Introduction
Recent years have seen English courts on occasion allowing service of proceedings on defendants via non-fungible tokens (NFTs). An NFT is a unique digital asset that records the ownership of some digital or physical asset or right associated with it.
NFTs exist on a blockchain, most commonly Ethereum. Unlike bitcoin, which is a fungible token, NFTs are not interchangeable as they each represent the specific data associated with the underlying asset or right that is stored in permanently accessible form on the blockchain.
One of the earliest instances of service via NFT was in D’Aloia v. Person Unknown & Others [2022] EWHC (Ch) 1723 (discussed further below), and remains particularly useful in the context of cryptocurrency fraud claims, where claimants often have very little information about the intended defendants, save for the details of the digital wallets containing the disputed crypto-assets. Crucially, service via NFT is completed by way of transmission of the NFT to the defendant’s digital wallet, as opposed to requiring any interaction by the defendant with the airdropped NFT itself.
The most recent of these cases is Tai Mo Shan Ltd v. Persons Unknown [2024] EWHC (Comm) 1514, where the court granted permission to serve outside of the jurisdiction via NFT, thus expanding the body of case law for this particular means of alternative service. Below, we examine the court’s decision and remind ourselves of some of the previous decisions of the English courts in this area.
Case analysis
The claimant, Tai Mo Shan, had obtained a New York judgment in a cryptocurrency fraud claim, which it sought to enforce in England and Wales (the location of the disputed crypto-assets). To do so, it applied for permission to serve the proceedings:
a. Outside of the jurisdiction: this was necessary as the defendants, and consequently their location, were unknown to the claimant; and
b. By alternative means, as permitted by CPR 6.15(1): in particular, Tai Mo Shan intended to transmit NFTs into the relevant cryptocurrency wallets. These NFTs would contain hyperlinks to the Claim Form, Particulars of Claim and other documents referenced in the application notice.
Previous cases had considered similar issues.
- D’Aloia v. Person Unknown & Others concerned an application for interim injunctive relief and disclosure in relation to a fraudulent cryptocurrency misappropriation. The court granted permission for service to be effected by NFT, in addition to service by email, as it was likely to lead to a greater prospect of the defendants being put on notice and the commencement of proceedings.
- Similarly, the court in Jones v. Persons Unknown [2022] EWHC (Comm) 2543 allowed service by email and NFT on the basis that the court should help as much as it can to ensure that its orders are enforced and that the claimant’s property is returned as soon as possible.
- In Osbourne v. Persons Unknown Category A [2023] EWHC (KB) 39, NFTs were permitted as the sole method of service. The judge was wary that personal data contained within the documents that would be served by NFTs would be open to the public and, as such, sanctioned the redaction of the documents to preserve that data.
In Tai Mo Shan Ltd v. Persons Unknown, Judge Pelling KC considered the following three concerns with the suggestion of service by NFT:
1. Where was the relevant jurisdiction for service?
Under CPR 6.40(4), the court cannot authorise or require a method of service which contravenes the law of the jurisdiction where the Claim Form or other such document will be served.
To address this, the judge inserted a qualification into his order that service would be ineffective in any jurisdiction where this means of service would contravene that jurisdiction’s laws.
2. What was the appropriate time period for responding to the claim?
While the Civil Procedure Rules prescribe a number of days for service to a particular jurisdiction, the defendants’ whereabouts were unknown, and so there was no immediately obvious answer to the question of timing.
The judge held that 31 days was appropriate, it being a practical length of time and longer than what was required for most jurisdictions to respond to a Claim Form.
3. How could the documents be protected from access by non-parties?
The judge considered the extent to which the documents should be protected by some form of security, such as password protection. The disclosure documentation should not be available to those outside of the proceedings, whereas, the Claim Forms and Particulars of Claim are typically available to non-parties.
Owing to the large amount of disclosure contained in the documents to be served, the judge drew a distinction between documents available to non-parties on demand and documents that required a further court order. The latter should be password protected, with the order regarding those documents to include directions for accessing the password.
Looking forward
It is conceivable that the judgment in Tai Mo Shan Ltd v. Persons Unknown may extend beyond its application to fraud cases. Going forward, parties may consider contractually agreeing to serve and be served via an airdropped NFT to a specified digital wallet, with such clauses being included within automatically executing smart contracts stored on the blockchain.
Comment
Tai Mo Shan Ltd v. Persons Unknown is the first case in the English courts where service outside of the jurisdiction has been permitted to enable enforcement in a cryptocurrency case, and demonstrates the court’s practical approach to interpreting the requirements for service amid the increased occurrence of cryptocurrency fraud claims in recent years.
The introduction by Tai Mo Shan Ltd v. Persons Unknown of password protection for disclosure of documents requiring a court order is also a welcome addition. This progression acknowledges both the public nature of the blockchain together with addressing the data security risk inherent in an NFT, and represents an encouraging continued evolution of the common law in this space.
Clearly, the courts are not shy of embracing new forms of communication to effect service, and potential claimants should be encouraged by the ongoing trend in cryptocurrency case law. Effective service is not guaranteed and may be invalid if the alternative means are not permitted by law in the relevant jurisdiction.
Client Alert 2024-195
