High Court decides on first English law case on crypto software duties

Last week, the High Court handed down a judgment in the first case in the English courts which examines the duties of cryptocurrency software developers.

Tulip's claim

Tulip Trading Limited ("Tulip") (a Seychelles-registered holding company of Dr Craig Wright) had issued a multi-billion dollar claim against more than a dozen cryptocurrency developers. Tulip alleged that when hackers struck, its private key was erased, causing it to lose access to billions of pounds worth of bitcoin. (read more in our previous briefing here).

Tulip claimed that the bitcoin software developers owed it fiduciary and tortious duties of care which meant that they were obliged to implement a software patch to enable it to regain control over its lost assets. Mrs. Justice Falk ruled against the existence of a fiduciary duty, including on the basis that developers were a fluctuating body of individuals, could not realistically be argued that they owe continuing obligations to remain as developers and carry out software updates whenever owners require.

As to the question of whether the software developers owed a duty of care in tort, Mrs. Justice Falk found that:

• Tulip’s loss in this case was purely economic loss. No common law duty of care could therefore arise unless a special relationship existed, and it was not arguable that one did;

• The complaint by Tulip was that the developers had failed to act after the hack, but there is no general duty to protect others from harm, and the law generally imposes no duty of care to prevent third parties (hackers) causing loss or damage, or for injury or damage caused by a third party;

• The duties would be owed to an unknown and potentially unlimited class, so the number of claims that could be brought against the developers would be unlimited;

• The open ended nature of such a duty would mean that the developers would be obliged to investigate and address any claim that a person had lost their private keys or had them stolen;

• Developers are a fluctuating body of individuals. Even if they currently control the network, they have given no commitment or assurances to continue to be involved. There is no basis for imposing an obligation on them to do so.

Imposing such a duty of care could not be considered to only be an incremental extension of the law, nor could it be fair, just and reasonable.

Mrs Justice Falk therefore set aside the original order for service out of the jurisdiction and held that the claim had no real prospect of success.

Significance

This is the first case in the English courts which examines the potential duties of cryptocurrency software developers. It is also one of the first rulings in the High Court to cite the UK Jurisdiction Taskforce's 2019 legal statement on the position of crypto assets.

This judgment is an important development in the emerging area of cryptocurrency disputes and it will be welcomed by cryptocurrency developers and the blockchain industry more widely. It has been reported that Tulip will be seeking permission to appeal the judgment.

Authors: David Capps and Fraser Collingham