Liu v Blockchain Global Limited
[2021] VCC 798
•21 June 2021
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-20-04392
| CAI CAI LIU | Plaintiff |
| v | |
| BLOCKCHAIN GLOBAL LIMITED | Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4, 5, 14 May 2021 | |
DATE OF JUDGMENT: | 21 June 2021 | |
CASE MAY BE CITED AS: | Liu v Blockchain Global Limited | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 798 | |
REASONS FOR JUDGMENT
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Subject:Contract – agency – failure of consideration.
Catchwords: Contract by way of letter of commitment relative to sub-participation in issue of cryptocurrency tokens – whether terms of letter of commitment form part of contract between parties – nature of contract, whether one for the sale of tokens or by way of agency – contract of agency, non-issue of tokens does not create total failure of consideration – agent obliged to account to principal for refund received on failure of tokens issue by reason of agency principles and express term of contract – whether account of profits should be awarded to principal.
Legislation Cited: Farm Produce Act 1983
Cases Cited:Lloyd v Grace, Smith & Co [1912] AC 716; Masters v Cameron (1954) 91 CLR 353, 360; Heperu Pty Ltd v Bell (2009) 76 NSWLR 230; Banque Belge pour l’Etranger v Hambrouck [1921] 1 KB 321; Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Co Ltd (2008) 66 ACSR 594; National Westminster Finance NZ Ltd v National Bank of NZ Limited [1996] 1 NZLR 548; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574; Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129; Rowland v Divall [1923] 2 KB 500; Baltic Shipping Co v Dillon [1993] 176 CLR 344; Portman Building Society v Hamlyn Taylor Neck (a firm) [1998] 4 All ER 202; Walker v Corboy (1990) 19 NSWLR 382; Belmont Finance Corporation Limited v Williams Furniture Limited [1979] 1 Ch 250; City of Sydney v West (1965) 114 CLR 48; Attorney-General v Blake (Jonathan Cape Ltd Third Party) [2001] 1 AC 268; Lewis v Australian Capital Territory [2020] HCA 26; Cohen v Cohen (1929) 42 CLR 91;
Judgment: (1) Within 14 days of this day the parties must bring in short Minutes to give effect to these reasons.
(2)Costs reserved.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G J Redenbach | Neo Legal |
| For the Defendant | Mr T Mitchell | T Squared Legal |
HIS HONOUR:
Background
1In January 2018, Telegram Group Inc, a United States corporation, was proceeding with a scheme to create and issue a new cryptocurrency called “Grams” to be made via one of its direct subsidiaries. It issued a document dated 18 January 2018 styled “Process Memorandum for entering into a Purchase Agreement for Grams”, which was marked “STRICTLY PRIVATE AND CONFIDENTIAL”. (Court Book (“CB”)167-9)
2The plaintiff, Cai Cai Liu, known in English-speaking circles as “Ms Liu”, wished to purchase a quantity of Grams as part of the initial issue process. She said:
“It was at a time when Bitcoin thing was gaining popularity, Telegram was a famous company in social media in this field. I had always been interested in this field and I had always been investing so when I heard investing in this field, when I heard Telegram was opening up investment opportunities, I expressed interest, I was very interested ...” (Transcript (“T”) 57, Lines (“L”) 17-23)
3Ms Liu sought to make her investment via the defendant, Blockchain Global Limited (“Blockchain”). She explained:
“Because at the time everybody could invest directly with Telegram, only people with certain subscriptions that were allowed. I heard that only BGL [viz the defendant, Blockchain] was able to subscribe directly to Telegram”. (Ibid, L27-30)
4At this time, Ms Liu was married to Mr Allan Guo (as he was known in English-speaking circles) or, more accurately, Liang Guo, who was an employee or agent of Blockchain. She explained, “At the time we were legally married but in reality we had been separated for a month”. (T58, L6-8) The “separation” she said entailed them residing in separate places, that is “not under the same roof”. (Ibid, L10)
5She said the matters for negotiation were straightforward: how much would be invested; what percentage (presumably of Blockchain’s allocation) she would get, and so forth. (Ibid, L15-18) She explained her objective in making the proposed investment in this way:
“in my own mind … I had intended that I would buy into the investment. I would gain Grams and if the IPO … was successful or the investment was successful, the company had taken off. Then I might have the option to sell the Grams on the open market.” (T58, L30-31 – T59, L1-4)
6I took that to mean that Ms Liu hoped and expected that the open market sale price for the Grams after the initial issue would be higher than the issue price, allowing her to derive a profit.
7Ms Liu signed a letter on the letterhead of Blockchain addressed to her and marked “Private and Confidential” dated 12 February 2018, setting out the terms of her investment. It may be necessary to go to this document in detail later. The letter was over the signature of Mr Guo and included a page styled “Acceptance of Offer”, which she signed. Mr Guo signed as a Director or Blockchain. The subscription was for Grams to the value of $US400,000. (CB 241-3)
8Ms Liu said she made the subscription by purchasing United States Dollars “using exchange currency company” and transferred the US Dollars into “the company account”. She identified a payment summary from Westpac Banking Corporation (CB 244) as recording this transaction. It showed that it was effected on the late afternoon or early evening of 31 January 2018. (CB 244)
9The Westpac document shows the payee as being “GHH Holding Pty Ltd”, which I assume to be the foreign exchange company. As to the “company account” into which the US Dollars were then paid, according to Ms Liu:
“It was a company account owned by my mother … but I was given authorisation because at the time I could only find that account, my mum's account that had US dollars, US dollars facility”. (T63, L10-14)
10The account was held at the Commonwealth Bank of Australia.
11This part of the transaction was evidenced by a document at CB 246 under the heading “Xinying Foreign Exchange” and styled “Individuals and Sole Traders Transaction Form”. The “Beneficiary” shown on this transaction form is a company called “Starlight Pty Ltd”, identified as having an account at the Hoppers Crossing branch of the Commonwealth Bank of Australia.
12It was pointed out to Ms Liu by her counsel that a later witness being called on her behalf, Mr Guo, would say that the name of the company to which the money was remitted was “Starlight Business Management Pty Ltd” rather than “Starlight Pty Ltd”. Ms Liu replied, “I only remember Starlight I don't really remember the after bits”. (T68, L9-10)
13Mr Guo explained in his evidence that Blockchain had been allocated a proposed issue of Grams to the value of $US2.5 million. Not having funds available, or not wishing to commit funds to the whole of that allocation, it sought to “farm out” part of the allocation to investors such as Ms Liu. (T146, L18-31) Ms Liu’s subscription was ultimately paid to a US Dollars bank account held by a company known as Magna Fortis Pty Ltd (“Magna Fortis”). (T147, L13-25)
14Mr Guo said that Magna Fortis’ US Dollars bank account was used because of the onerous formalities required for the opening of such a bank account that would have needed the provision of identity documents relative to all of the Directors of Blockchain and its significant shareholders. (T148, L1-16)
15Mr Guo said that Magna Fortis was a company owned and operated by one of the other investors, Mr Leigh Travers. (Ibid, L19-24)
16Mr Guo identified a document at CB 247, which he described as a screenshot from Magna Fortis “when they received the fund”. (T149, L5) The company referred to as the apparent subscriber was Starlight Business Management Pty Ltd. Mr Guo had been appointed a director of Magna Fortis on 14 February 2018, ceasing in that role on 29 June 2018. (CB 260) As to this, Mr Guo said, “I was appointed as the director purely to make the transfer, and then once that's been done then a couple of months later I got ceased”. (T156, L19-21) Mr Guo was a Director of Blockchain during this period, ceasing to be a Blockchain Director in 2019. (T156, L26-31).
17It seems that the issue of “Grams” ultimately proved to be abortive. According to Mr Guo:
“nothing happening, they just keep giving updates with their progress and until middle last year 2020, that from the news and says the deal failed because of SAC [scil SEC, the Securities Exchange Commission] or some issue. Then other funds will be refunded back.” (T157, L2-6)
18When Ms Liu became aware that the “Gram” issue was not proceeding, she sent an email to Blockchain enquiring when her refund would be made. (T155) The email stated inter alia:
“Myself Candice LIU transferred $497018 AUD into a third party exchange company converted into $400100 USD, then the USD was sent back to Star light (sic) USD Account. I then wired $400,040 USD into Magna Fortis. Then Magna Fortis wired 2.5 Million USD into Telegram Group’s account on 12 February 2018.” (CB 155)
19Ms Liu said she had heard that other investors had received a refund from Blockchain. Blockchain had received its own refund, “But I didn't receive anything that's why I sent email to enquire what happened to my refund.” (T69, L3-5) Ms Liu said that she has received no refund from Blockchain. (T70, L4)
20Mr Leigh Travers was one of the “sub-investors” to Blockchain in the abortive Gram issue. The Transcript records his surname as “Travis”, but “Travers” seems to be the correct spelling (see CB 354). Mr Travers is a director of the public company, DigitalX Limited, which is involved with finance management around digital assets as well as in software development. He is in Blockchain technology. (T99, L8-12)
21Mr Travers was appointed Blockchain’s authorised representative in managing the refund process from Telegram Group Inc. He was appointed to this position by Blockchain’s then director, Mr Sam Lee. (T100, 9-17) It would seem that Mr Travers obtained this appointment because he was apprehensive that “one or other of the parties within Blockchain Global might take” his investment. (T116, L7-8) He involved himself in the process to make sure that the refunds were effected. (Ibid, L13-15)
22One of the other investors was one Eleanor Tsvetnenko, the mother of Xhenya Tsvetnenko. This gentleman is apparently being held in prison without bail awaiting extradition to the United States on wire fraud and conspiracy to launder money charges. (T116, L16-22) These matters were known to Mr Travers in 2020.
23Mr Mitchell, on behalf of Blockchain, put it to Mr Travers that he was “dealing with a den of rogues and thieves at this point” (T117, L4), at least as Mr Travers saw it. (Ibid, L5-7)
24Mr Travers sent an email to Mr Sam Lee of Blockchain dated 8 May 2020, confirming his appointment as authorised representative and stating, “Telegram will return approximately 72% of $2.5 million (US $1.8m) to the Blockchain Ltd account at Mine Digital”. (CB 313) It sought confirmation as to the details of the refund, setting them out in tabular form. Mr Travers said, “the instructions were to distribute the return of capital … that was related to the individual investors, investment in Telegram”. (T102, L4-7)
25Mr Travers sent an email to Mr Sam Lee dated 6 June 2020, setting out, in his words:
“effectively the amount that each of the investors will be returned in … dollars as well as the process in which … that value in return of capital was distributed back to the investor.” (Ibid, L12-15)
26The payment or refund which is the subject of the present proceeding is, according to the table, attributed to holder Sam [presumably Sam Lee] an investment of $400,000 to be refunded in “BTC” viz Bitcoin (another and long-established cryptocurrency). (Ibid, L23)
27In the righthand column of the document under the heading “Address” is a length set of letters and numbers. Mr Travers explained:
“the address is, a wallet, a digital wallet that is capable of storing Bitcoin. And capable of transferring Bitcoin based on the holders … access. And based on the holders (sic) … ability … to transfer. So they are in control of that.” (T102, L24-28)
28Mr Travers explained, in answer to a question from me, that a Bitcoin wallet could not be seen as an analogue of a bank account because:
“it's only controlled by the holder of that account. So there's no intermediary that … manages it. … so no one can deduct … or transfer out the holdings without the holders' permission.” (T103, L2-5)
29In summary, he agreed that the wallet could be regarded as a bank account without the bank. (T103, L9)
30Mr Travers said that in sending the email he was:
“looking for a confirmation from Sam to make that final transfer as that was the remaining balance sitting in Blockchain Global's account at Mine Digital that needed to be distributed so we could finalise the process.” (Ibid, L19-23)
31Mr Travers said that Mr Lee had provided him (Mr Travers) access to the Mine Digital account as authorised representative to make the distribution. (T104, L10-17) Later, on the same Court Book page Mr Lee responded, “Confirmed. Thanks.” (Ibid, L20) Mr Travers then effected the transfer of the relevant Bitcoin to the address shown on his email. (T104, L23-25)
32Blockchain had an agreement with ACCE Australia Pty Ltd, which carried on business under the name “Mine Digital” for it to act as a custodian of Bitcoin. (T351) This agreement, dated 27 April 2020, signed on behalf of Mine Digital by two officers, namely Grant Colthup and Matthew Starkey, and on behalf of Blockchain by Mr Sam Lee and Mr Leigh Travers as directors, stated:
“Mine Digital agrees to provide USD Custodial solution to Blockchain Global (alongside digital asset custodianship) following their account opening and verification. Blockchain Global grants Mine Digital the power to receive funds on their behalf (when requested/instructed) and that this letter is evidence of an ongoing relationship between both entities.” (CB 351)
33This account was to be used for the refund or return of capital from the Telegram transaction. (T105, L10-11)
34There was a telefax dated 29 May 2020 from LGT Bank (Schweiz) AG of Basel relative to a transfer of funds from Telegram Group Inc for beneficiary “ACCE AUSTRALIA PTY LTD … INSTRUCTING BLOCKCHAIN GLOBAL LIMITED AS THE ULTIMATE BENEFICIARY OF THE FUNDS”. (CB 353) The “descriptor” of the transaction was “PAYMENT OF TERMINATION AMOUNT UNDER PURCHASE AGREEMENT DATED 06.02.2018”. (Ibid)
35Mr Travers identified a summary transaction report at CB 285, which he said evidenced payment to the person whom he described as “the fourth investor”. I assume that the designation “fourth” relates to the listing in tabular form in the email at CB 314, the investor being identified as “Sam” relative to an investment of $US400,000. The summary at CB 285 states, “BTC [that is, Bitcoin] was sent with a value of $291,170.79”.
36Mr Travers said that the transactions in question were made in Bitcoin though denominated in US Dollars. He was able to verify the correctness of this document because, he said, he executed the transactions himself. He said the summary was posted on a public record which could not be altered. This was a publicly searchable register of Bitcoin transactions, albeit that the site is operated by individual traders and does not have an administrator. (TT111-114) The transaction record on the relevant summary is said to have occurred on 10 June 2020, as stated in the summary.
37On 5 June 2020, Mr Travers had a “WeChat” exchange of texts with a Blockchain representative known as “Jenny”, whom he believed was the “CFO”, viz Chief Financial Officer or the company secretary. (T121, L11-14) The texts stated:
“Leigh, Lyn's really worried now. The wallet isn't BGLs address. And she wasn't even aware that the fund will no longer come in as AUD.” (CB 41)
38A later text from Jenny stated:
“Can you please give me a bit more background as how the transfer was done? Did Sam provide the BTC address?” (Ibid)
39A late text in the same exchange had Jenny stating:
“Thanks Leigh. All good. Though I think Allan was saying the (sic) the second lot of $400k is his associates.” (CB 42)
40Mr Travers agreed that this exchange was “prior to the second tranche of funds being disbursed from Mine Digital”. (T123, L15 and 16) He agreed that as at 8 June “the $400,000 notionally to be sent to Sam hadn't yet been transferred”. (Ibid, L19-20) He agreed that before receiving the “second lot of $400,000”, which seems to be the “refund” in dispute in this proceeding, Mr Guo had told him that this money belonged to “his associates”. This matter was to be sorted out between Mr Guo and Mr Lee, and he informed “Jenny” of these matters. (T123, L25-30)
41Mr Travers could not remember clearly having been advised by Mr Guo, that the matter had been sorted out. He recalled being told it was being sorted out. (T123, L31 – T124, L3) He said, however, that he made the transfer “based on Blockchain Global directors, after getting some advice from my lawyer”. (T124, L6-7) He continued:
“I say that I would have consulted my lawyer on the process on which to take instructions, and it can't be by anyone either (scil other) than a director of Blockchain Global and that if I don't do as Blockchain Global says then I could have some legal issues because that was the manner in which I was appointed.” (Ibid, L11-16)
42He denied that he was still concerned about being sued over the transaction. (Ibid, L17-23)
43Mr Travers agreed that he made no “checks” to ensure that the Bitcoin wallet into which the funds were paid was controlled by Blockchain Global. (Ibid, L24-27) Mr Travers said the only check that could be made was:
“you could ask one of the directors of Blockchain Global to sign a transaction or make a small value payment to prove that they had control but that wasn't customarily done ever and I had a history of being an (sic) Bitcoin OTC broker where these sort of transfers would take place on a daily basis.” (T125, L2-7)
44At the time of the relevant transaction he said that “Sam [presumably Lee] and Ryan were directors, and there was one other director which I can't recall”. (Ibid, 13-14)
45Mr Travers agreed that in his tabular summary he segregated the relevant investment, attributing it to “Sam” because “That’s what Sam had told me, that that investment was his”. (Ibid, L22-26) Despite the investment being attributed to “Sam”, Mr Travers said he was “happier that it went to Blockchain Global's address I suppose, given that was a transaction from Blockchain Global's entity to Blockchain Global's wallet”, (T125, L31 – T126, L2) and presumably seemed appropriate.
46Challenged on this point in cross-examination, Mr Travers said that, whilst the control of the Bitcoin wallet was called into question in the WeChat texts of 5 June, he believed the later texts from Jenny of Blockchain, where he said “she's confirmed that Blockchain has now received it after having a phone call”. (T126, L17-18)
47This observation seems problematic in that the WeChat exchange took place on 5 June and the transfer in question took place some three days later on 8 June.
This proceeding
48By her Further Amended Statement of Claim (hereafter referred to as “the Statement of Claim”), Ms Liu said that she entered into an agreement in writing on or about 31 January 2018 for purchase from the defendant, Blockchain, for $US400,000 worth of Grams, as part of the Telegram Group Inc Initial Coin Offering (“ICO”).
49The agreement was said to provide for Ms Liu to pay $US400,000 for subscription for “tokens” received by Blockchain as part of the ICO. It was said the agreement provided that “the company [Blockchain] reserves the right to withdraw the Offer, in which case all funds will be immediately returned to you without interest”. (paragraph 3 of the Statement of Claim) If Blockchain’s entitlement to tokens were reduced, Ms Liu would accept a lesser number of tokens than she had applied for. The agreement was to be governed by the law of Western Australia.
50It was said that Mr Guo was authorised to act on behalf of Blockchain, being alternatively the Chief Operating Officer, the Chief Investment Officer or a director of Blockchain. It was said that Mr Guo arranged for Magna Fortis “to collect monies on behalf of [Blockchain] that were to be invested in the ICO”. (Ibid, paragraph 5)
51Ms Liu said she caused Starlight Business Management Pty Ltd to pay $US400,050 to Magna Fortis which, as agent of Blockchain, paid $US2,500,000, including Ms Liu’s $US400,000, to Telegram Group Inc, but Telegram Group Inc cancelled the ICO and undertook a refund.
52It was said that on or about 10 June 2020, Blockchain received itself, or via agents or custodians, a refund in an amount of $29,696 BTC.
53Despite email requests for a refund, Blockchain failed to make any refund to Ms Liu. She said she had suffered loss and damage by reason of breach of her contract with Blockchain. Alternatively, there was a total failure of consideration to be provided by Blockchain, and Blockchain has been unjustly enriched in the amount of the refund or $US400,000.
54Alternatively, the refund was received by Blockchain as agent for Ms Liu and it has failed to account to her for it. Finally, there was a general allegation of unjust enrichment.
55Ms Liu sought a variety of items of relief, including the payment of the amount of the refund, a declaration that such refund was held on trust by Blockchain for her, restitution of $US400,000 (or $AUD497,018.63), damages, interest, or further or other relief.
Defence
56In its Defence to the plaintiff’s Further Amended Statement of Claim (styled “Defence to Amended Statement of Claim”) dated 3 May 2021, Blockchain asserted that no agreement was entered into between it and Ms Liu until on or after 12 February 2018 by the execution of the document headed “Telegram Token Sale Letter”. (paragraph 2) It relied on an indemnity provision in that letter whereby it was said the plaintiff agreed to hold Blockchain “blameless for any loss, damage, liability, cost or expense” (paragraph 3) she incurred as a result of participating in the sale of “Grams”. It referred to clause 2(a).
57Further, Blockchain denied that Mr Guo was authorised to act for Blockchain in its dealings with Ms Liu.
58It admitted that Magna Fortis made a payment to Telegram Group Inc but otherwise denied or refused to admit matters associated with that payment.
59Blockchain denied having received any refund from Telegram Group Inc, whether in US Dollars or Bitcoin, as alleged by Ms Liu and, further, that any of Ms Liu’s funds refunded by Telegram Group Inc “were received by Samuel Xue Lee in his personal capacity at Mr Lee’s direction and to an account controlled by Mr Lee in his personal capacity”. (paragraph 9) It admitted to not having made any refund to Ms Liu.
60As to the balance of the matters in the Statement of Claim, Blockchain either denied them or refused to admit their truth.
Further Amended Reply
61In her Further Amended Reply filed in May this year as a consequence of the amendment of earlier pleading, Ms Liu said that “on or about 31 January 2018” she and Blockchain “agreed the essential terms of their bargain” (paragraph 2(a)) and the subsequent written agreement was a formal document giving effect to those terms with enforceability of those terms conditional on execution of a written document which subsequently occurred.
62Further, it was said that Blockchain should be estopped from denying that a contract came into force on or about 31 January 2018, because she and Blockchain “proceeded on the basis of an underlying assumption that an agreement for her to invest in ‘Grams’ via [Blockchain] had come into existence on or about 31 January 2018” (paragraph 3(c)(i)), by reference to the facts pleaded and particularised in the Further Amended Statement of Claim.
63It was said that both parties “expressly or impliedly accepted the Assumed Basis … for the purpose of governing their relationship by reference to the facts pleaded and particularised”. (paragraph 3(c)(ii))
64She said she was entitled to act, and Blockchain intended her to act, on the Assumed Basis in taking the various steps involved in her subscription. Given [Blockchain] has had the benefit of the transfers and further or alternatively the benefit of the [refund] it would be unconscionable for [Blockchain] to resile from the Assumed Basis.
65Alternatively, if the contract did only come into existence when signed in writing, Blockchain has been unjustly enriched by the transfers where the monies were paid under a mistake, being that a contract had come into existence and Ms Liu was under a legal obligation to make the transfers and Blockchain benefited from the transfers or the refund.
66Ms Liu denied that, in the circumstances, Blockchain was entitled to rely on the indemnity constituted by clause 2(a) of the agreement.
67As to the situation of Mr Guo, it was contended that, as a result of the dealings between the parties and the formulation of the list of issues, a contention that Mr Guo acted without authority from Blockchain ought not to be allowed. If it were allowed, she asserted that he did have authority.
General observations
68In 1912, the House of Lords heard and determined an appeal in the matter of Lloyd v Grace, Smith & Co [1912] AC 716. The appellant, Mrs Lloyd, claimed to have been defrauded of property in the form of the title to some cottages and the mortgage securing repayment of a loan of £450,000. The fraud was perpetrated by a managing clerk who dealt, inter alia, with the conveyancing business of the respondent firm, Grace, Smith & Co. Mrs Lloyd succeeded at trial before Scrutton J (as he then was) but an appeal by the law firm to the Court of Appeal reversed the decision at trial. Mrs Lloyd then appealed to the House of Lords.
69The point which had proved a good defence for the law firm before the Court of Appeal was a proposition said to be established by earlier authority that a principal would be liable for the fraud or misdeed of his agent perpetrated in the course of his duties as agent, only if the misdeed was done for the benefit of the principal. Their Lordships Earls, Loreburn and Halsbury, and Lords Macnaghten, Atkinson and Shaw of Dunfermline held that no such rule of law existed, and the decision at trial was restored.
70In a style which in later generations became the hallmark of Lord Denning’s judicial prose, Lord Macnaghten said:
“My Lords, in the office of Grace, Smith à Co., a firm of solicitors in Liverpool of long standing and good repute, the appellant, Emily Lloyd, a widow woman in humble circumstances, was robbed of her property. It was not much, just a mortgage for 450l. bequeathed to her by her late husband, and two freehold cottages at Ellesmere Port which she bought herself without legal assistance for 540l. after her husband’s death. But it was all she had; and after the order of the Court of Appeal reversing a decision in her favour pronounced by Scrutton J., who tried the case with a special jury, she was compelled to appeal to this House as a pauper.” [1912] AC 716, 727
71In the present case, the ultimate rational or explanation for Blockchain’s resistance to Ms Liu’s claim is the view that its former director, Sam Lee, misappropriated the refund, and the refund never came into the possession of Blockchain. As summarised above, however, a large number of other matters are relied on in opposition to the claim.
72In his closing submissions, Mr Mitchell on behalf of Blockchain said:
“Sam Lee instructed Leigh Travers, who in turn instructed ACCE to convert the USD into BTC and transfer it to Sam Lee’s account. No amount was ever received or held by BGL [viz Blockchain] as agent for Ms Liu, and so there can be no liability to account.” (Defendant’s Closing Submissions, paragraph 43)
73What I have summarised above from the evidence at trial indicates that the path followed by the cashflows, both outward to Telegram Group Inc and back to Australia, has been tortuous and ultimately involved a side track into the world of existing cryptocurrencies, viz Bitcoin, rather than Grams. Nevertheless, the broad picture seems to be that Ms Liu subscribed $US400,000, placing that money under the control of Blockchain, with a view to its being invested in Grams. When the Grams ultimately were not issued, 72 per cent of her subscription was apparently refunded by Telegram Group Inc but never got back to her, whilst amounts subscribed by other persons participating in Blockchain’s entitlement in the ICO did recover their partial refund.
74Even if fraud by Mr Sam Lee intervened, as seems to be alleged by Blockchain, the principle in Lloyd v Grace Smith & Co would appear to be sufficient to give Ms Liu an entitlement to recover against Blockchain. As the old saying goes, “A company does not have a soul to damn or a body to kick”. Whilst at least in theory Mrs Lloyd might have dealt directly with Mr Smith, the principal of the firm Grace, Smith & Co, rather than his employee, in the present case, Ms Liu seems to have “gone to the top” in dealing with a director of Blockchain, yet Blockchain accepts no responsibility.
75It would seem to be a crucial issue to determine the correctness of the contention put in closing by Mr Mitchell that no amount was ever received by Blockchain as agent for Ms Liu.
76All the witnesses referred to above were called on behalf of the plaintiff. Blockchain called no evidence. It follows, therefore, that Mr Redenbach was correct when he asserted in his closing submissions that any allegation that the refund apparently intended for Ms Liu was fraudulently misappropriated by Mr Sam Lee remains unproven. (T186, L5-7) Mr Mitchell said that a review of Mr Travers’ document at CB314, which was highlighted as showing a Bitcoin remittance to a wallet which was approved by Mr Lee in an email on the same page of the Court Book dated 8 June 2020, constituted an instruction to Mr Travers to pay the relevant part of the refund to Mr Lee. He continued, “the books and records of Blockchain Global, which show no receipt of that amount, lead to the inevitable conclusion that Blockchain Global didn’t receive the bitcoin (sic)”. (T227, L1-18)
77Mr Redenbach noted that a remittance of Bitcoin on the same document created by Mr Travers, and approved by Mr Lee, showed an amount of the refund payable to Blockchain being remitted to the same wallet address as the contentious remittance and alleged misappropriation marked to “Sam Lee”. (T262, L3-10)
78This transaction in favour of Blockchain is referred to in the Bitcoin summary page at CB 279 as having been completed on 4 June 2020, and therefore apparently the subject of the “all good” comment made by Jenny of Blockchain. The wallet address identified on that “summary” appears to be the same one appearing in Mr Travers’ email to Sam Lee on 8 June at CB 314, and approved on that day by email from Mr Lee.
79Conceivably, evidence from Blockchain could have put a different aspect on these transactions but, in the absence of such evidence, I accept the interpretation advanced by Mr Redenbach.
The contract
80The plaintiff’s case is that her agreement with Blockchain was constituted by the document styled “Telegram Token Sale Letter” of 12 February 2018. (CB 241-3, see [7] above)
81Mr Mitchell observed that this document seems to have been signed ex post facto. He said the plaintiff’s case that the terms of the relevant contract were agreed orally on or about 31 January 2018, and then later reduced to writing in the form of the letter of 12 February, was not supported by the evidence.
82In her evidence-in-chief, asked how she negotiated her agreement with Blockchain, Ms Liu said:
“I had already had some knowledge of the project and the negotiation was quite simple and straightforward, mostly concerning the money, mostly that how much I could invest, what percentage I would get and this most open negotiation was direct – was mostly concerning the money part.” (T58, L14-19)
83She continued:
“I didn't exactly discuss this with Allan [Guo] but in my own mind that I had intended that I would buy into the investment. I would gain Grams and if the IPO or as if the, I suppose IPO was successful or the investment was successful, the company had taken off. Then I might have the option to sell the Grams on the open market.” (T58, L29-31 – T59, L1-4)
84As to the signature on the agreement, Mr Guo noted its date but could not say definitely when the document was executed. Apparently some time after 12 February, but without being more specific. (T145, L12 – T146, L5) Mr Guo said “We definitely … had a chat about this deal before this date [viz 12 February 2018]” (T146, L9-10) He said this “chat” entailed discussion of:
“the details of this deal. How much quota Blockchain Global got and then how much can be allocated to her and then how much money she can transfer and then in terms of how many tokens she can get.” (Ibid, L12-15)
85Mr Redenbach referred to the celebrated analysis of the effect of preliminary or informal agreements made in a joint judgment in which Dixon CJ joined in Masters v Cameron (1954) 91 CLR 353, 360. The first of the three classes of preliminary arrangements identified by their Honours is where an informal agreement is made containing all relevant terms and becoming binding there and then with no further formality required. The second class is where the minds have similarly met but one of the terms agreed upon is that their agreement should be reduced to writing in a formal agreement. The third class is where no final agreement arises until the execution of the formal agreement. Failing such execution, there is no formal agreement at all.
86Mr Redenbach, as I understood him, contended that this was an example of category 1 or category 2, not category 3. If this is correct, the contract between the parties can be dated back to 31 January.
87In closing submissions, Mr Mitchell conceded that a contract between plaintiff and defendant had been proven but not the written one embodied in the letter dated 12 February. He said:
“So because there are no oral terms that are pleaded, there are no implied terms that are pleaded, it's just the written terms which were not proven to be part of the oral contract, that the contract claim has to fall over.” (T231, L27-31)
88When, over the plaintiff’s opposition, I granted leave on the first day of trial for an amendment to be made to the Defence so as to deny a contract being made before 12 February, Mr Mitchell specifically disclaimed any intent to “seek to raise arguments in relation to illusory or past consideration. The question is, what terms govern the payment?” (T18, L11-13)
89With some hesitation I conclude, in light of that disclaimer, that the parties made an agreement in writing on 12 February that the transaction they had entered into a few days previously would be governed by the terms of the written agreement then signed. The usual objection, based on past consideration, would not apply. Alternatively, since neither Mr Guo nor Ms Liu could remember the details of the negotiation around 31 January relative to Ms Liu’s subscription, a reasonable inference to draw would be that they agreed to go forward and make the subscription on Blockchain’s ordinary or usual terms on the footing that these would be signed up in due course. This seems to me to be the most likely explanation of the discrepancy in dates. In my view, the written contract dated 12 February 2018 governs the relationship between the parties.
90Mr Redenbach submitted that in the events that had occurred, the following clause contained in the Telegram Token Sale Letter dated 12 February 2018 (referred to at [7] above) became operative. For present purposes, he made no point of the difference between a 72 per cent refund on the one hand, as against a return of “all funds” as referred to in the commitment letter.
91The plaintiff’s claim in contract succeeds.
92Conceivably, there might be an argument relative to the true construction of clause 2(e) of the commitment letter as to whether it would be operative unless and until Telegram Group Inc provided Blockchain with a refund. Blockchain’s case, as previously noted, is that the proceeds of the refund were intercepted by Mr Lee by reference to Mr Travers’ document at CB 314, assigning the Bitcoin proceeds to “Sam” (viz Mr Lee). The funds flow passes through an account conducted by ACCE trading as Mine Digital.
93During final argument, I referred Mr Mitchell to the custodianship arrangement between Blockchain and Mine Digital at CB 351. I remarked, “if the refund came under that regime, it’s going to be a little difficult to contend that Blockchain didn’t become possessed of that refund”. (T219, L26-29) Mr Mitchell responded:
“There's no evidence of the custodial arrangements in relation to foreign currency. Your Honour has in evidence the agreement governing the custodial relations for cryptocurrency or digital assets as it's referred to in that agreement.” (T220, L3-7)
94A consideration of CB 351 does not support that interpretation. The heading to the document is “Mine Digital/Blockchain Global - USD [viz United States Dollars] Custodial Agreement”. The operative words included a statement that Mine Digital agreed to provide “USD Custodial solution” to Blockchain. This was said to be “alongside digital asset custodianship”.
95Mr Mitchell said:
“I think it's clear, Your Honour, from the evidence that Blockchain Global have the power to direct how those funds would be applied. … Once they've been received by Mine Digital US dollars. It's also clear from the evidence that Sam Lee authorised Lee Travis to deal with them and that Lee Travis did so.” (sic) (T220, L7-14)
Mr Mitchell referred to Heperu Pty Ltd v Bell (2009) 76 NSWLR 230.
96In that case, a fraudster misappropriated the plaintiff’s cheque the proceeds of which the fraudster deposited into his wife’s account which he controlled. The question for the Court of Appeal was the liability of the wife, as an innocent volunteer, and the question whether the process of tracing could be applied by the plaintiff so as to lay claim to real estate where the wife’s equity was enhanced by mortgage repayments traceable to the plaintiff’s funds.
97Mr Mitchell relied on paragraphs [127] and [144]-[145] in the judgment of Allsop P, with whom Campbell JA and Handley AJA concurred. At [127], his Honour considered the principle relied upon by the plaintiff to seek to render the wife personally liable for the misappropriation, at least insofar as the proceeds found their way into her account. His Honour said at [127]:
“A helpful statement of the principle propounded by the appellants as to personal liability calculated by reference to the amounts of the payments is found in Restitution Law in Australia at 124 [305] where the learned authors say:
‘A personal cause of action, deriving from the count for money had and received, is available to the owner of money, or of property that is changed into money or its equivalent, that can be traced to someone who did not take the money as or from a bona fide purchaser for value without notice of defect of title. The plaintiff’s right does not turn upon proof of a tort or other wrong, although that is often the way of demonstrating the defendant’s unauthorised gain. The independent restitutionary claim is one means whereby the plaintiff’s property right is vindicated. Merely because the defendant has paid over the money to a third party provides no defence to the personal claim, but defences including change of position are available.’
(The last sentence of this quotation is not relevant for the arguments as pressed on appeal. It may, however, have been relevant to the payments to Ms Belle’s credit card, subject to proof of the matters of benefit to which I have already referred.)” (2009) 76 NSWLR 230, 260
98Reliance had been placed on a decision of the English Court of Appeal in Banque Belge pour l’Etranger v Hambrouck [1921] 1 KB 321. Of that decision, Allsop P said:
“144.Importantly also, the whole of the reasoning in Banque Belge was based on the existence of the fund (which was in money). The case is authority for an action at law being available for moneys had and received, or an order for payment, in a sum representing the value of the property held by a volunteer defendant and owned in law or equity by the plaintiff. The amount of the judgment in Banque Belge was clear because the property was a fund of money. There is no reason why the case should not also be authority where the retained property owned in law or equity is an interest in land, commensurate with the traced proceeds of the plaintiff’s funds. Given that the reasoning of the Court of Appeal was so clearly based on the existence of the identifiable property, there is much to be said for the proposition that any judgment money sum in this case should be the equivalent of the value remaining (at least up to the amount of the sums used) in Ms Belle’s interest in the property, not the equivalent of the sums paid. It may also be that it should be limited to the increased value referable to payment of principal (and not interest). Banque Belge is not authority for the proposition that if moneys can be seen to be traceable into non-money assets (as here, real estate) a personal remedy in money had and received in the amount of the sum of money traced into the property exists, independently of the liability to repay or restore what is held. This is of some importance when one recognises that the sums that can be identified as paid into the mortgage accounts went to pay off (with other funds) both principal and interest, that the value of the asset may, conceivably have fallen and that, after payment, there were further borrowings on the security of the property. It is also important to recognise that Ms Belle, for the reasons discussed earlier, did not receive the funds in the relevant accounts.
145.To identify the common law right in this way is to focus upon the measure of the value surviving in the hands of an innocent voluntary recipient when notice of the claim is received, rather than the measure of value received: cf L Smith, The Law of Tracing (1997 Clarendon Press) at 28-32. This can be recognised as conformable with the underlying conception that it is the inequitable retention of money or benefit that lies at the root of unjust enrichment: Lipkin Gorman at 578-580 per Lord Goff of Chieveley. In the context of both the common law right and the equitable obligation to restore (see Black v S. Freedman, to which I will return presently) resting on the identification and recognition of the equitable interest in the property by tracing in equity, there is every reason for coherence and conformity between the operation of common law and equity in this respect: see Lipkin Gorman at 566 per Lord Templeman.” (2009) 76 NSWLR 230, 263-4
99Speaking of Heperu’s case, Mr Mitchell said of the wife’s liability:
“the time at which she became liable to account was when she knew that they'd been deposited [viz the misappropriated funds] into the account; and secondly, she was only liable for the funds remaining in the account at the time she became so aware.” (T221, L12-15)
100It will be seen that this submission goes to the issue of liability for moneys had and received, to which I will turn in due course. It does not deny the conclusion that the refund came into Blockchain’s possession or power. The personal liability of Blockchain, at least for the purposes of the present analysis, was in contract and not in restitution.
101Mr Mitchell conceded that the issue of notice was not relevant to Blockchain’s liability or otherwise in contract. (T231, L2-5)
102I will deal below with the question of the appropriate remedy.
Conventional estoppel
103As a fallback in the event that the claim in contract were to fail, Mr Redenbach in his closing submissions at paragraph 25 said:
“To the extent the defendant seeks to resile from the contract coming into existence prior to the written agreement, including for an interpretive advantage, then it should be estopped from doing so. Relevantly, the written agreement at Clause 5 provides it is governed by the laws of Western Australia. The test of estoppel by convention in Western Australia was described in Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Co Ltd (2008) 66 ACSR 594.”
104He said that in the Western Australian Court of Appeal in that case, Pullin and Buss JJA said that with respect to private rights the rules as to conventional estoppel were accurately stated by the New South Wales Court of Appeal in National Westminster Finance NZ Ltd v National Bank of NZ Limited (Note) [1996] 1 NZLR 548, 550 as follows:
“The authorities show that for an estoppel by convention to arise the following points must be established by the party claiming the benefit of the estoppel (the proponent):
(1) The parties have proceeded on the basis of an underlying assumption of fact, law, or both, of sufficient certainty to be enforceable (the assumption).
(2) Each party has, to the knowledge of the other, expressly or by implication accepted the assumption as being true for the purposes of the transaction.
(3) Such acceptance was intended to affect their legal relations in the sense that it was intended to govern the legal position between them.
(4) The proponent was entitled to act and has, as the other party knew or intended, acted in reliance upon the assumption being regarded as true and binding.
(5) The proponent would suffer detriment if the other party were allowed to resile or depart from the assumption.
(6) In all the circumstances it would be unconscionable to allow the other party to resile or depart from the assumption.”
105Mr Redenbach formulated the “Assumed Basis” from which Blockchain should be estopped from resiling as follows:
“the plaintiff and defendant proceeded on the basis of an underlying assumption that an agreement for her to invest in US$400,000 of ‘Grams’ via the defendant had come into existence on or about 31 January 2018 by reference to the facts summarised …” (Plaintiff’s Closing Submissions, paragraph 26(a))
106As earlier noted, Mr Mitchell was prepared to concede upon the evidence that there was an agreement for Ms Liu to invest in Grams. As Mr Redenbach’s own formulation observed, what is in dispute now is whether the terms of the written letter of commitment of 12 February 2018 govern the agreement which was made on 31 January. To conclude that Blockchain was estopped from denying the existence of a 31 January agreement says nothing as to whether the written terms of the document dated 12 February form part of it. Indeed, now that Blockchain no longer denies the existence of a 31 January contract, it is difficult to see that the law of estoppel has any ground to intervene in the dispute.
107Neither Ms Liu nor Mr Guo gave evidence that they relied upon the 31 January contract as including the written terms in the 12 February letter of commitment. Whatever might be the situation with Mr Guo, who could be assumed to be aware of the terms upon which Blockchain entered into these sorts of transactions, it is difficult to see how, as at 31 January, Ms Liu assumed the existence of the written terms or relied upon them. Their importation into the contract must depend upon drawing the inference that, as in the primary allegation in the Statement of Claim, the parties agreed to contract on Blockchain’s usual and ordinary terms and thereafter executed a document consistent with that arrangement. Such conclusion renders the terms operative as a matter of contract. There is no need or room for resort to estoppel.
Total failure of consideration
108Mr Redenbach also contended that Ms Liu was entitled to recover her outlay as upon a total failure of consideration. He said that the analysis to determine whether there had been a total failure of consideration focused attention not on whether any benefit at all had resulted to the aggrieved party – in this case Ms Liu – but whether she had in fact received any part of the benefit bargained for under the contract. He referred to the joint judgment of Mason CJ, Deane, Toohey, Gaudron and McHugh JJ in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 382-3 where their Honours approached the question in this manner.
109Mr Mitchell did not disagree with this analysis. He said, however, it was necessary to determine precisely what had been bargained for. This was not, he said, a contract for the sale of Grams. Rather, it was a contract on the part of Blockchain to provide services or, perhaps, “facilitation” relative to Ms Liu’s subscription. The non-occurrence of the Grams issue therefore did not preclude Ms Liu from receiving any of the benefit for which she had bargained. It was only if such a finding could be made that there would be a ground for concluding that she had been the victim of total failure of consideration.
110Mr Mitchell referred to Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574, 588. In that case, a shipyard entered into six contracts to build refrigerated vessels for the defendant buyers. Whilst building commenced, it was aborted as a result of failure on the part of the buyers to pay the required instalments. The plaintiffs terminated the contract and reallocated the keels which had already been laid. Lord Goff of Chieveley said, as to one part of the claim:
“I am content to approach this aspect of the case on the premise, common to both parties, that the issue is one of total failure of consideration since, as I understand it, this is consistent with the approach of the majority in Hyundai Heavy Industries Co. Ltd. v. Papadopoulos [1980] 1 W.L.R. 1129, which is directly in point on this aspect of the case.” [1998] 1 WLR 574
111His Lordship continued:
“ In truth, the test [as to whether there has been a total failure of consideration] is not whether the promisee has received a specific benefit, but rather whether the promisor has performed any part of the contractual duties in respect of which the payment is due. … However before that test can be regarded as appropriate, the anterior question has to be asked: is the contract in question simply a contract for the sale of a ship? or is it rather a contract under which the design and construction of the vessel formed part of the yard's contractual duties, as well as the duty to transfer the finished object to the buyers? If it is the latter, the design and construction of the vessel form part of the consideration for which the price is to be paid, and the fact that the contract has been brought to an end before the property in the vessel or any part of it has passed to the buyers does not prevent the yard from asserting that there has been no total failure of consideration in respect of an instalment of the price which has been paid before the contract was terminated, or that an instalment which has then accrued due could not, if paid, be recoverable on that ground.” [1998] 1 WLR 574, 588
112In the present case, Blockchain was not the issuer of the Grams. That would seem to be Telegram Group Inc. Rather, Blockchain was involved in some kind of “sub” arrangement relative to the Grams. Clause 1 of the commitment letter said:
“The Company [viz Blockchain] is offering you the chance to purchase UP to 883,002 of Tokens from the Company’s Allocation at US$0.453 per Token, for a total investment of up to US$400,000 (Offer).” (CB 241)
113This clause might be thought to indicate that the commitment letter evidenced a contract by Blockchain to sell Grams to Ms Liu. On further analysis, however, that interpretation is not entirely clear. The clause can be regarded as identifying the Grams to be purchased as Grams coming from Blockchain’s entitlement without indicating from whom the purchase is to be made. The introductory portions of the letter, which might be thought to be the functional equivalent in this relatively informal style of documentation of the recitals in a deed, states inter alia:
“The purpose of this letter is to record your conditional commitment to purchase from Telegram Tokens (Tokens) via the pre-sale from the Company’s allocation.”
114The earlier paragraph defines the word “Telegram” to mean Telegram Messenger LLP. The relevant preliminary sentence therefore describes a commitment on Ms Liu’s part to purchase tokens from “Telegram” with the sale to be “via” Blockchain’s allocation. Blockchain’s involvement, therefore, would seem to be by way of providing agency services to facilitate the purchase. This was Mr Mitchell’s contention. In his work the Law of Agency (2nd edition), Professor Dal Pont, referring to the legal concept of agency, observes:
“The narrowest legal definition of ‘agent’ connotes ‘an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties’. A broader conception covers ‘a person who is able, by virtue of the authority conferred upon him, to create or affect legal rights and duties as between another person, who is called his principal, and third parties’. Wider again is the characterisation of an agent as ‘a person who has authority to act on behalf of the principal, either generally or in respect of some particular act or matter’.” [1.2]
115The letter of commitment establishes a relationship between Ms Liu and Blockchain which is within at least one of the classes described or, perhaps, all of them.
116Whilst failure to make title to the subject matter of a contract for the sale of a piece of property would render any amounts paid as the whole or part of the sale price, payments for which the consideration had totally failed: Rowland v Divall [1923] 2 KB 500, here, the evidence discloses an agency contract, not a simple sale contract, and some at least of the agency services have been provided. There was no total failure of consideration.
117Mr Redenbach contended that since the objective of the plaintiff, Ms Liu, was thwarted by the non-issue of the Grams, viewed from that standpoint, there was a total failure of consideration. This is not the test which the authorities lay down for the determination of whether a total failure of consideration has occurred or not. That test focuses on what was bargained for and, therefore, upon the subject matter of the contract. For reasons explained, the contract between the parties was for the supply of agency services. Some such services were rendered. It is not to the point that Ms Liu’s commercial objective, viz the purchase of Grams, was not achieved.
118As to the Latvian Shipping case, Mr Redenbach said it was very different in subject matter from the present and was not a decision of an Australian court. Both these matters may be conceded. In my view, an Australian court would have reached the same conclusion as the House of Lords did in the Latvian Shipping case and for the same reasons as did their Lordships. (T264, L8-31)
119The High Court in its decision Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516, broadened the circumstances in which monies can be recovered upon a total failure of consideration by allowing a total failure of consideration to be found with respect to a distinct and severable portion of consideration. In that case, an illegal government impost. Here, there is no distinct and severable portion of consideration which may be identified and analysed as having totally failed.
120The claim based upon a total failure of consideration therefore fails and the various issues relative to recovery on that basis raised by Mr Mitchell’s further contentions are not reached.
Liability of Blockchain as agent
121Mr Mitchell contended that no basis was made out for the contention that Blockchain was Ms Liu’s agent. He referred to the terms of clause 4 of the agreement between the parties, which stated:
“The Company [viz Blockchain] owes no fiduciary or other obligations to you [viz Ms Liu] in connection with the Offer or this application other than the obligations expressly set out in this letter. Any variation of the terms of this letter must be in writing signed by the Company [Blockchain].” (CB 242)
122This clause might not be thought sufficient to exclude the existence of the relationship of principal and agent between the parties. There are non-fiduciary agents – Dal Pont The Law of Agency, 2nd edition [10.17], pages 236-237.
123The contract between the parties provides for a contract to be formed between Ms Liu and Telegram Messenger LLP for the purchase of Grams with Blockchain acting as intermediary, appointed in that role by Ms Liu under the letter of commitment. It is difficult to see how else one could characterise the relationship between Ms Liu and Blockchain as other than one of principal and agent. I have already explained why, on the view I take of the evidence, Blockchain received the refund from Telegram Group Inc.
124According to Dal Pont, the Law of Agency (2nd edition) [13.6], an agent can be a trustee of the money received on behalf of the principal where there is an understanding that the agent will keep that money separate from his or her own money.
125Mr Mitchell denied that this principle was engaged relative to the transaction the subject of this proceeding. He referred to Walker v Corboy (1990) 19 NSWLR 382, a decision of the New South Wales Court of Appeal. The court reviewed the authorities, including in particular a decision of Dixon J (as Sir Owen then was) in Cohen v Cohen (1929) 42 CLR 91. Priestley JA said:
“In every case, in my opinion, the circumstances of the relation between the principal and agent must first be looked at, the fact finding itself being uncoloured by preconceptions as to whether they should or should not be interpreted as giving rise to a trust or to equitable obligations, and then upon consideration of the circumstances found, a decision made whether:
(i) there was an express trust or equitable obligation in the circumstances; or
(ii) whether the court should say that the expectations of the parties would most appropriately be served by saying that the circumstances brought a non-express trust (to use a completely neutral expression) or equitable obligation into existence; or
(iii) finding no trust or equitable obligation.
It is not, in my opinion, a question of seeing whether a general rule has been displaced, but of seeing whether the particular circumstances did or did not give rise to the trust or obligation.” (1990) 19 NSWLR 382, 385
126In Corboy’s case, the court found that an agency operating under the terms of the Farm Produce Act 1983, on its true construction, created a relationship of debtor and creditor between the principal and agent rather than merely one of debtor and creditor. The reason that the characterisation of the agent’s obligations, whether as debtor of its principal on the one hand, or trustee for the principal on the other hand, was vital as the agent had been placed in liquidation and was also subject to the control of a receiver. (1990) 19 NSWLR 382, 387 per Clarke JA.
127In the present instance, with no indication of an insolvency nor, indeed, indication as to whether the refund continued to exist in traceable form in the hands of somebody other than a bona fide purchaser for value without notice, it is not evident that a determination, whether Blockchain received the refund as trustee or merely as an agent liable to account to its principal on an unsecured basis is required. If I were wrong, and it is necessary for the purposes of determining this proceeding, to characterise the capacity in which the refund was received by Blockchain, the matter seems to be covered by the general principle as to whether a confidential or fiduciary relationship subsists between principal and agent. (1990) 19 NSWLR 382, 383, per Priestley JA.
128The second principle enunciated by his Honour is in the following terms:
“In a simple case, where nothing more appears than the relation of agency and the agent receiving moneys in a single transaction, the agent’s duty would be to hold them specifically for the principal: Pallette Shoes Pty Ltd (In Liq) v Krohn (1937) 58 CLR 1 at 30.” (1990) 19 NSWLR 382, 383-4
129In Corboy’s case, the court concluded that the monies received by the agent were not received as trust money. Meagher JA, with whom Priestley and Clarke JJA concurred on this point, denied that the second of the rules postulated by Priestley JA was “the beginning and the end of the matter”. (1990) 19 NSWLR 382, 396. His Honour then referred to some five considerations, some of which proceeded from the terms of the statute under which the agency operated.
130With some hesitation, I conclude that the exclusion of fiduciary obligations in the specific terms of clause 2 of the commitment letter relied on by Mr Mitchell has the same effect in the present case. This does not conclude the agency claim made against Blockchain against Ms Liu. Rather, it means that her claim in this regard is a claim as unsecured creditor rather than as beneficiary of a trust. As Dal Pont observes “… an agent who, in acting within his or her authority, receives money on behalf of a principal must pay that money over to the principal…”. The remedy upon failure to pay is a claim for moneys had and received. (Op cit [13.9] 330-1)
131The agency claim therefore succeeds.
Enrichment coupled with contractual obligation
132Mr Mitchell characterised the further or alternate claim on behalf of the plaintiff in paragraph 17 of the Statement of Claim as being “enrichment coupled with contractual obligation”. The paragraph alleged enrichment of Blockchain by the amount of the refund, a contractual entitlement of Ms Liu under the commitment letter to the refund, and Blockchain being unjustly enriched by reason of the terms of the contract, giving Ms Liu an entitlement to a refund.
133Mr Mitchell said in his closing submissions at paragraph 44, “It is not apparent what cause of action is pleaded in paragraph 17. However, each of the subparagraphs is unproven.”
134In my view, each of the paragraphs or sub-paragraphs have been proven for the reasons explained above. I share, however, Mr Mitchell’s perplexity as to what cause of action is being invoked in paragraph 17. It seems to be a duplication of, or a mixture of, causes of action which I have previously dealt with earlier in these reasons. As such, it gives no additional entitlement to relief to the plaintiff.
Claim on failure of contract
135As noted above, in Ms Liu’s Reply she said that if no contract were formed between the parties as at 31 January 2018, Ms Liu’s payment of her original subscription could be characterised as having been paid under a mistake whether of fact or law, and was recoverable accordingly under the David Securities’ principle. Since I have not accepted the contention that no contract was formed on 31 January 2018, and Mr Mitchell on behalf of Blockchain conceded that one was, this issue does not arise.
Heperu’s case
136In the findings that I have made, and the causes of action which I have sustained, the matters relied on by Blockchain’s counsel, Mr Mitchell, in reliance on Heperu’s case, do not seem to arise. In reliance on the decision of the English Court of Appeal in Belmont Finance Corporation Limited v Williams Furniture Limited [1979] 1 Ch 250, 261, Mr Mitchell contended that where an agent or director of a corporation was acting fraudulently for his own benefit, the knowledge of that director was not, for the purposes of the principles exemplified in cases such as Heperu, to be taken to be notice to the company of what is known solely by the fraudulent director. Here, as Mr Mitchell conceded, notice is irrelevant to Ms Liu’s contractual claim.
137As to the agency claim, it is difficult to see that Heperu’s case is of significance, either. The Mine Digital custodianship agreement had the effect that possession and receipt by Mine Digital was possession and receipt by Blockchain. Since I do not accept that fraudulent conduct on the part of Mr Sam Lee has been established, if notice be relevant, there is no reason not to attribute Mr Lee’s knowledge to Blockchain.
The indemnity
138Mr Mitchell, on behalf of Blockchain, relied on clause 2(a) of the commitment letter which entailed an indemnity in favour of Blockchain from Ms Liu. The paragraph stated as follows:
“In accepting the Offer, you [that is, the plaintiff] acknowledge that you understand and accept the risks associated with purchasing cryptocurrency and agree to hold the Company blameless for any loss, damage, liability, cost or expense incurred as a result of participating in the Sale.” (CB 241)
139As I understood Mr Mitchell’s contention, this indemnity would have the effect of bouncing any liability which Blockchain might have to Ms Liu back on her.
140Mr Redenbach denied that the indemnity ought be construed in that way. He relied on the joint judgment of Barwick CJ, Taylor and Wrindeyer JJ in City of Sydney v West (1965) 114 CLR 481, 490, where their Honours rejected a contention that an exemption clause or a limitation clause in a contract for carparking could extend to excusing liability to the carpark operator from liability for delivery of a car to an unauthorised person. The analogy, presumably, is between the “unauthorised person” and Mr Sam Lee.
141Given that it was Mr Redenbach’s contention, which I accepted, that the evidence did not establish that a flawed and unauthorised dealing had been established as against Mr Lee, acceptance of this submission on behalf of Mr Redenbach is problematic. However, what is clear from West’s case, and other authorities, is that a provision such as this should be read contra proferentem. In my view, it extends to a situation where money is remitted by Blockchain to Telegram Group Inc and never comes back. It does not extend to a situation where a refund is received from Telegram Group Inc, comes under the control of Blockchain and, for some reason or another, does not make its way back to this plaintiff.
142The indemnity does not affect Blockchain’s liability.
Relief
143In his opening statement, Mr Redenbach, on behalf of the plaintiff said:
“on the restitutionary claim in the unjust enrichment claim, … we seek the value of what these Bitcoins are now worth. I did that calculation before coming to court today. It's 2.17 million dollars. So this is a case where the defendant has been unjustly enriched. They've profitably used the funds received and we say the unjust enrichment damages or the agency damages should account for that entire gain they've made using our funds they've retained.” (T48, L4-13)
144There are a number of problems with this approach. First, whilst I have made a number of crucial factual findings favourably to the plaintiff, there is simply no evidence of Blockchain having “profitably used the funds received”. Further, the “profit” asserted to be recoverable is, as I understand it, an increase in the value of Bitcoin. I did not understand the evidence to disclose the fate of the Bitcoins after they were placed in the digital wallet referred to in Mr Travers’ email. As I understand cryptocurrencies, they are commodities whose value fluctuates on a day to day basis, like national currencies or stocks and shares. There might have been an increase in the value of Bitcoins as at the date of trial. When the time comes for entry of judgment, however, the value might have collapsed. I sought to explore these issues with Mr Redenbach during his opening statements without success. He said asking about potential losses was the wrong question.
145Assuming that the Bitcoins have increased in value, is a profit to be attributed to Blockchain whilst that increase in value remains unrealised by the sale of the Bitcoins, allowing of course for the possibility that such increase in value might subsequently, and after the date of trial but before entry of judgment, be wiped out by market fluctuation?
146Again, the evidence does not exclude the possibility that the Bitcoins were converted back into US Dollars, some other international currency, or perhaps another cryptocurrency on terms and at a value far less advantageous than the present one. On a simple evidentiary basis, this claim could not properly be sustained. There is a more fundamental reason why a remedy along these lines is not available.
147In support of the claim for an account of profits, Mr Redenbach relied on a decision of the House of Lords in Attorney-General v Blake (Jonathan Cape Ltd Third Party) [2001] 1 AC 268. This claim was made by the Attorney-General on behalf of the British Crown for damages for breach by Mr Blake of an express condition of his contract of service with the British Secret Service, whereby he undertook “not to divulge any official information gained by [him] as a result of my employment, either in the press or in book form”.
148Mr Blake, a convicted traitor, had published a successful book describing his life as an MI6 officer. The House of Lords dismissed an appeal against the award of compensation to the Crown based upon an account of the profits derived from the publication.
149Mr Redenbach advocated a similar approach here. He also referred to a judgment of Gordon J in the High Court of Australia in Lewis v Australian Capital Territory [2020] HCA 26 at [44], where her Honour stressed the need to grant a remedy or combination of remedies tailored to the special circumstances of each particular case. According to Mr Redenbach, the appropriate response to this proceeding was to award an account of profits.
150It was not clear to me what was envisaged. The evidence, so far as I could see, did not disclose the fate of the relevant Bitcoins and whether they had, or had not, been deployed as part of a profitable trading exercise. If an account of profits be ordered, the evidence before the court at present would not be sufficient and a further enquiry – whether it be by reference, for instance to a Judicial Registrar, or the conduct of a further trial, would be necessary.
151In the present case, the remedy of an account of profits was not specifically mentioned in the Further Amended Statement of Claim nor, as far as I can see, any of its predecessors. The case was fixed for trial on all issues.
152Aside from these procedural issues, Mr Mitchell contended, as a matter of substantive law, that no such award should be made. He said that as regards any restitutionary remedy, such as an award based on the cause of action for moneys had and received, there was no precedent for the ordering of an account of profits. To take such a step would, he said, be in violation of the strictures of the High Court in a number of cases in the new millennium against trial courts and intermediate appeal courts, breaking new ground without any basis in precedent.
153In my view, both the substantive and procedural issues point away from any award in favour of Ms Liu of an account of profits.
154Lord Nicholls of Birkenhead, a member of the House of Lords majority, said of Blake’s case, “the present case is exceptional”. [2001] 1 AC 268, 286.
155Mr Redenbach said that his client’s claim against Blockchain could be seen to be similarly exceptional. Mr Blake was a convicted traitor and Mr Lee was guilty of misappropriation. The analogy, however, is far from complete.
156The first point to make is that Mr Redenbach submitted, and I accepted, that Mr Lee’s misappropriation had not been proven by evidence in this proceeding. Secondly, whilst treason by an officer of the Secret Service might be exceptional, failures to meet contractual and restitutionary obligations are scarcely in that category. They are the daily fodder of this Court’s Commercial Division.
157Insofar as Ms Liu’s success is based on the law of agency, these principles provide a long-established remedy by way of account of profit. (Dal Pont, op cit [12.2]) According to Professor Da Pont “only unauthorised profits are subject to an account”. (Ibid, [12.4]) This principle, however, is said to derive from the agent’s fiduciary duty. As noted above, the agreement between Ms Liu and Blockchain specifically excluded Blockchain from the realm of fiduciary duties to her. It may be that, in itself, this would exclude any entitlement for Ms Liu to an account of profits. Even if that were not so, the evidentiary problems referred to above remain unresolved.
158The appropriate remedy here, in light of the way the proceeding was conducted, is the award of judgment for a debt or liquidated sum representing the Australian Dollar equivalent of the US Dollar refund received by Blockchain with respect to the subscription made by Ms Liu.
Costs
159I have heard no submission on the question of costs and so I will reserve them.
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