NFTs Recognised As Property In English Courts As Injunction Obtained To Allow Recovery Of Stolen NFT

In our previous blogs, we have considered the status of digital assets, in particular Cryptocurrencies, whereby the Courts have recognised them as property with a value and capable of being owned. Our blogs have also highlighted the vulnerability of digital assets and the associated risks of theft that they carry.

The recent case of Lavinia Deborah Osbourne v Persons Unknown and Ozone Networks Inc (OpenSea) takes another step in recognising the property rights in digital assets, whilst also highlighting the risks that come with ownership.

Lavinia Deborah Osbourne v Persons Unknown and Ozone Networks Inc (OpenSea)

Case background

The case involved a digital asset known as an NFT (non-fungible token). In its simplest form, an NFT is a graphic formed on the blockchain with each NFT being unique and treated as a piece of artwork. In the same way as traditional artwork, a value will be attributed to an NFT and prices can vary from nothing to tens of millions. In Lavinia Deborah Osbourne v Persons Unknown and Ozone Networks Inc, the Claimant owned an NFT, which was stored in her OpenSea digital wallet. This NFT was effectively stolen from the digital wallet and transferred to another’s OpenSea digital wallet, being the First Defendant, who could not be identified. Without knowing the First Defendant’s identity, the Claimant was unable to seek its recovery.

The Claimant, therefore, brought an application seeking an injunction to freeze the transfer of that NFT and an Order requiring OpenSea to disclose details of the individual holding the NFT to allow the Claimant to pursue its recovery. In order to succeed, the Claimant needed to show that the NFT was capable of being property and therefore attracted ownership rights. If it was not found that an NFT was capable of forming property, the Claimant’s application would have failed and the Claimant would have had no rights within the English jurisdiction to seek its recovery.

The Court held that the NFT was held by the First Defendant on Constructive Trust for the Claimant. In reaching that decision, the Court determined that the NFT was considered as property in English law as without such recognition a claim of Constructive Trust would fail.

The Court also considered what value would be attributed to an NFT and held the value would be a subjective finding as opposed to its market value, which allows for claims to be made in the High Court as opposed to claims being left in the small claims Court, simply due to its market value. More importantly in terms of recovery, the Claimant was allowed to serve OpenSea a Bankers Trust Order which required them to disclose the details of the First Defendant. The Court’s decision forms the first step towards the Claimant’s recovery of the NFT and the Claimant on receiving the First Defendant’s details will continue to seek its recovery within the English Jurisdiction with the Claimant being the rightful owner and domiciled in England.

Comment

This claim represents the Court’s recognition of NFTs being property in the English jurisdiction, which furthers ownership rights across all digital assets. Whether the Claimant will proceed to successfully recover the NFT remains to be seen. Given the vulnerability of digital assets, we would expect several similar claims to follow.