Bartercard’s civil litigation against ex-member Nicholas Down has issues specific to Down and his terminated account, but it has also raised issues of consequence for the global Commercial Barter industry. My attempt to be accurate, fair & balanced in analysing a trial I have been intimately involved with follows. Enjoy.
I’ve introduced and reported on the trial previously. There are two parts to this analysis, the first are factors specific to Down’s case, secondly there are issues that have wider significance.
Issues Specific to Down
Essentially Bartercard cut off Down’s capacity to trade, then closed his account and required his trade overdraft to be repaid in cash according to the Rules. It’s quite a narrow claim, but Down has broadened it by saying “Not fair! You caused the situation that created the loss! Now you owe me! Oh, and BTW, don’t even think of trying to get more than Fair Market Value off me in cash!”
Central to judging Down’s predicament is understanding the circumstances surrounding his account termination. A huge legal brouhaha is occurring over this very matter. This has started to come out in court and when the trial resumes it will continue to evolve as the truth gradually comes out. I suspect foul play. I have based this assessment on key evidence that shows frustration building with Down’s account performance; evidence of malintent in his File Notes (such as a lawyer clarifying that his instructions are to bankrupt despite knowing that Down was essentially impecunious), and circumstantial evidence that shows dishonesty in the given reason for account closure. Additional to all of this, and yet to come out in trial is a very good motive from one person to “take Nicholas out!”
Trial documents show a massive shift in the story of why the trial even exists. The original Statement of Claim stated that Bartercard closed Down’s account because he was auctioning goods and that this was against their Rules. Down’s response in defence relied on the principle of estoppel – basically you can’t stop something from happening when it has always happened. Down said, quite naturally & I think legitimately, “Hey, I joined as an auctioneer; I have always been an auctioneer; you wanted me as an auctioneer; you used me as an auctioneer; we even worked together many times on auctions . . . you can’t just cut off my account because you don’t want me to auction anymore. How the h*ll can I trade if you stop me doing what I do for a living, let alone pay off any overdraft?”
When the trial judge sought clarification of this reason for account closure, he specifically asked Bartercard to link this claimed reason for account closure back to the Bartercard Rules. I’m certain that he did this because he wanted to see something he couldn’t find – a direct causal link between the claimed breach of rules and the Rules. If Rule 18.104.22.168 sub-clause a) when read with a finger up your [you get it] says that you can’t auction goods on trade, and Down did, then Bartercard wins. Otherwise the judge would find that there was no case to answer.
What Bartercard did though was a little naughty because they used that request for clarification as an opportunity to change their entire case, and told the court that this was just a minor change, a tweak to clarify a simple little “mistake” in their first attempt at the case. They also used the legal process to trick Down into agreeing to the change of claim, pop in interest as well (which they forgot to do in the original claim), thus the case currently before the courts is actually the second attempt at going after Down! The evidence though is still there in the files – “mistakes” in the Affidavits. These “mistakes” will actually be shown at the end of the day for what they are – outright fabrications – if the trial lawyer does his job properly. I pity those boys who called them mistakes and have to explain how the mistakes occurred when people complete Affidavits, submit them to the court as the truth, the whole truth and nothing but the truth!
There’s a lot more to this case than just a poor guy with a trade account in debt, forced to cough up cash because he didn’t do what Bartercard told him to. I’m not sure how much will come out in court on these topics because legal representation issues may interfere but if it all comes out, I think Down has a reasonable chance of winning. It all turns on what the judge thinks really happened when they killed his account. If the wider issues are entertained Bartercard will be in the pooh. If it’s kept quite narrow and the circumstances surrounding don’t come into it then I think Bartercard will probably win – their documentation is strong, as Bulldog Barrister put it in court, “We can do whatever we like and you’ve got no redress!”
That in itself (an ‘unfair contract’) is a defence in a B2C situation. In the commercial environment though it’s not quite so clear.
Tension within Bartercard
An issue that is becoming clearer in this case is the tension within a divided Bartercard. It is a tension that makes sense when you think about it but is not seen or talked about much. This is the natural tension between the two divisions – sales and credit control. Sales wants to see turnover (trade volume in barter terminology) – Credit control wants to minimise risk. In Down’s case with a hugely fluctuating trade overdraft, from zero to $T160,000.00 and back again and fee payments all over the place, as he traded up and down, he was the quintessential ‘Alphabet Account’ – zero-to-hero and back again. For a guy with autism and a natural ability to crunch a deal anywhere on the planet, this seems to have put a huge pussy amongst the Plaintiff’s pigeons. Those struggling with what seem like crazy credit decisions from the big ‘bad’ B, need to understand that Bartercard like any organisation attempting to maximise profits through sales has an internal tension – sales vs an increased credit risk.
In a previous post I mentioned a little snippet of gold that came out in court, likely not fully understood by the parties at the time, but likely to play a huge part in future proceedings. Dale Chetty acknowledged that Bartercard was (in terminating Down’s account), “managing a currency”. They had a responsibility to make sure that they Bartercard currency didn’t devalue.* That was his job, to control credit so that a trade dollar wouldn’t devalue through inflation. He wanted to stop Down from auctioning so that the prices didn’t inflate. He wanted to avoid bad debt because . . . wait for it . . . this would devalue the currency. When the national credit controller for Bartercard New Zealand stands in open court and explains that his job is to stop happening what Down (and me in my blogging) says HAS ALREADY happened then this is the thin end of the wedge that will bring the industry to its knees. It doesn’t matter what the actual FMV (Fair Market Valuation) is – 25c in the dollar or 95c in the dollar – the point is that now, a District Court judge is being asked to rule on a situation that has always been kept in check. Not so, any more.
Let’s back up for a moment and get the full picture here. Bartercard (and most other commercial barter companies) create a currency which they declare (by fiat) to be on par with the local currency. BCNZ for example rates their currency on par with the NZD. This is accepted for tax reasons and it is ‘managed’ by the issuer so that it is perceived to be worth on par. In all Bartercard’s documentation – the Rules, website and all marketing materials – as well as in practice in person by every Bartercard representative and so on, this is the claim – One $T = one NZD. This is fine when it IS worth on par, but what happens if it ISN’T? Disaster.
Dale Chetty in telling the court that it’s his job is to make sure that the currency doesn’t devalue, has admitted (by the application of simple logic) that there could be a situation where the Trade Dollar is not worth a NZD. Oh sh*t!!! This is NOT what the industry needs . . . the next logical question then is, “Well if a declaration by fiat isn’t kosher, legal or valid legally, what is FMV?”
Down’s second line of defence following the estoppel arguments above is that the Bartercard Trade Dollar is indeed devalued; that it is only worth 20c in the dollar and that even if found to have had his account terminated legally, he should only have to pay FMV, which is according to him in uncontested evidence only 20c! Ouch – that will hurt Bartercard and especially when the power of legal precedent kicks in around the globe and all the other IRTA members find their members getting wise to the concept of using FMV for tax, general trading and settlements with their crooked currencies!
Down’s actual application of FMV though is not assured. He is relying on the legal doctrine of penalties which is basically that any commercial agreement (in the English legal systems) cannot include a penalty. This right to penalise is reserved for the courts alone to administer. If you’ve been a bad boy and somebody wants to punish you, you have to go to a judge to sort it – you can’t penalise someone by contract. There are rules and case law surrounding the application of this legal principle which the lawyers can scrap over, but my take is that anything above FMV is indeed a penalty and that the doctrine of penalties does apply in this case.
Whatever the case, I think that IRTA and any commercial barter company that maintains their own currency should be watching this case very, very carefully. Bartercard are already poorly regarded in the industry but they will certainly not be seen as the prettiest face on the block if or when the ruling goes against them and there are ripple effects.
I’ve enjoyed helping Nicholas in some ways. He’s not always easy to work with as a result of his autism and his unique ways of doing things but getting him out of certain bankruptcy and sticking it to some people who were trying to stick it to him has been a pleasure.
I’ve learned a lot during the process . . . seeing the different personalities, styles and ethics in the legal profession has been enormously entertaining and educational. Watching a Bulldog Barrister in action was a real hoot. Seeing the pieces come together legally, how different judges rule different ways, and then how the lawyers work around the law, and of course lie professionally supposedly in their client’s interest was fun – especially when you can drill down into it and expose it all. Seeing also how the legal profession look after their own was also educational. We all know that birds of a feather flock together, but to see it manifested so obviously was good for me.
Moving forward, I cannot predict the way I will continue to engage with any party – Bartercard or Nicholas because my job is done, getting the core defences established and saving the man from almost certain bankruptcy. I may push on and go deeper. I may back off from a hands-on role somewhat. I think Nicholas has got value for money to date – I normally only charge a flat rate $10.00USD for strategic advice – and there’s a good 800 hours buried in it all so far, but that’s my choice.
If the legal people for Nicholas take the right track, I think they’ll win their case, unless of course there is something that I’ve missed. If he can bring his counterclaim into the equation, I think he will be doing well . . . if he sees any money out of it is anyone’s guess. On the other side, I can’t really see anything good for Bartercard to get out of this. It’s hugely negative press at a time when BPS Technology has new leadership, swept the
crooks Smiles in Suits off the deck and into the tide and is clearly looking to the future. The risk for Down is that he could go bankrupt. The risk for BCNZ is that they drag the Bartercard brand further into the ‘bad’ bin and p*ss off the whole industry with an adverse ruling, especially if the judge finds that the doctrine of penalties applies to their precious Rules document. And then you’ve got the ASX:BPS factor.
While I wouldn’t say that Down is the model trader by any means he was a valuable and capable trader who has got on the thin end of some pretty nasty stuff. It all shapes up in my books, to be a hugely expensive and probably foodhardly personal vendetta by some nasty people (or person) at Bartercard New Zealand.
* It’s also specifically written into the Rules too BTW. In plain view all these years – a logical fallacy when connecting the dots! If you on the one hand say that a currency IS worth the same as the local currency, then later on in the same agreement say that it’s your job to make sure that it DOES remain on par then, hang on a minute . . . which is it? How can they both be true? Surely either it IS or it can change? We all know the answer of course, that they may claim that it IS, but the reality is that it DOESN’T. You can say it is worth on par for tax reasons but then if FMV is less then you are defrauding the taxman! And if FMV is less than on par then you are defrauding your members. It’s a huge problem for Bartercard either way.