Rayshum Khan, paralegal in Ronald Fletcher Baker’s Criminal Litigation department, discusses the landmark case of D’Aloia v (1) Persons Unknown & (2) Binance Holdings Limited & Others
On June 24 this year, the High Court granted an order permitting service of proceedings on Persons Unknown via a non-fungible token (NFT). This is the first instance of an English Court approving service by means of distributed ledger technology.
The case was brought by Fabrizio D’Aloia, founder of Microgame, a prominent online gambling business in Italy.
Mr D’Aloia alleged that he had been the target of fraudulent misappropriation of his cryptocurrency by Persons Unknown, of approximately 2.1 million USDT and 230,000 USDC between December 2021 and May 2022.
Mr D’Aloia claimed that Persons Unknown created a fictitious brokerage to entice investors to place cryptocurrencies in certain wallets in order to execute trades with them.
Mr D’Aloia requested an interim proprietary injunction in order to protect and regain his cryptocurrencies. He claimed that the crypto exchanges effectively held his cryptocurrency as trustees.
Given that the suspected fraudsters’ identities were otherwise unknown, Mr Justice Trower permitted that the claim form and particulars of claim could be delivered by airdropping an NFT into the wallet where Mr D’Aloia had first transferred his cryptocurrency to.
This mode of service was designed in such a way as to contain a link inside the NFT that would take the receiver to a website where the court documents were located, and would alert the claimant that they had been accessed. The effect of service by NFT would be that the ‘drop’ will forever be embed into the blockchain.
The court was satisfied that:
1.There was a serious issue to be tried
2.There was a good arguable case that this was a case for the English Courts; and
3.Damages would not be an adequate alternative remedy.
Therefore, Mr Justice Trower found on the balance of convenience in favour of granting the injunction.
The court also recognised that the exchanges were holding the cryptocurrency as constructive trustees, on a constructive trust. This was of substantial importance because if the exchanges failed to ringfence the cryptocurrency, they would risk being held liable for breach of trust.
The significance of this case is that the High Court has essentially expanded what would qualify as ‘Alternative Service’ under CPR 6.15, therefore giving victims of crypto fraud a way to serve legal documents against persons unknown.
Even though it is unclear at this point whether this kind of service would actually accomplish the stated goal or advance the victim’s recovery, it is clear that the High Court will undoubtedly do what it can in its power to help claimants find innovative solutions in this ever-expanding digital environment.
The High Court’s conclusions regarding constructive trusts are good news for victims as well as the crypto space as a whole. It can be deduced that cryptocurrency exchanges may be similarly motivated to invest in their internal systems and compliance infrastructure in order to prevent frauds from occurring from the outset.
These adjustments should increase users’ trust in the platforms whilst lowering the risk of exposure to legal action for cryptocurrency exchanges.
Being able to serve court documents directly to wallet addresses is a positive step forward and shows that the court is open-minded to embracing new technological changes.
The difficulty in such situations is finding and retrieving assets from those who can only be identified by their wallet address, and have made every attempt to maintain their anonymity.
The court views a small number of well-known cryptocurrency exchanges as the custodians of the crypto assets held by those wallets, which is certainly encouraging. The court is also willing to use its more potent interim measures to stop the further transmission of funds obtained through deception.
For further information contact our Crime Department on 020 7613 1402.
