Nowhere to hide? English Court approves service of legal documents by NFT embedded in blockchain

In the recent case of D’Aloia v Person Unknown & Others [2022], the High Court has approved the service of an injunction and associated disclosure orders on a defendant (in a cryptocurrency fraud claim) via creation of a Non-Fungible Token (NFT) containing the relevant information and then air-dropped into a digital wallet under the control of the defendant.

The judgment

In what has become an all too familiar scenario, an investor alleged that a fraudster induced him to transfer cryptocurrency assets into a digital wallet controlled by the fraudster, which the investor could not then recover despite repeated attempts to do so. Eventually, the investor sought an injunction from the English Court to prevent the transfer or dissipation of the cryptocurrency assets, as well as ancillary disclosure orders against the defendant and also third party cryptocurrency exchanges (including Binance) for the disclosure of information held by the exchanges concerning the identity of the fraudster(s). The Court granted the injunctive relief sought and allowed the investors to continue the pursuit of the allegedly misappropriated assets from the fraudster(s) and the information relating to the digital wallets/fraudster(s) from the third party exchanges.

Relevant issues arising

1. As in previous cases (notably Ion Science case), the English Court in this case was again content to accept jurisdiction over the claim – notwithstanding that the defendant was believed to be in Hong Kong and the cryptocurrency currency exchanges were based outside the UK – on the basis that the claimant was ordinarily domiciled in England and that the Court should therefore treat the assets (which are in reality ethereal and do not physically exist anywhere) as being located in the same place as the person who owns them.
   
   
2. This is another case – following others (the Ion Science and Ai cases, for example) where the English Court has permitted service of a disclosure order on third parties based outside the UK. Given that service of such orders abroad has historically been problematic, this case continues the recent trend for the English Court to allow the service of disclosure orders on third parties outside the UK as part of application for injunctive relief sought in “hot pursuit” of cryptocurrency frauds. However, it remains to be seen whether these types of extra-territorial disclosure orders will continue to be available indefinitely or whether they will be subject to challenge in due course.
   
   
3. The English Court permitted service of the injunction and disclosure orders on the alleged fraudster by means of the creation of an NFT which was air-dropped into the defendant’s digital wallet (to which the cryptocurrencies had been transferred) and embedded into the blockchain. This method of service represents a new weapon in the arsenal of victims of cryptocurrency fraud pursuing claims in England.
   
   
4. This novel method of service (via NFT) reflects a continued willingness by the English Court to develop English law in a manner which supports victims of cryptocurrency fraud to pursue justice. In this way, the English Courts continue to be a particularly attractive forum in which to pursue cryptocurrency fraud claims.
   
   
5. That said, the wider applicability of service by NFT is unclear. For instance, whether the Court would permit this method of service is a claim unrelated to cryptocurrency fraud (which inherently involves digital wallets and requires urgent action) is debatable. Similarly, even in the D’Aloia case, the Judge indicated that it would not be appropriate to serve by NFT alone; service in this way in this case was only permissible because service of the legal documents was also being conducted by email. If a victim of cryptocurrency fraud is not also able to provide an email address at which the defendant(s) could also be served, it is therefore not clear whether service by NFT (alone) would be permitted.

If you require further information about anything covered in this briefing, please contact Jolyon Connell or Oliver Blundell, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, August 2022