On 24 June 2022, in the case of D'Aloia v Persons Unknown and others [2022] EWHC 1723 (Ch), the High Court of England & Wales granted for the first time an order permitting service of Court proceedings on persons unknown by transfer of an NFT (non-fungible token - a digital asset that cannot be replicated or interchanged).
In that case, service would be effected by way of a form of airdrop into the digital wallets in respect of which the claimant had made his first transfer to those behind the website. The effect of service by NFT would be that the drop of documents into the system would embed the service in the blockchain. The Court determined that service in this manner was likely to lead to a greater prospect of those behind the website being put on notice of the making of the order and the commencement of the proceedings.
The English decision came just weeks after a New York court also allowed service using NFTs on an anonymous defendant in a cryptocurrency theft case. The notice of a $1.3m asset freeze was served by embedding a hyperlink into the notice in an NFT sent to the defendant's blockchain address.
These recent firsts have been widely reported, but the law has permitted service against unknown defendants via various methods for at least several decades.
History behind service on persons unknown
Before modifications to modernise the English court procedural rules, proceedings had to specify the names and addresses of the defendants in order to be valid, and they could not be too vague.
The reasoning behind requiring such specificity was that a defendant who is unknown cannot by definition appear at court and defend themself, because they would not know they were a defendant. There would also be no one to be bound by any order made by the Court. The principle was summarised by the English court as follows: "Justice in legal proceedings must be available to both sides. It is a fundamental principle of justice that a person cannot be made subject to the jurisdiction of the court without having such notice of the proceedings as will enable him to be heard. The principle is perhaps self-evident."1
An exception to this requirement arose in cases of selling pirated goods: if a plaintiff could identify one such trader, the court would make a "representative" injunction preventing them on their own behalf and as representative of all other such unknown traders continuing the infringing activities2.
The scope to serve proceedings on persons unknown was widened in the 2003 case of Bloomsbury Publishing Ltd & Another v News Group Newspapers Ltd & Others [2003] 3 All ER 736 ("the Harry Potter authority") where the plaintiffs successfully obtained an injunction against persons unknown, prohibiting the publication or dissemination of copies of the fifth Harry Potter book, Order of the Phoenix, that had been stolen prior to its release in bookshops. The stolen copies had been offered for sale to the press by an unidentified person or persons.
However, unlike the position in EMI Records Ltd v Kudhail, the plaintiff was unaware of the identity of any of the infringers. On the basis of the authorities as they stood, this would mean that no injunction was possible. The English Court recognised the absurdity of such a result, noting that there was no principled reason why a claimant could obtain an injunction against all infringers by description so long as they could identify one of the infringers by name, but if the claimant could not name one of the infringers, they could not get an injunction against any of the infringers.
It was determined that the overriding objective and the obligations of the court under the modern procedural rules were inconsistent with such undue reliance on form over substance. If an unknown defendant were to subsequently expose themself by providing an advance copy of the book for publication, then their identity would become known and the injunction would bite on them, such that they (and anyone who assisted them in breaching the injunction) would be liable for contempt of court.
It was crucial that any such "John Doe" injunction contained a description of the defendant(s) that was sufficiently certain to identify both those who were included and those who were not. It was not necessary to know the wrongdoer's name, but they had to be identified in such a way as to meet the law's requirement for certainty. If the description provided sufficient certainty the Court could then invoke the overriding objective in order to ensure, that a plaintiff's interests would be protected by injunction against unnamed persons.
The English procedural rules were therefore modernised to the effect there was no requirement that a defendant must be named, merely a direction that they should be named. Accordingly, claims could be brought against persons unknown as defendants in exceptional circumstances, so long as their description was sufficiently certain so as to identify those who were included and those who were not.
Injunctions against persons unknown in the Cayman Islands
In the Cayman Islands, the Harry Potter authority was applied by the Grand Court in the context of a judicial review in 20153, which involved an injunction restraining a local newspaper's publication of (anonymised) personal details of work permit holders. In response to a freedom of information request, the Government's Immigration department disclosed personal details of the approximately 21,000 work permit holders in the Cayman Islands. The permit holders' names were not listed by the newspaper but the published details did include other identifying information such as nationalities, employers, salaries, etc.
One of the accounting firms whose employees' details were disclosed successfully obtained an injunction preventing the Immigration department further disclosing the information. However, it was discovered that extracts had already been published on Facebook and that, prior to the injunction being granted, the information had been disclosed to another person identifiable only by pseudonym and email address.
The accounting firm successfully obtained additional injunctions against those unnamed persons. Following the approach in the Harry Potter authority, the Chief Justice held that the requirement that defendants be named should not prevent the grant of an injunction when an individual could be adequately described (eg by email address). Although proceeding against unnamed persons was technically in breach of the Cayman court procedural rules (which are based on the old English procedural rules and require that defendants must be named), adopting the reasoning in the Harry Potter authority, the overriding objective of enabling the court to deal with cases justly allowed it to depart from the strict procedural rules. Helpfully, the wording of the overriding objective in the preamble to the Cayman Islands procedural rules is similar to that of the modernised Civil Procedure Rules in England & Wales.
Injunctions against persons unknown in the BVI in the context of cyber-theft of crypto assets
More recently, the BVI Commercial Court granted a freezing order against persons unknown in the matter of ChainSwap Limited in respect of misappropriated crypto assets (see BVI Court freezes crypto wallets).
ChainSwap is a BVI company that operates as a 'cross-chain bridge' facilitating the transfer of cryptocurrency tokens between different blockchains. It sought a worldwide freezing injunction against unidentified persons for cyber theft of digital coins4 together with an order for service out of the jurisdiction by alternative means. It also sought KYC information from a cryptocurrency exchange based in Croatia in order to identify the individuals who had hacked their computer systems.
The case was the first in the BVI using the 'persons unknown' jurisdiction in respect of crypto assets, albeit the Court directed at the interim hearing that the names of the unknown respondents be changed to 'the owner of' the digital wallets linked with the fraud, as well as 'other persons unknown', and one respondent was identifiable by email address.
In ChainSwap, the BVI Court considered and followed the English case AA v Persons Unknown5 in which permission was given to serve the persons unknown by email at any address relating to the relevant Bitcoin account, by delivering it at any physical address relating to the account, and by filing the claim form at court.
Conclusion
The ground-breaking D'Aloia case allowing service on unknown persons via NFTs therefore seems to be a natural progression of methods of service in relation to crypto technology.
Given that the BVI Court has followed the established approach in England & Wales in granting an injunction against persons unknown in the context of cyber theft, and that the Cayman Court has already applied the Harry Potter authority in granting injunctions against persons unknown, it is likely that once the Cayman Court is asked to determine such matters in the context of digital assets and cryptocurrency, it too will follow suit.
The offshore world will be keeping a close watch on these developments in order to ensure that the available options in the legal toolkit of fraud and asset tracing practitioners continue to adapt in order to keep up with ever-advancing technology.
Footnotes
1. Cameron v Liverpool Victoria Insurance Co Ltd [2019] UKSC 6; [2019] 1 W.L.R. 1471
2. See EMI Records Ltd v Kudhail [1985] FSR 36
3. Ernst & Young Ltd and Others v Department of Immigration [2015 (1) CILR 151]
4. ChainSwap was not itself the owner of the stolen tokens. However, ChainSwap alleged that the hacking and theft caused damage to their reputation and undermined the public's confidence in the security of their cross-chain bridges and, to mitigate that damage, they had made payments to compensate their users and the projects affected by the hacks. ChainSwap therefore claimed, at a minimum, that amount they had paid out in compensation.
5. [2019] EWHC 3556 (Comm). The English Court in AA v Persons Unknown considered the UK Jurisdictional Task Force's Legal Statement on Crypto assets and Smart Contracts, published in November 2019, and determined that cryptocurrencies are a form of 'property' for the purposes of obtaining a proprietary injunction.
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