Tai Mo Shan Ltd v. Persons Unknown[1] is the latest in a series of cases in which the English courts have demonstrated their willingness to make practical procedural decisions to assist the victims of crypto fraud.
In this case, the High Court of England and Wales granted the claimant permission to serve out of the jurisdiction in order to enforce a judgment of a New York state court and permitted service by alternative means – namely, the transmission of non-fungible tokens (NFTs) containing a link to the relevant documents to a number of identified wallets.
Background
The claimant obtained a default judgment of a New York state court (New York judgment) in relation to an underlying and very substantial cryptocurrency fraud. The judgment included, amongst other things, a declaration in proprietary terms against assets held in a wallet maintained by the claimant’s solicitors (which had been secured by way of an ‘ethical hack’).
In its efforts to enforce the New York judgment, the claimant sought, first, permission to serve out of the jurisdiction and, second, permission to effect service by alternative means (i.e., NFT airdrop).
Service out of the jurisdiction
Applying the standard test for permission to serve out of the jurisdiction, the High Court found that:
- There was a good arguable case that enforcement of the New York judgment fell within one of the gateways identified in paragraph 3.1 of Practice Direction 6B – namely, that ‘A claim is made to enforce any judgment or arbitral award’ (Gateway 10).
- England was the appropriate forum because the only assets identified as being the traceable proceeds of the fraudulent activities were held in the wallet in the name of the claimant’s solicitors (who were based in England).
- There was a reasonable prospect of success on the claim since:
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- The New York judgment related to subject matter (i.e., stolen crypto) which was situated in the relevant foreign state because it was arguable that, at the time the crypto was stolen, it was situated in New York (the location from where the claimant centrally managed and controlled the crypto) rather than the Cayman Islands (where the claimant was registered). The High Court grappled with the fact that this was a New York state (rather than federal) judgment, but ultimately satisfied itself that for an application of this sort, there is sufficient authority for the proposition that the US should be treated as a single international law unit.
- It was sufficiently final and conclusive to be enforceable in England unless and until an application was made to set aside the judgment in the US.
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Means of service
In line with recent case law on the issue – including D’Aloia v. Persons Unknown[2] and Osbourne v. Persons Unknown[3] – the High Court granted permission to serve by NFT airdrop into the blockchain of the various wallets identified by the claimant as associated with the fraud.
In so ordering, the High Court dealt with three interesting issues concerning service.
First, the High Court noted that service could theoretically take place in any country where someone was able to access the internet, and that Civil Procedure Rule 6.40(4) provides that nothing in paragraph 3 of that rule (or a court order) authorises any person to do anything contrary to the law of a country in which the documents might be served. Therefore, the High Court qualified that service will not be effective in any country where doing so via NFT airdrop was contrary to the law of that country.
Second, the High Court noted that the claimant did not know (and could not know) where the relevant defendants were located, and as such could not set a time period for responding to the claim by reference to the table in Practice Direction 6B. Therefore, it pragmatically chose 31 days, being a period longer than that which applies to most of the jurisdictions identified in the table (including North Korea, where there was some evidence to suggest the defendants may be located).
Third, the High Court considered the risk of nonparties gaining access to underlying documentation given the service method ordered. The High Court took a practical approach of distinguishing between documents which were available on demand (and therefore needed no protection) and those which could only be obtained by further order of the court (which needed password protection, provided instructions also were given to make clear how the passwords could be accessed).
Comment
This is the first case in which the English courts have permitted service out of the jurisdiction in order to facilitate enforcement of a foreign judgment in a crypto context. One imagines it will not be the last.
It represents the English courts’ continued willingness to interpret common law and existing procedural rules in a pragmatic way to promote the advancement of access to justice in crypto disputes. It bears remembering that service via NFT was only permitted for the first time in 2022. Now, just two years later, the High Court is adopting a sophisticated approach by endorsing practical measures to ensure the protection of documents.
[1] [2024] EWHC 1514 (Comm).
[2] [2022] EWHC 1723 (Ch), a case we covered in our 7 September 2022 blog.
[3] [2023] EWHC 39 (KB), a case we covered in our 16 February 2023 blog.
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Oliver McGlashan