NSW District Court approves digital currency as security for costs
As part of a New South Wales District Court defamation action, Judge Judith Gibson recently made an interim order approving the use of a cryptocurrency exchange account as security for costs. The decision is Hague v Cordiner (No. 2)  NSWDC 23.
Legal proceedings involve substantial costs being incurred by all parties, and following judgment, the unsuccessful party is ordered to pay the costs of the successful party. A defendant to litigation can seek an order for security for costs to to ensure that, if the plaintiff's claim is unsuccessful and a costs order is made in favour of the defendant, the payment of those costs (or part of the costs at least) is secured in case the plaintiff is impecunious, lives outside Australia or simply refuses to pay. Where there is a concern as to capacity to pay (or the appearance of capacity to pay) a defendant will usually bring a motion seeking orders for security for costs.
In this case, the defendant sought an order for security for costs under rule 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) against the plaintiff on the basis that:
the plaintiff is ordinarily resident outside Australia and/or has misstated his address in Australia with intent to deceive
The parties agreed that an order for security was appropriate, and that the amount of security would be $20,000, but could not agree on what form the security would take.
Typically a plaintiff will provide either as bank guarantee or make payment of money into either a solicitor's or the Court's trust account, to be held for the duration of the proceedings. As bank guarantees now usually carry an expiry date, the preferred method of providing security is payment of money into trust.
In this case the plaintiff proposed using their digital currency reserves held at the popular Australian digital currency exchange BTC Markets. The defendant opposed the use of digital currency as security primarily on the basis that "while the account from which these funds would come is in Australian dollars, it represents a highly unstable form of investment".
Acknowledging this difficulty, Judge Gibson noted at paragraph 5 of the judgment that:
This challenge to the form of security requires a consideration of the value of undertakings to the court and whether an account representing the dollar value of cryptocurrency is in fact a reliable security.
The investment account referred to in the judgement is the Plaintiff's exchange account with BTC Markets, which held just over $20,000 in various cryptocurrencies "as at 4 February" (the affidavit evidence or judgement erroneously states 2019 but we assume this was intended to be 2020, given the average value of Bitcoin used for the calculations matches more recent prices).
Despite Judge Gibson finding that she was "unaware of any other orders for security being made in relation to cryptocurrency", she found that:
The issue of cryptocurrency volatility can best be addressed by requiring the plaintiff to provide copies of his monthly bank statements to the solicitor for the defendant and by requiring him to notify drops below the secured amount.
On that basis, the plaintiff was ordered to give an undertaking to the Court which included that he not dispose of the value of the cryptocurrency in his BTC Markets account to cause it to drop below $20,000, to notify the other side if the balance of BTC Markets account drops below $20,000 and provide copies of the statements of the balance on the exchange once a month. Interestingly the undertaking provided that there would be no restriction otherwise on the Plaintiff withdrawing amounts from the BTC Markets account.
Coming with the recent UK High Court decision recognising digital currency as property, this decision, while from a lower NSW Court, further acknowledges the store of value that digital currencies provide.