High Court Grants Freezing Injunction In Relation To Stolen Non-fungible Tokens (NFTs)

• Published date: 26 July 2022
• Subject Matter: Technology, Fin Tech
• Law Firm: Herbert Smith Freehills
• Author: Mr Philip Lis and Vrinda Vinayak

Adding to the run of recent cases involving fraud or theft of cryptoassets, the High Court has granted an order restraining "persons unknown" from dissipating NFTs allegedly stolen from the claimant's cryptoasset wallet: Lavinia Deborah Osbourne v (1) Persons Unknown (2) Ozone [2022] EWHC 1021 (Comm). (The decision dates from March this year, but the transcript has only recently become publicly available.)

The court also made a Bankers Trust order against an NFT marketplace which hosted the wallets controlled by persons unknown to which the NFTs were transferred. The case therefore gives another example of the English court making such third party disclosure orders against cryptoasset marketplaces, even if they are located outside the jurisdiction, requiring them to provide information enabling a claimant to identify the recipients of their stolen cryptoassets.

In line with other recent authorities, the court found that there was a realistically arguable case that cryptoassets are to be treated as property under English law and that they are deemed to be located at the place where their owner is domiciled. In fact, there is now some debate as to whether the relevant test is domicile or residence (see the court's obiter observations in the subsequent case of Tulip Trading Limited v Bitcoin Association for BSV [2022] EWHC 667 (Ch), considered here) but the distinction would not have mattered on the facts of this case.

Background

An NFT is a "token" or cryptoasset which represents an object (eg art, music, collectibles, etc) and is stored on a blockchain. Unlike cryptocurrencies, these tokens are "non-fungible" because they are not replaceable or interchangeable with others of their kind. We have considered the concept, ownership and legality of NFTs here.

In the present case, the claimant created an account on a peer-to-peer NFT marketplace operated by the second defendant (Ozone), which was an American corporation with no connection to England. In February 2022, the claimant discovered that various NFTs representing digital artwork had been removed from her account without her knowledge or consent. The claimant traced the NFTs to two other accounts hosted by Ozone.

The claimant sought an injunction to restrict persons unknown from transferring the stolen NFTs. She also sought a Bankers Trust order against Ozone requiring it to provide information enabling identification of the entities controlling the wallets to which the NFTs had been transferred.

Decisio...