The Crypto Class Action Law Suit Was Stopped By The Judge For A Variety of Reasons.. Some Thoughts.

It was back in Steemfest in Poland several years back that I met @apshamilton and he explained the details of his Class Action Lawsuit against Facebook & Google for hundreds of Billions of Dollars. He recently announced an impending update to the case and now @brianoflondon has posted the real details.. The judge effectively shut down the case. But why?

Who Am I?

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Firstly, let me remind you that I am not a trained lawyer anywhere on Earth and my only interactions in the legal context are limited to a few of my own cases for various reasons. I do, however, know quite a bit about crypto, business and the history of politics/law as it has evolved in Britain and other areas. This crypto case has been playing out in Australia, which has a similar legal system to Britain - so while I am far from an expert, I am at least familiar with some of the details in advance and can make some (possibly) sensible comments... However, I have little experience of Class Action cases or of general court protocol.

Summary

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The full comments from Judge Cheeseman are lengthy and not the easiest to understand, so in this post I'll be giving my interpretation of some of the details as to why the case has seemingly been shut down and asking for input from Andrew, Brian and anyone else who knows better than I do about class actions and the details of this case.

In brief, the judge decided some things which seem to vary from pretty weird, through to understandable. However, I am surprised that the option to 'Stay' the case (shut it down) was jumped to so quickly. One of the very first things I said to Andrew about this case was that it seemed on the surface that he/we should win it, but that there is no way that the 'powers that be' would allow such an outcome, so in a way I am not surprised at all that this is where we are at.

I read through about 90% of the judge's comments earlier and pulled out some quotes, which I will comment on. I cannot say that I understood everything that was written, so it's pretty likely that I missed out quite a bit and have misunderstandings.

Selected Quotes & My Comments

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First some definitions:

'Respondents': This means Facebook and Google, plus their lawyers.
'Stay': This refers to the case being cancelled/dropped.
'De-classing': As far as I am aware, this is a process of changing the case from a class action case involving lots of people on one side, to a more simple case with just Andrew vs Facebook/Google.
'Representative Hearing': This refers to cases whereby the interests of large numbers of people are being 'represented'.
'LFA': Litigation Funding Agreement. The contract between JPB Liberty and those who are being represented in the class action.
'Fiduciary': Of or relating to a duty of acting in good faith with regard to the interests of another.

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It bears emphasis at the outset that the respondents acknowledge that if a permanent stay is granted it would not preclude the underlying claims against the respondents being pursued in other proceedings, including a different representative proceeding, if such proceedings were otherwise properly constituted and were conducted in a way that did not bring the administration of justice into disrepute

Here the judge is highlighting that by stopping this case, there is nothing preventing the same issues being addressed in another iteration of the case later on.

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The respondents submit that there are two reasons why Mr Hamilton cannot adequately protect Group Members’ interests. First, he is prevented from doing so because of his pervasive conflicts of interest. Secondly, because he is not equipped to do so having regard to the way in which the claims advanced in this proceeding are framed, coupled with the complexities inherent in representative proceedings generally, and the specific complexity of the present proceeding. Mr Hamilton resists the de-classing order, contending that s 33N does not provide a general power to de-class due to alleged conflicts of interests arising from litigation funding arrangements. He further submits that it would not otherwise be in the interests of justice to de-class the proceeding.

Facebook/Google are saying that Andrew has too many conflicts of interest in this case and so can't handle the case fairly. They also say that he is essentially not experienced enough.

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As mentioned, there is no solicitor on the record. Despite the fact that the LFA and the JPB Liberty Conflicts of Interest Policy (CMP) both refer to the role that “Lawyers” are intended to play in relation to the arrangements between Mr Hamilton, JPB Liberty, and others interested in the litigation on the applicant’s side of the record, no lawyers are presently retained to perform the role(s) allocated to the “Lawyers” under the LFA and CMP. Mr Hamilton is controlling and directing the way in which the proceeding is conducted on the applicant’s side of the record.

Andrew's documents make reference to 'the lawyers' several times, but he has specifically stated that he isn't acting as a lawyer in the case and no other lawyers currently are involved on his side.

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Thirdly, as mentioned, Mr Hamilton is the sole shareholder of the Funder and as such has a financial interest in the Funder and through the Funder in the Funder’s interest in any litigation proceeds. Fourthly, in addition to being the sole shareholder of the Funder, Mr Hamilton is one of two directors of the Funder. He is also the Funder’s Chief Executive Officer. As mentioned, the other director is a non-executive director and is his mother. The Funder is under Mr Hamilton’s control.

Essentially, Andrew controls the funding of the class action case and also stands to gain a large amount of money from the case - but is representing a lot of people in the process, so there could be conflicts of interest.

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In correspondence Mr Hamilton asserts that as at 23 October 2022, approximately 48% of the SUFB Tokens on issue were held by him or persons associated with him.

Since he holds so many tokens, a multi billion dollar payout would perhaps result in vast sums going his way. This is not usual in such cases where independent lawyers run the case.

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The following potential conflicts are identified: 
(1) A divergence of interest between JPB Liberty, individual Group Members and “the lawyers” in relation to the funded litigation: cl 3.1, CMP.
(2) A divergence of interest between Mr Hamilton as representative applicant, JPB Liberty and individual Group Members: cl 3.1, CMP.
(3) A divergence of interest between Token Holders and other stakeholders on the applicant’s side of the record: cl 3.2, CMP. 

3.3 ASIC considers that a divergence of interests may arise because: 
3.3.1. JPB Liberty wishes to keep the legal and administrative costs of the funded litigation low to maximise its return;
3.3.2. the lawyers have an interest in maximising their fees; and
3.3.3. you have an interest in minimising the returns of both JPB Liberty and the lawyers. 

I don't fully understand the last line here, but perhaps 'returns' doesn't mean 'income' like it usually does. In any case, the gist is that there are reasons that can be identified as to why there is a risk that Andrew might not run the case in the way that is best for the members of the class action. In essence, they are saying that he might be motivated to take actions that just recoup his own costs and make a small profit instead of going all the way as he might have done with full funding or that others might have done if they ran the case themselves.

This is somewhat of a fair point to me, except I highly doubt that there are others who have the funds/time to run this case on behalf of those who lost during the crash, even with the promise of a vast payout due to the wrongdoing of the parties involved.

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The amendment to clause 3.8 was limited to striking out the reference to “fiduciary” in the description of the duty owed by Mr Hamilton to Group Members. The amendment of cl 3.8 reflects the fact that on this application Mr Hamilton contends that as representative applicant he does not owe a fiduciary duty to Group Members, whereas before the amendment, contrary to Mr Hamilton’s argument on this application, the CMP expressly acknowledged not only that a duty was owed, but that the duty was fiduciary in character.

Here they are pointing out that Andrew reworded part of the funding agreement (I was not aware of this) to remove the word 'fiduciary' when describing the relationship between himself and the class action group. This essentially means that he apparently now states that he doesn't need to act in the best interests of the group and will place his own interests ahead of the group.

I would like to hear Andrew's response to this because it seems to be quite a key point that the Judge returns to several times. It's also something that many members of the class action group might not be happy about and are unaware of.

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I am satisfied that as the representative applicant in the present proceeding, Mr Hamilton owes a duty to Group Members not to act in a way that is contrary to their interests in conducting the proceeding.

The judge is saying that Andrew does have a duty to act in the best interests of the group.

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I accept that a permanent stay is regarded as a tool of last resort, however, I am satisfied that it is required in this proceeding.

Andrew had said that closing the case down should only be used as a last resort and the judge is saying that it will happen anyway. I didn't really see a full explanation on this point, but if I read between the lines and am kind to the judge then it seems like the view was taken that Andrew has had enough chances to fix the problems with his case and no more will be given.. for some reason. If I were being unkind, then I would say that this is a somewhat unpleasant way of getting rid of him. I don't know how common this kind of situation and outcome are.

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To bring the administration of justice into disrepute is an expression which is not, in any real sense, concerned with the public reputation of the court, or public confidence in the court but is directed to the integrity of the court, including its processes

One of the repeated ideas here is that Andrew's case is 'bringing the administration of justice into disrepute'. This is allegedly nothing to do with public perception and only refers to the court itself. I would say that the actual words being used and the situation being described, do actually refer to public perception to some extent too and that by denying this, the judge is devaluing the importance of those outside of the court.

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The point is that Mr Hamilton’s assessment of the risk/reward calculus on this issue is necessarily subjective and informed by his own interests, which are aligned with the Funder, and are more extensive than and different in nature to those of other Group Members.

continuation of the proceeding with him as representative applicant, sole shareholder and Chief Executive Officer and director of the Funder, and without the benefit of legal representation, will bring the administration of justice into disrepute.

The judge is saying that Andrew is too financially involved in the case to be unbiased and to give good service to the group. He stands to gain too much by being biased.

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the manner in which Mr Hamilton’s interest in the proceeding has been structured involves him in, in substance, obtaining prohibited contingency fees through the issuance of SUFB Tokens to him by JPB Liberty as a reward for his non-financial contributions to the litigation.

The judge is saying that Andrew is using the SUFB tokens as a way to bypass rules in court which normally prevent lawyers from being paid amounts that are relative to the payout that the clients receive from the case. This seems to be a pretty serious accusation and issue to me.

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Group Members, who are not liable to service such costs, or if the proceeding is unsuccessful, bear such costs, have an interest in incurring all costs reasonably necessary to give the proceeding the greatest prospect of success. From the perspective of Group Members, the risk/reward calculus on the issue of resourcing the litigation is different to that of Mr Hamilton.

Notwithstanding that Mr Hamilton may at a future time share in any Litigation Proceeds in respect of the claims in which he is not personally a claimant, his interest in that contingent reward may be tempered by the fact that JPB Liberty is ultimately responsible for the funding of the proceeding and meeting any Adverse Cost Orders. Mr Hamilton is uniquely at risk in this regard because of his concentrated exposure through his ownership of the Funder. There is a real potential for a conflict to arise between the interests of Mr Hamilton and Group Members in relation to how the proceeding should be conducted and resourced.

Andrew runs a lot of risk by bringing the case and potentially ending up having to pay costs from his own pocket if the case fails. Rather than saying that this means that he has the right to ask for high rewards from his own risk, the judge is going the opposite direction by saying that he is motivated to not push for big payouts once his costs are met and a profit generated. I suspect Andrew may respond to this by saying that he intends to run another round of fund raising if the case proceeds to the next stage, but I am not sure.

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That potential for conflict is exemplified by Mr Hamilton’s approach to expert evidence. The respondents submit that JPB Liberty may be motivated not to engage certain expert witnesses where JPB Liberty wants to cut costs, whereas Funded Group Members’ interests may be served by retaining those expert witnesses. Mr Hamilton’s response on this issue serves to underscore the fact that there is a real potential for his interests to conflict with those of Group Members.

the fact that his approach may reduce the need for JPB Liberty to cover the cost of such evidence may be another factor in respect of which Mr Hamilton’s and Group Members’ interests diverge and conflict

Mr Hamilton next says that if expert evidence is required in relation to cryptocurrency, then he “himself is an expert in this area and is able to cite a wide range of external evidence to support his positions”. Again, Mr Hamilton’s view as to his suitability to perform this role is entirely subjective. Mr Hamilton would not be capable of giving independent expert evidence. For Mr Hamilton to commit the Group Members to a course in which he assumes the role of expert witness as well as being the representative litigant in person, controller of the Funder, major holder and controller of SUFB Tokens and the “Representative” under the LFA gives rise to yet a further potential conflict between his interests and theirs.

This is a continuation of the same topic, pointing out that Andrew has already said that rather than paying for expert witnesses, that he would be the witness in the field of crypto. I can understand his motivation for doing this, but I can also see why this might not be a great idea, particularly since he isn't known as an expert in crypto.

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I have not overlooked the fact that Mr Hamilton maintained that if his amendment to the CMP and the undertakings he offered were inadequate to address the potential conflict it was then a matter for the Court to consider and draft the terms of the CMP and LFA and any accompanying undertakings to its own satisfaction. This was an aspect of Mr Hamilton’s submissions to the effect that it was the Court’s primary duty to protect Group Members and that the grant of a stay must be an “absolute last resort”.

In making the proposal that the Court itself redraft the LFA and CMP and craft such undertakings as are considered appropriate, Mr Hamilton denies he is seeking an advisory opinion from the Court. He maintains that he is “basically providing the Court additional tools to help manage conflicts of interest”. He further submits that what he was proposing was in reality requiring the Court to undertake “a small supervisory or additional tools function” so as to avoid a stay which must be an absolute last resort. I do not agree.

In my view it is no part of the Court’s function to accede to Mr Hamilton’s invitation to redraft the commercial arrangements between him, his company and Group Members. Similarly, I do not accept that in circumstances where Mr Hamilton has not retained lawyers to conduct the proceeding or to advise, it is appropriate for the Court to step in to fill the void to advise and supervise the terms and the manner in which the proceeding is conducted by Mr Hamilton.

That would be to impose an onerous burden on the Court to exercise considerable control and scrutiny over the proceedings in order to ensure that Mr Hamilton was fulfilling his duties as representative applicant. There are sound reasons of policy why the Court should not perform that supervisory role. To do so would be antithetical to the Court’s obligation of independence in discharging its function to hear and determine the dispute between the parties.

Essentially, the judge is saying that Andrew said that if his approach isn't good enough, that the court can work the details out so that they are acceptable. The judge point out that this is 'not their job' and it is his.

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JPB Liberty may decide, in accordance with cl 6.9 of the LFA, in its sole discretion, to cease funding. This may be contrary to the interests of Group Members who may not otherwise be in a position to continue the “Ceased Claim” and depending on the terms on which the Ceased Claim is abandoned, may preclude the Ceased Claim being otherwise pursued.

If Andrew were to initiate the case and then stop funding it himself, the case would end and in some circumstances may result in the case not being able to be relaunched by someone else later on. I can see that this could be a major concern, whether or not there are currently people willing to take on the case - however, we can't really know in advance what the case would cost, so it seems like only perhaps the top 0.001% of richest people could even consider it! Hardly fair or respectful of the public interest.

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Mr Hamilton’s power to issue SUFB Tokens has the potential to give rise to a significant conflict between Mr Hamilton’s personal financial interests and those of his associates on the one hand, and the interests of Group Members on the other hand.

Essentially, the judge is saying that the SUFB tokens aren't decentralised enough, pretty ironic.

Summation

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This is a complicated case and really we need other lawyers with experience in class action cases in Commonwealth countries or those regions which emulate their legal system to comment here.

I can see places where it seems the judge has made valid points which really should be addressed and I can also see places where the judge's comments give the impression that the case is being shut down for undisclosed reasons.

I look forward to reading Andrew's response to the situation.

Perhaps the case can be restructured so that Andrew is not such a central figure to so many aspects. As @starkerz suggested, perhaps he could burn all his tokens and activate some kind of POB mechanism whereby the community awards some to him through upvotes. There are quite a few options here, though none are quick from what I can see!

Let us know what do you think!

Wishing you well,
Ura Soul

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