NATALIE SCOTT: You’ve been served - via NFT

SA’s Uniform Rules of Court were amended in 2012, which resulted in the inclusion of Rule 4A, which deals with the delivery of documents and notices, including electronic service, in high court proceedings. 

After this amendment to the uniform rules, the KwaZulu-Natal High Court, among others, held that it is not unreasonable to expect the law to recognise and accommodate the advances in technology in relation to the service of court documents.

Fast‑forward to June 2022, when the Supreme Court of the State of New York ruled that Holland & Knight LLP may serve a temporary restraining order by means of a non-fungible token (NFT). 

Even though the SA legal field has undergone numerous changes to keep up with ever-changing technological advances, it remains unclear whether current SA laws would accommodate service by way of an NFT. 

The ethereum platform and NFTs in a nutshell

The ethereum platform is a decentralised, open-source blockchain platform that allows peer-to-peer digital transactions. Each transactor using the platform creates their own private ethereum key to access their digital wallet, which stores all the transactor’s crypto assets. The transactor also has a public ethereum key, which is known to other transactors on the platform and is used as a means to verify the transactor when concluding transactions.

Public keys can be accessed through blockchain explorers such as Etherscan, which enables a member of the public to search for real-time and historical information about a specific blockchain. Due to public keys being publicly accessible, it has become possible for businesses and crypto transactors to “airdrop” crypto assets to a transactor’s digital wallet, without the consent of the receiving transactor.

This is because the algorithm permits one-way encryption such that the private key of the receiving transactor is not required to decrypt the blockchain data. This also allows companies to distribute crypto assets (including NFTs) to transactors for free as part of marketing campaigns.

NFTs are unique digital units of data, representing real-world objects (based on blockchain technology) that track the history (such as previous ownership and transfers) of data. As a result, NFTs exist on a blockchain that contains public ledgers that record all the transactions related to that specific blockchain, and consequently NFTs can be airdropped to wallets using public keys without having to access the recipient’s private keys.

In the US, the LCX AG v John Doe case dealt with the unauthorised access to and theft of about $8m of virtual assets on ethereum, stored in the LCX Exchange digital wallet. The LCX Exchange digital wallet was secured by a private key, but on January 8 2022 the defendants unlawfully gained access to the LCX Exchange digital wallet and transferred the stolen crypto assets to an ethereum address under the defendants’ control.

The defendants proceeded to transfer the stolen crypto assets to Tornado Cash, a crypto mixing service that breaks the on-chain links between the source and destination address on the blockchain (essentially “washing” the blockchain history), in an attempt to disguise the blockchain transaction history retained on the ethereum blockchain. Subsequently, the defendants proceeded to store the majority of the stolen crypto assets in cryptocurrency known as USD Coin, a cryptocurrency that is stored in the Centre Consortium LCC digital wallet (CCL wallet). Interestingly, the governing protocol of the CCL wallet permitted CCL to blacklist a particular ethereum address and to preclude a user from transferring and receiving USD Coin.

Holland & Knight, on behalf of LCX, approached the court (after internal investigations to ascertain the public keys of the defendants, because the identities of the defendants were unknown) to serve notice of the court proceedings and a temporary restraining order on the defendants by means of airdropping an NFT using the public keys of the defendants to each of their CCL wallets. The court had to assess whether service by NFT would constitute sufficient service under New York state laws.

It concluded that Holland & Knight may, by means of a special purpose ethereum-based token (Service NFT), airdrop the notice of the court proceedings and the temporary restraining order to the CCL wallets using the defendants’ public keys. This was on condition that the Service NFT included (i) a hyperlink to a website created by Holland & Knight that also contained the court order and (ii) a mechanism to track when a person clicked on the hyperlink for the requirement of sufficient service to be satisfied.

In 2012 in CMC Woodworking Machinery v Pieter Odendaal Kitchens, an SA court also had to consider technological advances to assess whether a plaintiff could serve a notice of set down and pretrial directions on a defendant by means of social media. Despite the SA legislature and the uniform rules recognising the evolution of communication technology, the court acknowledged that the judiciary adheres to established procedures to promote legal certainty and justice.

Notwithstanding the aforementioned (and pursuant to Rule 4A), the applicant applied to the court for substituted service by means of service on the defendant via a Facebook message. Substituted service, according to Erasmus Superior Court Practice, is ordered when the defendant is believed to be in SA, but none of the normal forms of service set out in the Uniform Rules can be effected. Substituted service can be distinguished from edictal citation, which a court is authorised to grant when the defendant is or is believed to be outside SA or the exact whereabouts of the defendant is unknown.

In reaching its conclusion, the court confirmed that substituted service should only succeed if all the requirements for substituted service are met. Additionally, the court should consider the type of social media platform that is requested by the applicant, and the data privacy of the defendant. Ultimately, the application was granted, but the court noted that each case should be determined on its own merits.

However, it is worth noting that while the identity of the defendant in this case was known, his whereabouts were unknown, making service of processes in the ordinary manner nigh on impossible. Additionally, the notice of set down and pretrial directions were not served to initiate the proceedings, as was the case in the LCX case, but were rather subsequent notices that were required to be served on the defendant.

The judgment in CMC Woodworking may have laid the foundation for an application for substituted service (or even edictal citation) by way of a Service NFT in SA, if all the requirements for these forms of service are met.  Once a case is brought before the SA judiciary, the court may consider the LCX case as foreign law to reach its conclusion.

• Scott is a director at Werksmans Attorneys.