NEJC Kodric v Bitstamp Holdings NV

Hearing dates: 10, 13, 14, 15, 16 and 17 December 2021

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic. Covid-19 Protocol: This judgment was handed down by the judge remotely by circulation to the parties' representatives by email. The date and time for hand-down is deemed to be 10.00 am on Thursday 3 Feb 2022.

Eason Rajah QC

A) Introduction

The First Claimant ( “Mr Kodrič”) is one of two co-founders of Bitstamp Limited (“ Bitstamp”). Bitstamp is a cryptocurrency exchange. In October 2018, approximately 80% of the issued shares in Bitstamp Limited were acquired by NXMH BVBA ( “NXMH”). The shares were acquired through the Defendant as an intermediate holding company (“ Holdings”). As part of the acquisition, Mr Kodrič sold approximately two-thirds of his shares in Bitstamp to Holdings. He retained a 9.8% stake which he subsequently transferred to the Second Claimant ( “White Whale”) which he owns.

The dispute relates to a side letter that was executed contemporaneously with the other acquisition documents in October 2018 (“ the Side Letter”). The Side Letter provided for Mr Kodrič and Holdings to have reciprocal put and call options in relation to Mr Kodrič's remaining shares in Bitstamp ( “the Shares”). By an Option Exercise Notice dated 21 July 2021, Holdings purported to exercise the call option under the Side Letter in relation to the Shares.

On 10 August 2021, the Claimants issued these proceedings challenging the purported exercise by Holdings of its call options and seeking injunctive relief. On 17 August 2021, Mr Justice Michael Green granted an interim injunction restraining Holdings from (in summary) taking any steps to effect the transfer to it of the Shares, and ordered that the claim be listed for an expedited trial. That trial was heard between 10 and 17 December 2021 and this is the resulting judgment.

B) Issues

The Claimants' case is that, under the terms of the Side Letter and the other acquisition documents, the put and call options terminated automatically on the transfer of the Shares to White Whale. The options in the Side Letter only apply while the shares are held by Mr Kodrič or a ‘Permitted Transferee’ as defined in the acquisition documents. The Claimants contend that White Whale is not a Permitted Transferee of Mr Kodrič. Holdings do not admit that White Whale is not a Permitted Transferee but also rely upon alleged representations made by Mr Kodrič and the Claimants' then solicitors, Taylor Wessing, that White Whale was a ‘Family Trust’ and therefore a Permitted Transferee within the meaning of the Side Letter. Holdings claims that the Claimants are now estopped from denying otherwise and/or are liable in damages for the tort of negligent misstatement.

The Claimants' alternative case is that Holdings gave binding assurances not to exercise its call option under the Side Letter in one or both of two oral conversations: one in May 2019 and one on 16 December 2019. These assurances are said to be binding on Holdings as a matter of contract or by way of an estoppel. Holdings disputes the assertion that binding assurances were given and also relies upon provisions of the Side Letter which stipulate that its provisions “may be waived only in writing and specifically”.

C) Approach to the evidence

A number of witnesses were called to give evidence of their recollection of events, conversations and beliefs in the past. The approach I take to the assessment of that oral evidence is to weigh it in the context of the reliably established facts, including those to be distilled from contemporaneous documentation, the motives of the protagonists, the possible weakness of human memory and ultimately, the inherent probabilities.

This approach is uncontroversial. In Bancoult, R (on the application of) (no3) v Secretary of State for Foreign and Commonwealth Affairs[2018] UKSC 3, Lord Kerr at paragraphs 100–101 said:

“Case law emphasises the importance of documentary evidence in assessing the credibility of oral witnesses. In Onassis v Vergottis [1968] 2 Lloyd's Rep 403Lord Pearce, having reviewed the various reasons that a witness's oral testimony might notbe credible, stated, “all these problems compendiously are entailed when a judge assesses the credibility of a witness; they are all part of one judicial process. And in the process contemporary documents and admitted or incontrovertible facts and probabilities must play their proper part.” In Armagas Ltd v Mundogas SA (The Ocean Frost) [1985] 1 Lloyd's Rep 1, 57Robert Goff LJ made this observation:

“It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence … reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth.”

When it comes to the possible fallibility of human memory I have kept in mind, as a helpful reminder of the risks, the observations of Mr Justice Leggatt in Gestmin SGPS SA v Credit Suisse (UK) Ltd[2013] EWHC 3560 (Comm), at paras 15–20 in the context of commercial cases.

“15. An obvious difficulty which affects allegations and oral evidence based on recollection of events which occurred several years ago is the unreliability of human memory.

16. While everyone knows that memory is fallible, I do not believe that the legal system has sufficiently absorbed the lessons of a century of psychological research into the nature of memory and the unreliability of eyewitness testimony. One of the most important lessons of such research is that in everyday life we are not aware of the extent to which our own and other people's memories are unreliable and believe our memories to be more faithful than they are. Two common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate.

17. Underlying both these errors is a faulty model of memory as a mental record which is fixed at the time of experience of an event and then fades (more or less slowly) over time. In fact, psychological research has demonstrated that memories are fluid and malleable, being constantly rewritten whenever they are retrieved. This is true even of so-called ‘flashbulb’ memories, that is memories of experiencing or learning of a particularly shocking or traumatic event. (The very description ‘flashbulb’ memory is in fact misleading, reflecting as it does the misconception that memory operates like a camera or other device that makes a fixed record of an experience.) External information can intrude into a witness's memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. Events can come to be recalled as memories which did not happen at all or which happened to someone else (referred to in the literature as a failure of source memory).

18. Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs. Studies have also shown that memory is particularly vulnerable to interference and alteration when a person is presented with new information or suggestions about an event in circumstances where his or her memory of it is already weak due to the passage of time.

19. The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings. Other, more subtle influences include allegiances created by the process of preparing a witness statement and of coming to court to give evidence for one side in the dispute. A desire to assist, or at least not to prejudice, the party who has called the witness or that party's lawyers, as well as a natural desire to give a good impression in a public forum, can be significant motivating forces.

20. Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does nor does not say. The statement is made after the witness's memory has been ‘refreshed’ by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or...