Cryptoassets In Litigation: A New 'Tulip Mania'? ' English High Court Clarifies Duties Owed By Cryptocurrency Developers To End Users

• Published date: 08 June 2022
• Subject Matter: Technology, Fin Tech
• Law Firm: Matheson
• Author: Mr Rory O'Keeffe, Michael Byrne, Tom Mullen, Ruairi O'Connell and Samuel Elliott

Introduction

The English High Courthas delivered judgment in Tulip Trading Limited v Bitcoin Association for BSV & Ors¹, a seminal case considering the duties owed by open-source cryptocurrency developers to cryptocurrency end-users.

The claimant company, beneficially owned by Dr Craig Wright, Tulip Trading Limited ("TTL") alleged that it suffered significant losses following a hack against Dr Wright's computer. This hack resulted in the plaintiff becoming unable to access $4.5bn in cryptocurrency. TTL issued proceedings against the defendant developers alleging a breach of fiduciary and common law duties and seeking an alteration of the code (i.e. a fork to the Bitcoin blockchain), allowing TTL to access the cryptocurrency it claimed was stolen from it.

The High Court rejected the claimant's submission that there was a duty of care on the part of the open source software. Notably, the Court also considered whether it would be appropriate to grant an order for security of costs and whether it was permissible to provide security for costs in Bitcoin.

Substantive Proceedings before the English High Court

The Court noted that the claimant was effectively seeking the recognition of a positive duty on the part of the developers to alter software, or to introduce a patch, to facilitate TTL regaining control of its assets. Whilst Falk J accepted that a negative duty might be ascribed to developers to refrain from introducing bugs or features which compromise the security of users, he found that no positive duty existed to alter software. Falk J concluded that the concept of a fiduciary relationship relies on 'the obligation of undivided loyalty', and that the relief sought by the claimant would potentially compromise the efficacy of 'proof of work' processes on the blockchain and the anonymity of BTC users.

Falk J further noted that it was unclear to whom such duty might be owed if it existed. Examining the claimant's position, the Court noted that the 'potential class in this case is unknown and potentially unlimited', and that the defendants could be subject to a large number of claims from individuals who had their private keys stolen or otherwise no longer had access to their BTC.² If the Court held such a duty was owed, the defendants would 'be obliged to investigate and address any claim that a person had lost their private keys or had them stolen'. The Court concluded that neither a fiduciary or tortious duty was owed by the defendants to TTL.

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