High Court rejects claim blockchain developers owe duties to users

The latest instalment in the Tulip Trading v Bitcoin Association litigation has been greeted with relief by many in the blockchain community, after the High Court threw out a claim that bitcoin developers (including several bitcoin forks) owed a duty of care or a fiduciary duty to an alleged owner of bitcoin. But the Court did not rule out duties being owed in other circumstances – distributed ledger technology developers, miners and users should all beware that the risk of unexpected liability has not been completely eliminated.

The claim concerned an alleged hack that deprived the claimant of the private key to a bitcoin account.  The claimant was a company whose CEO is Dr Craig Wright, who came to widespread public attention after claiming that he was Satoshi Nakamoto, the creator of bitcoin (the Court noted carefully that it was not dealing with the truth of that assertion). The claimant argued that the developers constituted the core developers of the bitcoin chain and were obliged to write a software patch that would restore the claimant’s access to the account.

In order to determine whether to allow service outside the jurisdiction, the Court was obliged to assume the truth of the claimant’s factual case. Falk J held that, even so, it was not arguable that the bitcoin developers owed a duty of care in tort or a fiduciary duty to the claimant to write the software patch.

Falk J considered the basis of fiduciary duty as an undertaking to act for another giving rise to a duty of trust and confidence. Here, the imbalance of power between bitcoin owners and developers was not sufficient to create this duty. Nor was this duty created by the entrustment of assets to a fixed group of people – the class of bitcoin developers was a fluctuating and unidentified group. Nor did it involve a duty of loyalty to bitcoin users, any software patch would not be for their benefit, but only for a single user. Also, the claimed liability was for an omission – failure to create a software patch. It could not seriously be argued that this fluctuating group had a duty to remain as developers in order to write and implement new bitcoin software.  Similar considerations applied to the imposition of a duty of care.

Although the confirmation that distributed ledger developers did not owe a tortious or fiduciary duty is welcome, it still leaves open several possibilities:

• Falk J expressly distinguished omissions from positive acts. So, where the alleged failure is the promulgation of software that harms a user, a duty might still be arguable. The judge appears to have in mind malicious acts, such as hacks aiming to transfer cryptoassets. But the same argument could apply, for instance, to a fork intended to undo a fraudulent use of the blockchain.
• Falk J also highlighted certain legitimate expectations breach of which might lead to the imposition of a duty, including network security, robustness of the ‘proof of work’ protocol and anonymity.
• Not only would the reasoning of this case not apply to private blockchains, there are indications that developers in a private blockchain might owe non-contractual duties. The indicia that Falk J highlighted: the fluctuating membership of developers; their lack of identity; the absence of a relationship between the parties, are exactly reversed in a private blockchain.
• Questions of partnership were not considered. This is another area of law that may apply to blockchain developers and may create fiduciary duties.
• The claim elided the role of blockchain developers and miners. While the Court was obliged to accept the claimant’s analysis for the purposes of the jurisdictional dispute, any future substantive claim involving developers or miners is likely to take a more nuanced approach.

All those working in the field of distributed ledger technology should bear in mind that this case may only be the first of attempts to impose liability on them by aggrieved users. Until legislation or legal practice provides more clarity, uses of distributed ledger technology – and in particular many DeFi applications – may still risk creating unexpected sources of liability.

The judgment can be found here: Tulip Trading v Bitcoin Association [2022] EWHC 667 (Ch).

See also our earlier post on the Inside Disputes blog on the previous judgment in this case dealing with posting bitcoin as security for costs: The High Court considers whether security for costs can be provided in cryptocurrency | Inside Disputes | Global law firm | Norton Rose Fulbright