The Court of Appeal has decided that cryptoasset software developers may owe fiduciary duties or a duty of care to help recover bitcoin which is inaccessible as a result of criminal activity.
This is not a final decision. The Court has simply decided that the claim, against foreign defendants, is arguable and can go to trial.
Bitcoin is simply a number held at a certain digital address. Transfers of bitcoin are recorded in a ledger or database known as a blockchain. The blockchain is a public register recording every transaction. The amount held at each address is public, but the identity of the owner is not. Each address is associated with a pair of public and private cryptographic keys. The public key identifies the address on the network. The owner uses the relevant private key to control and transfer bitcoin.
As reported in a previous blog post, in Tulip Trading Limited v Waldimir van der Lann & Others[1], the Claimant claimed to own bitcoin that was worth over £3 billion to which it lost access when hackers allegedly removed the private keys needed to access and transfer the bitcoin.
To overcome this, Tulip argues that the developers control and run the software supporting the relevant bitcoin networks, and that it would be a simple matter for them to recover Tulip’s assets, for example by moving them to another address which Tulip controls. It says that the practical power that developers have over the networks means that they owe fiduciary duties to the true owners of bitcoin, including duties to safeguard owners’ assets from thieves.
In effect, Tulip asserts that the developers should be compelled by the Court to write code transferring digital assets without the use of private key. The developers argue that they have nothing like the power or control Tulip alleges and that duties of the kind Tulip contend for are highly onerous, unworkable and would fundamentally change the design of the blockchain and its core principle of decentralisation.
The Court of Appeal recognised that Tulip’s case involves ‘a significant development of the common law on fiduciary duties’ but reversed the original decision that the case was unarguable. The Court warned against deciding controversial points of law in a developing area on assumed or hypothetical facts.
However, whilst the decision is provisional, the judgment also concludes with the following comment: ‘If the decentralised governance of bitcoin really is a myth, then in my judgment there is much to be said for the submission that bitcoin developers, while acting as developers, owe fiduciary duties to the true owners of that property’.
The implications of the ultimate outcome of the case are very significant indeed, given (for example) the range of potential circumstances in which bitcoin owners might look to compel developers to help them recover lost or misappropriated bitcoin.
[1] [2023] EWCA Civ 83
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James Maton