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English High Court Confirms NFTs As Property Under English Law – Fin Tech



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Earlier this year, the English High Court handed down its
judgment in 
Osbourne v Persons Unknown & Ano
r
 [2022]
EWHC 1021 (Comm).. In this judgment, HHJ Pelling QC held that there
is a “realistically arguable case” that
non-fungible tokens (“NFTs“) are to be
treated as property as a matter of English law, and he proceeded on
this assumption in the present matter. 

In this case, Ms Osbourne had opened an account in Ozone’s
(the second respondent) peer-to-peer NFT marketplace. In autumn of
2021, various NFTs representing digital works of art were
transferred to Ms Osbourne’s account by a third party.
Subsequently, in early 2021, persons unknown removed the NFTs from
Ms Osbourne’s account without her knowledge or consent.
Following enquiries, it was uncovered that the NFTs belonging to Ms
Osbourne could be traced into two other accounts opened by Ozone.
Against this background, Ms Osbourne sought to commence proceedings
(i) against persons unknown to freeze the NFTs that had been
removed from her account without her agreement; and (ii) for an
order against Ozone requiring it not to permit any further
transfers of the NFTs in question.

The judge noted at the outset the obvious difficulties in this
case, being the fact Ms Osbourne had no knowledge whatsoever of
where the persons unknown were located and additionally that Ozone
is an American corporation with no connection whatsoever to the
English jurisdiction. In light of this, Ms Osbourne would need to
demonstrate (i) a good cause of action against the persons unknown;
(ii) that service out of the jurisdiction by alternative methods
against the persons unknown should be effected; and (iii) that an
information order against Ozone would enable the location of the
persons unknown and possibly their identity to become known.

The Court was satisfied on the evidence that Ms Osbourne had
demonstrated a good arguable case that she had been defrauded of
the NFTs. In reaching this conclusion, the judge noted that:

[13] …There is clearly going to be an issue at some
stage as to whether non-fungible tokens constitute property for the
purposes of the law of England and Wales, but I am satisfied on the
basis of the submissions made on behalf of the claimant that there
is at least a realistically arguable case that such tokens are to
be treated as property as a matter of English law.

Given the nature of the respondents as persons unknown, the
Court also permitted service outside of the jurisdiction by
alternative methods. In doing so, the judge cited with approval the
principles identified in AA v Persons Unknown 
[2019] EWHC 3556 (Comm) and found that this
method was appropriate here in order to speedily bring the
injunction to the attention of the respondents in a 
way  which might have been defeated if the
more leisurely 
Hague Service Convention service methods were adopted.

In terms of the Bankers Trust order sought against Ozone, the
Court held that it was satisfied to grant it for the purposes of
Ozone supplying information which “enable[d] the proceeds
of fraud to be traced
“. However, the judge went on to
impose a number of qualifications – namely, undertakings
which would need to be given by Ms Osbourne in return and
qualifications on the information to be provided (i.e. only
information concerning the name, address, email addresses, and any
other contact details available to Ozone concerning those in whose
name the relevant wallets were maintained or, if available, the
ultimate beneficial owners of such accounts).

The decision is yet a further development in how the English
Courts are approaching crypto disputes. In the US, last month the
Supreme Court of the State of New York in LCX AG, v John
Does Nos. 1 – 25
 authorised 
the first ever service of court documents via air-drop of an NFT to
a cryptocurrency wallet address
. The English Courts then issued
the second decision in this respect in D’Aloia v (1)
Persons Unknown (2) Binance Holdings Limited &
Others
 whereby the English High Court granted an order
permitting service of court proceedings via the transfer of a token
on the blockchain.

With further advancements happening all the time in this space,
it will be interesting to see how the offshore jurisdictions will
grapple with such legal issues as they arise in due course.
Certainly the BVI Courts are likely to continue to follow the
English Courts in the way that they treat crypto assets following
the decision in 
Philip Smith v Torque Group Holdings  BVIHC (COM)
0031 OF 2021
  where the BVI Commercial Court
adopted the position as set out in AA v Persons
Unknown
.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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