Tulip, a Seychelles incorporated company, whose ultimate beneficial owner claims to have created Bitcoin under the pseudonym “Satoshi Nakamoto”, was ordered to pay security for costs.

Tulip proposed paying the security by transferring Bitcoin equivalent to the value of the security ordered, plus a 10 per cent buffer, to its solicitors who would provide the receiving parties’ solicitors with (i) written confirmation that they held the Bitcoin on an undertaking that it be used to satisfy any adverse costs order and (ii) the address of the wallet in which the Bitcoin was held.

The Court considered that (i) security should be in a form which enables the receiving party to recover a costs award from funds readily available and (ii) as a starting point, it was conventional for security to be given by a monetary payment into court or by the provision of a bank guarantee. The Court also considered that although security may be ordered in an alternative form, any such alternative should allow simple and swift enforcement of a costs order from a creditworthy source and must be equal to, or better than, security by payment into court or provision of a bank guarantee.

• The Court should have regard to all the relevant circumstances
• The Court is obliged to give effect to the overriding objective which includes so far as practicable, ensuring that the parties are on an equal footing and that the matter is dealt with fairly
• The Court has to weigh up the respective pros and cons and strike a fair balance between the interests of the parties and this balancing of pros and cons is to be the primary consideration
• If two different forms of security would provide equal protection to the receiving party, The Court should, all else being equal, order the form which is least onerous to the paying party

Tulip had submitted that The Court should allow security to be given in Bitcoin as (i) it did not have a bank account and as such it was impractical for it to obtain a guarantee from a reputable first class bank and (ii) in order to provide security in a conventional form, it would have to exchange digital assets for pounds sterling which would give rise to a CGT liability.

The Court ultimately refused to accept Bitcoin as security, finding that although the giving of security in the usual form would impose a burden on Tulip, the high volatility in the value of Bitcoin presented a risk to the receiving parties that payment in the alternative form may not meet their costs and offered a lesser form of protection than payment into court or a bank guarantee. The Court found that the proposed 10 per cent buffer would not fully militate against the risk that enforcement of a costs order could not be achieved in a timely manner if the paying party chose not to comply. As a result, this was not a case where all things were equal.

The decision cautions that although there is an increasing popularity in and demand for digital assets, cryptocurrency, unlike fiat currency, is still perceived as being far riskier due to its volatility and as such it is unlikely presently to be used to provide security for costs that are being measured by reference to fiat currencies.