High Court Finds Developers Did Not Owe Duty To Cryptoasset Owners To Enable Access To Lost Cryptoassets

• Published date: 06 April 2022
• Subject Matter: Litigation, Mediation & Arbitration, Technology, Trials & Appeals & Compensation, Fin Tech
• Law Firm: Herbert Smith Freehills
• Author: Ms Natasha Johnson and Philip Lis

The High Court has held that cryptoasset systems and software developers did not owe a duty to cryptoasset owners to permit or enable access to the assets where the owners had lost control over the assets following a hack. The court set aside an order permitting service of the proceedings on the developers out of the jurisdiction, as the owners had not established a serious issue to be tried on the merits: Tulip Trading Limited v Bitcoin Association for BSV [2022] EWHC 667 (Ch).

This is an important judgment for cryptoasset owners and developers, and is the latest in a series of significant rulings from the English courts in relation to cryptoassets. It suggests that an owner of cryptoassets has no recourse against the developers of the relevant cryptoasset systems if they lose control of their cryptoassets, either accidentally or due to an event such as a hacking incident. It does not, however, altogether close off arguments that the developers or controllers of cryptoasset systems might owe fiduciary duties or a tortious duty of care in other circumstances, for example where they have introduced a bug by means of a software update or otherwise created a risk to users.

The present decision follows an earlier interim order in the same case (discussed in our previous blog post) where the court refused to allow security for costs to be paid in cryptocurrency as that would not result in protection equal to a payment into court or first class guarantee.

Background

The background to the case is described in more detail in our previous post linked above.

The claimant (a Seychelles company owned by Dr Craig Wright, who claims to be the creator of the Bitcoin system) claimed to own Bitcoin worth in the region of US$4.5 billion, which he accessed and controlled from his computer and network in England. This access was facilitated by secure private keys, which were subsequently deleted by hackers who accessed Dr Wright's computer in February 2020 and caused Dr Wright to lose access to the Bitcoin.

The claimant claimed that the defendants, open-source software developers who developed the Bitcoin Core and Bitcoin Cash ABC software on a non-commercial basis, owed a fiduciary or (in the alternative) tortious duty to the claimant to enable it to re-access the Bitcoin.

The claimant sought a declaration that it owned the relevant assets and orders requiring the defendants to take reasonable steps to ensure that it had access to them, or for equitable compensation or damages. It obtained permission to serve the claim on the defendants out of the jurisdiction on a "without notice" application, in the usual way. Following service, one defendant accepted the court's jurisdiction over the claims, but the other defendants challenged jurisdiction.

Decision

The High Court (Falk J) held that the claimant had not established a serious issue to be tried on the merits of the claim. Therefore the order permitting service out of the jurisdiction, and the service itself, would be set aside.

Falk J applied the usual three-limb test for service out: first, whether there was a serious issue to be tried on the merits; second, whether there was a good arguable case that the claims fell within one of the "gateways" under CPR PD 6B; and third, whether England was the appropriate forum for the trial of the dispute.

1. A serious issue to be tried on the merits of the claim

Under the first limb, the court considered whether there was a serious issue to be tried on the merits of the claim; ie whether the claimant...