The Court of Appeal has upheld the appeal in the case of Tulip Trading Limited (A Seychelles Company) v Bitcoin Association for BSV & Ors [2023] EWCA Civ 83.
The question in the appeal was whether the developers who look after bitcoin may arguably owe fiduciary duties in tort to a bitcoin owner.
Tulip had claimed to own some valuable bitcoin which had been lost in a hack. Tulip alleged that the developers owed fiduciary duties to them and that those duties should extend to implementing the necessary software patch to resolve Tulip’s problems and protect its assets from the thieves.
The High Court summarily dismissed the claim brought by Tulip against bitcoin software developers, ruling that Tulip had no realistic prospect of establishing that a fiduciary duty of the kind alleged was owed by the bitcoin developers to them.
Tulip appealed. The essence of Tulip’s case was that the developers, having undertaken to control the software of the relevant bitcoin network, thereby have and exercise control over the property held by others (i.e. bitcoin), and that this means that they owe fiduciary duties to the true owners of that property so that, on the facts of this case, they were obliged to introduce a software patch and help Tulip recover its property.
The Court of Appeal said that it was conceivable that relevant individuals – when they are acting in the role of developers – should be held to owe a duty in law to bitcoin owners not to compromise the owners’ security in that way and that was arguably a fiduciary duty.
For Tulip’s case to succeed would involve a significant development of the common law on fiduciary duties. There was a realistic argument as follows. The developers of a given network are a sufficiently well-defined group to be capable of being subject to fiduciary duties. Viewed objectively, the developers have undertaken a role which involves making discretionary decisions and exercising power for and on behalf of other people, in relation to property owned by those other people. That property has been entrusted into the care of the developers. The developers therefore are fiduciaries. The essence of that duty is single minded loyalty to the users of bitcoin software. The content of the duties includes a duty not to act in their own self-interest and also involves a duty to act in positive ways in certain circumstances. It may also, realistically, include a duty to introduce code so that an owner’s bitcoin can be transferred to safety in the circumstances alleged by Tulip.
The Court of Appeal said that it was not concluding that there was a fiduciary duty in law in the circumstances alleged by Tulip, only that the case advanced raised a serious issue to be tried. The time to decide on the duty in this case was once the facts are established. To rule out Tulip’s case as unarguable would require one to assume facts in the defendant developers’ favour which were disputed and which could not be resolved in this way. The judge said that if the decentralised governance of bitcoin really is a myth, then there was much to be said for the argument that bitcoin developers, while acting as developers, owe fiduciary duties to the true owners of that property.
The defendants had also argued that the injunction Tulip sought was not realistically arguable because Tulip has not sought relief “against the alleged hackers or the operators of the wallets from which the bitcoin was allegedly stolen”. The Court acknowledged that there is a well-developed practice of interim remedies relating to cryptoassets in the Business and Property Courts, including the Commercial Court and the Chancery Division. This includes freezing orders such as those against cryptocurrency exchanges and/or the holders of private keys, and information orders. However, it was accepted in argument that none of these remedies would avail this claimant in this case because, on its case, Tulip does not know who stole the private keys. Therefore, the right place to examine the efficacy of remedies in this case would be at a trial.
As a result, the Court of Appeal allowed the appeal.
