" class="no-js "lang="en-US"> Court of Appeal Rules in First Case Over Developers’ Duty of Care to Crypto Asset Owners - Fintech Finance
Tuesday, March 19, 2024

Court of Appeal Rules in First Case Over Developers’ Duty of Care to Crypto Asset Owners

Today the Court of Appeal has ruled in the first case in the English courts to examine whether any duty of care arises between crypto asset software developers and owners of digital assets.

If the claim is successful, it will present a fundamental challenge to the operation and ethos of decentralised finance. The claim would set a precedent that could apply to any digital asset, including cryptocurrencies and stable coins, NFTs and other tokens. If the claim is successful, any software developers who have ever written and contributed open source code – which could have been used by millions of anonymous people around the world – would owe duties to all the users of that code.

For example, this could mean a developer facing billion-dollar claims from individuals whose identity and legitimate ownership of crypto assets are unknown to them, and is likely to present a significant deterrent to open-source coders. The collapse of this system would cause significant chaos and could herald the end of open-source coding.

Background to the case

Tulip Trading Limited, a Seychelles company of computer scientist Dr Craig Wright (who claims to be the identity behind the pseudonym Satoshi Nakamoto and the creator of bitcoin), had issued a multi-billion dollar claim against 16 cryptocurrency developers. It claims that in February 2020, private keys that granted access to crypto assets worth approximately £3 billion were hacked and removed from Wright’s computer, meaning Tulip was unable to access its crypto assets.

 Tulip claims that the developers, who developed and controlled the relevant software, owe Tulip a fiduciary duty and a duty of care that would oblige the developers to assist Tulip in regaining access to and control of the crypto assets. This would involve the developers writing a software ‘patch’ to amend the underlying software and thereby grant Tulip access to the assets.

 The defendants are software developers based around the world, who are open-source developers and principally responsible for the creation of the networks on which the crypto assets are held. They voluntarily write and post code to GitHub, an open source forum, from which it can be accessed and used for free by anyone. The original claim sought permission to serve proceedings on the developers who are not based in England.

The Courts below

The High Court ruled against the existence of a fiduciary duty. It found that as developers were a fluctuating body of individuals, it could not realistically be argued that they owe continuing obligations to remain as developers and carry out software updates whenever asset owners require. Mrs Justice Falk therefore set aside the order for service out of the jurisdiction and held that the claim had no real prospect of success.

 The Court of Appeal decision

This morning, the Court of Appeal in London (Lewison, Popplewell & Birss LJJ) has ruled that those claims give rise to a “serious issue to be tried” and should therefore proceed to a full trial in London.

Astraea Group act for fourteen of the developers, instructed by Bird & Bird. James Ramsden KC was lead and sole advocate for them in the Court of Appeal.

 Commenting on the judgment, James Ramsden KC said:

 “This is in many ways an outcome the Court of Appeal may have felt driven to. Because the developers are all outside the jurisdiction of the court, permission to serve the proceedings on them was required. And that required Tulip to show that its claim gave rise to a serious issue to be tried.

 As observed by the Court of Appeal in granting permission to appeal last August, it is in many ways a shame that this incredibly important case fell to be decided according to this low threshold test rather than at a full trial. The Court of Appeal has effectively agreed with that observation, by deciding that the issues raised by this case are so important they merit determination at a full trial. Tulip’s claim has been bedevilled by pleading and presentational issues but once again the Court of Appeal have looked through them in favour of a ruling at a full trial that will deliver greater legal certainty.

 The courts in this jurisdiction continue to lead the common law world in developing a legal structure for the De-Fi sector. This case will be the most important so far in maintaining that lead and continuing to establish this jurisdiction as the leader for De-Fi litigation.

 The outcome of this claim at trial will therefore have a profound impact and not just in the UK. That impact will apply regardless of whatever regulation the UK Government eventually settles on. So watch this space. I expect a full trial in early 2024.”

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