Court of Appeal
February 23, 2023
Tulip Trading Ltd v Bitcoin Association for BSV and others
Before Lord Justice Lewison, Lord Justice Popplewell and Lord Justice Birss
[2023] EWCA Civ 83
Judgment February 3, 2023
It was arguable that software developers who looked after bitcoin owed fiduciary duties to an owner of that cryptocurrency.
The Court of Appeal so stated when allowing the appeal of the claimant Tulip Trading Ltd (a Seychelles company) against a decision of Mrs Justice Falk ([2022] 2 All ER (Comm) 624) to grant an application by 14 of 16 defendants, being various software developers, to set aside service out of the jurisdiction. The first defendant, Bitcoin Association for BSV (a Swiss verein), had accepted service. Another defendant had not responded.
John Wardell KC, Bobby Friedman and Sri Carmichael for the claimant; James Ramsden KC for the second to 12th and 15th to 16th defendants; Alex Charlton KC and Daniel Khoo for the 14th defendant. The first and 13th defendants did not appear and were not represented. LORD JUSTICE BIRSS said that the claimant claimed to be the owner of some bitcoin with a very high total value (the value in US$ expressed in April 2021 was about $4 billion). The bitcoin was held at two addresses on the blockchain called 1Feex and 12ib7. However the private keys had been lost in a hack, probably stolen. Without its private keys the claimant could not access its assets or move them to safety. However, the claimant contended, the developers named as defendants in the case controlled and ran the four relevant bitcoin networks, and it would be a simple matter for them to secure the claimant’s assets by, for example, moving them to another address which the claimant could control. The claimant contended that the role the developers had undertaken in relation to the claimant’s property (the bitcoin) and the power that role gave them, and all the circumstances, meant that the developers should be recognised as a new ad hoc class of fiduciary, owing fiduciary duties to the true owners of bitcoin cryptocurrency, including the claimants as true owner of the bitcoin at 1Feex and 12ib7. The fiduciary duties owed should extend to implementing the necessary software patch to solve the claimant’s problem and safeguard the claimant’s assets from the thieves. The developers denied they owed fiduciary or any other duties to the claimant. They contended that they had nothing like the power or control the claimant alleged and that duties of the kind the claimant contended for would be highly onerous and unworkable. All of the defendants were resident outside the jurisdiction. The claimant obtained leave to serve the defendants outside the jurisdiction but, on an application to set aside service brought by most of the defendants who had by then been served, the judge concluded that the claimant had not established a serious issue to be tried because there was no realistic prospect of establishing that the facts pleaded amounted to a breach of fiduciary duty owed by the defendants to the claimant. The court could, but was not bound in law, to decide any legal question arising in a jurisdiction application. One important factor was the warning against deciding controversial points of law in a developing area on assumed or hypothetical facts. That concern did not cease to apply simply because the point arose in a jurisdiction application. It was always an important factor to bear in mind. For the claimant’s case to succeed would involve a significant development of the common law on fiduciary duties. Not every step along the way was simple or easy. However there was, it seemed to his Lordship, a realistic argument along the following lines. The developers of a given network were a sufficiently well-defined group to be capable of being subject to fiduciary duties. Viewed objectively the developers had undertaken a role which involved making discretionary decisions and exercising power for and on behalf of other people, in relation to property owned by those other people. That property had been entrusted into the care of the developers. The developers therefore were fiduciaries. The essence of that duty was single-minded loyalty to the users of bitcoin software. The content of the duties included a duty not to act in their own self-interest and also involved a duty to act in positive ways in certain circumstances. It might also, realistically, include a duty to act to introduce code so that an owner’s bitcoin could be transferred to safety in the circumstances alleged by the claimant. The conclusion was not that there was a fiduciary duty in law in the circumstances alleged by the claimant, only that the case advanced raised a serious issue to be tried. The time to decide on the duty in the present case was once the facts had been established. To rule out the claimant’s case as unarguable would require one to assume facts in the defendant developers’ favour which were disputed, and which could not be resolved that way. If the decentralised governance of bitcoin really was a myth, as had been suggested, then there was much to be said for the submission that bitcoin developers, while acting as developers, owed fiduciary duties to the true owners of that property. Lord Justice Lewison and Lord Justice Popplewell agreed. Solicitors: Ontier LLP; Bird & Bird LLP; Brett Wilson LLP.