Cryptocurrency disputes: how should digital assets or tokens be valued in assessing damages?

How should cryptocurrency assets / digital tokens be valued in assessing damages?

When should the digital assets be valued for determining quantum of compensation?

The Honourable Mohamed Faizal JC in this case, Fantom Foundation Ltd v Multichain Foundation Ltd and another [2024] SGHC 173, has highlighted at [41]-[49] these important issues which my team had to grapple with recently.

Should it be spot value or volume-weighted average or highest value within a reasonable period of ‘reconstruction’ of assets? Especially when the market prices are highly volatile. What if there is practically no other market except within a particular platform?

The Judge noted that in traditional breach of contract situations involving conventional assets, the general compensatory principle is to allow for a party to be put in as good a position as if the contract had been performed, subject to the limiting doctrines of causation and remoteness: iVenture Card Ltd v Big Bus Singapore City Sightseeing Pte Ltd and other [2022] 1 SLR 302 (“iVenture”) at [103].

In such cases, the assessment of damages is generally assessed by reference to the date of the breach, although this is just a general rule which the court may depart from if it would give rise to injustice: iVenture at [133].

For example, the breach date rule does not apply in cases where there is no immediately available market for sale of the relevant asset or for the purchase of an equivalent asset. In assessing the value of assets when undertaking this analysis, the court places reliance on market value: Toh Tiong Huat v P M Gunasaykaran (personal representative of the estate of Mayandi s/o Sinnathevar, deceased) and another [1995] 3 SLR(R) 627 at [30].

However, the Judge highlighted that given the volatility of cryptocurrencies, the breach date rule may not always represent the best assessment methodology to value cryptocurrencies in all circumstances. There is the issue also that it is sometimes difficult to ascertain when or where precisely the cryptocurrencies were transferred.

The court is also faced with the question of when (ie, which date or time) to assess the quantum of loss caused by a breach of contract. This becomes particularly relevant in the situation where the value of an asset increases (or decreases) dramatically after the date of breach.

The Judged noted that in the United States, the Delaware Superior Court considered this issue in the context of valuing cryptocurrencies. In Diamond Fortress Technologies Inc v EverID Inc 274 A.3d 287 at 306, the Delaware Superior Court calculated the value of cryptocurrency by referring to the “highest market price of the security within a reasonable time of the plaintiff’s discovery of the breach”.

While the UK courts have not considered the issue in the context of cryptocurrency, they have considered that the breach date rule is not even a general rule of application. Instead, citing Stanford International Bank Ltd (in liquidation) v HSBC Bank plc [2023] AC 761, per Lord Leggatt JSC, the Judge noted that the breach date rule has been rationalised there as merely a matter of mitigation. Where there is not possible, then a different rule applies.

The Judge’s comments in the decisions are obiter dicta but are useful for serious consideration as the jurisprudence on this evolves in the Singapore courts and elsewhere.

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