High Court confirms stolen NFTs are legal ‘property’ and grants injunction against Persons Unknown

7th July 2022

Commercial Dispute Resolution and Technology specialists Louise Norbury-Robinson and Jack Heward explain the key takeaways, for all businesses concerned with cryptoassets and/or with taking action against unidentified wrong-doers, from the recent case of Lavinia Deborah Osbourne v Persons Unknown; Ozone Networks Inc [1].  In the case, the High Court granted an injunction again Persons Unknown in respect of stolen NFTs [2] for the first time

Why is this case of interest?

In this key decision, the High Court has expanded upon other recent case law [3] where injunctions have been sought to prevent the further dissipation of stolen cryptoassets. The decision is a further illustration of the English courts’ pragmatic approach and wide powers to assist with the recovery of digital assets, such as NFTs.

What are the key takeaways for businesses?

The English courts are at the forefront of dealing with misappropriated digital assets. This case offers further comfort to those who have NFTs and other digital assets stolen by fraudsters.

This is particularly the case given the relatively low value of the NFTs in question. The case demonstrates that the courts of England and Wales are willing to give proper account for the personal and unique value digital assets can hold for the individuals/businesses concerned.

The courts’ extensive powers to restrain fraudsters also go some way to removing the benefits of anonymity that bad actors often looking to exploit in the digital marketplace.

What happened in the particular case?

In September 2021, the claimant received two NFTs as a gift. The NFTs were pieces of digital art from “Boss Beauties” (a woman-led NFT collection, which uses the funds raised to support scholarship opportunities for women). The claimant, Lavinia Deborah Osbourne, is the founder of Women in Blockchain Talks. The claimant later discovered that the NFTs had been removed from her digital wallet by fraudsters but was able to trace them to two separate digital wallets on Ozone Networks Incorporated (Ozone), which is an online NFT marketplace.

The identity of the account holders was unknown so, acting quickly, the claimant applied to court, without notice to the defendants, for an interim injunction restraining the dissipating of the NFTs any further. She also requested a Bankers Trust Order (which could require Ozone to disclose information regarding the identity of the digital wallet holders) in the hope that the fraudsters could then be identified and located.

The court had to consider whether: there was a serious issue to be tried; damages would be an adequate remedy or not; and where the balance of convenience lay [4]. The court also had to determine whether there were grounds for the claim to be served outside of the jurisdiction.

What did the court decide?

The court decided first that there was an arguable case that NFTs were property under English law, which was a key preliminary determination before proprietary relief [5] could then be granted over the digital assets. The court did not provide its reasons for reaching this determination. It is presumed that its reasoning would be on similar grounds provided in AA v Persons Unknown (again, please see our earlier briefing at [3] below).

The court also found that the NFTs were held on ‘constructive trust’ for the claimant, meaning that legal title to the assets remained with the claimant even while the assets were held by the fraudsters.

The value of the NFTs was estimated to be around £4,000, but the court noted that they had a significant personal value to the claimant because of the unique ‘one of a kind’ aspect of NFTs themselves. This meant that a purely compensatory payment in any future legal claim would not have adequately compensated the claimant.  There were therefore grounds for granting the injunction. This also appears to have been the reason why the claim was heard in the Commercial Court despite the modest financial value of the assets.  This bodes well for future claimants if their stolen crypto-assets are only valued at smaller amounts but want to seek redress in the Commercial Court.

In support of the injunction, the court also granted permission to serve a Bankers Trust Order on Ozone outside of the UK on the basis that it was a proper party to the claim.

How we can help

Cybercrime and fraud are risks that are on the rise, but so too are the knowledge, technological means and legal expertise required to effectively respond to and combat them.  Walker Morris’ Commercial Dispute Resolution team has extensive expertise in obtaining effective urgent freezing orders and injunctions to preserve stolen assets. We work seamlessly alongside our Technology & Digital team, so are well versed in advising from a ‘prevention’ or ‘cure’ perspective. For further advice, assistance, training or information on technology disputes or commercial dispute resolution generally, please contact Louise or Jack, who will be very happy to help.

[1] [2022] EWHC 1021 (Comm)

[2] See Walker Morris’ briefing Understanding blockchain, NFTs & smart contracts for an explanation of some of the technologies dominating the tech news at the moment. You can also view our videos What is a blockchain? and What is an NFT? for a short introduction to these key concepts.

[3] See our earlier briefings: https://www.walkermorris.co.uk/in-brief/combatting-cyber-fraud-practical-advice-for-businesses/ and https://www.walkermorris.co.uk/in-brief/english-court-grants-wide-ranging-relief-after-cryptocurrency-scam/

[4] This earlier briefing explains in more detail the fundamental principles underpinning whether a court can award an injunction: https://www.walkermorris.co.uk/in-brief/employee-injunctions-recent-cases-on-protecting-confidential-information/. The principles are the same, albeit the context (such as an employee injunction or an injunction against Persons Unknown or any other party) may differ

[5] A proprietary remedy is one which attaches to specific property (as opposed to merely a claim for money)