Background 

In Court Proceedings in England & Wales, if a Defendant considers the Claimant would not be able to pay the Defendants legal costs because the Claimant is impecunious (or a couple of other rare reasons), the Defendant can apply to the Court for Security For Costs.

Part 25 of the Civil Procedure Rules (the Court’s Rules) governs security for costs. It requires the Court to:

determine the amount of security; and direct the manner and the time within which the security must be given.

Usually, this means a payment is made “into court” or it is agreed that a firm of solicitors can hold the funds subject to an undertaking not to release the funds except by Court Order.

In Tulip Trading Ltd v Bitcoin Association for BSV and others [2022] EWHC 141 (Ch), the court gave a judgment on consequential matters following a decision that the claimant should give security for costs. The court dealt with the amount to be paid as security, the manner in which it was to be paid and the costs of the security application.

A master had ordered a company bringing a claim regarding Bitcoin to pay security for the costs of jurisdiction applications on the basis of impecuniosity. She then dealt with consequential matters, being the amount and manner of security, and costs of the application.

The Claimant offered to make payment for security of costs using Bitcoin – which bearing in mind both parties are in that arena and the whole case is about Bitcoin, perhaps didn’t seem unreasonable. However, the Defendant didn’t (for some reason) want to accept Bitcoin and neither did the Court wish to approve it.

The claimant has proposed in its written submissions, and in a proposed draft order, that it provide security by way of digital assets, namely either Bitcoin Satoshi Vision or (if considered more acceptable) Bitcoin Core, by

• transferring to its solicitors Bitcoin to the value of the security ordered plus a 10% “buffer” (“the Bitcoin”);
• instructing its solicitors to provide to the defendants’ solicitors
  • written confirmation that it holds the Bitcoin on an undertaking that it be used on behalf of the claimant in satisfying any adverse costs order against it in the jurisdiction applications;
  • the public addresses of the Bitcoin.

The 10% buffer was intended to address the volatility of Bitcoin.

The Court therefore rejected the claimant’s submission that security be given by digital assets (Bitcoin) to be held by its solicitors. This would expose the defendants to a risk to which they would not be exposed with the usual forms of security (payment into court or first class guarantee): namely, fall in value of Bitcoin, which could result in their security being effectively valueless. Top-up provisions proposed by the claimant did not fully meet this risk.

Accordingly, the Court ruled that the Claimant would need to make an payment in pounds sterling.