Author: Dr. Angelika Hellweger
21 October 2022
3 min read
For the second time this year, the English High Court has handed down an order allowing service of proceedings on persons unknown via non-fungible tokens (Non-Fungible Token'>NFT’s) on a blockchain. Such a decision is significant as it allows victims of crypto fraud to pursue persons unknown in circumstances where they might not otherwise be able to.
The case involved a Mr Gary Jones bringing a case against three persons unknown and the Seychelles-registered company Huobi Global Limited. Mr Jones alleged that he had been the victim of a large-scale cyber fraud perpetrated by a group of online cyber criminals located overseas, possibly in Russia.
A fake crypto investment company promising high returns targeted individuals through a website known as www.extickpro.com, persuading them to set up cryptocurrency accounts on Extick Pro and transfer cryptocurrency to this fake online trading platform. Any trades the victim made were executed by a so-called representative of the EP platform. But none of the trades took place. The EP platform simply showed non-existent trades and fictional profits in Mr Jones’ account.
Those operating the EP platform dissipated the funds received across the Bitcoin blockchain. From 2019 to 2020, Mr Jones had bought a total of 89.61616088 Bitcoin, yet had received only a small fraction of his funds back. He submitted a report which showed that a wallet connected to the fraud was associated with Huobi, although Huobi and two other defendants did not participate in proceedings, although they were properly served.
Mr Jones applied for a summary judgement and for an order for the delivery of 89.61616088 Bitcoin belonging to him. The application against the first and second defendant was based on deceit and unjust enrichment due to theft of property, while the application against Huobi was made on the basis of it being a constructive trustee of the victim, as it had controlled the wallet which had held Mr Jones’ Bitcoin. Mr Jones also applied for permission to serve proceedings outside the jurisdiction via NFT in the form of airdrop into the digital wallet deposit address associated with Huobi.
The court concluded that the victim was entitled to the return of the Bitcoin as the first and second defendant were unjustly enriched, and further stated that none of the defendants had proprietary interests which would override the victim’s interest in the Bitcoin. The court also found that Huobi held Mr Jones’ identifiable cryptocurrency as constructive trustee - as the company controls the wallet where the victim’s Bitcoin was said to be – meaning it was at risk of liability for breach of trust if it acted contrary to the court’s order and failed to ringfence the identifiable cryptocurrency. The court also granted Mr Jones the proprietary injunction preventing the disposal of his Bitcoin.
The court considered that traditional means of service for the final order would probably be ineffective for two of the persons unknown, as their identity and location had not been determined. The court, therefore, noted that the ways of service most likely to be effective in this case were service by email and service of the claim form by the alternative method of filing it at the court, by WhatsApp or by NFT. These were considered the means most likely to bring the proceedings and this final order to the attention of the first and second defendant. The judge added that the need for a swift means of service made such an approach necessary for these two defendants, as well as Huobi, to prevent the Bitcoin being dissipated.
The case underlines the willingness of courts to adapt to the challenges posed by cases involving digital assets. English courts have already permitted other novel forms of service in recent years, including Instagram, Facebook, WhatsApp and the contact section of a defendant’s website.
This particular case – being the second time in a year that an NFT airdrop has been used – emphasises just how useful the availability of tracking mechanisms when serving by NFT can be if disputes arise as to whether a defendant has been made aware of the service of the final order. It is also notable as it saw the court solving the problem of the anonymous identities of the persons unknown by utilising the very blockchain technology by which they had perpetrated their crime.
Angelika is a specialist in international, high-level economic crime investigations and large-scale commercial disputes. She has widely-recognised expertise in representing corporates and conglomerates in Europe, the Middle East, Africa and United States.