Service by crypto – a new use case for NFTs!

In Australia, service of legal documents needs to be effected through the Courts’ relevant civil procedure rules. Often this is personally (in the case of individuals) or at a company’s registered office (under 109X of the Corporations Act 2001 (Cth)). By order of the Court, however, service can be effected by other means – for example, social media such as Facebook, Twitter or Instagram.

What about via a crypto token? That is, a nonfungible token (NFT) which represents the Court documents. There is no reason why this may not occur in Australia, exactly as occurred in June 2022 in New York.

Service for the future

LCX AG, -v- John Does Nos. 1 – 25 is a current claim filed in the Supreme Court of New York, in which the Plaintiff alleges that cryptocurrencies have been stolen. The Plaintiff has sought a preliminary injunction, and a temporary restraining order pending the hearing of the restraining order to prevent transactions with the allegedly stolen cryptocurrency.

While these facts are no doubt interesting, they are not as interesting as the means of service the judge ordered, which are set out in full below:

‘ORDERED that Holland & Knight LLP, Plaintiff’s attorneys, shall serve a copy of this Order to Show Cause, together with a copy of the papers upon which it is based, on or before June 8, 2022, upon the person or persons controlling the Address via a special-purpose Ethereum-based token (the Service Token) delivered-airdropped­ into the Address. The Service Token will contain a hyperlink (the Service Hyperlink) to a website created by Holland & Knight LLP, wherein Plaintiff’s attorneys shall publish this Order to Show Cause and all papers upon which it is based. The Service Hyperlink will include a mechanism to track when a person clicks on the Service Hyperlink. Such service shall constitute good and sufficient service for the purposes of jurisdiction under NY law on the person or persons controlling the Address.’

The wording of the judge’s order effectively tokenises the legal claim documents into an NFT, which functions as a ‘Service Token’. Once opened, the Service Token is activated and it will permit the Plaintiff to demonstrate effective service on the Defendants. Wonderfully innovative, though a development which will no doubt give IT departments headaches!

What is next? 

There is no reason under Australia’s civil procedure rules why – with the assistance of the Court – service of legal proceedings cannot be effected by NFT. Given the increasing popularity of cryptocurrencies and tokens as investments, together with all the usual disputes where assets are fought over e.g. divorce cases, breach of fiduciary duty, etc., we expect it will not be long before Australia sees similar developments.

It also raises an even more interesting point, for those trying to recover cryptocurrencies. Could a similar process be used, in appropriate circumstances, to put future ‘owners’ on notice of a claimed equitable interest to oust a bona fide purchaser for value defence? Of course, this must mean that Australian cryptocurrencies are ‘property’ in the legal sense – which they currently are not, on our house view. That is a topic for another time though.

Authored by: 

Guy Edgecombe, Partner
Lionel Hogg, Partner
Liam Hennessey, Partner

Have a query? Reach out – we have one of the leading crypto advisory practices in Australia, and ourselves have successfully conducted legal proceedings for the return of bitcoin. We would be delighted to assist.