Tulip Trading Ltd v Bitcoin Association: Common Law developments & implications for cryptoassets and software developers

18th Jul 2023

The case of Tulip Trading Ltd (a Seychelles company) v Bitcoin Association for BSV and others [2023] 4 W.L.R. 16 (“Tulip Trading”), recently heard by the Court of Appeal of England and Wales (the “Court of Appeal”), signifies important developments in the Common Law brought about by the nature of blockchain technology. It has notable implications for the legal treatment of cryptoassets and has also raised the issue of whether software developers might owe users of their software a fiduciary duty.

The factual background of the case is relatively straightforward. The claimant company (Tulip) was the owner of a significant amount of Bitcoin (valued in April 2021 at approximately $ 4 billion). Tulip’s private keys for this amount were lost in a hack, without which Tulip could not access its Bitcoin or move it to safety.

In order to seek recovery of this amount Tulip brought a claim against a number of software developers (the “Defendants”) alleging that they controlled and ran the Bitcoin network during the relevant period. Tulip’s contention was that their role as developers, and the degree of control they could exercise over the network, meant that they effectively owed Tulip (as well as other owners of Bitcoin) a fiduciary duty. This fiduciary duty should properly extend to safeguarding Tulip’s assets from thieves and implementing any amendments to the software necessary for securing Tulip’s assets. This could include making the necessary software updates so as to bring the assets back under Tulip’s control.

A number of the Defendants applied to the High Court of England and Wales to set aside service. The judge at first instance identified that the claim depended on a point of law (i.e. the existence of a fiduciary duty) which he decided in the Defendants’ favour. The case was then heard before the Court of Appeal.

Cryptoassets as Property, and implications for Cyprus

Whether or not cryptoassets such as Bitcoin could fall within the legal definition of ‘property’ was not a contested issue between the parties. However, the Court of Appeal decision addressed the issue by referring to the properties of Bitcoin, which is similar to cash, in that neither can be spent twice. Once a person pays for a particular good or service in cash, they cannot use that same cash to pay for a different good or service. Similarly with Bitcoin, in that once a user spends X amount of Bitcoin, the transaction is recorded on a ledger or database (i.e. the ‘blockchain’) and the value held at the user’s digital address (‘wallet’) is reduced by X amount and the value held at the receiving wallet is increased by X amount meaning that the user cannot double spend.

The Court of Appeal noted this feature setting out that “it is meaningful to describe bitcoin not merely as something which is transferable but as ‘rivalrous’…For a transferable thing to be rivalrous, the holding of it by one person necessarily prevents another from holding that very thing at the same time. Because the holder cannot double spend their bitcoin, such that it is rivalrous, the cryptoasset can be said to be capable of assumption by a third party”.  Given this feature, the Court of Appeal found that a “cryptoasset such as bitcoin is property” referring to National Provincial Bank v Ainsworth [1965] AC 1175 which sets out a four-stage test i.e. that property must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and having some degree of permanence.

We recently wrote about the decision by the Cyprus Ministry of Finance to withdraw the proposed “Bill on the Distributed Ledger Technology Law of 2021” (the “DLT Bill”) due to an opinion from the Law Office of the Republic of Cyprus that it was redundant and unconstitutional and due to the anticipated passing and implementation of the Markets in Crypto-Assets Regulation. One of the DLT Bill’s provisions set out that cryptoassets (referred to as digital tokens in the DLT Bill) “are personal, movable property of the person they belong to”. In the eyes of some commentators the withdrawal of the DLT Bill may have raised questions as to the legal treatment of cryptoassets.

Tulip Trading has now moved to resolve the question under English and Welsh law thus demonstrating the flexibility and adaptability of the Common Law as compared to Civil Law. Although it cannot be taken for granted, our expectation is that, in the absence of any local judicial precedent, and given Cyprus’s status as a Common Law jurisdiction, Courts in Cyprus would likely be guided by cases such as Tulip Trading. We therefore anticipate that the Courts in Cyprus, in adjudicating any potential dispute, would be likely to recognise cryptoassets as ‘property’ and treat them accordingly.

Software Developers as Fiduciaries

The issue in contention in the proceedings however was the extent to which software developers might owe users of their software a fiduciary duty such that the Defendants in this case ought to have assisted Tulip Trading in recovering their private keys. The essence of Tulip’s case was that software developers, having undertaken to control the software of the relevant Bitcoin network, had control, and exercised it, over property held by others (i.e. Bitcoin). This had the result in law that they owe a fiduciary duty to the true owners of the property meaning that the developers are obliged to introduce a software patch or update to help Tulip recover its property.

It is important to note that the case before the Court of Appeal did not involve a substantive assessment of the issue. The appeal arose because some of the Defendants, after having been served the claim, applied to the High Court of England and Wales to set aside service. In order to decide the application, the judge at first instance had to decide whether there was a serious issue to be tried; whether there is a real, as opposed to fanciful, prospect of success (the ‘merits test’). He concluded that the Defendants did not owe any fiduciary duty to Tulip and dismissed the claim.

The Court of Appeal’s decision in the appeal therefore does not concern whether the Defendants owed Tulip a fiduciary duty in law, but constituted an assessment of whether there was a real prospect that such a claim could succeed. Notwithstanding this fact, in considering the issue, the Court of Appeal may have reached a potentially significant decision. It noted that persons “acting in the role of developers – should be held to owe a duty in law to bitcoin owners not to compromise the owners’ security” by not introducing a feature for the developers’ advantage which compromised Bitcoin owners’ security. Such a duty would be one that involved “an abnegation of the developer’s self-interest. It arises from their role as developers and shows that the role involves acting on behalf of bitcoin owners to maintain the bitcoin software. It is also single minded in nature at least in the sense that it puts the interests of all the owners as a class, ahead of the developer’s self-interest. It is…arguably, a fiduciary duty. It is difficult to see what other sort of duty it could be”.

The Court of Appeal effectively recognised that the developers had 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, which had been entrusted into the care of the developers. It recognised that for Tulip’s case to succeed “would involve a significant development of the common law on fiduciary duties” but in its view the claim therefore passed the merits test and it allowed the appeal.


It remains to be seen whether and how this case might progress and whether ultimately, the courts might come to recognise a fiduciary duty owed by software developers to users of their software.

Our Blockchain & Cryptoassets team brings together legal expertise from multiple disciplines across our firm, including our Financial Services, Intellectual Property, Data Protection, Corporate and Commercial practices. We can provide value-added legal advice and support, both to start-ups and to existing businesses aiming to stay one step ahead of the curve.

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