{"id":18064,"date":"2022-05-27T15:23:24","date_gmt":"2022-05-27T15:23:24","guid":{"rendered":"http:\/\/egrowonline.com\/?p=18064"},"modified":"2022-05-27T15:23:24","modified_gmt":"2022-05-27T15:23:24","slug":"will-courts-accept-cryptocurrency-as-a-security-for-costs-fin-tech","status":"publish","type":"post","link":"http:\/\/egrowonline.com\/?p=18064","title":{"rendered":"Will Courts Accept Cryptocurrency As A Security For Costs? – Fin Tech"},"content":{"rendered":"


\n<\/p>\n

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27 May 2022 <\/p>\n


\n Herbert Smith Freehills \n <\/p>\n<\/p><\/div><\/div>\n

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\n <\/a>\n <\/div><\/div><\/div>\n


\n To print this article, all you need is to be registered or login on Mondaq.com. \n <\/p>\n

\n
\n

In a recent English High Court decision, Tulip Trading
\nLimited v Bitcoin Association for BSV<\/em> [2022] EWHC 2 (Ch)<\/a> and [2022] EWHC 141 (Ch)<\/a>, the Court refused the
\nclaimant’s request for security for costs to be paid in
\nBitcoin. This is the first English case where a party to litigation
\nhas sought to provide security in the form of cryptocurrency and
\nprovides helpful guidance on the interaction between cryptocurrency
\nand security for costs. Tulip Trading Limited<\/em> discusses
\nthe considerations the Courts may take into account to determine
\nwhether Bitcoin or other forms of cryptocurrencies will be accepted
\nas an alternative form of security for costs. It will be
\ninteresting to see how the Hong Kong Courts may approach this issue
\nif a similar request is made in the future.<\/p>\n

Background: The English decision in Tulip Trading
\nLimited<\/em><\/h3>\n

The Defendants applied for, and obtained, an order for security
\nfor the costs of the jurisdiction application. The Claimant sought
\nto provide the security in the form of Bitcoin, by transferring the
\nrelevant cryptocurrency to its solicitors, who would give written
\nconfirmation to the Court and the Defendants that they held the
\nBitcoin (see the earlier blog post on the English decision here<\/a>).<\/p>\n

The Court set out the principles in Infinity Distribution
\nLtd (in administration) v Khan Partnership LLP<\/em> [2021] EWCA Civ
\n565 to determine the form of security to order where a claimant
\nproposes an alternative form of security, namely that the Court
\nshall:<\/p>\n

    <\/p>\n
  1. have regard to all the relevant circumstances;<\/li>\n


    \n <\/p>\n

  2. seek to give effect to the overriding objective of the English
    \nCivil Procedure Rules, including “ensuring that the
    \nparties are on an equal footing and ensuring that the matter is
    \ndealt with fairly<\/em>“;<\/li>\n


    \n <\/p>\n

  3. strike a fair balance between the interests of the parties;
    \nand<\/li>\n


    \n <\/p>\n

  4. where two forms of security would provide equal protection, all
    \nelse being equal, order the form that is least onerous to the
    \nClaimant.<\/li>\n

    \n<\/ol>\n

    The Court also cited Monde Petroleum SA v Westernzagros
    \nLtd<\/em> [2015] 1 Lloyd’s Rep. 330, which requires that
    \nsecurity “should be in a form which enables the defendant
    \nto recover a costs award made in its favour at the trial from funds
    \nwhich are readily available<\/u><\/strong>, such that
    \nthere is little risk of delay or default in enforcement<\/em>“
    \n(emphasis added).<\/p>\n

    The Court took notice of the high level of volatility in the
    \nvalue of Bitcoin (a position which was accepted by the claimant)
    \nand held that Bitcoin did not meet the criteria in Monde
    \nPetroleum<\/em>. Providing security in the form of Bitcoin would not
    \nresult in protection for the Defendants equal to a payment into
    \ncourt or first class guarantee. The highly volatile nature of
    \nBitcoin will expose the Defendants to a risk to which they would
    \nnot be exposed with the usual forms of security. In other words,
    \nthis was not a case where all other things are equal.<\/p>\n

    Will Hong Kong Courts allow cryptocurrency as an alternative
    \nform of security for costs?<\/h3>\n

    Under Order 23 rule 2 of the Rules of the High Court (Cap. 4A),
    \nwhere an order is made requiring any party to give security for
    \ncosts, the security shall be given in such manner, at such time,
    \nand on such terms (if any) as the Court may direct. The usual form
    \nof security provided in Hong Kong is by way of payment into Court
    \nor a bank guarantee. The rules have not expressly prescribed what
    \nother forms of security is acceptable. The Court of First Instance
    \nin Sunni International Ltd v Kao Wai Ho Francis<\/em> [2021] 1
    \nHKLRD 841 has considered a request for an alternative form of
    \nsecurity, namely, an undertaking to charge shares in a private
    \ncompany in lieu of security for costs. The Court similarly referred
    \nto Monde Petroleum<\/em> (above) and held that the undertaking
    \noffered was not sufficient as the security could not be realised
    \nwith relative ease.<\/p>\n

    At present, there are currently no Hong Kong authorities dealing
    \nwith a request to provide cryptocurrency as security for costs.
    \nNevertheless, in view of the principle in Monde Petroleum<\/em>
    \n(above) that was applied in both Tulip Trading<\/em> in the
    \nEnglish Court and Sunni International<\/em> in the Hong Kong
    \nCourt, we believe the decision in Tulip Trading<\/em> will
    \nprovide helpful guidance to the Hong Kong Court on such
    \nrequest.<\/p>\n

    In addition, the following considerations may also be relevant
    \nif the Hong Kong Court is faced with a request to provide
    \ncryptocurrency as security for costs in the future:<\/p>\n

      <\/p>\n
    1. the decision in Tulip Trading<\/em> only concerns payment of
      \nBitcoin as security for costs but does not deal with the general
      \nquestion of whether payment of other cryptocurrencies as security
      \nfor costs may be permitted. The considerations may be different if,
      \nfor example, a relatively non-volatile cryptocurrency is offered,
      \nsuch as stablecoin (being a cryptocurrency designed to peg with the
      \nvalue of a particular fiat currency such as the US Dollars) or even
      \nyield-bearing stablecoin tokens deposited in a Decentralised
      \nFinance (DeFi) protocol (being a token whose value is supposed
      \n(though not guaranteed) to stably increase over time as interests
      \naccrues over the underlying stablecoin tokens);<\/li>\n


      \n <\/p>\n

    2. further, if a plaintiff owns substantial amount of stablecoin
      \nor yield-bearing stablecoin tokens, this may be relevant to the
      \nquestion of whether the plaintiff will be unable to pay the
      \ndefendant’s costs, and hence, whether security for costs should
      \nbe ordered in the first place; and<\/li>\n


      \n <\/p>\n

    3. apart from the issue on volatility, accessibility of the
      \ncryptocurrency may also be relevant. In practice, transfers and
      \nrealisations of cryptocurrency are complicated by the fact that
      \nownership of digital assets are attributed by control of
      \n“private keys” (i.e. cryptographic passwords used to
      \nauthorise blockchain transactions), which can potentially be
      \nstolen, exposed, compromised or lost. This will induce extra risk
      \nof delay or default in enforcement to enable the defendants to
      \nrecover costs. The parties may have to consider appointing a
      \ntrustworthy custodian to mitigate this risk.<\/li>\n

      \n<\/ol>\n

      The content of this article is intended to provide a general
      \nguide to the subject matter. Specialist advice should be sought
      \nabout your specific circumstances.<\/em><\/p>\n<\/div>\n<\/div>\n

      \n

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      Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

      27 May 2022 Herbert Smith Freehills To print this article, all you need is to be registered or login on Mondaq.com. In a recent English High Court decision, Tulip Trading Limited v Bitcoin Association for BSV [2022] EWHC 2 (Ch) and [2022] EWHC 141 (Ch), the Court refused the claimant’s […]<\/p>\n","protected":false},"author":1,"featured_media":840,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[36],"tags":[670,2865,885,52,8510,1349,474],"class_list":["post-18064","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptocurrency","tag-accept","tag-costs","tag-courts","tag-cryptocurrency","tag-fin","tag-security","tag-tech"],"jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"http:\/\/egrowonline.com\/wp-content\/uploads\/2021\/12\/Mondaq_Share.jpg","_links":{"self":[{"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/posts\/18064","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=18064"}],"version-history":[{"count":1,"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/posts\/18064\/revisions"}],"predecessor-version":[{"id":18065,"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/posts\/18064\/revisions\/18065"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/media\/840"}],"wp:attachment":[{"href":"http:\/\/egrowonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=18064"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=18064"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=18064"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}