The decision of Lavender J in Osbourne v (1) Persons Unknown Category A (2) Persons Unknown Category B (3) Thembani Dube  EWHC 39 (KB) has, despite granting the relief sought by the claimant, raised some doubts about cryptoasset recovery where additional relief is sought against subsequent recipients of stolen cryptoassets whose connection to the jurisdiction is less established than that of persons who first stole them.
The case concerns the unauthorised transfer of two non-fungible tokens ("NFTs") entitled "Boss Beauties #680" ("BB#680") and "Boss Beauties #691" ("BB#691"). BB#680 and BB#691 are said to be worth between £3,000 and £5,000. Aside from their value in fiat currency, the holder of the NFTs is also entitled to certain benefits and invitations to attend exclusive virtual events.
On 17 January 2022, the NFTs were transferred out of the claimant's electronic wallet, which was linked to a marketplace trading as "Opensea", by alleged hackers. An investigator was able to track the NFTs and, by March 2022, BB#680 was in a wallet which has been referred to as "the E29269 User Wallet", and BB#691 was in a wallet which has been referred to as "the jawwn.eth User Wallet" (together, the "Unknown Opensea Wallets").
In March 2022, HHJ Pelling KC granted an injunction restraining the first defendants (being the unknown alleged hackers) from dealing with the NFTs. Separately, he ordered Opensea to disclose information to the claimant about the holders of the Unknown Opensea Wallets, but no response was ever received.
Following the injunction, evidence came to light that BB#691 had been transferred out of the jawwn.eth User Wallet and moved, through various intermediary wallets, into a wallet connected to the South African email address of a Thembani Dube. Whilst there is no suggestion that BB#680 has been removed from the E29269 User Wallet, BB#691 was being advertised for auction until 24 September 2022.
In light of the above developments, the claimant sought effectively to extend her claim, and the relief that HHJ Pelling KC had granted previously, to new defendants. She argued that the new defendants held the NFTs on constructive trust for her benefit.
Lavender J allowed amendments to the Claim Form and Particulars of Claim to join "Persons Unknown Category B" (being persons currently in possession and/or control of the NFTs) and Thembani Dube, on the basis that issues involving them were connected to the matters in dispute.
Lavender J then turned to the claimant's remaining applications:
- an interim injunction against the additional defendants;
- an order permitting service of the amended Claim Form outside the jurisdiction;
- service of the amended Claim Form, injunction and associated documents by alternative means, namely by (a) email and (b) transfer, to Opensea wallets associated with the defendants, of NFTs containing embedded hyperlinks.
Decision: interim injunction
For several years, the courts of England and Wales have consistently held that cryptocurrencies constitute property. They have also extended this reasoning to NFTs. Lavender J agreed that there "is at least a realistically arguable case that NFTs are to be treated as property as a matter of English law".
Lavender J also held that there was a serious issue to be tried as to whether one or more of the NFTs was being held on constructive trust by the additional defendants. Starting from the position that the NFTs are property, Lavender J observed that there was evidence that these proprietary assets had been transferred by the fraud of the defendants, though how they came to be in the possession of the third defendant was unexplained.
The final question for Lavender J to assess was whether damages would be an adequate remedy for the claimant. He was satisfied that damages were an insufficient remedy because he had no reason to believe that the additional defendants would be able to satisfy even the claimant's modest damages claim, and in any event, the assets had a unique value to the claimant which extended beyond their fiat value.
Applying the principles from American Cyanamid, Lavender J was satisfied that there was sufficient reason, without considering the balance of convenience, to grant the injunction. However, he agreed with HHJ Pelling KC that the balance of convenience also favoured granting the injunction.
Decision: service of the amended Claim Form outside the jurisdiction
Lavender J set out the three-part test that a claimant must satisfy for grant of permission to serve a claim form outside the jurisdiction:
- there is a serious issue to be tried;
- there is a good arguable case that the claim falls within one of the jurisdictional gateways set out in sub-paragraph 3.1 of CPR Practice Direction 6B; and
- England and Wales is the appropriate forum for the trial of the dispute.
On the facts, the first and third parts of this test were satisfied in this instance. However, the second matter was "more complicated". Most of the gateways relied on by the claimant were immediately discounted, leaving Lavender J to assess two possible gateways, namely:
- Gateway 11: "The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where – (11) The subject matter of the claim relates wholly or principally to property within the jurisdiction, provided that nothing under this paragraph shall render justiciable the title to or the right to possession of immovable property outside England and Wales."
- Gateway 15: "...where – (15) A claim is made against the defendant as constructive trustee, or as trustee of a resulting trust, where the claim – (a) arises out of acts committed or events occurring within the jurisdiction; (b) relates to assets within the jurisdiction; or (c) is governed by the law of England and Wales."
As to gateways 11 and 15(b), the claimant argued that the NFTs were property within the jurisdiction because she was domiciled in England and Wales. The claimant relied on Ion Science Ltd v Persons Unknown (unreported, 21 December 2020, case no. CL-2020-000840) as authority that there was at least a serious issue to be tried that the location (sometimes called "situs", or "lex situs") of a cryptoasset is the place where the person who owns it is domiciled, and relied on HHJ Pelling KC's observation that "it has been consistently held that crypto assets are to be treated as located at the place where the owner of them is domiciled". However, Lavender J cited a passage of Dicey, Morris & Collins on the Conflict of Laws (16th edition, published after the hearing before him) in which its editors opine that for these purposes, the "owner" is generally to be understood as the party possessing the private key to the cryptoassets or, if this key has been duplicated, the party in fact exercising control over the cryptoassets. In light of this, Lavender J questioned whether, following the transfer of the NFTs out of the claimant's electronic wallet, the NFTs could be property within the jurisdiction.
Lavender J also called into question when the property would need to be in England and Wales for the gateways to apply. He referred to Fetch.ai Ltd v Persons Unknown  EWHC 2254 (Comm), in which it was noted in relation to gateway (15)(b) that the "test for whether assets are within the jurisdiction, for the purpose of deciding whether a claim relates to such assets, must focus on where the assets were located before the justiciable act occurred". However, Lavender J expressed doubt about this proposition, considering instead that the court had to assess whether a gateway applied at the time of the application for permission to serve out of the jurisdiction. In any case, in Lavender J's view and on the facts of the present case, it appeared that the NFTs may well have left the jurisdiction before any cause of action accrued against the additional defendants. In short, this took the claim outside the reach of gateways 11 and 15(b).
As to gateway 15(a), Lavender J accepted that the removal of the NFTs from the claimant's electronic wallets constituted an act or acts, or an event or events, within the jurisdiction. However, he noted that this removal was not the sole basis of the claim against the additional defendants, because that claim also arose from further transfers to an unknown location. In those circumstances, there was a question as to the construction of gateway (15)(a) and, specifically, which acts or events need to occur or be committed in England and Wales for the gateway to apply. Lavender J did not address the question because it was not put to him to decide.
Whilst Lavender J expressed his concerns about gateways 11, 15(a) and 15(b), he was satisfied that gateway 15(c) applied because there was a strongly arguable case that the claim against the third and fourth defendants was governed by the law of England and Wales.
Decision: Service by alternative means
In order to permit service on all defendants, the claimant sought permission for the defendants to be served by email and by sending an NFT to their respective and associated wallets. Although Trower J had in D'Aloia v Persons Unknown  EWHC 1723 (Ch) authorised service by email and NFT, Osbourne was (before HHJ Pelling KC) one of the first to consider service by NFT as the sole method of service of documents. In the intervening period between the hearing before Lavender J and his judgment, on 5 September 2022, service by NFT was also permitted in Jones v Persons Unknown  EWHC 2543 (Comm), and other such decisions may also have been made.
Since the NFT was to be "on the blockchain", Lavender J allowed redaction of the documents that were to be contained in the hyperlinked NFTs, in order to prevent the public from accessing personal data, provided that those redactions were approved by the court and the defendants would be offered access to unredacted versions.
Lavender J's discussion of the situs of cryptoassets is of particular interest. Several cryptoasset judgments by the courts of England and Wales (e.g. Ion Science) had previously accepted the proposition that "crypto assets are to be treated as located at the place where the owner of them is domiciled". Crucially for present purposes, however, these judgments appeared to take for granted that "owner" is to be defined as the "rightful owner" (i.e. the person with a proper claim to the cryptoassets). However, the passage in Dicey, Morris & Collins cited by Lavender J, published on 1 November 2022, defines the owner as (in summary) the person with control over the cryptoassets.
In favour of the approach in Ion Science, it may be argued that cryptoassets represent a person's participation in a system, and the most legitimate and therefore significant participation in relation to a cryptoasset is that of its rightful owner. It could also be argued that the approach increases certainty (as a claimant's location is easier to determine than a thief's) and assists claimants who are seeking to recover their assets.
In favour of the approach in Dicey, Morris & Collins, it may be argued that the "no keys, no coins" rationale of cryptoasset systems points in favour of the cryptoasset being located where its controller, not where its owner, is located. It may also be argued that in any case, the "rightful owner" analysis is artificial and there is no good reason why a different rule should apply to cryptoassets than to tangible moveable property.
If onwards dissipation would place the additional defendants outside the jurisdiction of the English Court, the practical impact on the claimant could be significant; the claimant would realistically have two choices: (1) seek compensatory relief from the hacker who falls within the Court's jurisdiction (notwithstanding that damages may not be an adequate remedy); or (2) raise related proceedings against the additional defendants, once their location becomes known, to require delivery of the NFT.
One issue with the latter is that it is common in cryptoasset tracing cases to discover new claimants after having obtained relief against initial defendants, and therefore likely that other claimants will find themselves in the same position as the claimant in Osbourne. Further discussion of the points of uncertainty identified by Lavender J would, even on an interim basis, be fruitful.
Lavender J's comments about when the property has to be located in the jurisdiction are supported by the authority he cited. It may also be argued that they are supported by the proposition, well-established in the authorities, that an application to set aside permission to serve out of the jurisdiction is determined by reference to the position at the time permission was granted, not at the time of the set-aside application (e.g. Satfinance Investment Ltd v Athena Art Finance Corp  EWHC 3527 (Ch) at paragraph 41).
As to the ambiguity with gateway 15(a), this is a point about which there are fewer indications in the authorities, and there is greater potential for heavy legal disputation. It should be emphasised, of course, that ambiguities about a gateway may be immaterial to a claim because only one gateway need be satisfied, and there can be multiple gateways applicable to any one type of claim (e.g. trusts). Osbourne is an example: despite running up against difficulties with gateways 15(a) and 15(b), the claimant succeeded under gateway 15(c).
Lavender J's judgment is a particular reminder of a recurring difficulty in the law surrounding cryptoasset recovery, which is that points of law are likely only to be dealt with on an interim basis, because defendants are unlikely to defend any claim meaningfully.
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