Exploring Bitcoin And Jurisdiction – Fin Tech

Are cryptocurrencies outside the reach of conventional law?
Rayshum Khan, paralegal in the Criminal Litigation department,
examines an intriguing case that presented a dilemma for judges
when it came before the High Court.

On March 25 2022 the High Court passed a judgment which
deliberated upon significant questions in relation to jurisdiction
and cryptocurrency in the case of Tulip Trading Ltd (TTL) v Bitcoin
Association for BSV, the original Bitcoin.

The claimant, TTL is a holding company of Dr Craig Wright,
incorporated in the Seychelles. TTL alleged that they were locked
out of their Bitcoin account following a hack on Dr Wright’s
computer and Bitcoin worth £1.1 million owned by TTL was
subject to this hack.

Additionally, the private keys needed to access the account had
been stolen and deleted from Dr Wright’s computer. Therefore
TTL was unable to access or control the Bitcoin.

Unlike other cryptocurrency hacks we have seen recently, the
Bitcoin in question had not actually been taken from its original
location or transferred elsewhere. However, without the private
keys TTL was unable to access it.

In light of this, TTL did not seek remedies against the alleged
perpetrators of the hack. Instead, they issued proceedings against
the 16 core developers (the defendants) who controlled the software
in respect of ‘the Networks’ on which the Bitcoin was
stored.

TTL claimed that the defendants owed a fiduciary or tortious
duty to assist TTL in regaining control and use of the Bitcoin. If
that was not possible, TTL sought equitable compensation or damages
if the former remedy was not successful.

A key defining issue in this case, was the fact that none of the
defendants were based in the jurisdiction of England and Wales.
Therefore, as opposed to a full trial, the judgement was in fact an
interim application specifically related to a number of
defendants’ challenge to the court’s jurisdiction and
ability to permit service outside of England and Wales.

In order for the defendants to succeed with their jurisdictional
application, the following requirements had to be satisfied:

• Whether there was a serious issue to be tried




• Whether there was a good arguable case that the case fell
  within one or more of the jurisdictional gateways set out in CPR PD
  6B, para 3.1; and




• Whether in all the circumstances:
  

  1. England is clearly or distinctly the appropriate forum for the
     trial of the dispute; and

  
  

  2. The court ought to exercise its discretion to permit service of
     the proceedings out of the jurisdiction.

Considering this, the court found that TTL had not established a
serious issue to be tried on the merits of its claim. Additionally,
it held that developers did not owe TTL any fiduciary duties for
the following reasons:

• Bitcoin owners could not realistically be described as having
  entrusted their property to a fluctuating, unidentified body of
  software developers




• The distinctive characteristic of a fiduciary relationship is
  the obligation of ‘undivided loyalty’. However, the steps
  that TTL required the defendants to take – such as writing and
  implementing a software ‘patch’ which would enable TTL to
  recover the Bitcoin, would only benefit TTL – rather than the other
  users of the network. In fact, the court argued that the changes
  sought by TTL could even be disadvantageous to other users of the
  network; and




• TTL’s demands could have exposed the defendants to risks,
  for example if the developers had created the software patch for
  TTL, there would be a possibility that potential rival claimants to
  the Bitcoin would have a legitimate claim against the
  defendants

It can be deduced from this outcome that although this case has
left open a narrow potential route to liability and remedy, the
judgment could be seen as highlighting the key concerns that tort
and common law may be proving themselves incapable of adapting to
new technologies and characteristically international/cross-border
business and commercial structures.

Furthermore, while legislation and regulation are the only
viable route – any such legislation and regulation must reflect
international cooperation. Unless that cooperation is global, it
has limited chance of being effective.

This begs the question: does this mean that Bitcoin and
other cryptocurrencies are outside the reach of conventional
law?

The answer is currently being unravelled and it will be
interesting to see how legal developments in this space will
progress in the coming years, particularly considering the recent
volatility of Bitcoin and other cryptocurrencies, which may well
leave many investors holding a loss.

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