In a judgment made public today (12 July), the High Court of England and Wales granted an order permitting service of court proceedings via the transfer of a token on the blockchain in the case of D’Aloia v. Binance Holdings & Others.
Giambrone & Partners instructed Dean Armstrong QC and Racheal Muldoon of The 36 Group to secure the first order of its kind outside of the United States, granting permission to serve proceedings on ‘Persons Unknown’ connected with two digital wallets over the blockchain by non-fungible token or ‘NFT’, in addition to service by email.
While the English Courts have embraced technology in recent years, the methods of service of a claim permitted by Rule 6 of the CPR remain via (a) personal service, (b) first class post; (c) leaving it at a certain address and (d) fax or means of other electronic communication. Service by fax or electronic is only permitted where the party to be served or their solicitor has indicated in writing a willingness to be served in that way, so is generally not viable for claims brought urgently or on a without notice basis.
Where a party wishes to serve by other means, they can apply to Court for an order for alternative service, which will be granted where there’s good reason to allow it. The English Courts have previously allowed service over the likes of Instagram, Facebook, and the ‘contact’ section of the defendant’s website.
Fabrizio D’Aloia, an Italian engineer and founder of online gambling joint stock company Microgame, filed a claim against 4 cryptocurrency exchanges – Binance, Polo Digital Assets,Aux Cayes Fintech and Bitkub Online – and software company Gate Technology.
The Order was significant on two fronts:
it granted permission for the Claimant to serve proceedings by way of NFT drop to the two wallets into which he initially deposited his cryptocurrency, in addition to service by email; and
it recognised that the five cryptocurrency exchange defendants hold Mr D’Aloia’s identifiable cryptocurrency (followed, rather than traced in Equity) as constructive trustees.
Commenting on this ruling, Joanna Bailey, an associate in the financial services dispute resolution team at Giambrone in London, said: “The importance of the Court’s finding of a good arguable case of constructive trustee liability cannot be overstated. Should cryptocurrency exchanges act contrary to such orders and fail to ringfence the identifiable cryptocurrency, they risk being held liable for breach of trust.”
Bailey suggests that the case also poses the potential for digital service over the blockchain, with all the benefits of immutability and verification, to become the norm in favour of conventional means of service, such as post.
Mr Justice Trower’s order is second only to that of the Supreme Court of the State of New York’s on 2 June this year in LCX AG, -v- John Does Nos. 1 – 25.
Kate Gee, counsel at Signature Litigation commented: “The Courts have again embraced technology and been willing to apply established legal concepts to claims involving cryptocurrencies; this decision marks another milestone in their commitment to protecting victims of fraud involving crypto.
“First, by finding of a good arguable case against the defendant cryptocurrency exchanges for liability as constructive trustee, the judgment brings with it wide potential implications for this and future claims. Crypto exchanges must now take seriously the risks of claims against them for breach of trust, and take robust steps to ringfence identifiable cryptocurrency that is the subject of a dispute.
“Second, for the first time outside of the US, the claimant secured permission to serve proceedings by transfer of a non-fungible token on the blockchain. In a space where cases are often brought against “persons unknown”, whose contact details are unidentifiable or have been deactivated, this breaks down one of the practical barriers bringing a claim. It brings with it potential wider application – opening the door to service of other legal proceedings by DLT. In the absence of consistent and widespread regulation in this space, the innovative and agile approach taken by the courts of England and Wales provides investors with some comfort and confidence.”