Crypto-assets as security
Published on 4th Apr 2022
If you are being sued by a party and you believe you are likely to win, but that the other party will be unable to pay a costs order in your favour, you can ask the court to give you security for costs. If granted, that would require the other party to pay money into court or to your solicitors, or provide some other form of security (such as a guarantee from a "first-class London bank").
The claimant in Tulip Trading Ltd v Bitcoin Association for BSV & Ors claims to be the owner of about US$4.5 billion worth of Bitcoin which it can no longer access due to the actions of hackers. It is seeking an order requiring the defendant software developers to amend the underlying software code to allow it to access the Bitcoin.
The defendants successfully obtained an order for security for costs against the claimant. The claimant asked if it could provide that security by either transferring to its solicitors Bitcoin to the value of the security ordered, plus a 10% "buffer", or by confirming that it holds that Bitcoin and undertaking to transfer it to meet any adverse costs orders against it. It wanted to do this because it does not have a bank account and would need to otherwise exchange the Bitcoin for pounds sterling, which would give rise to a tax liability.
Master Clark has now refused that request. The inherent volatility of Bitcoin makes it an unsuitable asset for providing security – it is not the equivalent of a payment into court or a first-class London bank guarantee.
