This article forms part of a series prepared by partners James Eggleton and Christopher Pease, of our Cayman Islands and BVI offices respectively, in connection with digital assets disputes. For more information, please click here.

The jurisdiction of the Cayman and BVI courts to adjudicate claims depends upon whether the defendant(s) to those claims can lawfully be served with originating process^[1].

Where the defendant(s) are within the jurisdiction, this is a straightforward matter. However, where the defendants (or some of them) are located in another country – as is more likely than not to be the case in any multi-party crypto dispute – the question arises as to whether the court will be prepared to exercise its discretion to permit service of process on those defendants outside the jurisdiction (and thereby to assume jurisdiction over them).^[2]

The principle underlying the need to seek the permission of the Court to serve out of the jurisdiction in such cases has traditionally been said to be that a court should be cautious in allowing process to be served on a foreigner out of the jurisdiction, as to do so may amount to an exorbitant^[3] or inappropriate interference with the sovereignty of other states.

However: “this traditional characterisation has been held to be no longer realistic in today’s world. In the overwhelming majority of cases where service is authorised, there will have been either a contractual submission to the jurisdiction of the [English] court or a substantial connection between the dispute and [England], and litigation between residents of different States is a routine incident of modern commercial life. Thus the decision whether to merit service out of the jurisdiction is generally a pragmatic one in the interest of the efficient conduct of litigation in an appropriate forum.”^[4]

In the first of this two-part article, we address a number of the issues that have arisen in the crypto context concerning service of process on defendants out of the jurisdiction. In the second part, we consider two specific jurisdictional issues arising within the context of crypto disputes: the so-called “persons unknown” jurisdiction, and the jurisdiction of the Court to order service by alternative (i.e. non-traditional) means.

Service out of the jurisdiction in the Cayman Islands

The Cayman Islands Grand Court Rules (the GCR) contain a list of the principal cases in which service out of the jurisdiction is permissible^[5]. Specifically:

• Service out of the jurisdiction is permissible with the leave of the court provided there is a good arguable case that the claim falls within one of the “gateways”  for service out.
• Service out of the jurisdiction is permissible without the leave of the court if every claim in the action is one which, by virtue of a Cayman Islands law or the GCR themselves, the Court has power to hear and determine notwithstanding that the person against whom the claim is made is not within the jurisdiction or that the wrongful act, neglect or default giving rise to the claim did not take place in the jurisdiction.

It is well settled that where a claimant is required to seek leave to serve out, the requirement to show a good arguable case that the claim falls within a particular jurisdictional gateway generally involves the supply by the claimant of a plausible evidential basis for the application for the relevant jurisdictional gateway, based on the material then available^[6].

Where a particular gateway is relied upon, claimants seeking an order for service out of the jurisdiction must also satisfy the court that: (i) there is a serious issue to be tried on the merits of the claim (i.e. there must be a real, as opposed to a fanciful, prospect of success); and (ii) that the Cayman Islands is the appropriate forum in which the case can suitably be tried in the interests of all the parties and to meet the ends of justice^[7].

Service out of the jurisdiction in the British Virgin Islands

In the BVI, it is no longer necessary to obtain permission from the Court to serve a claim outside the jurisdiction. In the absence of a court order permitting service out of the jurisdiction, the claimant should comply with the three criteria found in rule 7.2 of the Eastern Caribbean Supreme Court Civil Procedure Rule (Revised Edition) 2023 (the EC CPR) and file a certificate for service out of the jurisdiction pursuant to EC CPR 7.6 confirming compliance.

That being said, similar principles apply and in particular, the claim must fall within one of the gateways for service out. For more, see our article here: How claims work in the BVI.

Claimants should be mindful that, even where originating process has been served out of the jurisdiction in accordance with the relevant procedural rules, a defendant(s) may still challenge the jurisdiction of the relevant court on so-called forum non conveniens  grounds. In defending such a forum challenge, the burden of proof will be on the claimant to establish that: (i) there is a serious issue to be tried on the merits; (ii) the claimant has a good arguable case that the claim falls within one or more classes of case in which permission to serve out may be given; and (iii) in all the circumstances, the forum in which the dispute is to be heard is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service out of the jurisdiction^[8].

Identifying the relevant service out gateways in the crypto context

In the crypto decisions reported to date, the gateways that claimants have most often relied upon, and which have therefore received the most judicial attention, are as follows:

• The subject matter of the claim relates wholly or principally to property^[9] within the jurisdiction. ^[10]
• The claim is made in tort, where the damage was sustained or will be sustained, within the jurisdiction.^[11]
• The claim is brought against the defendant as constructive trustee, or as trustee of a resulting trust, and the claim: (i) arises out of acts committed or events occurring within the jurisdiction, (ii) relates to assets within the jurisdiction or (iii) is governed by the law of [England and Wales]. ^[12]

It is important to note that although there is a certain degree of cross-jurisdictional commonality in terms of the service out gateways that may be available in the circumstances of a given case, the gateways themselves – although they may in some cases be analogous – are by no means the same across different jurisdictions. Self-evidently, therefore, the findings of an English court regarding the applicability of a particular gateway under the English Civil Procedural Rules in the circumstances of the dispute then before that court, are unlikely to be dispositive of similar issues arising before the Cayman Islands or BVI courts as to the applicability of different gateways under the Cayman Islands Grand Court Rules or the EC CPR respectively, in the circumstances of a wholly different dispute.

That being said, some common trends do appear to be emerging in terms of the particular issues thrown up by crypto assets as a relatively new asset class.

Where is cryptocurrency located?

On the basis that crypto assets are to be regarded as a form of property, perhaps a more interesting issue then arises: where are those assets to be treated as being located? The question is relevant to the extent that reliance is placed upon the gateway requiring that the subject matter of the claim relates wholly or principally to property “within the jurisdiction.”  ^[13]

In legal terms, where a thing is situated is referred to as its situs. The situs  of things is determined as follows^[14]:

• Choses in action (ie personal property rights to an intangible object) are generally situated in the country where they are properly recoverable or can be enforced. For example, debts are generally situated in the country in which the debtor resides (on the basis that it is in the country in which the debtor resides, where the creditor can enforce payment). Shares in companies are generally situated in the country where, under the law of incorporation, they can be effectively dealt with as between shareholder and the company.
• Land is situated in the country where it lies.
• Chattels are similarly situated in the country where they are at the relevant time (subject to limited exceptions).

What then of cryptocurrencies specifically (and other property held on a blockchain)? The answer is that the law is still evolving.

The difficulties posed by distributed ledger technologies are explained by the authors of Dicey, Morris & Collins in the following terms^[15]:

“Blockchain technology allows data, including records of title to various forms of property, to be recorded on a form of register. The register generally exists simultaneously on computers in multiple locations (a “distributed ledger”), although it may also have an identifiable location. The technology has been used to create various “crypto assets”, including most prominently cryptocurrencies such as Bitcoin, in which both the currency and its record of ownership exists solely on the blockchain itself…

… It is however, frequently a design feature of this technology that the register has no single identifiable location, which makes it more secure (in conjunction with the use of cryptography) and more resilient to state control. As noted previously, the lex situs rule is generally identified by its ease of ascertainability as an objective connecting factor, and by the idea that the country of the situs has control over the property and a judgment in conflict with the lex situs will often be ineffective. These justifications are not easily applicable to cryptocurrency held on a blockchain whose register is located in multiple countries with no priority operating between them – this factor distinguishes cryptocurrencies from other intangible property and raises unique problems.”

Notwithstanding these difficulties, the courts are nevertheless now starting to grapple with these issues.

• Ion Science Ltd v Persons Unknown^[16]concerned an urgent ex parte  application for various relief including a proprietary injunction, a worldwide freezing order and ancillary disclosure order, a disclosure order pursuant to the Bankers Trust jurisdiction^[17] and an application for permission to serve out of the jurisdiction and by alternative means. The claimants believed that they were victims of an ICO^[18]

In that case, the court held that it was satisfied, there having been no decided case on the point, that the situs  of a crypto asset is the place where the person or company who owns it is domiciled. The court noted that its conclusion was supported by academic commentary^[19].

• The decision in Ion  was subsequently followed in AI Limited v Persons Unknown^[20], by reference to the same academic commentary. The decision was then followed again, in Lavinia Deborah Osbourne v Persons Unknown^[21], in a case concerning NFTs^[22]:

“The other factor which is material to this claim is where such tokens are to be treated as being located at the time when they are lost. As is apparent from the limited description I have already given, non-fungible tokens are in effect a stream of electrons resulting in a credit item to a crypto account. As such, insofar as they have a physical manifestation at all, that is likely to be where the servers relevant to the account are maintained. However, attempting to litigate issues such as this by reference to a concept as ethereal as that would be difficult or impossible.

Unsurprisingly, therefore, in a series of cases relating to crypto currency fraud, it has been consistently held that crypto assets are to be treated as located at the place where the owner of them is domiciled. There is no reason at any rate at this stage to treat non-fungible tokens in any other way, assuming for present purposes as I do that they are to be treated as property as a matter of English law.”

• In the British Virgin Islands, in Russell Crumpler et al. v Cheong Jun Yoong et al,^[23]the issue arose as to whether the location of crypto assets should be determined by reference to the domicile or residence of its owner. In that case, the BVI court concluded that the place of central management and control (i.e. residence) over the assets was the key determining factor in terms of their location, rather than the place of incorporation of the company that owned them. Accordingly, the crypto assets were to be treated as being located in Singapore (where the directors of the company, the fund administrator and investment manager were situated), rather than the BVI (where the claimant was incorporated)^[24][25].

Importantly in that case, Singapore was also where the individual with control over the private key was resident. As to the importance of the private keys:

“In addition, even though direct control over a cryptocurrency might be beyond any individual state, the owner of the cryptocurrency has control over the property, generally through their control over a private encryption key which is required to transfer the property, and the state of location of the owner thereby has the strongest indirect control over the property. The “owner” should generally be understood to refer to the party in possession of the private encryption key giving access to the cryptocurrency at the time of the relevant transaction….”^[26]

• In Hector Enterprise Inc v Hector DAO & Ors^[27], the situs of the treasury assets of a DAO^[28] was not clear cut since the token holders were anonymous and spread across the globe. Instead, the location of Hector Enterprise Inc in the BVI, the intermediary company used for off-chain transactions such as contracting with service providers, justified the BVI court taking jurisdiction over the assets for the purpose of appointing receivers. In that case, the treasury assets were held in a multi-signature wallet for which numerous individuals located in different countries held the private keys. However, what connected those individuals was the fact that they were each contracted by the BVI company to provide services for the DAO and in that sense the BVI could be said to have the closest connection with the ownership of the digital assets when looked at as a whole (and in the absence of any other single location in which the holder of the private key(s) could be said to be located).

When does the cryptocurrency need to be located within the jurisdiction?

In a further decision in Lavinia Deborah Osbourne v Persons Unknown^[29], the question arose as to when, for the purposes of ascertaining whether the claim relates to property within the jurisdiction such that the claims falls within the relevant gateway, the property or asset has to be located within the jurisdiction.

That question may be relevant in any situation in which crypto assets are misappropriated: (i) first, from the claimant’s wallet into wallets in the possession or control of unknown persons in unknown jurisdictions; and (ii) subsequently, onwards transferred on any number of occasions to other wallets in the possession or control of other unknown persons in other unknown jurisdictions. In those circumstances, does the asset have to be in the jurisdiction when the cause of action arises, or when (subsequently) the application is made for permission to serve out of the jurisdiction?

In Fetch.AI and subsequently D-Aloia v Persons Unknown^[30], the court held that it was likely that the answer to that question was that property would need to be in the jurisdiction before the cause of action (or the misappropriation) accrued. However, the Court in Osbourne  cast doubt on that conclusion, noting that it may be a matter for decision in due course in a contested and fully argued case. Accordingly, the point may need to be resolved in due course.

For the purposes of the tort gateway, where is the damage sustained?

For the purposes of the tort gateway, in cases of misappropriation or interference with control over the assets, it is logical that the starting point for any analysis in the crypto context as to where damage has been sustained^[31], is the location of the assets themselves prior to their removal from the jurisdiction. That was the approach taken by the English courts in Tulip Trading Limited v Bitcoin Association for BSV and Ors^[32]  and Lavinia Deborah Osborne v Persons Unknown.^[33]

In the Chainswap^[34]  case, Chainswap applied to the BVI Court for permission to serve its claim on persons unknown out of the jurisdiction and by alternative means. Chainswap sought leave of the Court before serving its claim on the persons unknown outside of the jurisdiction (this was before claimants could serve out without permission). Chainswap submitted that the BVI was the most appropriate forum for the resolution of the dispute because Chainswap was registered as a company in the BVI and had suffered damage in the BVI as a result of hacking incidents relating to its own computer code. Although Chainswap’s property was not compromised or misappropriated in the hacking incidents, Chainswap submitted that it had suffered losses in the BVI as a result of: (i) the reputational harm occasioned by the hacking incidents; and (ii) its decision (in an effort to mitigate that reputational harm) to voluntarily compensate its affected users (i.e. those users of the Chainswap cross-chain bridge who had had their cryptoassets compromised or misappropriated).

Claims brought against defendants as constructive trustee(s)

When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, and the property is recoverable and traceable in equity.^[35] Given the strong likelihood that courts will treat crypto assets as a form of property, they are therefore amenable to recovery and tracing in accordance with established equitable principles.

One of the issues that arises in respect of constructive trusts is which law should govern them. There is, however, no clear English or Commonwealth authority on the choice of law rules relating to constructive and resulting trusts, and the law in this area is complex. It suffices for the purposes of this article to note that the trust gateway has been relied upon successfully on multiple occasions in the crypto fraud context for the purposes of applications for leave to serve out: see, for example, Russell Crumpler et al. v Cheong Jun Yoong et al^[36], Fetch.AI Limited v Persons Unknown^[37]  and Lavinia Deborah Osborne v Persons Unknown  .^[38].

For more in relation to constructive trust arguments within the crypto context, see further our articles in relation to the decision in Fabrizio D’Aloia v Persons Unknown,^[39]to follow in due course.

Other jurisdictional issues

In the second part of this article, we address two discrete issues arising regarding service out: the “persons unknown” jurisdiction and service by alternative means (for example, by way of NFT drop).

^[1]Dicey, Morris & Collins on the Conflict of Laws 16^th Ed Rule 31 (and see [11-004]). In the Cayman Islands, the term originating process  refers to a writ, originating summons, originating motion, petition, arbitration application or written application by which civil proceedings in Court may begun: GCR O.5, r.1(1).

^[2] In recovery cases, in circumstances where there has been a hack or a scam, it is likely (or at least possible) that the claimant will not know the identity of the defendant or where the defendant is located. Where that happens, it may well be necessary for the claimant to proceed on the basis that the defendant(s) are located outside of the jurisdiction. See further the second part of this article concerning the “persons unknown”  jurisdiction and service by alternative means.

^[3] Noting, however, that the expression “exorbitant”  has been criticised for its “muscularity”  within the context of modern-day commercial disputes. See for example the recent discussion in the Cayman Islands decision of In re Taiping Trustees Limited (FSD 323 of 2022 (DDJ), 29 January 2024 at [88]-[93].

^[4]Dicey, Morris & Collins on the Conflict of Laws 16^th Ed at [11-101]. See also Aberla v Baadarani [2013] UKSC 44 at [53].

^[5] At GCR O.11, r.1.

^[6] See, for example, Altimo Holdings v Kyrgyz Mobil Tel Ltd [2012] 1 WLR 1804 and Brownlie v Four Season Holdings Inc. [2018] 1 WLR 192 (UKSC), applied in the Cayman Islands recently in Royal Park Investments v S&P Global, Inc and ors (FSD 37 of 2023 (IKJ), 3 June 2024.

^[7] See Spiliada Maritime v Cansulex [1987] AC 460 at 476B; AHAB v SAAD [2010] 2 CILR 289; Ritchie Capital Management LLC and ors v Lancelot Investors Fund Ltd (in Official Liquidation) and ors  (CICA (Civil) Appeal 8 of 2021, Judgment 18 July 2022.

^[8] See for example Russell Crumpler and anor v Cheong Jun Yoong and anor  BVIHCOM 2023//0003 and BVIHCOM 2022/0119 (12 December 2023;[51]; Amerinvest International Forestry Group Ltd. V Kwok Ka Yik BVIHCMAP 2014/0033 [7]; Nilon Ltd v Royal Westminister Investments S.A.  [2015] UKPC 2 [13].

^[9] There is now a substantial body of case law to the effect that crypto assets are likely to be treated as attracting property rights. See, for example, AA v Persons Unknown  [2019] EWHC 3556 (Comm) at [61]; Ion Science Limited & Anor v Persons Unknown (Unreported), 21 December 2020 at [11]; Fetch.AI Limited v Persons Unknown [2021] EWHC 2254 (Comm) at [9]; Tulip Trading v Van Der Laan  [2023] EWCA Civ 83 at [141]; D’Aloia v Persons Unknown  [2024] EWHC 2342 (Ch); ; Philip Smith and Jason Kardachi (in their  capacity as joint liquidators) v Torque Group Holdings Ltd  [2021] ECSCJ No 627 (Wallbank J); ChainSwap v Persons Unknown VG 2022 HC 036. For more on this, see our blog here: Close encounters of the third kind of personal property – Digital assets and the definition of personal property.

^[10] In England, this is gateway 11, as set out in paragraph 3.1 of CPR Practice Direction 6B. In the Cayman Islands, analogously, see GCR O.11, r.1(1)(i). In the BVI, analogously, see 7.3(6) of the ECSC CPR (revised 2023).

^[11] In England, this is gateway 9(a). In the Cayman Islands, analogously, see GCR O.11, r.1(1)(f). In the BVI, analogously, see 7.3(4) of the ECSC CPR (revised 2023).

^[12] In England, these are gateways 15(a), 15(b) and 15(c). In the Cayman Islands, analogously, see GCR O.11, r.1(1)(j). In the BVI, analogously, see 7.3(8) of the ECSC CPR (revised 2023).

^[13] Tangentially, the issue is also relevant within the context of the tort gateway (where damage has been sustained): see further below.

^[14]Dicey, Morris & Collins on the Conflict of Laws 16^th Ed, Rule 136 at [23R-023]

^[15]Dicey, Morris & Collins on the Conflict of Laws 16^th Ed at [23-050]

^[16] (Unreported), 21 December 2020 [Case No. CL-2020-000840]

^[17] For more on information disclosure orders in the crypto context, see our article here: Identifying wrongdoers in the crypto space: the Norwich Pharmacal and Bankers Trust jurisdictions

^[18] Initial coin offering.

^[19]Cryptocurrencies in Public and Private Law, Professor Andrew Dickinson, at [5.108].

^[20] [2021] EWHC 2254 (Comm).

^[21] [2022] EWHC 1021 (Comm) at [14]-[15].

^[22] Non-Fungible Tokens.

^[23] BVIHC (COM) 2023/0003, 12 December 2023.

^[24] See further, the decision of the Appellate Division of the High Court of the Republic of Singapore in [2024] SGHC(A) 10, 12 April 2024 at [31].

^[25] On this point, see also Tulip Trading Limited v Bitcoin Association for BSV and Ors [2022] EWHC 667 (Ch).

^[26]Dicey, Morris & Collins on the Conflict of Laws 16^th Ed at [23-050].

^[27] BVIHCCOM 2024/0072.

^[28] Decentralised autonomous organisation.

^[29] [2023] EWHC 39 (KB) at [33]-[38].

^[30] [2022] EWHC 1723 (Ch) at [22].

^[31] In the Cayman Islands, the relevant gateway refers to the damage being sustained in the Cayman Islands or  the damage resulting from an act committed within the Cayman Islands: GCR O.11, r.1(f).

^[32] [2022] EWHC 667 (Ch).

^[33] [2023] EWHC 39 (KB) at 39.

^[34]Chainswap Limited v Owner of Digital Wallet & Ors BVIHC(COM) 2022/0031 (14 May 2022)

^[35]Westdeutsche Landesbank v Islington LBC [1996] AC 669.

^[36] BVIHC (COM) 2023/0003, 12 December 2023.

^[37] [2021] EWHC 2254 (Comm).

^[38] [2023] EWHC 39 (KB) at 39.

^[39] [2024] EWHC 2342 (Ch).