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Not as good as cash - Bitcoin refused as security for costs in litigation

A successful defendant is entitled to seek to recover its costs from a claimant, but if that claimant is an impecunious company then it is unlikely to be able to recover anything. To combat this unfairness, a defendant can apply to the court at an early stage of the court proceedings for security for costs, so that funds will be available should the claim fail. The claimant will only be able to proceed with its claim if it provides the security ordered.

If the court agrees to make the order, it will normally require the security to be a payment into court, or a guarantee from a first class London bank. This is because the defendant can enforce a costs award against these with little risk of delay or default in enforcement. The claimant in Tulip Trading Ltd v Bitcoin Association for BSV & Ors (Rev 1) [2022] EWHC 141 (Ch) however wanted the court to accept Bitcoin as security instead. It said that it was impractical for it to provide a bank guarantee as it did not have a bank account, and selling Bitcoin would give rise to a CGT liability.  

The court said that it can order other types of security, but it must be at least as good as a payment into court or a bank guarantee in terms of the risk of delay and default in enforcement (Monde Petroleum SA v Westernzagros Ltd [2015] EWHC 67 (Comm)). Also it must consider the principles laid down by the Court of Appeal in Infinity Distribution Ltd (in administration) v Khan Partnership LLP [2021] EWCA Civ 565, namely that the court:

  • should have regard to all the relevant circumstances
  • give effect to the overriding objective, which includes, so far as practicable, ensuring that the parties are on an equal footing and ensuring that the matter is dealt with fairly
  • weigh up the respective pros and cons and strike a fair balance between the interests of the parties (this is likely to be the primary consideration)
  • if two different forms of security would provide equal protection to the defendant, the court should, all else being equal, order the form which is least onerous to the claimant.

In this case, Bitcoin was simply not as good as a payment into court or a bank guarantee in terms of delay and risk for enforcement. A fall in the value of Bitcoin would result in the security being effectively valueless. The claimant had offered a buffer of 10% and to top-up the security if the value fell, but the problem with this was that if the claimant failed to make the top-up, there was a substantial risk of a fall in value before the defendant could enforce the obligation. Even if this was not a problem, the liability for costs was to be enforced by way of a transfer of Bitcoin which would also mean a delay where the defendants would be subjected to the risk of a fall in value.

It did not help the claimant that it failed to provide any evidence as to its overall financial position, whether it could raise the necessary funds from (or obtain a bank guarantee with the assistance of) other sources, whether it could raise the necessary funds by using the Bitcoin as security, or how it was funding its own legal costs. The claimant did not suggest either that its claim would be stifled (an important consideration for the court when weighing up the pros and cons of making the order) if security of the usual type was ordered.

The security offered by the claimant would not result in protection for the defendants equal to a payment into court, or first class guarantee. It would expose them to a risk to which they would not be exposed with the usual forms of security: namely of a fall in value of Bitcoin, which could result in their security being effectively valueless. The top-up provisions proposed by the claimant do not fully meet this risk, because if the claimant did not comply with the order, there would be a substantial risk that enforcement of the obligation could not be achieved before judgment in the jurisdiction applications...


dispute resolution