Blockchain Bites: A fiduciary duty by any other name would smell just as sweet: Tulip Trading v Bitcoin Association

• Published date: 17 April 2022
• Subject Matter: Media, Telecoms, IT, Entertainment, Technology, IT and Internet, New Technology, Fin Tech
• Law Firm: Piper Alderman
• Author: Mr Michael Bacina and Jordan Markezic

Michael Bacina and Jordan Markezic of the Piper Alderman Blockchain Group bring you the latest legal, regulatory and project updates in Blockchain and Digital Law.

A fiduciary duty by any other name would smell just as sweet: Tulip Trading v Bitcoin Association

Key takeaways

The High Court of England and Wales (High Court) has recently summarily dismissed a claim brought against bitcoin software developers in Tulip Trading Ltd v Bitcoin Association For BSV & Ors [2022] EWHC 667 (Ch) (TTL v Bitcoin Association).

The claimant - Tulip Trading Limited (Tulip) - and by extension, its CEO, Dr Craig Wright, sought declarations that it owned a very substantial amount of digital currency assets as well as orders requiring the Defendants to take steps to ensure that Tulip had access to and control of the assets, or for equitable compensation or damages.

This serves as the first case heard by the English Courts that considers the roles and duties of cryptocurrency software developers, and one closely watched by others around the world.

The Justice hearing the matter, Mrs Justice Falk (Falk J) was not able to conclude that Tulip had any realistic prospect of establishing that the facts pleaded amounted to a breach of fiduciary duty owed to it by the Defendants.

This matter was an interlocutory application and still leaves open the possibility that the English Courts could impose a fiduciary duty upon cryptocurrency developers, but will be persuasive precedent in the meantime.

Facts

Tulip sought declarations that it owned a very substantial amount of digital currency assets as well as orders requiring the Defendants to take steps to ensure that Tulip had access to and control of the assets, or for equitable compensation or damages. In short, The Defendants in this matter were the core developers and who the claimant alleged controlled the software in respect of four digital asset networks:

i) the Bitcoin Satoshi Vision Network (BSV Network);
ii) the Bitcoin Core Network (BTC Network);
iii) the Bitcoin Cash Network (BCH Network); and
iv) the Bitcoin Cash ABC Network (BCABC Network)

NB: Together, the Defendants.

A number of the Defendants challenged the jurisdiction of the High Court.

The overall facts of the matter are such that Tulip alleges that BTC, BCH, and BCHABC Networks were all initially created by copying the blockchain of a pre-existing network (BSV in 2017) but applying different protocols and software instructions.

Tulip alleged that the relevant assets were held on the BSV Network and have been replicated in the others through the copying process referred to above including the period after a substantial hack of computers located at Dr Wright's home office in Surrey, England.

The hack was alleged to have resulted in the loss of Dr Wright's private keys, that were contained in encrypted digital wallet files, and which had not been accessed in several years, being stolen and transactions being effected without Dr Wright (or his spouses) approval. Digital currency worth approx '1.1 million had been taken from Dr Wright's digital wallet.Tulip claimed that the Defendants were the core developers of, and had control over, various forked versions of Bitcoin, and that they had the ability to propose amendments to the underlying source code in order to give Tulip control over the previously stolen digital assets. Tulip claimed that the Defendants were under tortious and fiduciary duties that compelled them to do this.

The extent to which the...