In a recent judgment (of D’Aloia v. Binance Holdings & Others, [2022] EWHC 1723 (Ch)), the High Court of England and Wales granted an order for service of court proceedings via transfer of a token on the blockchain. Further, and more significantly, the court held that there is an arguable case of constructive trustee liability against the involved crypto exchanges.
The case arose because of Claimant’s cryptocurrency being misappropriated by “Persons Unknown” operating a fraudulent clone online brokerage. Claimant applied for alternative service by an NFT airdrop to two wallets into which Claimant originally transferred his cryptocurrency that was subsequently stolen.
English courts had previously granted such alternative service orders via various online methods under CPR 6.15, including Instagram, Facebook and via a “contact” section of a defendant’s website, but never before by means of Distributed Ledger Technology. To our knowledge, only the Supreme Court of the State of New York had previously granted a similar order (LCX AG, -v- John Does Nos. 1 – 25.).
Nonetheless, the High Court granted permission for the Claimant to serve proceedings by way of NFT airdrop to the two wallets into which the Claimant initially deposited his cryptocurrency, in addition to service by email
Considering that crypto fraud cases are often brought against “persons unknown”, whose contact details are unidentifiable, this court ruling facilitates access to legal remedies for victims of crypto frauds. It also brings with it potential wider application – opening the door to service of other legal proceedings by DLT.
Further, the court recognised that there is an arguable case for finding that the five cryptocurrency exchange defendants hold the Claimant’s identifiable cryptocurrency that had been stolen (by “persons unknown”) as constructive trustees. This means that they are responsible for making sure the funds are not moved on or withdrawn from their exchanges.
This ruling has potentially wider implications for future claims. Crypto exchanges must consider the risk of claims against them for breach of trust, where confronted with identifiable cryptocurrency that is the subject of a dispute. For victims of a crypto fraud this means that they should immediately put a crypto exchange on notice if they can identify such assets.
