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16 August 2022 | Comment | Article by Kieran Forsyth

You Got Served! - Service of Proceedings by NFT

Kieran Forsyth, Associate in the Contested Wills, Trusts and Estates team looks at the recent High Court decision of D'Aloia v. Person Unknown & Ors [2022] EWHC 1723 (Ch) in which the court permitted service of court proceedings by NFT.

 

The Facts

In December 2021, the founder of Microgame (an online gambling technology business), Mr Fabrizio D’Aloia, who was domiciled in England, began transferring funds into a trading account via the website tda-finan.com with the intention of trading the massive drop in the crypto currency markets that began in November of 2021. By May of 2022, Fabrizio had deposited approximately US $2million worth of crypto currencies into the platform. Unfortunately, the website is alleged to have been a scam, passed off as being linked to the US-regulated trading platform TD Ameritrade. When the claimant’s trades were closed in February 2022, he submitted a withdrawal request. Fabrizio’s tda-finan account was subsequently blocked from making withdrawals and communications with an email address associated with tda-finan told Fabrizio to make a number of further deposits. In May 2022, Fabrizio realised that he had been the victim of fraudulent activity and instructed an intelligence investigator who found that the assets had been transferred to several private addresses operated or controlled by five crypto exchanges located in different parts of the world.

Fabrizio issued proceedings in an effort to trace, protect and ultimately recover his lost investment.

He quickly ran into trouble because it was unclear who was behind the tda-finan.com website. Not knowing who he was claiming against would make it very difficult to serve his claim. Unless service of the claim can be effected by ordinary methods, such as post, , more than one method of service may be necessary to increase the chances of the defendant seeing the documents. Fabrizio had a contact email for tda-finan but he would need to find another way of serving his claim to the Defendant.

This second form of service came by way of an NFT (non-fungible token). Talk about real world utility!

Fabrizio knew that rule 6.15 of the Civil Procedure Rules provides that:

“where it appears to the court that there is a good reason to authorise service by a method or at a place not otherwise permitted by this Part, the court may make an order permitting service by an alternative method or at an alternative place.”

As nobody had ever attempted to serve a claim via NFT before, there was no guarantee that the court would accept it as a valid means of service.

The Master hearing the Application clarified that service by NFT would act as a form of “airdrop into the tda-finan wallets in respect of which the claimant first made his transfer to those behind the tda-finan website”. This was determined as being a novel form of service by the Master who accepted the advantages of service by such means for the following reasons:

  1. the claimant, by embracing the Blockchain technology, would drop the documents into ‘the system’ thereby embedding the documents on the Blockchain;
  2. by doing so the likelihood of those behind the fraudulent tda-finan website seeing the documents would increase; and this would be the most likely way of effecting proper service.

Fabrizio’s claim is still ongoing, but we will report when there is a judgement in the case.

 

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Background

The decision of the Chancery Division in the High Court of England and Wales of D'Aloia v Person Unknown & Ors [2022] EWHC 1723 (Ch) in June 2022 is extraordinary, although, with the increasing prevalence of cryptocurrency and digital assets, is likely to set a trend for how litigants use and take advantage of such assets in court proceedings.

It is extraordinary for two reasons. First, it is the very first time in England and Wales that the service of court proceedings has been achieved by using a Non-Fungible Token, or “NFT” for short.

The second reason is that it allows for an arguably very effective way of ensuring that the person you wish to sue actually sees, or at least for the claimant’s purpose, is deemed to have seen the documents you intend to serve.

The latter concept is vital in litigation – if you can show effective service then you can proceed to the next steps of litigation. Without valid service, the next steps in obtaining the necessary relief may be denied.

Service of court documents is something you simply must get right. Without effective service your claim is “dead in the water” and lost in the “ether” (whether metaphorically or by reference to the cryptocurrency and the Ethereum blockchain!).

The rules around service of proceedings in England and Wales are very prescriptive and are laid out in Part 6 of the Civil Procedure Rules.

So, why is this case important? Simply put, it shows that the court is willing to take a modern approach to how service can be achieved. Previously the most modern way of effective service was probably by email, although there have also been cases where service has been permitted via social media such as Twitter. Allowing documents to be served by an NFT establishes a useful precedent in cases relating to cryptocurrency and digital asset disputes.

Those involved in a dispute can now, with the court’s permission, make use of the very technology in which they may have invested to pursue a defendant.

The Summary

This is a welcome decision and will assist those in future who, like the claimant in this case, cannot point to a defendant and say ‘I know they will receive the documents by post or by email’ simply for the fact that you may not know who your defendants are or where they are located in the world.

This is particularly evidenced in this case by the fact that the defendants, in what is becoming an increasing trend in crypto litigation, were named as “Persons Unknown and Others”. See, for instance, the 2019 case of AA v. Persons Unknown & Ors, Re Bitcoin [2019] EWHC 3556 (Comm).

The difficulties which would otherwise be at play could well be insurmountable when trying to serve such defendants effectively.. For this very reason, the existence of NFTs and the ability now to use them to serve court proceedings is an extremely useful tool and one which we expect will be employed in contentious disputes involving crypto and digital assets in the future.


Author bio

Kieran is an Associate in the Contested Wills, Trusts and Estates team. He advises both on contentious and non-contentious matters. On the non-contentious side, Kieran advises on high net worth trust and estate planning matters, whilst on the contentious side, Kieran can advise on all matters of trust, will and estate disputes including Inheritance Act claims. Kieran also specialises in Crypto Assets and advises and assists clients in estate planning, wills and administering estates with digital assets. He also advises clients who are faced with any issues or disputes relating to digital assets.

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Disclaimer: The information on the Hugh James website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. If you would like to ensure the commentary reflects current legislation, case law or best practice, please contact the blog author.

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