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.

 

For enquiries, please feel free to contact us at:

E: technology@onc.hk                                                       T: (852) 2810 1212 W: www.onc.hk                                                                    F: (852) 2804 6311 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

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