Subject: cryptocurrencies; software developer; crypto fraud; money laundering; criminal law
Case: Tulip Trading Ltd v Bitcoin Association for BSV [2023] EWCA Civ 83
Tulip Trading Ltd v Bitcoin Association for BSV [2023] EWCA Civ 83 is the first attempt by the Court of Appeal to hold software developers - who ‘look after’ bitcoins - may arguably owe fiduciary duties to bitcoin owners.
Dr Wright’s computer was hacked. The private keys controlling US$ 4 billion worth of bitcoins were stolen. Dr Wright’s company claimed to be the bitcoin owner. It sued software developers, controlling four bitcoin networks.
The argument runs as follows: the developers have ‘undertaken’ to look after his property (ie bitcoin). They have power to control the network; therefore, they owe ‘fiduciary duties’ to introduce code – to assist the bitcoin owner in regaining control of its bitcoins, without a key.
The Court of Appeal accepted this ingenious argument. The claimant overcome the first hurdle – and successfully obtained leave to serve the claim to the defendants outside the English jurisdiction.
The case has important implications on crypto fraud cases. For victims of crypto fraud may turn to sue the developers, who essentially ‘look after’ the bitcoin, may arguably owe ‘fiduciary duties’ to the true owner of that cryptocurrency.
A fiduciary owes essentially the duty of ‘single-minded loyalty’ to his principal (here bitcoin owners), not to act in his own self-interest (at [76], [86]): see also Lehtimäki v Cooper [2020] UKSC 33 [44]. The arguable duties owed by software developers to true owners include a ‘positive’ duty to recover an owner’s bitcoin. Briss LJ stated emphatically (at [86]):
The developers of a given network are a sufficiently well-defined group to be capable of being subject to fiduciary duties. Viewed objectively the developers have undertaken a role which involves making discretionary decisions and exercising power for and on behalf of other people, in relation to property owned by those other people. That property has been entrusted into the care of the developers. The developers therefore are fiduciaries. The essence of that duty is single minded loyalty to the users of bitcoin software. The content of the duties includes a duty not to act in their own self-interest and also involves a duty to act in positive ways in certain circumstances. It may also, realistically, include a duty to act to introduce code so that an owner's bitcoin can be transferred to safety in the circumstances alleged by Tulip.
This, as Briss LJ acknowledged, ‘would involve a significant development of the common law on fiduciary duties’ (at [86]).
July 2024
Dr. Anthony Lai and Dr. Rita Cheung
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