The Courts and the Metaverse – Service of Process through NFTs and Other Innovations | Barnea Jaffa Lande & Co.
In several recent precedent-setting decisions, courts in England and New York have allowed plaintiffs in fraud cases involving cryptographic assets to complete legal proceedings against unknown defendants directly on the blockchain by depositing an NFT into a digital wallet to which the defendants have access. Said NFT will contain a link to the folder containing the legal documents. Plaintiffs will thus fulfill their duty to inform defendants and serve them with the legal documents.
This is nothing less than a revolution in the adaptation of the legal system to the reality of the digital age, where the number of legal cases involving cases in the virtual and crypto arena is constantly increasing and the use of cryptographic assets and currencies is steadily increasing. .
A digital wallet as an address for process management
In June 2022, a court in London issued a precedent-setting ruling in a civil lawsuit regarding the theft of cryptographic assets by unknown entities. The judge authorized the claimant to take legal action against the defendant by transferring an NFT directly to a digital wallet controlled by them. According to the plaintiff, who is a private individual, he was the victim of fraud when he deposited cryptographic currencies according to instructions he received on a website that constituted a legitimate trading platform.
During the hearing of the claimant’s application to perform “creative” service of process through an NFT, the judge ruled that he was satisfied that the identity of the defendants is unknown and undiscoverable. Therefore, the judge ruled, the only way to serve the defendants was to send an NFT with a link to the folder containing the documents directly into the digital wallet where the plaintiff originally deposited the cryptocurrency. In his ruling, the judge referred to the guiding principle in the assessment of service, namely to maximize the likelihood that the claimant will gain knowledge of the proceedings and the orders made within its framework.
This ruling means that the English court has expanded the definition of “substituted service of process” in an innovative way towards the use of blockchain. This is a necessary evolution of the courts’ approach, especially as a tool to combat crypto-fraud and other crimes committed in virtual space, which will naturally multiply in the coming years with the expansion of activities in the metaverse.
Courts have absolute discretion
Judge Andrea Masley heard a similar case in New York. In the precedent-setting ruling she handed down in August 2022, Justice Masley ruled that in circumstances where the identity of a defendant in crypto-asset fraud is unknown, a plaintiff can process the defendant by depositing a token directly into the digital wallet. from where the assets were stolen and taken. This ruling also applied to a civil case regarding the theft of cryptographic currencies by unknown defendants. According to the plaintiff, a service provider and a licensed cryptographic asset exchange in Liechtenstein, it was the victim of a hack of its servers. The hackers then stole around $8 million and transferred the funds to various digital wallets.
As in Israel, New York law gives the courts absolute discretion regarding the manner of service or substituted service depending on the circumstances. This is especially true if it is proven that there is no other way to complete the process. After the plaintiff convinced the court that the defendants had continued access to the wallet from which they stole the assets, and that the defendants’ “preferred” method of communication was through the blockchain by depositing a service token, the court agreed that the only way to communicate with them was this way. In its ruling, the court agreed that this method of communication, carried out by airdropping information in the form of a token directly into a digital wallet, is a widespread method of communication in the cryptographic market.
As noted, Israeli law gives the courts absolute discretion as to how to conduct substituted service of process in a manner it deems appropriate in the circumstances, and particularly for service of process outside of Israel. It will be interesting to see how the Israeli legal system, which is also committed to doing everything in its power to stay abreast of technological innovations, will contend with the filing of similar cases. Will it show the same willingness that the legal systems in England and New York have shown to develop innovative legal tools to combat digital crime?
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