For the first time in Great Britain, i D’Aloia v Persons Unknown, Binance Holdings Limited & Others, the High Court of England and Wales granted an order allowing the service of court documents via an NFT on the blockchain. In the aforementioned order, the Supreme Court also ruled that exchanges that hold cryptoassets can be constructive trustees for cryptoassets deposited in their infrastructure.
The case
Mr D’Aloia, the claimant, applied for an urgent preliminary injunction at an ex parte hearing without notice. He claimed that he had been the victim of an embezzlement perpetuated by unknown persons. These individuals ran an online fake cloning brokerage. They encouraged people to deposit cryptocurrency within two wallets with the intention of fraudulently cloning the funds. These wallets were held on various cryptocurrency exchanges.
Order for service
The Supreme Court issued an order to serve documents to unknown persons via the blockchain and via e-mail.
In general, the rules for service of court documents are quite strict. The Rules of Civil Procedure allow service by, among other things, personal service, first-class post, fax or other electronic means. If a party wishes to serve documents in another way, they must apply to the court for alternative service. There must be a “good reason” for approving such a request.
In previous cases, courts have allowed alternative service via social media channels and instant messaging systems, but this was the first time the court approved service via distribution technology. Such service will be obtained by sending the court documents into the two wallets where D’Aloia claims to have been subjected to the fraud in the form of an NFT.
Although the order has not been made publicly available, it is easy to guess the Supreme Court’s reasoning for this order. The two wallets are the only way to contact unknown people. Their identities and contact details are currently unknown, meaning that without the wallet no documents could be served on them. Had the Supreme Court not allowed service of the wallets, Mr. D’Aloia and other alleged victims of fraud would have faced significant barriers to legal action.
As such, future crypto-related fraud claims should now find it much easier to serve lawsuits against unknown individuals. Although alternative service applications will still be required, this order can be used to support your request. In theory, this could lead to the blockchain being used for service of documents on a more common basis, especially as cryptoassets become more ingrained and common in society.
Constructive trustees
The Supreme Court also held that the exchanges in question were also constructive trustees for the stolen cryptocurrency. This is because the private keys and funds deposited into the wallet are managed and secured by their infrastructure. Since their platform was used to move the assets, the exchanges had an obligation not to allow fraudulent movement or withdrawal of the funds.
This should give investors some degree of protection. The judgment is clear that the exchanges are responsible for ensuring that the funds are not moved on or withdrawn from their exchanges without proper authorization. This should make it more difficult for fraudsters and other bad actors to illegitimately obtain crypto assets. As for the effect on exchanges, it suggests that crypto exchanges need to put in place systems and controls to ensure that such unauthorized withdrawals do not take place.
Next step
It is not yet clear whether the claimant has served the relevant claim documents through the blockchain, or by other means. It is also currently not clear whether the case will proceed to trial and, if so, when the trial will be heard. Our expectation is that it will follow previous UK cases – namely that crypto-assets can be property and can be subject to various injunctions, including freezing and other proprietary injunctions.
