$4.5bn Hack - English Court Of Appeal Decides On Duties Of Crypto Developers

• Published date: 20 March 2023
• Subject Matter: Litigation, Mediation & Arbitration, Technology, Trials & Appeals & Compensation, Fin Tech
• Law Firm: Matheson
• Author: Mr Rory O'Keeffe and Samuel Elliott

In a significant case for investors in, and developers of, cryptocurrencies and other blockchain assets, the English Court of Appeal delivered judgment in Tulip Trading v Wladimir van der Laan and Ors¹. The Court overturned an earlier High Court decision (also known as the Tulip Trading v Bitcoin Association case) which held that developers do not owe fiduciary duties to end-users. The Court of Appeal held that such duties may, in fact, be owed.

Round One: High Court

What Was the Claim For?

The plaintiff company, Tulip Trading Limited ("TTL"), alleged that it suffered significant losses following a hack carried out against TTL's owner, which resulted in TTL becoming unable to access $4.5bn in cryptocurrency. TTL issued proceedings against the defendant developers alleging a breach of fiduciary duties and tortious duties on the part of the developers. TTL also sought an order compelling the developers to change the codebase for the cryptocurrencies in question, to negate the alleged fraudulent transaction and return the $4.5bn to TTL's wallet (please click here for previous Matheson coverage of the High Court action).

What Did the Court Decide?

The High Court held that the developers owed no such duties to end users. It held that the relationship between cryptocurrency developers and end-users did not give rise to fiduciary duties, and that there no duty of care owed by the developers to TTL. The Court noted that such duty of care would effectively be unworkable, given there were a potentially unlimited number of end-users to whom the developers may owe such duty. The High Court concluded that there was no serious issue to be heard, on the facts of the matter, and dismissed TTL's claim.

Was That the End of it?

No, TTL appealed the decision.

Round Two: Court of Appeal

The Court of Appeal considered whether there was a real prospect of TTL succeeding in their claim, should it be allowed to move to a full hearing.

TTL's Appeal?

TTL submitted that the developers exercised direct control over, or significant influence over, the codebase of the cryptocurrencies in question. TTL argued that the developers determined what software and parameters are required to mine and carry out transactions using the cryptocurrency in question, and therefore had the capacity to effectively 'reverse' transactions by forking the codebase.

Developer's Position?

The defendants disputed this, arguing that development of the cryptocurrencies in question was carried out by way of a...