In Osbourne v Persons Unknown & Others,the High Court of England and Wales confirmed that there is 'at least a realistically arguable case' that non-fungible tokens are to be treated as property as a matter of English law and that their inherently unique nature makes them suitable objects of prohibitory injunctions.
The Court also held that it is 'strongly arguable' that when a cryptoasset is stolen from a victim located in England, a constructive trust arises that is governed by English law. Further, if that cryptoasset is subsequently transferred to others, the question of whether they are constructive trustees is also a matter of English law. As such, the Court has jurisdiction over claims against those subsequent recipients of the stolen cryptoasset regardless of their location.
Stolen Cryptoassets: Further Guidance on Injunctions and Jurisdiction
In Osbourne v Persons Unknown & Others 1, the High Court of England and Wales confirmed that there is 'at least a realistically arguable case' that non-fungible tokens are to be treated as property as a matter of English law and that their inherently unique nature makes them suitable objects of prohibitory injunctions.
The Court also held that it is 'strongly arguable' that when a cryptoasset is stolen from a victim located in England, a constructive trust arises that is governed by English law. Further, if that cryptoasset is subsequently transferred to others, the question of whether they are constructive trustees is also a matter of English law. As such, the Court has jurisdiction over claims against those subsequent recipients of the stolen cryptoasset regardless of their location.
Background
The claimant, Ms Osbourne, was the owner of two non-fungible tokens ('NFTs') representing unique digital works of art depicting inspirational women. The NFTs were stolen from her crypto wallet, transferred through two or three other wallets, and tracked down to two wallets owned by persons unknown.
Ms Osbourne obtained an injunction against the first defendant(s), the person(s) unknown who had stolen the NFTs, restraining them from dealing with or disposing of the NFTs. She also obtained an order against the second defendant, Opensea, an online cryptoasset marketplace to which all the wallets involved were linked, to disclose various email addresses connected with the relevant wallets.
Despite the injunction, one of the NFTs was subsequently transferred to a new wallet. On discovering this, Ms Osbourne applied to extend the injunction to add two new defendants: the third defendant(s), an additional category of 'persons unknown' being persons who were in control of the NFT; and the fourth defendant, a South African individual who was the apparent owner of the wallet into which the NFT had been transferred.
Injunction
Mr Justice Lavender agreed with the judge who granted the injunction over the first defendant(s) that there was at least a realistically arguable case that NFTs are to be treated as property as a matter of English law. While it has yet to be finally and definitively determined, this conclusion follows recent case law on this issue.
The judge then considered whether, if the injunction was not granted, damages would be an adequate remedy for Ms Osbourne. Again, agreeing with the judge before, he determined that that they would not: first, nothing was known about the defendants' ability to meet any damages awarded; and secondly, the nature of the assets themselves meant that they had a particular, personal and unique value to Ms Osbourne that extended beyond their 'fiat' currency value.
Jurisdiction
As Ms Osbourne did not know either the identity or the location of the person(s) in control/possession of the NFTs, the Court's jurisdiction could only be established by service of the claim form out of the jurisdiction.
To secure permission for service out of the jurisdiction a claimant must show that there is a good arguable case that the claim falls within one of the jurisdictional 'gateways' set out in the Practice Direction to Part 6 of the Civil Procedure Rules. One of the gateways considered was where the subject matter of the claim relates wholly or principally to property within the jurisdiction (gateway 11). The other was where a claim is made against the defendant as a constructive trustee and the claim is governed by the law of England and Wales (gateway 15).
In relation to gateway 11, the judge considered that there was a good arguable case that the NFTs were within the jurisdiction when they were held in Ms Osbourne's wallet, on the basis that Ms Osbourne was herself in the jurisdiction. However, as the NFTs had been transferred multiple times to and from wallets owned by persons unknown in locations unknown, it could not be assumed that those transfers took place within the jurisdiction. Accordingly, Ms Osbourne could not show that the subject matter of the claim related to property within the jurisdiction. Gateway 11 did not, therefore, apply.
In relation to gateway 15, the judge noted that there is no clear English authority on the question of the law applicable to constructive trusts. However, he held that it was 'strongly arguable' that a trust arose when the original hackers transferred the NFTs out of Ms Osbourne's wallet, when the property was deemed to be within the jurisdictions and, as such, that the trust was governed by English law. As a consequence, the question of whether or not the third and fourth defendants became constructive trustees when they received the NFTs was also governed by English law. Gateway 15 did, therefore, apply.
Service by NFT
Finally, in line with the approach taken in some previous cases involving the theft of cryptoassets by persons unknown, the judge granted service by way of an NFT containing hyperlinks to the pleadings and orders to be sent to the relevant crypto wallets. The judge noted that as the NFT would be on the blockchain, service was open to the public and the hyperlinks within the NFT could be used by anyone to view the documents. He therefore ordered that the documents be redacted to remove the personal data they contained and that the defendants should be offered separate access to unredacted copies of the documents.
Footnote
1. [2023] EWHC 39 (KB)
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