Cryptocurrency, Specific Performance and Damages: Ether you get it or you don’t

Ethereum (ETH) loan agreement

In 2018, Southgate orally agreed to loan 144 ETH to Graham. The principal plus 10% was re-transferrable “within a reasonable time of demand”. Graham failed to transfer 115.69 ETH after Southgate’s demand in July 2019. The County Court held “within a reasonable time” meant by midday on October 1, 2019. Since then, Graham was in continuous breach.

Specific performance or damages?

Southgate sought: 

1. specific performance; or 
2. damages in lieu, assessed at the date of judgment (approximately GBP350,000). 

Graham appeared unlikely to be able to afford the outstanding ETH at the then market price. Therefore, the court refused to order specific performance on the grounds of hardship. The court instead awarded damages to be assessed at a remedies hearing, which “must be based upon the value of the 115.69 Ethereum tokens as of midday October 1, 2019”.

On appeal

The High Court declined to interfere with the trial judge’s finding regarding hardship and affirmed that damages remained a sufficient remedy. Southgate’s appeal on the refusal to order specific performance was dismissed. The High Court noted “Where the dispute is all about pecuniary loss, it was relevant for the Judge to have regard to the fact that non-compliance with an order for specific performance of an essentially pecuniary obligation might give rise to contempt proceedings for non-compliance, while the same issue would not arise on a failure to pay any award of damages in lieu”.  The High Court also drew comfort from recent English and Singaporean cases refusing to order specific performance finding that a failure to return cryptocurrency tokens could be adequately compensated by damages. 

However, the court found that the trial judge was incorrect to determine the valuation date regarding damages at the hearing, given: 

1. the parties were unprepared to have aspects of the assessment of damages decided then; and
2. the trial judge did not hear parties’ submissions regarding the appropriateness of the proposed valuation date.

“Correct” valuation date

The court commented, without a final decision, that Southgate’s argument concerning the valuation date had “real merit”, as:

1. valuation as at the date of breach meant Southgate would not recoup sufficient cash to purchase the outstanding 115.69 ETH at market price;
2. Southgate may not be required to have mitigated his loss by going to market to purchase the outstanding ETH on or shortly after breach; and
3. damages in lieu of specific performance are typically assessed with reference to the date of judgment (section 50, Senior Courts Act 1981; Johnson v Agnew).

Considering the fact sensitive nature of those points, the court ordered that the correct valuation date, and issues regarding the measure of loss, should be determined at a fulsome remedies hearing.

Judgment: Southgate v Graham