On 3 February 2023, the UK Court of Appeal handed down the judgment in Tulip Trading Limited (A Seychelles company) v Bitcoin Association For BSV & Ors  EWCA Civ 83.
The judgment is significant in the cryptocurrency space as it addresses the issue of decentralisation in blockchain and cryptocurrencies. The primary question, in this case, is whether bitcoin developers may arguably owe fiduciary duties or duties in delict to an owner of bitcoin.
Tulip Trading Limited (Tulip) claims to be the owner of bitcoin to the value of around USD 4 billion, held at two addresses on the blockchain. The private keys have, however, been lost in a hack and likely stolen. Without its private keys, Tulip cannot access its assets or move them to safety. Tulip contends that the developers (named as respondents) have a duty to patch the underlying bitcoin network software to help restore access to its bitcoin funds.
In the first instance, the High Court ruled that there was no issue to be tried on the basis that Tulip had not established "a serious issue to be tried". This was because there was no realistic prospect of establishing that the facts pleaded amount to a breach of fiduciary or tortious duty owed by bitcoin's blockchain developers to Tulip. The Court of Appeal, however, disagreed and allowed this appeal.
The essence of Tulip's case was that the developers, having undertaken to control the software of the relevant bitcoin network, thereby have and exercise control over the property held by others (ie bitcoin). The developers, therefore, owe fiduciary duties to the true owners of that property. As such, they were obliged to introduce a software patch and help Tulip recover its property.
The Court of Appeal Judgment
Tulip's grounds of appeal included the following points:
- The case raised novel and complex issues that would need to go to trial as this area of law is uncertain.
- The judge at first instance had erred in holding that Tulip had no real prospect of establishing that fiduciary or tortious duties existed.
- The conclusions were incorrect as they had been based on findings impermissibly assumed against Tulip.
The categories in which fiduciary relationships can be identified are not closed. The Court of Appeal considered whether it could accept this proposed extension to the usual settled categories of fiduciary duties, as set out in
Al Nehayan v Kent  EWHC 333. The Court of Appeal maintained an open mind to the technological evolution in this space and held that:
"…the common law often works incrementally and by analogy with existing cases, and rightly so; but if the facts change in a way which is more than incremental, I do not believe the right response of the common law is simply to stop and say that incremental development cannot reach that far."
The Court of Appeal recognised that for Tulip's case to succeed, there would be significant development of the common law on fiduciary duties and that:
"[t]he 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 introduce code so that an owner's bitcoin can be transferred to safety in the circumstances alleged by Tulip."
While the Court of Appeal did not definitively decide that there is a fiduciary duty in law in the circumstances alleged by Tulip, it did consider that it is a possibility and that the case advanced raises a serious issue to be tried. The time to decide on the duty, in this case, is once the facts are established. The judge said that
"if the decentralised governance of bitcoin really is a myth, then there was much to be said for the argument that bitcoin developers while acting as developers, owe fiduciary duties to the true owners of that property."
The Court allowed the appeal. As a result, the case is now expected to go to full trial in 2024.