Further guidance has been given on several issues in relation to security for costs, in the recent case of Tulip Trading Ltd v Bitcoin Association for BSV, which is one of the cases currently ongoing and involving the creator of the crypto currency, Bitcoin.
The guidance comes following an initial hearing whereby an order granting security on grounds of impecuniosity had been made. It was agreed between the parties that the amount to be ordered as security for the Defendant, and the liability for and amount of the costs of the security applications would be determined on written submissions without a hearing.
Master Clark, delivering judgment, summarised several principles in relation to the quantifying of security. He confirmed that the relevant principles were those set out in the 2021 White Book at 25.12.7, and summarised in Pisante v Logothesis  EWHC :
“(i) The appropriate quantum is a matter for the court’s discretion, the overall question being what is just in all the circumstances of the case. In approaching the exercise, the court will not attempt to conduct an exercise similar to a detailed assessment, but will instead approach the evidence as to the amount of costs which will be incurred on a robust basis and applying a broad brush (see also Excalibur Ventures v Texas Keystone  EWHC 975 (QB) § 15).
(ii) In some cases, the court may apply an overall percentage discount to a schedule of costs having regard to (a) the uncertainties of litigation, including the possibility of early settlement and (b) the fact that the costs estimate prepared for the application may well include some detailed items which the claimant could later successfully challenge on a detailed assessment between litigants. There is no hard and fast rule as to the percentage discount to apply. Each case has to be decided upon its own circumstances and it is not always appropriate to make any discount.
(iii) In deciding the amount of security to award, the court may take into account the “balance of prejudice” as it is sometimes called: a comparison between the harm the applicant would suffer if too little security is given and the harm the claimant would suffer if the amount secured is too high. The balance usually favours the applicant: an under-secured applicant will be unable to recover the balance of the costs which is unsecured whereas, if the applicant is not subsequently awarded costs, or if too much security is given, the claimant may suffer only the cost of having to put up security, or the excess amount of security, as the case may be (see also Excalibur § 18).
…(v) In determining the amount of security, the court must take into account the amount that the respondent is likely to be able to raise. The court should not normally make continuation of their claim dependent upon a condition which it is.
Issues as to the amount
There were three issues of principle which arose between the parties as to the amount of security which was to be awarded:
(1) whether the starting point should be that no reduction will be made on assessment;
(2) whether the court should consider and take into account the likelihood that costs would be awarded on the indemnity basis;
(3) the extent to which the court should take into account the Guideline Hourly Rates applicable to summary assessment.
With regards to the first principle, Master Clark refused to award the entirety of the costs as claimed, and distinguished from caselaw relied upon by the Defendants. It was determined that these were not relevant authorities on the basis that security had been granted under the non-residence condition (CPR24.13(2)(a)) and the Judge had applied a discount to the amount awarded to reflect a sliding scale of risk of non-enforcement.
The relevance of a potential final indemnity costs order was given little weight by Master Clark, who was unwilling to determine the security amount on this assumption, as he was unwilling to determine the merits of the claim at that stage.
It was determined that the case was of such significant complexity and value (over $4 billion) to attract rates in excess of the guideline hourly rates, and as such it was confirmed that these were of limited assistance.
Amount of security to be ordered: discussion and conclusions
It was determined that security for70% of the Defendants incurred and estimated costs would be ordered once all issues had been considered.
Once this had been determined, the Defendants sought security in one of the two usual methods; through payment into the Court, or via bank guarantee given by a reputable first class London bank.
The Claimant however, proposed that security be given by the transfer of digital assets to their own Solicitors. Namely, two forms of Bitcoin, with the proviso that a 10% buffer in addition to the value of the security be transferred and written confirmation of the transfer be provided, along with the public addresses of the Bitcoin. The 10% buffer was proposed to address the volatility in the value of Bitcoin.
Master Clark rejected the Claimant’s proposals, stating:
“The security offered by the claimant 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 of a fall in value of Bitcoin, which could result in their security being effectively valueless. The top-up provisions proposed by the claimant do not fully meet this risk,…”
Given the ever growing popularity of crypto currency, the case is unlikely to be the final occasion in which payment using crypto currency or other digital assets as opposed to traditional currency is proposed. Especially given the current Master of the Rolls, Sir Geoffrey Vos’, enthusiasm for the legal profession to embrace technology. Whilst highly uncertain at the moment, the long term stability of Bitcoin is likely to be determined the more it spreads into the mainstream in our economy. Should this occur in the coming years, then perhaps we will be in a position whereby the payment of damages and costs will be ordered by non traditional forms of currency?
Should you have any queries regarding an application for security for costs you can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com