English High Court ruling on NFTs ‘hugely significant’ for fraud victims

Jennifer Craven, commercial fraud expert at Pinsent Masons, said the case was “hugely significant given that NFTs have been gaining in popularity alongside cryptocurrency” and demonstrated the “flexibility and innovation” of English courts.

In March, the High Court heard how, in September 2021, two digital artworks from the ‘Boss Beauties’ collection were allegedly stolen from an online wallet on the OpenSea NFT marketplace that belonged to Lavinia Osbourne, founder of Women in Blockchain Talks.

Osbourne managed to trace the NFTs to two other OpenSea accounts held by anonymous users. She sought an injunction before the court to freeze both accounts and prevent the NFTs being sold or transferred elsewhere. She also asked for a bankers trust disclosure order compelling OpenSea’s hosts, US-based Ozone Networks, to provide her with information about the two anonymous account holders.

Handing down his judgment, Judge Pelling QC granted the injunction and the disclosure order, saying he was satisfied that there is a “realistically arguable case that [NFTs] are to be treated as property”. He also held that the court had jurisdiction over the matter, since Osbourne lived in England. Citing legal precedent which held that crypto assets “are to be treated as located at the place where the owner of them is domiciled,” Judge Pelling said there “is no reason…to treat non fungible token in any other way.”

The judge also said he was satisfied that the disclosure order had a realistic prospect of providing information that would locate the NFTs and identify the individuals alleged to have stolen them. He found that it was “likely…that Ozone will have ‘know your client’, or ‘know your customer’ information” about who controls the wallets, adding that the information could lead to legal proceedings being brought against the wallet owners, and possible recovery of the NFTs.  

Craven said: “This case indicates once again the English courts flexibility and innovation. This development is particularly significant given that NFTs have been gaining in popularity alongside cryptocurrency. Because of this, the judgment will be welcome news for victims of civil fraud that are seeking redress from the English courts via freezing injunctions in time sensitive circumstances to prevent further depletion of assets.”

Hinesh Shah, investigations and intelligence expert at Pinsent Masons, said that this finding re-enforces how the public nature of blockchain technology can allow stolen crypto assets or NFTs to be traced. “This ruling is likely to empower more consumers who have suffered crypto fraud or NFT fraud to take legal action, especially now they can see that assets can be traced and actions taken to identify the fraudsters,” he added.

“To be traceable, assets have to be deemed to be property, so this development is also significant for victims of civil fraud that are seeking redress from the English courts to trace their misappropriated NFT assets,” Craven said.

She added: “This case also follows the trend towards crypto assets established in a statement published in 2019 by the LawTech Delivery Panel's UK Jurisdiction Taskforce, a team of industry experts and leading figures from government and the judiciary. The taskforce argued that crypto assets should be treated as property in principle. This latest case shows the High Court’s willingness to apply this principle to NFTs too, having found on a number of occasions that crypto assets do constitute property.”