In February, the UK Court of Appeals overturned an earlier ruling against Craig Wright’s firm Tulip Trading in its lawsuit against 12 Bitcoin Core developers that seeks to compel them to introduce a backdoor into the Bitcoin Core software.
The UK High Court initially dismissed the case against the 12 Bitcoin Core developers for lack of jurisdiction finding that there was “not a serious issue to be tried,” but the appellate court overturned this decision to allow the case to proceed to trial.
An analysis of the appellate decision under theories of property and private international law published earlier this month in the Butterworths Journal of International Banking and Financial Law makes a strong case for why this appellate decision was misguided.
As the article notes, “the Court of Appeal’s decision to allow TTL’s appeal on this issue does not establish that the core software developers who maintain the bitcoin protocol owe fiduciary duties to an “owner” of that cryptocurrency. To the contrary, [the appellate judge] recognised that the facts of the case were “new and quite a long way from factual circumstances which the courts have had to examine before in the context of fiduciary duties”; and at that for TTL’s case thus to succeed would involve “a significant development of the common law on fiduciary duties.”
The author of the article, who is not involved in the Tulip Trading case, doesn’t attempt to predict the outcome of the lawsuit based on established fiduciary law or issues of fact in the case. Instead, she focuses on two core issues that motivated the appellate court’s decision, which she argues were “premised on assumptions as to the position in the law of property; which call into question whether, even if TTL is successful at trial, such victory will serve TTL’s ultimate aim of recovering access or control to the bitcoin in issue.”
The article is worth reading in full, but we have included a few key points here:
It is unclear whether English courts have jurisdiction over the Tulip Trading case
“It cannot be assumed that English law is indeed the appropriate governing law to be applied…is based on entirely circular reasoning. Cryptoassets, by their very nature, test the limits of a territorial approach to private international law as they do not simply exist “nowhere” but are deliberately designed to exist “everywhere and nowhere” at once…it has been necessary to ascribe to the bitcoin…the location of the “owner”. However, in property disputes, the identity of the “owner” is the very thing in issue between various competing claims to the asset; it is something that will not be determined until the conclusion of proceedings. How can this, then, be taken to decide the preliminary question of the appropriate forum and the place where proceedings should be issued? As noted above, TTL has not proven it is the “owner” of the bitcoin in dispute as a matter of law…. Until TTL establishes it is the “owner” of the bitcoin in dispute, it is highly doubtful that the English courts are of “competent jurisdiction” at all…It is strongly arguable that the question of jurisdiction in the present case has been decided on an erroneous application of the policies underpinning the property rules of private international law.”
Tulip Trading’s argument runs counter to the general understanding that the person who possesses the private keys to a cryptoasset is its owner
“Tulip Trading’s present position…runs counter to the prevailing trend, both in England and internationally, to consider that generally, the person who has lawfully acquired control over a cryptoasset, usually by knowledge of the private key, is its “owner”. Hence, even if TTL were unlawfully “dispossessed” of the bitcoin in dispute, it cannot be assumed that the rival claims alluded to in the court are being advanced by the person responsible for the hack; there is no reason to suggest that such claims are being advanced by anyone other than third parties to the fraud on the basis of a lawful acquisition.”
Even if Tulip Trading was in fact the owner of the Bitcoin it claims to have lost—a fact that is strongly disputed—that does not necessarily mean that it is still the true owner of those Bitcoins
“Tulip Trading’s case assumes what it is still required to prove: that Tulip Trading is, as a matter of law, the “true owner” of the bitcoin in issue and is, therefore, the person to whom this newly recognised species of fiduciary obligation is owed….Property rights are never truly absolute and indefeasible. Property rights, once acquired, may subsequently be lost…Even if, therefore, it may be assumed that TTL was the “true owner” of the relevant bitcoin before the alleged hack, it does not follow that TTL remains the “true owner” such that the defendants owe the alleged fiduciary duties to TTL, and not to some other participant in the bitcoin network.”
As the article author notes in conclusion, the question of whether the UK has jurisdiction over the case “runs a high risk that a judgment of the English courts in this matter will not be recognised or enforced in other jurisdictions, on the basis that jurisdiction was not properly founded. Hence, the risk to the defendants in the case of a rival claimant obtaining a contrary judgment in a foreign court… cannot be underestimated.”