BACKGROUND
IN D’Aloia v (1) Persons Unknown and (2) Binance Holdings Limited and Othersthe High Court of England and Wales granted the claimant permission to serve legal proceedings onpersons unknown‘ over blockchain, using non-fungible tokens (NFT).
NFTs
NFTs are a relatively new class of digital assets. Ownership is recorded on a blockchain – the kind of platform that hosts cryptocurrencies like Bitcoin. A blockchain is a decentralized and public digital ledger used to record transactions across multiple computers. It is impossible to change the record of a transaction on a blockchain without changing all subsequent blocks through consensus with the network. For example, NFTs can represent digital tokens for tangible assets such as artwork, videos and music, and are non-fungible in that they cannot be copied, substituted or subdivided.
THE CASE
The plaintiff, an Italian engineer and founder of online gambling company Microgame, filed suit against unknown persons and five cryptocurrency exchanges – Binance, Poloniex, gate.io, OKX and Bitkub. The plaintiff alleged fraudulent misappropriation of certain cryptoassets, so-called “stable coins” that peg their value to the US dollar. The application arose from the alleged misuse of the claimant’s cryptocurrency by ‘Unknown persons‘ operates a fake clone online brokerage house, duping investors who were tricked into depositing crypto assets into digital wallets that were stolen instead of being placed to trade as instructed.
SERVICE
Most of the defendants were outside the court’s jurisdiction, but the service was allowed by means of NFT ‘airdrop’ into the two digital wallets into which the claimant deposited his cryptocurrency.
Justice Trower believed that the court would allow such service as it would lead to a greater likelihood that the people behind it were notified of the proceedings. Problems that would otherwise arise and the complications of service on unknown persons meant that there had been good reason to allow service in this way. The service was also ordered via e-mail.
The order recognized that the five cryptocurrency exchange defendants held the claimant’s identifiable cryptocurrency as constructive trustees – a positive development in the recognition of equitable remedies available to victims of crypto-asset fraud and the recovery of crypto-assets.
WHAT NOW?
The Courts of England & Wales have previously given permission to serve proceedings by alternative electronic methods, such as social media and email. However, this is the first time a claimant has been granted permission to serve proceedings using blockchain. This development presents a solution where traditional service methods are not feasible due to urgent requirements, on a ex parte basis, or against unknown persons whose usual contact information is impossible to identify.
Contact details for fraudulent platforms are often no longer active when victims seek to identify defendants for their claims. The order sets a precedent for victims of crypto-asset fraud to seek redress against unknown individuals who misused their cryptocurrency. The potential of digital service over the blockchain is clear.
