Will Courts Accept Cryptocurrency As A Security For Costs?

• Published date: 27 May 2022
• Subject Matter: Technology, Security, Fin Tech
• Law Firm: Herbert Smith Freehills
• Author: Mr Gareth Thomas, Jojo Fan, Rachael Shek and Truman Mak

In a recent English High Court decision, Tulip Trading Limited v Bitcoin Association for BSV [2022] EWHC 2 (Ch) and [2022] EWHC 141 (Ch), the Court refused the claimant's request for security for costs to be paid in Bitcoin. This is the first English case where a party to litigation has sought to provide security in the form of cryptocurrency and provides helpful guidance on the interaction between cryptocurrency and security for costs. Tulip Trading Limited discusses the considerations the Courts may take into account to determine whether Bitcoin or other forms of cryptocurrencies will be accepted as an alternative form of security for costs. It will be interesting to see how the Hong Kong Courts may approach this issue if a similar request is made in the future.

Background: The English decision in Tulip Trading Limited

The Defendants applied for, and obtained, an order for security for the costs of the jurisdiction application. The Claimant sought to provide the security in the form of Bitcoin, by transferring the relevant cryptocurrency to its solicitors, who would give written confirmation to the Court and the Defendants that they held the Bitcoin (see the earlier blog post on the English decision here).

The Court set out the principles in Infinity Distribution Ltd (in administration) v Khan Partnership LLP [2021] EWCA Civ 565 to determine the form of security to order where a claimant proposes an alternative form of security, namely that the Court shall:

1. have regard to all the relevant circumstances;
2. seek to give effect to the overriding objective of the English Civil Procedure Rules, including "ensuring that the parties are on an equal footing and ensuring that the matter is dealt with fairly";
3. strike a fair balance between the interests of the parties and
4. where two forms of security would provide equal protection, all else being equal, order the form that is least onerous to the Claimant.

The Court also cited Monde Petroleum SA v Westernzagros Ltd [2015] 1 Lloyd's Rep. 330, which requires that security "should be in a form which enables the defendant to recover a costs award made in its favour at the trial from funds which are readily available, such that there is little risk of delay or default in enforcement" (emphasis added).

The Court took notice of the high level of volatility in the value of Bitcoin (a position which was accepted by the claimant) and held that Bitcoin did not meet the criteria in Monde Petroleum. Providing security in the...