Alternative Service by Non-Fungible Token

For the first time, in a decision likely to be welcomed by victims of cryptocurrency fraud, the High Court has granted permission permitting service of proceedings on a defendant by non-fungible token (NFT).

Facts

The claimant, Mr D'Aloia, sought to invest substantial cryptocurrency assets via a crypto trading website 'www.tda-finan.com' believing it was operated by a legitimate regulated business. The claimant discovered the website was fraudulent when he was unable to withdraw his assets and received emails seeking to induce him to make further deposits. The claimant employed a specialist investigator who was able to trace the missing cryptocurrency to a number of digital wallets on different cryptocurrency exchanges - the majority held on Binance.  

The claimant made an application for a freezing injunction in respect of the cryptocurrency held in the identified digital wallets and applications for additional orders in support of the freezing injunction. The supporting applications included an order for a Bankers Trust disclosure order to assist the claimant identify the unknown persons behind the fraudulent website.

Decision 

The court granted the orders sought by the claimant, including the Bankers Trust order. The court also granted permission for the Bankers Trust order to be served outside the jurisdiction by alternative method; namely by email and by NFT. In respect of service by NFT the court noted this would take the form of an "airdrop into the tda-finan wallets in respect of which the claimant first made his transfer to those behind the tda-finan website". The court had no objection to this novel approach on the basis that it would likely lead to a greater prospect of those behind the tda-finan website being put on notice of the making of the order and commencement of proceedings. 

Analysis

This decision sets a new precedent for effecting service of legal proceedings by NFT and will provide a new route to serve proceedings where the identity of the defendant is unknown. The decision is part of an on-going trend where the courts have shown that they are willing to allow litigants to embrace new technology to serve legal proceedings, having previously permitted service by other novel means such as by Whatsapp, Facebook and Twitter. 

Many people will have only heard of NFTs in the context of their recent explosion in popularity as a means to buy and sell digital collectibles such as digital art. Like cryptocurrencies, NFTs function on blockchain technology (often running on the Ethereum cryptocurrency blockchain) to maintain an independent and verifiable record of ownership allowing the digital tokens to be bought and sold with confidence.  

The novel approach of using an NFT to serve legal proceedings takes advantage of the compatibility of NFTs with cryptocurrency technology enabling the transfer (or "airdropping") of an NFT into a digital wallet that can also store cryptocurrency.  The NFT itself is likely to contain a link where the court papers can be accessed and viewed. 

D’Aloia v (1) Persons Unknown (2) Binance Holdings Limited & Others [2022] EWHC 1723 (Ch)