Coin Recovery: UK Court of Appeal hears blockchain engineers owe legal duties to their users

The UK Court of Appeal heard Tulip Trading’s arguments that blockchain engineers owe fiduciary and indemnified duties to those who use their blockchains today, and began a two-day hearing on whether an earlier court had erred in its decision to dismiss the case on for lack of jurisdiction.

The case has the potential to define the legal obligations that blockchain project developers owe to their users, and could provide a path for victims of digital theft to regain access to their property.

The lawsuit was originally brought by Tulip Trading Limited (TTL) against 16 blockchain developers, claiming that they owe TTL tortious and fiduciary duties obliging them to enable TTL to recover more than £1 billion worth of digital assets stolen in a 2021 hack. Thirteen of the 16 defendants (and later a 14th—Roger Ver) successfully challenged the High Court’s jurisdiction to hear the claim before Lady Justice Falk. The challenge was accepted on the basis that TTL had not ascertained that it was a serious case to be tried, and the claim was consequently dropped.

However, TTL was given permission to take the case to the Court of Appeal, with Lady Justice Andrews recognizing the importance of the issues raised by TTL’s claim, saying that the question of what duties developers owe to owners of digital assets “is of significant importance and is characterized by right as a matter of complexity and difficulty.”

On Wednesday, the Court of Appeal heard TTL’s side of the argument, with John Wardell KC telling the Lord Justices that “the issues raised are of fundamental importance to TTL itself, as it owns significant assets to which it no longer has access, as well as to the financial world generally.”

Wardell argued for TTL that the company had a more than fanciful prospect of success and, as a result, Falk erred in granting the defendant’s jurisdictional challenge. He also argued that the duties required are highly fact-dependent and touch on a difficult and uncertain area of ​​law, and as a result, a summary judgment on the claim before it had the benefit of a full trial was inappropriate.

Wardell said: “If it turns out … the circumstances are such that it’s a theft, and the person who lost assets has indisputable proof of ownership, and it turns out that the developers have close day-to-day control of the network they’re for. paid handsomely , and it also turns out that at the flick of a switch they could restore access or prevent the fraudsters from getting away and making off with the assets, it can really be said in these circumstances that it is indisputable, so that it is striking that they can ?not required to restore access?’

As to whether there is a serious question to be tried on the point of fiduciary duty, Wardell argued that in addition to meeting the definition of fiduciary, there is currently a lively academic debate on this very issue. To that end, the court heard discussion of a well-known academic article by law professor Angela Walch, titled In Code(rs) We Trust: Software Developers as Fiduciaries in Public Blockchains, and the more fundamental work of renowned fiduciaries expert Tamar Frankel.

The respondents had pointed to the existence of conflicting views on the subject as evidence that the case should be dismissed, but Wardell argued that the existence of such debate is evidence that it is a serious question to be tried that must be fully decided. try.

“We say it’s hardly promising for the defendants to argue that by showing that TTL doesn’t have even a plausible case, they say they found an academic paper that disagrees with another academic paper that says the developers owe a fiduciary duty ,” Wardell said.

In his judgment accepting the jurisdictional challenge in the lower court, Justice Falk had also said that finding for the existence of a duty in this case would mean that the potential class of claimants would be “unknown” and “potentially unlimited.” Wardell KC challenged it, pointing out that the potential class of claimants is limited to the true owners of a given asset, who is known.

The hearing will continue on Thursday 8 December at 10:30 GMT in the UK Court of Appeal.

Watch the morning session here:

Watch the afternoon session here:

Learn more about the Digital Asset Recovery tools here.

See: Digital Asset Recovery on Bitcoin Explained

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