High Court decides cryptocurrency does not meet criteria for security for costs

8th June 2022

Commercial Dispute Resolution and Technology specialists Louise Norbury-Robinson and Jack Heward offer insights into cryptocurrency and security for costs applications in light of a key recent UK High Court decision.

Why is Tulip Trading Limited v Bitcoin Association of interest?

In this case [1], the High Court recently refused a claimant’s request for security for costs to be paid in Bitcoin. This is the first English case where a party has attempted to provide alternative security through cryptocurrency.

The decision is a helpful illustration of the English courts’ approach to how it will treat alternative forms of security for costs offered by a party who is on the receiving end of a security order.

The court rejected this novel form of security.  The deciding factor appears to be the volatility of the cryptocurrency market.  Given it does not appear that the cryptocurrency market will calm down dramatically any time soon, it is unlikely the courts’ approach will change in the foreseeable future.

What were the facts of the case?

The defendant successfully applied for security for costs against the claimant and, as a result, the claimant proposed to transfer to its solicitors Bitcoin that had the same value as the amount of security that the court had ordered. The claimant also offered an additional 10% as further comfort to the defendant as a result of the highly volatile cryptocurrency market.

The High Court considered the principles in Infinity Distribution Ltd (in administration) v Khan Partnership LLP [2] in respect of granting security, namely that the court should:

• have regard to all the relevant circumstances;
• give effect to the overriding objective in the Civil Procedure Rules;
• strike a fair balance between the interests of the parties; and
• where two forms of security would provide equal protection, all else being equal, order the form that is the least onerous to the claimant.

The court also referred to Monde Petroleum SA v Westernzagros Ltd [3], which requires that security provided “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”.

Taking the above factors into account, the High Court rejected the claimant’s proposal as it would have exposed the defendant to a significant risk that the Bitcoin could significantly or completely drop in value in the event costs recovery was required. The court determined that the defendant would not be exposed to the same level of risk with other forms of traditional security. The claimant’s offer of an additional 10% as well as further top-ups were not sufficient to satisfy the court that the risk would be mitigated.

The claimant submitted that the usual order for security was not suitable as it would struggle to secure a guarantee from a first class bank (as a result of not having a bank account) and that it would face substantial capital gains tax if it were to convert its cryptocurrency to cash. The court recognised that there may have been some difficulty for the claimant in this respect, but this was not an instance in which all other things were equal, as required by Monde Petroleum SA.

[1] Tulip Trading Limited v Bitcoin Association for BSV [2022] EWHC 2 (Ch) and [2022] EWHC 141 (Ch)

[2] [2021] EWCA Civ 565

[3] [2015] 1 Lloyd’s Rep. 330