The High Court has ruled in the case of Tulip Trading Ltd v Bitcoin Association For BSV & Ors [2022] EWHC 667 (Ch). The claimant, Tulip Trading Limited (TTL), was a company incorporated in the Seychelles. Its CEO was W, an Australian citizen resident in England since 2015. The claim related to digital currency assets that TTL claimed to own but was currently unable to control or use, following what it said was a hack of computers located at W’s home office. TTL said that the result of the hack was to remove from those systems the “private keys” which would allow dealings in the assets, and information that would allow access to those keys. TTL’s case was that the Defendants were the core developers and/or otherwise controlled the software in respect of four relevant digital asset Networks.
TTL claimed that the Defendants owed it fiduciary and/or tortious duties meaning that they should help it to regain control and use of its assets. Specifically, TTL sought a declaration that it owned the relevant assets and orders requiring the Defendants to take steps to ensure that TTL had access to and control of them (or at least that they took all reasonable steps to ensure that it did) for equitable compensation or damages. TTL’s case was that it would not be technically difficult to write and implement a software “patch” enabling TTL to regain control of the assets.
This decision related to a request for service out of the jurisdiction which had been granted at first instance.
The Court’s decision
The Court considered the following factors, among other things, in ruling whether to grant the request.
Was there a hack?
It was satisfied that there was a serious issue to be tried that TTL was the owner of the relevant bitcoin, and that the hack occurred. The judge agreed with the defendants that there were material deficiencies in the quality of the evidence, but said that this did not mean that TTL had no more than a fanciful prospect of establishing ownership and the fact of the hack.
Fiduciary duty
Taking all the features relied on by TTL fully into account, and assuming in its favour that it would be able to establish the facts on which it relied at a trial, the judge was unable to conclude that TTL had a realistic prospect of establishing that the facts pleaded amounted to a breach of fiduciary duty owed by the Defendants to TTL.
What was sought to be imposed was a positive duty to alter software to introduce a patch to allow TTL to regain control of its assets. The undertaking to act or assumption of responsibility on which TTL had to rely was the Defendants’ alleged control of the Networks and their alleged ability to make a change to the software, irrespective of whether they were actually engaged in making changes, and in the absence of any more general contractual or other obligation to make changes in the future. The judge pointed out that developers are a fluctuating body of individuals. As a general proposition it could not realistically be argued that they owed continuing obligations to, for example, remain as developers and make future updates whenever it might be in the interests of owners to do so.
It was uncontroversial that a fundamental feature of the Networks, at least in their form at the time, was that digital assets are transferred through the use of private keys. TTL effectively sought to bypass that. The judge said that there must be a real risk that agreeing to TTL’s demands would not be consistent with a duty of single-minded loyalty owed to other users. Further, acceding to TTL’s demands could expose the Defendants to risk on their own account.
The judge said that any holder of digital assets on the Networks would have certain expectations, for example about the security of the Network and private keys, the efficacy of the “proof of work” processes and anonymity. A software change that compromised these might create some cause for complaint by users. However, the judge could not see a realistic basis for concluding that the pleaded facts could provide a basis for the imposition of a fiduciary duty in favour of TTL, together with a conclusion that that duty had been breached.
Imposition of tortious duty of care
TTL accepted that its claimed tortious duty of care was novel, but said that it would amount to a permissible incremental extension of the law. It said that the court should recognise an actionable duty owed to owners of digital assets who have lost access to their private keys by developers who are able to assist them to regain control of their assets. The court disagreed and said such a duty would not be an incremental extension to the law, and, particularly given its potentially unlimited nature, could not realistically be argued to be fair, just and reasonable.
Disclaimer in software licence
The Developers also relied on an express disclaimer of liability in the terms of the generic MIT Licence under which Bitcoin Core code, in common with much other open source software, is released. The court accepted that the disclaimer in the Bitcoin Core code was relevant to the existence of a duty of care, but said that its application to this case was not sufficiently clear to affect the outcome of a summary determination. The disclaimer was in broad terms, but this did not mean that it would reasonably be understood to mean that controllers of the Network assumed no responsibility for any aspect of its operation.
Payment for work
A further point raised on behalf of TTL in evidence, but not part of its pleaded case, was that it was prepared to pay the Defendants “reasonable compensation” for developing and implementing the required software changes to enable it to regain control of the assets. The court said that this offer underlined the weakness of its case.
Public policy considerations
The judge accepted that important issues had been raised about the recourse that bitcoin owners have if private keys are lost. However, this could not provide a foundation for the existence of a duty for which there was no realistically arguable basis under existing law, even assuming that the (heavily disputed) facts were all decided in TTL’s favour. In particular the fact that the matters raised are controversial or difficult is not sufficient of itself to justify the grant of permission if it is apparent that there is no serious issue to be tried under existing law. Whilst the test of real prospect of success is not a high one, it does exist to ensure that foreign litigants are not subject to proceedings which a defendant would be entitled to have summarily dismissed.
Would England have been a suitable forum for proceedings?
If there had been a serious issue to be tried the judge would have been satisfied that England was the appropriate forum for the trial of the dispute, and that the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction.
Conclusion
The court said that TTL had not established a serious issue to be tried on the merits of the claim. In those circumstances the appropriate order was to set aside a previous order granting permission to serve the claim form out of the jurisdiction, and to set aside service of the claim form.
