How long will it take us to accept that ‘computers are outworkers, not overlords’? Giving judgment in the Singapore Court of Appeal two months ago, Lord Mance explained that ‘the law must be adapted to the new worlds of algorithmic programmes and artificial intelligence in a way that gives rise to the results that reason and justice would lead one to expect’. Unfortunately, the former UK Supreme Court deputy president found himself in a minority of one.
Mance was ruling on a claim by a London-based cryptocurrency market maker called B2C2, which buys and sells bitcoin and other virtual currencies – as well as traditional (‘fiat’) currencies – on exchange platforms around the world. But high-speed trading like this is not done by humans. Max Boonen, the former Goldman Sachs trader who co-founded B2C2 five years ago, designed highly sophisticated algorithmic software that buys and sells currencies 24 hours a day.
One of the exchanges on which B2C2 traded is called Quoine (pronounced ‘coin’). Though its headquarters are in Japan, it has a registered office in Singapore. It also operates as a market maker and lends currencies to traders.
Late one night in April 2017, something went wrong on Quoine’s platform. A couple of traders were trading between bitcoin and another cryptocurrency, ethereum, which Quoine had lent them. Quoine’s computer thought the traders’ collateral had fallen below the required margin. To get everything straight, it needed to buy some ethereum.
B2C2 appeared willing to sell ethereum at a price of 10 bitcoin per unit. So Quoine debited B2C2 with 309.2 ethereum and credited it with 3,092 bitcoin.
At that time, though, 1 ethereum was worth only 0.04 bitcoin. Quoine’s computer had paid B2C2 approximately 250 times the going rate. It was as if B2C2 had received $3.7m (£3m) for an outlay of less than $15,000.
Lord Hodge doubted whether the lord chancellor’s foot had the potential to grow to accommodate autonomous computer trading
When Quoine’s human operators found out about this the next day, they cancelled the trades and gave everyone back their money. But B2C2 insisted that all transactions were ‘irreversible’ and sued Quoine in the Singapore International Commercial Court for breach of contract and breach of trust.
In evidence, Quoine accepted that the original problem had been caused by its programming failures. But it claimed the deals were void or voidable under the doctrine of unilateral mistake. For its part, B2C2 explained that the offer to sell ethereum at such a high price had been no more than a defensive programming technique – a ‘circuit-breaker’ or ‘deep price’ designed to protect its trading system against an unlikely event. In a judgment of more than 100 pages, Simon Thorley QC found for the claimants, with damages to be decided later.
Quoine appealed to Singapore’s highest court and the case was heard by the chief justice, two appeal judges and two ‘international’ judges – Mance and a former chief justice of Australia. The majority allowed Quoine’s appeal on the breach of trust claim – no express trust had arisen – but upheld the judge’s finding that the company was in breach of contract. It said that when contracts were made by deterministic algorithms – ones that do as they are told rather than think for themselves – then a contract would be void only if the programmer had unconscionably taken advantage of a mistake. Boonen had not done that.
Mance agreed that the case was not about mistake at common law. But equity was more flexible. He was much taken with the fact, not mentioned by the other judges, that Boonen had alerted the platform at 6.15am the next day with the message ‘major Quoine database breakdown’.
‘The law must be capable of addressing such a situation in a manner which corresponds with what I would regard as the clear justice of the case,’ Mance said, ‘as well as with the natural expectations of reasonable traders.’ He would have allowed Quoine’s appeal.
As we learned in law school, the principles of equity were developed by successive lord chancellors over the centuries to mitigate the rigour of the common law: hence the jibe by John Selden, the 17th century jurist, that equity varied with the length of the chancellor’s foot. Referring to the Quoine case in a lecture last month, Lord Hodge, deputy president of the UK Supreme Court, doubted whether the lord chancellor’s foot had the potential to grow to accommodate autonomous computer trading. ‘Legislation will probably be needed,’ he thought.
A Post Office computerised accounting system, recently discredited in High Court litigation, has now led the Criminal Cases Review Commission to refer the convictions of no fewer than 39 former sub-postmasters for theft, fraud and false accounting to appeal courts. And many more miscarriages of justice may emerge: according to the Daily Mail, the Post Office has instructed Peters & Peters to investigate another 500 cases.
Computers may be smart – but courts are much smarter.