In a recent groundbreaking decision,1 the English High Court allowed service of a claim on a defendant by a non-fungible token (NFT),2 embrace blockchain technology and take a pragmatic view of the most effective ways to bring parties to the attention of proceedings.
Mr. Fabrizio D’Aloia (the plaintiff), an Italian engineer and founder of Microgame (an online gaming technology company), transferred a total cryptocurrency equivalent of approximately US$2 million to an account of trading via the tda-finan.com website between December 2021 and May 2022. The website was allegedly a scam, presented as being linked to the US-regulated trading platform TD Ameritrade. When the applicant’s transactions were closed in February 2022, he submitted a withdrawal request. The account was then blocked and communications with an email address associated with tda-finan prompted the plaintiff to make a number of additional deposits. In May 2022, the plaintiff realized he had been the victim of fraudulent activity and instructed an intelligence investigator, who found that the assets had been transferred to multiple private addresses operated or controlled by five crypto exchanges located in different parts of the world.
The plaintiff sued the exchanges and the unknown persons responsible for tda-finan, alleging, among other things, fraudulent statements and unjust enrichment. The plaintiff made unannounced requests for:
- injunctions to freeze assets transferred to the various wallets;
- disclosure orders requiring exchanges to provide information enabling the claimant to trace assets and/or identify unknown persons;
- authorization to serve the accused out of court; and
- permission to serve unknown people by NFT airdrop in tda-finan wallets.
Recognizing the urgency of the claim, the court granted the injunctions sought by the plaintiff (except for a restraining order against one of the exchange defendants). In reaching this decision, the court made the following key findings:
Service on unknown persons was authorized by means of an NFT airdrop to the crypto wallets in which the applicant first made transfers to tda-finan. This form of service, combined with service by e-mail, would increase the likelihood of formal notice from the operators of the tda-finan.com site. The judge did not consider that service by NFT alone would have been appropriate.
Damages would not be an adequate remedy to compensate the plaintiff. Any remedy available to the plaintiff would be “rendered worthless” in the absence of measures limiting the dissipation of assets.
There was a good arguable case that the assets were held in constructive trust by both the alleged fraudster(s) and the exchanges.3 This is in line with previous interim findings of the English courts that we have reported on (accessible here), but goes further in imposing constructive trust on exchanges as well as unknown fraudsters. This followed the Claimant’s investigator’s findings that the assets could be traced back to portfolios held by exchanges.
The decision followed previous authorities in concluding that the location of a crypto asset is determined by the location of the domicile of its owner (see for example our previous OnPoint, accessible here). As the owner was domiciled in England, there was good reason to believe that English law would apply to the dispute since the damage occurred in England when the goods were misappropriated.
English courts have long taken a practical view of service, allowing it through new means, including Twitter, Facebook and SMS where appropriate.4 This decision further confirms the willingness of courts to apply existing legal principles to new technologies and move quickly to provide remedies to victims of crypto-fraud. The option to serve by NFT in a crypto wallet is a particularly welcome development for plaintiffs where the identity of the defendant is unknown. Additionally, performing the service through the blockchain provides immutable proof that the service was performed.
Authorization to serve proceedings by NFT is considered a first in England and the second in the world only in New York, where in June 2022 a plaintiff’s lawyers were authorized to serve documents using an NFT linked to the applicant’s representatives. website.5 In the New York case – involving the alleged theft of nearly $8 million in digital assets – the order specified that NFT-linked documents must use a mechanism to track if and when the link in the NFT had been clicked. Although in the D’Aloia case the English court was prepared to allow service by NFT only in conjunction with service by email, parties may wish to consider the availability of tracking mechanisms when serving by NFT (or other alternative means), to reinforce their arguments that the defendants were informed of the procedure.
The authors would like to thank Jennifer Hutchings, trainee lawyer in London, for her valuable contribution to this OnPoint.
1) D’Aloia versus Unknowns and others  EWHC 1723 (Ch)
2) An NFT is a single, non-divisible token, usually tied to digital files (such as digital artwork or, in the case of service of proceedings, court documents), that uses blockchain technology to record ownership and validate ownership. ‘authenticity.
3) In summary, when property is obtained by fraud, a constructive trust is imposed on the beneficiary to hold legal title to the property in trust for the victim.
4) Blaney vs. Unknowns  (not reported); AKO Capital LLP and another against TFS Derivatives and others  (not reported); and NPV versus QEL and another  EWHC 703 (QB).
5) LCX AG vs John Doe Nos 1-25
#English #court #service #process #NFT #Supra
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