By Charlyn Cruz and Sam Laycock
A highly anticipated judgment has been passed down from the High Court, allowing for service via Non-Fungible Token (NFT) on a defendant as the sole means of service. Osbourne v Persons Unknown & Ors [2023] EWHC 340 (KB) concerns Ms. Lavinia Osbourne, who sought to restrict the movement of two NFTs, which were misappropriated from her cryptoasset wallet in 2022. In the judgment, Mr Healy-Pratt (sitting as a Deputy High Court Judge) expanded on the comments made by Lavender J in his January 2023 judgment relating to the same case.
By way of background, Ms. Osbourne was the victim of an incident whereby an unknown third party accessed her cryptoasset wallet and misappropriated two NFTs titled ‘Boss Beauties #680’ and ‘Boss Beauties #691’ without her knowledge or consent. In March 2022, Ms. Osbourne initially obtained an injunction to prevent the further movement of her NFTs and a disclosure order to obtain information on the wrongdoers who may have assisted in their removal from her cryptoasset wallet.
Following additional movement of Boss Beauties #691 (which was in breach of the injunction already in place), Ms. Osbourne sought a further injunction in a bid to restrain any subsequent movement of her NFTs. She also added a named defendant to the proceedings and expanded the categories of Persons Unknown to which the injunction and underlying claim applied. As part of that process, permission was sought to serve the injunction and pleadings on three wallets: the original ‘hacker’ wallet, the wallet which at the time contained Boss Beauties #680 and the wallet which at the time contained Boss Beauties #691.
A without notice hearing for Ms. Osbourne’s application took place in September 2022. Lavender J granted an interim injunction in relation to all Defendants and permitted service out of the jurisdiction (i.e. England) by alternative means via NFT alone (in relation to the First and Second Defendants) and via email and NFT (in relation to the Third Defendant).
Service by NFT constitutes the airdropping of a freshly minted NFT into the designated wallet. This “service NFT” contains a web link / URL, which directs the intended viewer to a document depository, which in turn contains all the relevant service documents for the custodian of the wallet to view.
At the return date hearing, as set out in his judgment, Mr Healy-Pratt affirmed the interim order granted by Lavender J and allowed Ms. Osbourne to serve via NFT on the Defendants. The application was granted on the basis that: (i) there remained a strong case for restitution and unjust enrichment against the First Defendant; and (ii) that one or more of the NFTs were held by the Second and Third Defendants on constructive trust for Ms. Osbourne. There also remained a need to continue the restraint of both assets due to the risk of further risk of movement.
Paragraph 19 of the judgment is striking for its analysis of NFTs and how nefarious individuals exploit the underlying decentralised technology for their own ends:
“NFTs are a type of cryptoasset that represent an underlying asset, whether tangible or intangible. In that sense, they are digital representations of value. The value of an NFT is, in large part, governed by the provisions of the underlying smart contract that conveys rights to, and in some instances, imposes obligations on the holder. There are low barriers to entry. Users merely need an internet-connected device and knowledge of the relevant private key to transact with cryptoassets. Moreover, users need not identify themselves by anything other than a user name such that this transactional activity is conducted anonymously. Given these characteristics, it is therefore no surprise that this technology can be exploited to unscrupulous ends, notwithstanding that cryptoasset transactions are recorded on the publicly available immutable digital ledger that is the Blockchain. Bryan J noted in AA v Persons Unknown [2020] 4 W.L.R. 35 that such assets are at risk of being moved at “…the click of a mouse.” Perhaps another contemporary risk of movement would be at the tap of a smart phone.”
In his judgment, Mr Healy-Pratt expanded on the points made by Lavender J, noting that there was “…a realistically arguable case that NFTs are to be treated as property as a matter of English law,” adding NFTs to the list of digital assets which can be classed as property alongside cryptocurrency[1]. Additionally, although this is not the first time that service of a court order has been served by NFT for a cryptocurrency fraud case, the case of Osbourne is perhaps the first instance in the UK, if not the world, where sole service by NFT has been used in relation to an NFT fraud case.
This reaffirms and highlights the sympathy and willingness shown by the English courts to cases involving misappropriated digital assets, following a string of other favorable judgments in the sector such as D’Aloia v Persons Unknown & Others[2]. It will be interesting to see how this space develops in the next year or so as the recognition of NFTs as property, along with the tools in the Court’s arsenal to serve on Persons Unknown via NFT, opens new avenues of recourse for victims of digital asset fraud.
Ms Osbourne was represented by Racheal Muldoon of Maitland Chambers, who was instructed by the London office of Duane Morris.
[1] AA v Persons Unknown & Ors, Re Bitcoin [2019] EWHC 3556 (Comm)
[2] D’Aloia v Person Unknown & Ors [2022] EWHC 1723 (Ch)