Can legal proceedings be served via NFTs and other digital means?
Introduction
Recently, in the case of LCX AG
v John Doe Nos. 1-25 (Dkt.No.,154644/2022) (N.Y. Supreme, Ct., NY
County), the Supreme Court of the State
of New York (“NYSC”) decided to allow the plaintiff’s
lawyers to serve legal papers upon a pseudonymous defendant via a non-fungible token (NFT). The decision appears to be the first
time ever that this novel method for service has been approved in the backdrop
that the use of blockchain technology becomes more common and understood within
the business and legal community. The decision is considered an important
development in the authorized methods for service of legal process.
The
case and decision
The plaintiff,
LCX, is a fintech company based in Lichtenstein in Europe, and is a
cryptocurrency exchange that engaged in digital asset trading, compliant token
offerings and tokenization. In January 2022, LCX was hacked and consequently
suffered loss of around USD8 million. About 60% of the stolen funds were traced
to two cryptocurrency wallet addresses (Ethereum and USD Coin) and were frozen.
As the identity of the hackers remains unknown, LCX filed a lawsuit against “John
Does (pseudonyms) Nos 1 – 25” in New York, USA until the wrongdoers’ true
identity is uncovered.
On 2 June 2022, the
NYSC granted a temporary restraining order and allowed LCX’s legal
representative to serve the said order and other legal papers, including the
Summons and Complaint, upon the person or persons controlling the Ethereum
wallet address via “airdropping” a unique NFT into that wallet address. It is
possible to distribute NFTs and other digital assets into a known public wallet
address. The token contained the link to a website where the copies of the
order and legal papers can be accessed, as well as a mechanism to track the
visitor upon being clicked. This novel method of service was considered by the
NYSC as good and sufficient for the purposes of jurisdiction under the laws of
the State of New York on the person or persons controlling the said wallet
address.
Hong Kong laws on service of documents
The statutory rules
In Hong Kong, it
is a general procedural requirement that the plaintiff must give notice to the
defendant about the commencement of the legal action by way of personal service,
service by registered post or service by letter box insertion. Where it appears
to the court that the aforesaid prescribed manners are impracticable, upon the
plaintiff’s application, the court has discretion to make an order to permit
service to be effected by taking such steps as directed by the court.
For the court
documents that are not required by the statutory rules to be “served on the
person” (including an injunction order restraining disposal of assets),
ordinary service is sufficient and can be effected by leaving at the person’s
proper address or by post. Alternatively, parties can also effect service of
documents in such other manner as the court may direct.
The case law
In the case of Hwang Joon Sang & Anor v Golden
Electronics Inc & Ors [2020] 3 HKLRD 328 (handled by our firm), the
High Court permitted the use of data room as a mode of service considering that
significant expense and use of time and paper would be incurred in continued
service of the voluminous hardcopy materials to the large number of defendants
who were obviously attempting the evade service. The person served is given
access to the data room by being sent a previously court-approved letter
providing a link to the data room, and by separate communication, an access
code to the data room.
In allowing the
use of data room, the judge in Hwang
Joon Sang case considered that it has been relatively common for courts
to permit service by email, and mentioned that he has previously permitted
service using instant messaging apps such as Facebook Messenger or WhatsApp
Messenger, which are both private service channels which might be used either
to send documents or to send a link to documents. The judge also noted that one
of the virtues of using WhatsApp is that it usually shows the sender of the
message when the message has been sent to the addressee, and when it has been
read by the addressee.
In a later case Airport Authority v Persons Unlawfully
and Wilfully Obstructing or Interfering with the Proper Use of the Hong Kong
International Airport [2020] 5 HKLRD 483, the defendants are unnamed
and merely identified by description, and the Court allowed the Statement of
Claim and all subsequent documents to be served by (i) posting on the
plaintiff’s website, (ii) fixing copies of the documents securely at
conspicuous places in specified areas of the airport terminal building and
(iii) exhibiting a notice containing a QR code which would link to the
documents posted on the plaintiff’s website at conspicuous places in the
airport.
With the
development in case law on the procedural rule for the possibility of use of
more appropriate and convenient methods for service, it is now possible to use
data room, QR code or other technology to serve documents to enhance the
cost-effectiveness of the proceedings and to deal with practical difficulties
in cases of large numbers of defendants or respondents. Nonetheless, it remains
to be seen whether such flexibility will be extended to tackle the problem of
identifying the fraudsters or recipients of stolen or defrauded assets in
cryptocurrency or cyber fraud cases. Under the current legal procedure rules in
Hong Kong, there is no express restriction on service by way of an airdrop or
the use of NFT as a means to notify a party about the commencement or status of
legal proceedings.
Development
in the UK
In the UK, the
English courts have also permitted service of court documents through social
media platforms such as Facebook Messenger, WhatsApp Messenger and LinkedIn, as
well as via virtual data rooms. In some cryptocurrency hacking and fraud cases,
the English courts permitted service by email and recognized the challenges and
difficulties in effecting service on defendants in where the true identity or
address of the defendant is unknown.
Conclusion
The NYSC’s decision in LCX AG v John Doe Nos. 1-25 is a ground-breaking move in permitting the
use of novel method for service of legal process enabled by blockchain
technology and it remains to be seen whether Hong Kong courts would adopt this
alternative means. That said, such development could demonstrate that the judges
are willing to adopt practical solutions to the procedural difficulties faced
in cases where cryptocurrency and other crypto assets are involved. It should
also be noted that any alternative method for service should only be proposed
to the court where the approved methods have been exhausted and are not
effective because the true identity or address of the defendants are unknown.
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Important: The law and procedure on
this subject are very specialised and
complicated. This article is just a very general outline for reference and
cannot be relied upon as legal advice in any individual case. If any advice
or assistance is needed, please contact our solicitors. |
Published by ONC Lawyers © 2022 |