Welcome to our monthly NFT litigation roundup.
As the rise of Non-Fungible Tokens (NFTs) continues to soar, so too do the questions, legal issues and disputes around them. When faced with such a high growth phenomenon, the law can take time to catch up.
Boodle Hatfield is closely monitoring the developments and each month will bring you a roundup of the key NFT disputes to be aware of.
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England & Wales
D’Aloia v (1) Persons Unknown (2) Binance Holdings Limited and others
A claimant has been granted permission by the High Court in England & Wales to serve proceedings on "persons unknown" via the transfer of an NFT.
The case has been described as "the first of its kind outside of the US". English courts have previously allowed service via Instagram and Facebook but never by blockchain.
The claimant, Fabrizio D'Aloia, is a tech entrepreneur and the founder of Microgame, an online gambling company. He filed a claim against five cryptocurrency exchanges following the misappropriation of over 2.1 million Tether tokens and 230,000 USD Coins. He wrongly believed they were being transferred to a trading account. Specialists managed to trace the crypto to digital wallets on Binance and several other exchanges.
The Court granted an Order permitting service of court proceedings by NFT airdrop via the transfer of a token on the blockchain into the wallets in which D'Aloia had deposited his cryptocurrency (i.e. into the wallets of "persons unknown").
The Court also held that there was a good argument that missing cryptocurrency is held on trust by the crypto exchanges that it has been diverted to. This means that in this case, D'Aloia's identifiable cryptocurrency was being held on constructive trust by the five defendant cryptocurrency exchanges.
The Judge said "It is also said that the claimant has a claim in constructive trust, not just against the first defendant but also, such as to give rise to proprietary rights, as against the second to seventh defendant, being those who control or hold the exchanges into which (according to the report produced by Mitmark) it is possible to trace the relevant crypto assets. I am satisfied, for present purposes, subject to one issue which arises in relation to the third defendant, that there is a good arguable case to that effect."
This ruling has the potential to transform the service of documents and proceedings through the blockchain, preventing parties blaming unforeseeable circumstances like lost post for their failure to engage with proceedings. It is of even greater significance in the cryptocurrency sphere, enabling victims of fraud to serve proceedings on 'persons unknown', whose identities are often hidden.
We explore the impact of this case in more detail here.
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