The Rise of Service via NFT – the English courts adapting to service in a new digital age

After the gold rush of 2021, non-fungible tokens (NFTs) appear to be here to stay but remain the subject of wide-spread fraudulent activity. Throughout this period of great digital development but also uncertainty, the English courts have shown great flexibility and adaptability when grappling with issues involving this new digital asset class. Of particular note is the English courts’ willingness to adopt service by alternative method by way of NFT on the blockchain.

What are NFTs?

NFTs are basic building blocks of computer code that create a unique digital representation of a digital or physical asset and that is recorded and can be transferred on a blockchain. Unlike fungible tokens such as Bitcoin, NFTs are not interchangeable and cannot be traded for another identical token.

As a result, NFTs hold value when used as a digital asset of ownership and authenticity of underlying rights or assets. That underlying asset could take the form of the following: a physical asset  like fine art; a set of permissions in the physical, digital or legal world like royalties; a digital asset like images, videos, music, text and even tweets; an in-game asset like an exclusive feature in an online game; or a membership, which gives access to a community with celebrities as well as other benefits such as entry to exclusive concerts and clothing drops, like the Bored Ape Yacht Club.

A significant characteristic of NFTs is that every purchase and sale, along with listing and sale price data, is permanently visible and traceable on the blockchain. The English courts when grappling with the questions relating to NFTs, took account of this unique aspect of NFTs.

Service by NFT

The English court in Osbourne v Persons Unknown & Ors [2023] EWHC 340 (KB) granted permission for the service of proceedings by NFT as the sole method of service (having previously allowed service by NFT alongside service by email in D’Aloia v Persons Unknown & Others [2022] EWHC 1723 (Ch)). Service by NFT is effected by airdropping the NFT into the designated wallet, which contains a web link/ URL to the documents.

A unique aspect of service via NFT is that it is recorded on the blockchain via hyperlink, and as a result, is open to the public at large. A concern regarding this method of service, therefore, is that personal or confidential data would be publicly available. The approach adopted in Osbourne was for the court to sanction redaction of the documents to be served on the basis that:

• the only redactions which would be made were those which were reviewed and approved by the court; and
• the defendants would be offered access to unredacted versions of the documents.

The most recent judgment in Tai Mo Shan Limited v Persons Unknown [2024] EWHC 1514 (Comm) provides further guidance as to how to deal with non-parties gaining access to documentation on the blockchain via hyperlink and the associated risks, in particular, where a claimant is required to give a significant amount of full and frank disclosure. The court agreed to adopt the approach proposed by the claimant which was to distinguish between:

• documents, which are available to non-parties on demand (such as statements of case), for which no further protection is necessary; and
• documents, which non-parties could only obtain by way of court order, for which further protection is appropriate.

The further protection was achieved by way of password protection and the order in this matter included within it directions that made clear how with relative ease access to the password could be obtained by the defendants.

Whilst the court in Tai Mo Shan Limited was “entirely satisfied” that the alternative means (being service by NFTs placed into the blockchain by use of the various wallets identified in the court order) was “in accordance with a growing body of authority permitting service by that alternative means in cryptocurrency frauds”, it grappled with one issue in relation to service by this means, which appears to not have been previously considered: CPR Rule 6.40(4).

This rule provides that nothing in any court order authorises or requires any person to do anything which is contrary to the law of the country where the claim form or other document is to be served. As the locations of the defendants were unknown and since service by these alternative means could theoretically take effect in any country on earth where someone is able to connect a laptop or other device to the internet, the court held that an express qualification was required where the issue went to the comity of the English court with other courts around the world.

The qualification made clear that service would not be effective in any country where service by the alternative means that was authorised by the English court was contrary to the law of the country where the defendant was located at the time when service was effected or deemed to be effected.

Final thoughts

This modern approach of the English courts to adapt to new methods of service, where traditional methods are not available, comes as no surprise. The English courts have previously granted permission for service via text message, WhatsApp and social media (subject to the court’s permission only). This firm successfully obtained the court’s permission to serve judgment in default via Instagram.

Parties should always keep in mind in these types of proceedings that as the actual defendants are not known their location is also unknown and, therefore, parties will need to apply for both permission to serve proceedings by alternative means and out of the jurisdiction at the same time.