Exploring Bitcoin And Jurisdiction — Fin Tech

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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.

The con­tent of this arti­cle is intend­ed to pro­vide a general 
guide to the sub­ject mat­ter. Spe­cial­ist advice should be sought 
about your spe­cif­ic circumstances.

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