Finance litigation update - July 2022

FINANCE LITIGATION UPDATE – JULY 2022 32 potentially take positive action in relation to any claim from a person whose private keys had been lost or stolen. Falk J also considered another key element of the bitcoin network, that of the anonymity of its users. Any purported duty would be owed to an unidentified, and also theoretically limitless, class of users. In contrast to the Quincecare duty, which is owed by a bank to its customers, the duty here would be owed to an "anonymous and fluctuating" class. This, and the fact that the alleged duty of care would give rise to a potentially indeterminate liability, militated against the finding that such a duty of care existed. However, Falk J accepted that in certain circumstances a more limited duty of care could conceivably be owed. For example, she held that Developers might have a duty to take reasonable care not to introduce a malicious software bug or some other action which compromised the integrity of the software system. However, that was not a claim before the Court, and Falk J firmly rejected the argument that the Developers had a duty to alter the system following harm caused by a third party, over whom they had no control, and with whom they were not involved. Findings on the nature of cryptocurrency Falk J also held (obiter, and in line with other recent authorities) that: • Cryptocurrency is property3; and • The lex situs of cryptocurrency is likely to be the place where the owner is resident, rather than where it is domiciled4. Commentary This judgment (although given in the context of an interim application) contains an interesting exploration of the nature of the duties of care owed by Developers. Whilst Falk J's analysis implicitly accepts, and reflects, the principle of decentralisation which lies at the heart of public blockchains, it does accept the possibility that Developers can, in certain circumstances, owe duties of care to users. Following judgment in this case, the parties subsequently announced a settlement of the dispute. Bitcoin Association for BSV also announced the release of software aimed at allowing miners to freeze bitcoin determined by valid legal process to be lost or stolen, so that it can be returned to its rightful owners. Ben Sigler, Camille Brien and Harriet Campbell 3 Falk J expressly affirmed the content of the Legal Statement on Cryptoassets and Smart Contracts published by the UK Jurisdiction Taskforce in November 2019 (the "Legal Statement"). 4 In this case, Tulip Trading was (arguably) resident in the UK (where its central management and control was exercised), whereas its country of domicile (its place of incorporation) was the Seychelles. This analysis, whilst it was only made on a preliminary basis, with Falk J not making any formal findings on this issue, is likely to be relevant to future disputes regarding governing law and jurisdiction in the context of cryptocurrency disputes. In reaching this conclusion, Falk J referred to the Legal Statement which expressed the view that the location of control of digital assets may be relevant to determining whether they are governed by English law.