On February 3, 2023, the England and Wales Court of Appeal (the Court) released its decision in Tulip Trading Limited (A Seychelles Company) v Bitcoin Association For BSV & Ors [2023] EWCA Civ 83, finding a serious issue to be tried on the question of whether bitcoin developers may owe fiduciary duties or duties in tort to cryptocurrency owners.

Tulip Trading Limited (Tulip) claimed to own certain amounts of bitcoin, the private keys to which were lost or stolen in a hack that rendered Tulip unable to access its cryptocurrency. Tulip alleged that it would not be technically difficult for the developers of bitcoin to secure and restore the assets, and that the developers should be recognised as a new ad hoc class of fiduciary, owing fiduciary duties to owners of bitcoin cryptocurrency. The lower court found that Tulip had no realistic prospect of establishing this fiduciary duty.

On appeal, the Court stated it was conceivable for relevant individuals, when acting in the role of developers, to be held to owe an arguable fiduciary duty to bitcoin owners not to compromise the owners' security. The Court also stated the role is single minded in nature, as it puts the interests of all the owners as a class ahead of the developer's self-interest. This undermined part of the defendants’ argument involving the concept of "decentralisation"; namely, that the developers should be seen as a large and shifting class.

The Court considered that bitcoin owners may have a legitimate expectation that developers would not exercise their authority in their own self-interest to the detriment of the owners and will act in good faith to fix the problems in the software drawn to their attention. Furthermore, the Court stated that the nature of the activity required to fulfil the duty constituted an act of the same kind as the actions the developers undertake to fulfil their ordinary role (i.e., a code update).

Although the Court recognized that a significant development of the common law on fiduciary duties would be required for Tulip’s case to succeed, it found there was a realistic argument to be made, such as:

“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 Tulip.”

The Court therefore allowed Tulip’s appeal, finding that the case raised a serious issue to be tried.

Summary By: Steffi Tran


23 03 08

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