Duties of bitcoin software developers to come under the spotlight

Court of Appeal decision demonstrates the willingness of English courts to delve into novel digital assets issues

English common law evolves in response to the commercial challenges of every generation. The recent Court of Appeal decision in Tulip Trading Limited -v- Bitcoin Association for BSV & Others [2023] EWCA Civ 83 is an example of the English Court engaging with the increasingly prevalent and complex issues arising out of digital assets disputes.

The question which arises in this case is whether bitcoin software developers owe fiduciary or tortious duties to the owners of bitcoin. Although seemingly narrow in focus, the case could have significant implications for software developers in general, as well as DeFi and the broader digital assets industry.

Summary of the case

Tulip Trading Limited (TTL) claims to be the owner of bitcoin worth about US$4 billion. It was the victim of a hack of the private keys that control its bitcoin. As a result of the hack, TTL cannot access or move its bitcoin.

TTL argues that the 16 defendants in the case – all of whom are alleged to be developers with control over the relevant bitcoin networks – can apply a software patch to enable TTL to regain control of its stolen bitcoin. TTL argues that the software developers' control over the bitcoin networks means they should be held to owe fiduciary or tortious duties to the owners of bitcoin. Such duties would extend to implementing a software patch to safeguard their bitcoin. The developers deny the existence of such fiduciary or tortious duties (which they argue would be highly onerous and unworkable) and claim that they do not have control over the bitcoin networks, as alleged.

The background to the Court of Appeal decision

The developers are all resident outside of England and Wales so TTL sought permission to serve proceedings outside the jurisdiction. One of the threshold issues when the Court considers applications for service out of jurisdiction is whether there is a serious issue to be tried. At first instance the Court held that TTL had not established that there was a serious issue to be tried on the merits of the claim; the reason given was that there was no realistic prospect of establishing, based on the facts pleaded, that there had been a breach of fiduciary or tortious duties owed by the developers to TTL (Tulip Trading Limited -v- Bitcoin Association for BSV & Others [2022] EWHC 667 (Ch)).

TTL appealed. In a judgment handed down on 3 February 2023, the Court of Appeal reached a unanimous decision to allow TTL's appeal. It was held that the first instance judge was wrong to hold that TTL had no realistic prospect of establishing that the alleged duties of the developers exist. The Court of Appeal concluded that the case advanced by TTL raised a serious issue to be tried and that to rule out TTL's case as unarguable would require the assumption of facts, which are disputed, in the developers' favour. The case will therefore proceed to a full trial, which is expected to take place in 2024.

Potential implications of the case

If it is determined at a full trial that bitcoin software developers owe fiduciary or tortious duties to unknown persons in consequence of their software development work, then this would constitute a radical extension of existing fiduciary/tortious duties. The determination of this issue may ultimately hinge on whether the governance of bitcoin is proven to be decentralised or not: "If the decentralised governance of bitcoin really is a myth … 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" (paragraph 91 of the Court of Appeal judgment).

The judgment further acknowledged the following as arguable. First, that if developers make discretionary decisions and exercise power for and on behalf of other people in relation to property owned by such people, then this could result in software developers assuming fiduciary responsibilities. Second, that the content of the fiduciary duty could include a duty not to act in the developers' own self-interest and to act in positive ways in certain circumstances (eg a duty to act to introduce code so that an owner’s bitcoin can be transferred to safety in the circumstances alleged by TTL).

Whatever the outcome it will be fascinating to assess how the Court grapples with this case at trial. It promises to be a blockbuster.

Authors: James Levy and Bernadette Harkin