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Bitcoin fails to satisfy test for security for costs

March 7, 2022

In January 2022, the High Court handed down a judgment in respect of highly publicised litigation, Tulip Trading Ltd v Bitcoin Association for BSV (a Swiss Verein) and others [2022] EWHC 2 (Ch).

BACKGROUND

The claimant is Tulip Trading, a Seychelles-registered company owned by Dr Craig Wright, who issued proceedings in London against 16 cryptocurrency software developers. Tulip asserts that  Mr Wright’s encryption keys to nearly £3.3 billion of Bitcoin were deleted when Dr Wright’s computer was hacked. Tulip claims  the Defendants have a duty to rewrite software in order to enable him to recover the keys.

The defendants applied for security for costs.

Tulip proposed to give security in the form of Bitcoin to the value of the security ordered, plus a 10% ‘buffer’ to allow for fluctuations in the value of Bitcoin.

The Judge declined the proposal noting that:

“… the security offered 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 a fall in value of Bitcoin…”

DECISION

The defendants succeeded in establishing that Tulip was impecunious on the basis that it had not provided evidence of its ability to pay the defendants costs, were it ordered to do so. The judge granted the security on that basis alone.  

This was the first case in which one of the parties offered to provide security of costs by way of cryptocurrency. The proposal was rejected by the defendants and the court. However, in the future, courts may be more willing to accept securities in the form Bitcoin or other crypto assets, if volatility risks are mitigated.

*This article is not intended to give any legal advice or to give rise to a client-solicitor relationship. It has been prepared for information purposes only. If you require legal assistance on litigation matters, please contact Madina Tatraeva at madina.tatraeva@ilaw.co.uk

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