Tulip Trading: Duties of bitcoin software developers

What’s the background?

The claimant, Tulip Trading, claims to be the owner of some very high value bitcoin. The private keys were likely stolen in a hack, leaving the owner unable to access the assets and move them to safety. The claimant argues that the defendant software developers control and run the relevant bitcoin networks and owe fiduciary duties which extend to implementing the necessary software patch to solve the claimant’s problem and safeguard the assets. The defendants say they have nothing like the power or control the claimant alleges and the duties the claimant describes would be highly onerous and unworkable.

What did the Court of Appeal decide?

“If the decentralised governance of bitcoin really is a myth, then in my judgment there is much to be said for the submission that bitcoin developers, while acting as developers, owe fiduciary duties to the true owners of that property”.

This was the final comment of Lord Justice Birss who delivered the leading judgment. Overturning the decision of the lower court, the Court of Appeal concluded that the claimant’s case raises a serious issue to be tried. To rule it as unarguable would require assumption of disputed facts in the developers’ favour. The time to decide on the duty will be once the facts are established.

There was a realistic argument along the following lines:

• 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 act to introduce code so that an owner’s bitcoin can be transferred to safety in the circumstances alleged by the claimant.

Why is Tulip Trading of interest?

The decision in Tulip Trading is of interest because the case now looks set to proceed to trial, addressing the fundamental questions of whether such networks are in fact decentralised (as the developers argue) and the existence and extent of any fiduciary or other duties owed. With decentralisation being one of the key concepts of blockchain, the case could have far-reaching implications, including opening up a new and potentially easier way for victims in the digital asset space to recover their property.

Birss LJ acknowledged that for the claimant’s case to succeed it would involve a significant development of the common law on fiduciary duties: “I do not pretend that every step along the way is simple or easy”. Birss LJ observed that the facts of the case, whichever party is right about the details, are new and are quite a long way from factual circumstances which the courts have had to examine before in the context of fiduciary duties.

While it’s exceptional for fiduciary duties to arise other than in certain settled categories, the categories in which fiduciary relationships can be identified are not closed. Importantly, the point was made that the common law often works incrementally and by analogy with existing cases, but if the facts change in a way which is more than incremental “I do not believe the right response of the common law is simply to stop and say that incremental development cannot reach that far”.

This decision further underlines the English court’s position at the forefront of developments in this area and its willingness to adapt to the unique situations presented by the use of new technologies.

The observation that “the internet is not a place where the law does not apply” is indicative of the many initiatives which are currently ongoing, in the UK and globally, in an attempt to find effective solutions to regulate (but not stifle) the digital world.

How we can help

Walker Morris’ Commercial Dispute Resolution lawyers have extensive expertise in obtaining effective urgent freezing orders and injunctions to preserve stolen assets. We work seamlessly alongside our Technology & Digital colleagues, so are well versed in advising from a ‘prevention’ or ‘cure’ perspective.

Please contact Louise or Jack if you have any questions about the Tulip Trading case, or need advice, assistance, training or information on cybercrime, fraud, technology disputes or commercial dispute resolution generally.

[1] Tulip Trading Limited (a Seychelles company) v Wladimir Jasper van der Laan and others [2023] EWCA Civ 83