Crypto damages quantification: valuation at the date of breach or date of judgment?

In Southgate v. Graham [2024] EWHC 1692 (Ch), the High Court addressed an appeal from the County Court concerning inter alia the appropriate date for assessing damages in a cryptocurrency loan dispute. Initially, the County Court determined that the damages should be based on the cryptocurrency's fiat value at the breach date. Due to the volatility of the cryptocurrency, this decision would have resulted in significantly lower fiat damages award than if the valuation were based on a later date. The High Court allowed the valuation date part of the appeal, directing a further hearing to establish the appropriate date.

Background

The dispute arose from an oral loan agreement made in June 2018. Southgate claimed he lent 144 ETH (worth approximately £50,000 at the time) to Graham, to be repaid with a 10% premium. Graham contended that the loan was for £50,000, with ETH merely facilitating the loan.

When Graham failed to repay the full sum, Southgate sought specific performance, demanding Graham acquire and return the appropriate amount of ETH, or alternatively, pay damages equivalent to its value.

County Court Judgment and Appeal

The County Court agreed with Southgate's interpretation of the agreement, finding it required the return of 144 ETH plus 10% (i.e. 158.4 ETH). As Graham had repaid the fiat equivalent of 42.7 ETH, this left 115.7TH outstanding. However, the court refused to grant specific performance, citing potential hardship for Graham in acquiring the outstanding ETH stating "[…] it would do no more than set up [Graham] to fail" given that by the date of the judgment the fiat value of 115.7 ETH was said to have risen to approximately £350k. Instead, the court ordered Graham to pay damages, valuing them as of October 1, 2019, the date Graham was found to have breached the agreement.

Southgate appealed, arguing that damages should be based on the ETH value at the judgment date (September 28, 2023). This point was of considerable value as the ETH price had increased significantly in the period. 

High Court Appeal Judgment

The High Court allowed the appeal regarding the valuation date but denied it as regards specific performance. 

As to specific performance, the judge stated that an appeal court will not interfere with a trial court’s findings of primary fact or the evaluation of those findings unless it is satisfied that the trial judge was plainly wrong. In this case the appeal court found that the trial judge was entitled to take the view that the nature of the hardship was sufficient of itself to justify a refusal to grant specific performance.

As to the valuation date, the judge outlined the general contract law principle that damages are assessed at the date of breach, which should encourage an injured party to mitigate their loss by making a substitute contract promptly. However, citing the House of Lords decision in Golden Strait Corpn v. Nippon Yusen Kubishika Kaisha [2007] 2 AC, the judge noted this rule is not absolute and can vary based on the relevant contract's nature and the particulars of the breach.  In this case, the judge considered that in the context of a loan agreement, and depending on the evidence ultimately adduced at the remedies hearing, it may be more credible for Southgate to contend that he is under no, or a more limited, obligation to go out into the market to make a substitute contract to seek to mitigate his loss post-breach where he would in effect be paying twice if he were to do so. 

Southgate also argued, relying on the  House of Lords decision Johnson v Agnew [1980] AC 367, that insofar as damages were deemed to be the appropriate remedy, they should properly be characterised as a money substitute for specific performance, and accordingly the damages should be equivalent to what was lost by the refusal of specific performance, as at the date of that refusal (i.e. the date of judgment), provided the party had not acted unreasonably in pursuing the remedy. The judge noted that there was no evidence of Southgate having acted unreasonably, although whether he had in fact done so was, like the steps he could have reasonably taken to mitigate his loss, a fact sensitive matter.

Accordingly, the judge ordered the valuation date to be determined at a remedies hearing, which could examine all relevant factual matters outlined above. 

Comment

The High Court's decision to deny specific performance is consistent with the approach taken in the well-known Singapore International Commercial Court case of B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03 and the English case of Wang v Darby [2022] Bus LR 121, as is noted in the judgment. Notably in case of Quoine, the Court rejected specific performance on the basis that the relevant asset (in that case BTC) had risen in value since the date of breach, such that acquiring it at its then current price would have caused substantial hardship to the party in breach, which aligns with the basis of the County Court's decision in these proceedings.

As to the date of assessment of damages, the judge's decision to direct a remedies hearing demonstrates the importance to the analysis of assessing the reasonability of the non-breaching parties' actions against the factual background. In such situations the non-breaching party should be mindful that the steps they take (or do not take) post-breach to mitigate their loss will be scrutinised.  Insofar as they are deemed to have behaved unreasonably, their ability to deviate from the starting position that damages are assessed at the date of breach may be impeded.