opinion of the German Federal Court of Justice, a trade secret is often more valuable than an intellectual property right.

This issue is particularly salient when the parties in dispute are competitors and the facts of the case occurred recently. In such situations, the fear that the opposing party gains a competitive advantage by learning trade secrets can be a dominant factor in the party's considerations on document production.

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[C] Complete Exclusion of Evidence Is the Exception

The IBA Rules provide two rules that limit document production due to technical or commercial confidentiality. Pursuant to Article 9(2)( e ) IBA Rules, technical and commercial confidentiality is a reason to exclude document production if the confidentiality concerns are 'compelling'. In addition, Article 9(4) IBA Rules provides the possibility of 'suitable confidentiality protection' when evidence is presented.

Neither the IBA Rules nor the Commentary to the IBA Rules defines technical and commercial confidentiality. Moreover, the word "compelling" is not defined...

... Another important consideration is to determine what is meant by the requirements that it be 'compelling'. At the very least, this suggests a presumption in favour of disclosure, absent strong reasons to the contrary. ...

... As noted above, the IBA Rules maintain the general principles in article 3.13 that all documents are to be kept confidential and used only for the purposes of the arbitration. In addition to this broad rule on confidentiality, a tribunal may also issue a specific procedural order setting rules for the protection of confidentiality that are binding on the parties or instructions to redact sensitive portions of the requested documentary evidence.

The court expert must send his report to the Court ... and the Registrar must send copies of the report to the parties or their solicitors.