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A recent court judgement is set to have significant implications for non-fungible tokens (NFTs)

Author: Syedur Rahman  20 June 2022
2 min read

An important clarification has been made regarding the courts’ approach to NFTs.

Many in the legal sector had speculated over whether the case law that has developed over recent months and years regarding cryptocurrency would apply to all types of crypto-related assets. A recent case has shown that the courts are willing to apply established English law principles beyond cryptocurrencies.

Lavina Deborah Osbourne brought an application for an order restraining the dissipation of two Boss Beauties NFTs. These, which were gifted to Osborne, are part of a women-led initiative that uses profits from NFTs to create opportunities for women. They were stolen from Osbourne’s Ozone wallet in or around February 2022, with the application being made on 10 March 2022 and granted on 31 March 2022 by HHJ Pelling QC.

Judgement

The most notable part of the judgement in this case relates to the judge’s consideration of whether the NFTs, which had a value of approximately £4,000, were to be treated as proprietary assets under the law of England and Wales.

Mr Justice Pelling  described NFTs as a stream of electrons resulting in a credit item to a crypto account. In this case, a proprietary injunction was granted to freeze an NFT as an asset standing alone from the underlying thing it represented (for example, digital artwork). The judge determined that NFTs have all the indications to be treated as property as a matter of English law and, as such, could be the subject of an injunction.

The judge was clear and unequivocal in his stance that the court is willing to adopt typical English law and treat NFT’s as personal property. He added: “These are assets which have a particular, personal and unique value to the claimant which extends beyond their mere Fiat currency value. The Court will readily grant injunctions to protect assets in such circumstances. In those circumstances, I am satisfied that the claimant has demonstrated to a realistically arguable level required that damages would not be an adequate remedy so far as she is concerned .’’

The court also dealt with preliminary issues in this matter, including jurisdiction and service by alternative means. Regarding jurisdiction, reference was made to recent case law, with it once again being stated that crypto assets will be deemed to be located at the place where the owner is domiciled. The issue of jurisdiction in this case adopted and followed our case of Ion Science v Persons Unknown & others (unreported) [2020] (Comm).

On the issue of alternative service outside the jurisdiction, recent case law was again cited. It was confirmed that in these types of case, where such assets can be distributed with ease and at great speed, it is appropriate to grant service by alternative means so as to avoid the asset being distributed and becoming untraceable, thus defeating the order.

It is noteworthy that the court applied established English law principles to a variety of issues in relation to crypto assets. It was established that the stolen NFTs were held on constructive trust for the claimant. While the judgement did not substantively address issues in respect of the current dichotomy between Bankers Trust orders and Norwich Pharmacal orders, it did show that the court is acutely aware of this issue and that it will need to be addressed in due course.

Conclusion

The main aspect of this judgement is certainly the judge’s comments about NFTs being treated as personal property in the traditional sense under English law. As with the majority of emerging case law surrounding crypto assets, this is quite a nuanced issue to take a stance on - but an important one. Judgement in this case will provide much-needed reassurance for NFT owners in what is a decentralised and unregulated market that can be subject to phishing scams.  

The judgement clearly shows that the court’s willingness to apply traditional law extends to all crypto assets. While it had already been established that cryptocurrencies were able to be subject to worldwide freezing orders, this is the first case to confirm this is also possible for NFTs.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, civil recovery, cryptocurrency and high-stakes commercial disputes.

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