Earlier this year, the English High Court handed down its judgment in Osbourne v Persons Unknown & Anor [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.
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