Hong Kong: will Courts acknowledge cryptocurrency as a stability for fees?

In a current English Significant Courtroom final decision, Tulip Investing Confined v Bitcoin Affiliation for BSV [2022] EWHC two (Ch) and [2022] EWHC 141 (Ch), the Courtroom refused the claimant’s ask for for stability for fees to be compensated in Bitcoin. This is the initial English circumstance where by a get together to litigation has sought to present stability in the kind of cryptocurrency and delivers useful steering on the conversation among cryptocurrency and stability for fees. Tulip Investing Confined discusses the concerns the Courts may perhaps consider into account to establish whether or not Bitcoin or other varieties of cryptocurrencies will be acknowledged as an option kind of stability for fees. It will be intriguing to see how the Hong Kong Courts may perhaps strategy this challenge if a equivalent ask for is built in the long term.

History: The English final decision in Tulip Investing Confined

The Defendants utilized for, and attained, an purchase for stability for the fees of the jurisdiction software. The Claimant sought to present the stability in the kind of Bitcoin, by transferring the applicable cryptocurrency to its solicitors, who would give published affirmation to the Courtroom and the Defendants that they held the Bitcoin (see the before blog site write-up on the English final decision listed here).

The Courtroom established out the rules in Infinity Distribution Ltd (in administration) v Khan Partnership LLP [2021] EWCA Civ 565 to establish the kind of stability to purchase where by a claimant proposes an option kind of stability, particularly that the Courtroom shall:

1. have regard to all the applicable conditions
2. look for to give result to the overriding goal of the English Civil Method Guidelines, which includes “making certain that the get-togethers are on an equivalent footing and making certain that the make any difference is dealt with relatively“
3. strike a reasonable stability among the passions of the get-togethers and
4. where by two varieties of stability would present equivalent safety, all else becoming equivalent, purchase the kind that is the very least onerous to the Claimant.

The Courtroom also cited Monde Petroleum SA v Westernzagros Ltd [2015] one Lloyd’s Rep. 330, which calls for that stability “ought to be in a kind which permits the defendant to get better a fees award built in its favour at the demo from money which are conveniently accessible, these that there is minor danger of hold off or default in enforcement” (emphasis included).

The Courtroom took recognize of the substantial amount of volatility in the benefit of Bitcoin (a placement which was acknowledged by the claimant) and held that Bitcoin did not satisfy the requirements in Monde Petroleum. Giving stability in the kind of Bitcoin would not final result in safety for the Defendants equivalent to a payment into courtroom or initial course assurance. The remarkably risky mother nature of Bitcoin will expose the Defendants to a danger to which they would not be uncovered with the normal varieties of stability. In other words and phrases, this was not a circumstance where by all other factors are equivalent.

Will Hong Kong Courts make it possible for cryptocurrency as an option kind of stability for fees?

Less than Buy 23 rule two of the Guidelines of the Significant Courtroom (Cap. 4A), where by an purchase is built demanding any get together to give stability for fees, the stability shall be specified in these method, at these time, and on these conditions (if any) as the Courtroom may perhaps immediate. The normal kind of stability delivered in Hong Kong is by way of payment into Courtroom or a lender assurance. The guidelines have not expressly approved what other varieties of stability is satisfactory. The Courtroom of 1st Occasion in Sunni Global Ltd v Kao Wai Ho Francis [2021] one HKLRD 841 has regarded as a ask for for an option kind of stability, particularly, an enterprise to demand shares in a personal firm in lieu of stability for fees. The Courtroom equally referred to Monde Petroleum (over) and held that the enterprise available was not adequate as the stability could not be realised with relative relieve.

At existing, there are at this time no Hong Kong authorities working with a ask for to present cryptocurrency as stability for fees. Even so, in perspective of the theory in Monde Petroleum (over) that was utilized in both equally Tulip Investing in the English Courtroom and Sunni Global in the Hong Kong Courtroom, we imagine the final decision in Tulip Investing will present useful steering to the Hong Kong Courtroom on these ask for.

In addition, the next concerns may perhaps also be applicable if the Hong Kong Courtroom is confronted with a ask for to present cryptocurrency as stability for fees in the long term:

1. the final decision in Tulip Investing only problems payment of Bitcoin as stability for fees but does not offer with the standard concern of whether or not payment of other cryptocurrencies as stability for fees may perhaps be permitted. The concerns may perhaps be distinctive if, for illustration, a comparatively non-risky cryptocurrency is available, these as stablecoin (becoming a cryptocurrency built to peg with the benefit of a individual fiat forex these as the US Pounds) or even produce-bearing stablecoin tokens deposited in a Decentralised Finance (DeFi) protocol (becoming a token whose benefit is meant (however not certain) to stably improve around time as passions accrues around the fundamental stablecoin tokens)
2. additional, if a plaintiff owns considerable amount of money of stablecoin or produce-bearing stablecoin tokens, this may perhaps be applicable to the concern of whether or not the plaintiff will be not able to pay out the defendant’s fees, and that’s why, whether or not stability for fees ought to be requested in the initial position and
3. aside from the challenge on volatility, accessibility of the cryptocurrency may perhaps also be applicable. In observe, transfers and realisations of cryptocurrency are challenging by the truth that possession of electronic property are attributed by handle of “private keys” (i.e. cryptographic passwords applied to authorise blockchain transactions), which can possibly be stolen, uncovered, compromised or shed. This will induce additional danger of hold off or default in enforcement to permit the defendants to get better fees. The get-togethers may perhaps have to take into account appointing a dependable custodian to mitigate this danger.