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  • Writer's pictureMia Cheng

Fighting Fire with Fire: The First Service NFT in Hong Kong

As cryptocurrency increases in popularity, so does the number of victims who fall for crypto scams. With unidentifiable perpetrators due to the intrinsic anonymity of the crypto world, courts have found new ways to serve notice of legal proceedings, including the use ofcrypto productsagainst those who used such elements to do harm in the first place. In Wang Chichen v FeCommercefDeals Co., Limited and 20 others, we secured the first grant for a service NFT in Hong Kong, helping to establish this novel method of alternative service as part of a wider global movement.


Authors:

Anna Lau, Partner

Mia Cheng, Intern


What is alternative service?


Service is when an individual is formally notified of any legal proceedings against them and is required by Cap. 4A The Rules of the High Court, Order 10, s1(1))1. According to Order 65, s2 of the same Rules, personal service involves ‘leaving a copy of the document with the person to be served.’2 However, in cases where personal service is impossible, alternative service is usually permitted by the Court. This is when an individual is served in a manner different from personal service3; for instance, posting a copy of court documents that have been filed at their last known address, sending emails to known email addresses or any other form of service that does not involve direct interaction with the individual to be served.


As such, alternative service is common in cybercrime or crypto cases, where the anonymity provided by the Internet means defendants’ identities are often unknown. For instance, in AA v Persons Unknown, Re Bitcoin [2019] EWHC 3556 (Comm) 4, the English Court allowed service via email, where email addresses and other contact details held by Binance and Tether Holdings Limited (the plaintiffs) were used to notify the unknown persons of the legal proceedings against them.



AA v Persons Unknown, Re Bitcoin [2019] EWHC 3556 (Comm) 4


What is an NFT, and how can it be used for alternative service?


NFT stands for ‘non-fungible token’. It is commonly used to represent digital tokens of tangible assets such as art or music, and ownership of such assets can be recorded on a blockchain – platforms on hosting cryptocurrencies. The blockchain functions as a public digital ledger, recording transactions across various computers. The record of such transactions cannot be modified without altering all subsequent blocks in the chain, hence the name. Consequently, ownership over NFTs can be easily verified by checking transaction records. Specific information is also stored in the NFT’s metadata, such as artists’ digital signatures5. This makes NFTs non-fungible as they cannot be exchanged for one another since they are unique, belonging to only one owner at a time.


The first use of crypto wallets and the blockchain for alternative service was seen in LCX AG, -v- John Does Nos. 1 – 256, where the US Supreme Court granted alternative service of a temporary restraining order through ‘airdropping’ – the unsolicited transfer of a digital token to an address on a blockchain – a service token into a crypto wallet. The token contained a hyperlink to the relevant Court documents, allowing the claimant to track whether the documents had been accessed and the corresponding IP address to be logged.


Soon after, in D’Aloia v (1) Persons Unknown (2) Binance Holdings Limited & Others [2022] EWHC 1723 (Ch)7, the English court approved alternative service by NFT. This was done through airdropping an NFT into the crypto wallets to which the Claimant had previously transferred cryptocurrency, as well as ordering alternative service via email. Mr Justice Trower held that this would lead to a higher likelihood of the defendants being notified of the proceedings, thus establishing the precedent of service NFTs being allowed by UK Courts.

Our case: a summary


In establishing the precedent of alternative service by NFT in the jurisdiction, Wang Chichen v FeCommerce fDeals Co., Limited and 20 others is the first case of its kind in Hong Kong. We successfully secured injunctions to freeze our client’s assets as well as self-identification orders against unknown defendants following a cryptocurrency investment scam. The Court granted alternative service via our suggestion – airdropping an NFT with a link to the court documents into the unknown defendants’ crypto wallet addresses. This increases the probability that the defendants will be notified of the injunction and self-identification orders, which in turn assists our client in righting the wrongs that have been committed against them.


Thus, by embracing innovation and possessing a thorough understanding of the technology used by our client, we not only helped our client get one step closer to justice but also brought forth a new method of alternative service reflecting the digital world’s increasing relevance. Our awareness of the changing world is paramount, particularly when placed at the forefront of litigation where novel solutions must be concocted.


The ramification of service NFTs


While the Courts’ embracement of technology may increase the likelihood of defendants being notified of legal action against them, this probability must not be overstated. It is unlikely for a defendant to reveal themselves if they are truly so anonymous that an NFT is the only way to serve them. It could be argued that defaulting provides the incentive for self-identification, but it is almost impossible to enforce judgment against an anonymous defendant’s assets if they truly do default whilst remaining unidentified. This is due to the nature of crypto wallets – only the owner has access to the stored assets. Thus, it is highly unlikely claimants will be able to recover or be fully compensated for their lost assets despite serving defendants via an NFT.


As such, it is likely that although alternative service via NFTs will become increasingly common, the practical effects of such methods of service remain to be seen. Regardless, as technology continues to advance and cases like ours result in courts becoming more familiar with the virtual world, it is equally likely that more efficient and certain methods of serving court documents will be created.

 

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.


For specific advice about your situation, please contact:



Partner


+852 2388 3899


Garnishees – a common garnish to fraud

Insights from a Legal Intern at Ravenscroft & Schmierer I had the privilege of spending my 1L summer (1L refers to the first year of law school in North America) at Ravenscroft & Schmierer, a full-ser

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