The U.K. Court of Appeal has unanimously overturned a High Court decision to throw out a case that was set to determine whether blockchain developers owe legal duties to their users that would oblige them to return access to lost or stolen digital assets. Now, that question is set to get the benefit of a full trial.
In a judgment handed down this morning, all three Lord Justices—Lord Justices Birss, Poppelwell and Lewison—held that the High Court judge had erred in throwing the case out. They found that the High Court had taken for granted a highly contested fact—that the developers are a fluctuating and unidentified body. Therefore, contrary to the findings of the lower court, there is a serious issue to be tried on the question of developer duties.
From the judgment:
“…there is, it seems to me, a realistic argument along the following lines. 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.”
They go on to say that “to rule out Tulip’s case as unarguable would require one to assume facts in the defendant developers’ favour which are disputed and which cannot be resolved this way. 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 net result of this is that, absent any further appeal by the developers, Tulip Trading’s case will proceed to trial. There, the question of the extent to which blockchain developers owe legal duties to their users will be decided in full light of the evidence and the facts. If successful, Tulip Trading will have demonstrated that there is hope for the many who have had their digital assets lost or stolen and have assumed (wrongly) that there is no avenue for redress.
Dr. Craig Wright, owner of Tulip Trading Limited, said:
“We are delighted that the judges have granted permission for TTL to pursue its claim for breach of fiduciary duties and/or duty of care against the developers of blockchain linked digital assets including Bitcoin. The court has clearly understood that the interests and actions of individuals using a cloak of decentralisation can control a global financial system. This will ensure that Bitcoin owners and that holders of Bitcoin can properly safeguard and recover control over their digital assets.”
Felicity Potter, partner at ONTIER LLP, acting for Tulip Trading, said:
“This is a much-welcomed judgment from the Court of Appeal. We asserted that it is inappropriate to summarily dismiss TTL’s claims at an early jurisdiction hearing in a matter of evolving law and where the underlying facts have not been assessed by the court, and the Court of Appeal agreed. The scope of developers’ duties must now be explored in detail through a trial.
“The responsibilities owed by developers of digital assets to end users is of significant importance to all coin holders as the concept of digital assets becomes more mainstream. The consequences are particularly acutely felt by TTL’s beneficiaries, given the amounts at stake.
“The outcome at trial will set the precedent for others to follow should they lose or be deprived of access to their digital assets. This is a step towards a properly regulated and well-governed digital asset ecosystem which should be welcomed by potential and current coin-holders alike. We look forward to successfully presenting TTL’s case at trial in due course.”
Case history
The case, brought by Tulip Trading, concerns £3 billion in digital assets which Tulip Trading lost access to as a result of a hack. The claimants sought to establish that already-established fiduciary and tortious duties should apply to blockchain developers to compel them to act to grant Tulip Trading access to its legally owned assets.
The claim was initially thrown out by the High Court on the basis that there was no serious issue to be tried on the question of whether blockchain developers owe fiduciary and tortious duties to their users.
However, the U.K. Court of Appeal agreed to look at the decision on the basis that the question “is one of considerable importance and is rightly characterized as a matter of some complexity and difficulty.”
At the Court of Appeal hearing in December, John Wardell KC for Tulip Trading argued that “the issues raised are of fundamental importance to TTL itself, as its owns substantial assets that it can no longer access, as well as to the financial world generally.”
The respondent developers argued that it is impractical to assign fiduciary and tortious responsibility to the developers in the way advocated by Tulip Trading.
Next steps
With the Court of Appeal’s decision, the case will now proceed to trial. It will be the first time that a court has considered—in full—whether blockchain developers owe legal duties to their users which would oblige them to act in cases of lost or stolen digital assets.
The potential ramifications are enormous: it is often taken for granted that if digital assets are lost or stolen, there is no avenue for redress despite developers having the ability to return that property to its rightful owner. If successful, Tulip Trading’s case will demonstrate that this is not the case—which would go a long way to making digital assets a more palatable proposition for HODLers and institutional investors alike.
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