In a significant move, the Supreme Court has allowed the service of documents via the blockchain. Technology conflicts Louise Norbury-Robinson and Jack Heward offer their insights.
Why is D’Aloia v. Binance Holdings and others [2022] of interest?
The Supreme Court continues to build on recent decisions granting injunctions against misused crypto assets [1] by allowing service of court documents via the blockchain.
This is the first time an English court has given permission for service to be effected by sending court documents in the form of NFTs into a defendant’s digital wallets. This important decision is second only to a recent similar court order in New York. It adds another useful string to the would-be injunction seeker’s bow.
The court also found that cryptocurrency exchanges that hold misappropriated cryptoassets do so as constructive trustees. This potentially exposes these platforms to liability even if they do not take steps to defend stolen crypto assets when a court orders them to do so.
What were the facts of the case?
The applicant was an Italian engineer who ran an online gambling company called Microgame. He applied to the Supreme Court for a temporary injunction against Persons Unknown, four different cryptocurrency exchanges and one software company. This followed the misappropriation of around £1.8 million of Tether and £190,000 of USB Coin cryptocurrencies. Acting quickly, the applicant discovered that fraudsters had cloned his online brokerage. They then enticed other investors to transfer cryptocurrency to two electronic wallets.
The Supreme Court allowed the service of court documents by means of an NFT airdrop to the two online wallets in question. It also recognized that the other five defendants held the applicant’s cryptocurrency as constructive trustees.
Important takeaways
This decision reinforces the position of the English courts at the forefront of providing practical ways of dealing with misused digital assets. By allowing the service of court documents via blockchain technology, the Court has removed a significant stumbling block for the service of court proceedings in cryptoasset disputes.
The courts have previously allowed service via other online platforms such as Instagram and Facebook. However, allowing service via the blockchain of fraudsters’ digital wallets shows that the courts are willing to embrace new technologies and tackle the issue of anonymity of blockchain users. This may have previously prevented the service. The decision also has the potential for wider application for alternative services in other processes via blockchain in the future.
There are also implications for cryptocurrency exchanges that find themselves potentially holding misused cryptocurrency. In light of the court’s decision, these online platforms can be constructive trustees responsible for ensuring that stolen crypto assets are properly ring-fenced and not withdrawn if the court orders them to do so. If these online exchanges do not comply, they may find themselves liable for breach of trust, and themselves subject to a future claim.
