1) The Case Scenario: ELSA Moot Problem

Buggs Bakeries Ltd. is a chain of sixteen bakeries operating throughout North London. After several profitable years, the company holds large cash reserves. With interest rates on cash deposits close to zero, Bianca Buggs, the company's owner, decides to invest the business's profits. Having read about investors making large profits through buying and selling Bitcoins, Bianca became interested in financial technology. She stumbles upon the website of NuMoney Ltd.

NuMoney Ltd. proposes to create a new trading platform for cryptocurrencies. On its website, NuMoney claims that its new trading platform will 'disrupt the financial world. The website announces that NuMoney will hold an Initial Coin Offering to raise money to develop the platform. Under the ICO, investors purchase HotTokens, each of which will ultimately entitle those who have them to trade cryptocurrencies on the NuMoney platform for one day while paying only half the usual trading fee. After the ICO, HotTokens will be transferable to purchasers via a blockchain-based registry system.

Bianca is impressed by NuMoney's website and decides to make further inquiries via the 'Contact Us page on 1st December 2019. In her message, she states that she is interested in investing a substantial sum in NuMoney's proposed Initial Coin Offering (ICO). Bianca's message is answered directly by email by Stuart Highwayman, the CEO of NuMoney. The two agreed to speak on the phone about Buggs Bakeries Ltd.'s potential investment on 15th January 2020.

During the phone conversation, excerpted in Appendix A, Bianca asks whether HotTokens will be secure from hackers. Stuart tells her that NuMoney has hired third-party developers to design the system and that they have no difficulties designing the algorithm. At that time, Stuart's statement is true. Three days later, however, the outside firm of software developers encounters serious difficulties while stress-testing the blockchain, which makes it vulnerable to hackers. Stuart, however, decides to make no further inquiries about the security of the blockchain for HotTokens before the ICO.

Having considered various investment opportunities, Bianca decides to invest 500,000 of Buggs Bakeries Ltd.'s money in the ICO. On 30th March 2020, she signed a written agreement entitled the HotToken Issuance Agreement, drafted entirely by NuMoney. When entering into the contract, Bianca believes that the software developers have encountered no problems with the blockchain for HotTokens. Buggs Bakeries Ltd. would not have entered into the HotToken Issuance Agreement if she had known the truth.

The Recitals to the agreement state that the value of HotTokens may go up and down. In the agreement's text, NuMoney makes no promises about the security of the blockchain. Clause 17 of the HotToken Issuance Agreement provides as follows:

No person in the employment of NuMoney has any authority to make or give any representation about this Agreement.

Clause 21 of the HotToken Issuance Agreement provides that all matters relating to the contract are governed by English law and that disputes between the parties will be resolved in the High Court in London.

Shortly after the ICO, hackers exploit a vulnerability in the blockchain for HotTokens. None of Buggs Bakeries Ltd.'s HotTokens is directly affected, and the exposure is soon fixed, but the hack undermines confidence both in the security of Hot Tokens and in NuMoney's ability to run a successful and safe trading platform. As a result, Buggs's Hot Tokens are now worth only 200,000.

Buggs Bakeries Ltd. commences suit in the High Court against Nonmoney Ltd., claiming damages under section 2(1) of the Misrepresentation Act, 1967.

Solve these 2 Issues:

Issue 1: Buggs Bakeries Ltd. contends that it was induced to enter into the Hot Token Issuance Agreement by misrepresentation. NuMoney Ltd., however, argues that it made no misrepresentation because any statement of fact was valid at the time it was made and did not know it was no longer valid at the time of the contract. The parties rely on different judicial statements in With v. O'Flanagan[1936] Ch 575. NuMoney depends on Spice Girls v Aprilia World Service BV [2002] EWCA Civ 15.

Issue 2: NuMoney Ltd. argues that any suit for misrepresentation against NuMoney based on Stuart's statements must fail under the doctrine of contractual estoppel as a result of Clause 17 because Stuart lacked authority to make the alleged representation. Buggs Bakeries Ltd. contends that Clause 17 is ineffective according to section 3 of the Misrepresentation Act 1967. NuMoney relies on Overbrooke Estates v. Glencombe Properties Ltd [1974] 1 WLR 1335 for the proposition that clause 17 is not subject to the Act, while Buggs Bakeries claims that the decision in Overbrooke has been superseded by recent case law, including Springwell Navigation Corp v JPMorgan Chase Bank [2010] EWCA Civ 1221.

Appendix A: Transcript of Phone Conversation Between Stuart Highwaymanand Bianca Buggs

Stuart Highwayman (SH): Hello, Bianca?

Bianca Buggs (BB): Yes, is this Stuart Highwayman?

SH: It certainly is, the one and only! So, Bianca, you're interested in making some serious money?

BB: Well yes ... I mean, I want to make a smart investment.

SH: So how I can make that happen?

BB: I suppose the first thing is that I'm not totally sure ... what exactly does it mean to have a HotToken? Why are they worth anything?

SH: It's pretty similar to owning shares in a company. We're setting up the NuMoney platform and it's going to be huge. Everyone's going to want to trade on there. We're not going to let them trade for free, we're going to charge them. If you have HotTokens, you'll be able to make trades and only pay half the fee. And hey, I know you probably don't want to trade cryptocurrency yourself, but you can sell your HotTokens to someone who does. That's going to be worth a lot. You have a great opportunity to get in on the ground floor here. Crypto is hot, hot, hot at the moment. The value of HotTokens will go through the roof after the ICO!

BB: OK, so hold up a moment, you'll have to take this a bit slower, what's an ICO?

SH: It's called an Initial Coin Offering, that's what ICO stands for. So, with HotTokens, we will be issuing them at a fixed price. Most people will be buying them using Bitcoins but we also take old-fashioned cash. The price is going to be 100 pounds sterling per token so if you invest 500,000 you'll be safe in knowledge that you own 5,000 HotTokens.

BB: Right, well, that's one of the things I'm worried about, actuallysecurity. Couldn't someone hack my HotTokens? I have cash I can stash it under the bed. Money in the bank, I understand that too. But what if someone tries to 'cybersteal' my HotTokens?

SH: (laughing) Haha, 'cybersteal,' that's a good one. I haven't heard that one before! No but seriously, you're right, there is a risk that poorly designed token systems could be hacked. That's why we're using blockchain technology of course. We have hired an outside firm of software developers called SmartSafe to create the blockchain for HotTokens. These guys are the best in the business, and all is going well - they haven't run into any difficulties designing the algorithm.

BB: Well, that is a relief.