By: N. Pirilides & Associates LLC
Following the identification of crypto-assets by the English Courts as assets, and the finding that crypto-assets may be the subject of freezing or proprietary injunctions, a new development in English case law emerged regarding the fiduciary duties (if any) of the software developers towards the owners of crypto-assets.
Particularly, in the case of Tulip Trading Ltd v Bitcoin Association for Bitcoin SV (BSV) and others [2022] EWHC 667, Tulip Trading Limited (‘Tulip’) claimed to own digital currency assets, that was unable to control or use due to an alleged hack of computers at the home office of Tulip’s CEO.
Tulip filed a claim against the core developers of four digital asset networks (controllers of the software re digital assets in issue), alleging that the latter owe fiduciary duties towards Tulip, by which they should assist the latter in regaining control and use of the assets in issue. Since none of the defendants were in the jurisdiction, orders were sought for service outside the jurisdiction.
Although the High Court found that there was a serious issue to be tried that Tulip is the owner of the bitcoins in issue, the High Court concluded that Defendants were not in a category that had previously been recognised as owing fiduciary duties and there was no realistic basis for concluding that the pleaded facts could provide a basis for the imposition of a fiduciary duty in favour of Tulip. Thus, it was found that Tulip did not establish a serious issue to be tried on the merits of the case and the orders granting permission to serve the claim form out of the jurisdiction and service of the claim form were set aside.
The High Court’s judgment was appealed by Tulip (Tulip Trading Limited v. van der Laan and others [2023] EWCA Civ 83) and the Court of Appeal found that Tulip’s case on fiduciary duties was arguable and that the developers of a given bitcoin network were sufficiently well-defined group to be capable of being subject to fiduciary duties. More particularly, it was decided that developers had undertaken a role which involved making discretionary decisions and exercising power for and on behalf of bitcoin owners in relation to the owners’ bitcoin, which had been entrusted into the developer’s care and hence it was found that it was arguable that software developers owe fiduciary duties to owners of crypto assets and the appeal was allowed.
In light of the above conclusions, the question of whether software developers owe fiduciary duties to the owners of crypto assets remains live; in the meantime, more actions and interim applications for injunctions are expected to be filed against such developers.
Our Litigation & Dispute Resolution team members have dedicated expertise in litigation, have the crucial experience of obtaining freezing injunctive relief and other pre-emptive remedies before assets are dissipated further and can be of assistance in relation to this matter by providing their advice at any stage.
