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[Executive Summary]
- The Supreme Court of Korea confirmed the dismissal of the trial court’s decision and upheld the appeals court’s decision on a lawsuit filed by 132 investors against Bithumb. The lawsuit sought compensation for damages caused by data processing system failure, arguing that the company did not fulfill its obligation to provide stable service. The trial court initially found that Bithumb was not liable for the any compensation. However, the appeals court overturned the trial court’s decision, stating that it is reasonable for virtual asset investors to expect a more stable system from virtual asset exchanges than from the traditional stock market.
The Supreme Court of Korea confirmed the dismissal of the trial court, which ruled in favor the plaintiffs in the appeal trial of a lawsuit filed by 132 investors against Bithumb.
On November 11, 2017, a transaction failure occurred at 10 p.m. as the transaction volume on the Bithumb website increased. From 3 p.m. the next day, the situation worsened, and the transaction failure rate exceeded 50%. Bithumb announced a data processing system failure and stopped all transactions, resuming service at 5:31 p.m.
In response, some investors filed a lawsuit demanding compensation for the difference in the price of the cryptocurrency that fell after the data processing system failure, arguing that the company did not fulfill its obligation to provide stable service.
The trial court sided with Bithumb, stating, “It cannot be held that the defendant was intentional or negligent in the occurrence of the data processing system failure,” and continued, “it is difficult to see that Bithumb’s failure to perform its obligations under the contract due to the occurrence of the data processing system failure constitutes a legal offense.”
However, the appeals court overturned the trial court’s decision. Considering the size of the virtual assets investors were trying to sell, the amount of compensation per person was calculated from 8,000 won to 10 million won, which yielded a total amount of compensation for damages of about 250 million won.
The court stated, “The plaintiffs believed that they would be able to stably trade virtual assets at least on the Bithumb website. However, they experienced a sense of loss and anxiety for being unable to place a sell order at the price they desired due to a data processing system failure even though the price of virtual assets was rapidly declining. There is a need to protect the plaintiffs from psychological shock.”
The court added, “Considering that virtual asset exchanges can be traded 24 hours a day, including holidays, and that many transactions occur in a short period of time for short-term market gains, resulting in wide fluctuations of the price of the virtual assets. Therefore, it is reasonable for the virtual asset investors to expect a more stable system from virtual asset exchanges than from the traditional stock market.”
This Supreme Court decision is significant because it held virtual asset exchanges to a higher standard than conventional stock market trading systems, acknowledging their duty to provide more robust systems. This decision will help establish a claim for compensation against the digital asset exchanges if an investor ever sustain losses as a result of trading system malfunctions.