Don't lose your keys: Bitcoin developers do not have a duty to assist owners in recovering lost cryptocurrency

Briefing

In the latest chapter in the high profile Tulip litigation (Tulip Trading Limited v Bitcoin Association for BSV and others [2022] EWHC 667 (Ch)), the High Court found that the Defendant software developers did not owe any fiduciary or tortious duties to the claimant, Tulip Trading Limited ("Tulip"), to help it in regaining control and use of its Bitcoin.

The Bitcoin in question was said to be worth U$4.5 billion and had allegedly been subject to a hack that resulted in the deletion of the private keys. Tulip alleged it would be relatively straightforward for the Defendants to write and implement a software "patch" to enable the Claimant to regain control of its assets – a point which the Defendants challenged as being inconsistent with the concept of a decentralised system, and which they claimed would in any event likely be ineffective and simply result in a "fork" in the network.

Background to the claim

Tulip is a Seychelles incorporated company whose ultimate beneficial owners are Dr Craig Wright and his family, who are residents in England. The litigation has been the subject of a high degree of publicity, partly due to Dr Wright's (disputed) claim that he is Satoshi Nakamoto – the author of the Bitcoin white paper. The Defendants were said to be the core developers and/or otherwise in control of four relevant digital asset networks. None of the Defendants are based in England and Wales, although in May 2021, the Court granted Tulip permission to serve out of the jurisdiction. A number of Defendants issued a jurisdictional challenge concerning the order for permission to serve out, and the latest decision arises as a result of the Court's determination of that application. It is therefore relevant to note that, like many cases in the crypto arena, this was an interim application rather than a full trial.

To be successful in their jurisdictional challenge, the Defendants had to show that the claim did not meet at least one of the following criteria:

(i) there was a serious issue to be tried
(ii) there was a good arguable case that the claim fell within one or more of the jurisdictional gateways
(iii) in all the circumstances English was the appropriate forum and the Court should exercise its discretion to permit service out of the jurisdiction.

While the Court considered each of these tests for completeness, it overturned the permission to serve out on the basis that the claim did not meet limb (i) of the test. The Defendants therefore overcame a high threshold with the Court finding itself unable to conclude that Tulip had a realistic prospect of establishing that the facts pleaded amount to a breach of fiduciary and/or tortious duty owed to it by the Defendants.

Reasons for the Court's decision

In reaching its decision that the Defendants did not owe any fiduciary or tortious duties as alleged, one of the factors on which the Court placed weight was that the developers of the network software were a fluctuating body of contributors without any organisation or structure. It held that:

In relation to the alleged fiduciary duties, it could not realistically be argued that the Defendants owed continuing obligations to, for example, remain as developers and make future updates whenever it might be in the interests of owners of Bitcoin to do so.
In relation to the alleged tortious duties, the required special relationship to found a duty of care could not be said to be an incremental extension of the existing law, and (particularly given its unlimited nature) could not realistically be argued to be fair, just and reasonable. The Court stated that it was hard to see how there was any basis for imposing an obligation which would require developers to continue to be involved and make changes when required by Bitcoin owners, when they have given no previous commitment or assurance that they would do so and their previous involvement may well have been intermittent.

Future trends

This is the first English Court decision considering the role and duties of cryptocurrency software developers, although we anticipate that this will become an emerging trend in the case law surrounding digital assets and smart contracts, with increased consideration of the intentions of contracting parties and programmers.

We think the decision in this case was unsurprising, but it is nonetheless reassuring for the cryptoasset and blockchain industry. No doubt we will continue to see claims being brought seeking help where eg private keys have been lost, or smart contracts have gone wrong, and the law will need to continue to adapt to respond – for now, the courts of England and Wales are continuing to showcase their ability to rise to the challenges that new and developing technology brings.