Osbourne v. Persons unknown and others – Service of proceedings by Nonfungible Token (NFT)

• United Kingdom

• Financial services disputes and investigations

03-02-2023

Summary

The High Court has permitted exclusive service of proceedings by Nonfungible Token (“NFT”) for the first time. Osbourne v. Persons unknown and others [2023] EWHC 39 (KB) concerns a claim brought in respect of the hacking of a digital wallet containing two NFTs (the “Tokens"). The Tokens comprised 10,000 works of unique digital art of inspirational women, each of which are said to have been worth between £3,000 and £5,000.

The Tokens were deposited into the Claimant’s wallet in September 2021, but transferred out in January 2022 by an unidentified hacker (the “Unidentified Defendant”) without the Claimant’s consent.

The Claimant has identified one of the proposed Defendants, following a review by a digital forensic investigator who located a wallet operated by an NFT marketplace called Open Sea. One of the Tokens was transferred from there to a wallet linked to a South African individual (the “SA Defendant”). An injunction to prevent the Tokens being traded was secured by the Claimant in March 2022.

Judge Lavender permitted the Claimant to serve their proceedings by NFT on the Unidentified Defendant, as there was no other method available to the Claimant. This is the first time the Courts have permitted service of proceedings exclusively by NFT. The Court also allowed the proceedings to be served on the SA Defendant by NFT and email. The served documents will be redacted, other than to the Defendants, because NFTs can be viewed publicly on the Blockchain.

Comment

Osbourne is setting new standards for digital assets like NFTs. The High Court has previously held that cryptocurrency is property (see our previous articles here and here which discuss the challenges with defining cryptocurrency as property), but in July 2022, in this same case, it extended this definition to cover NFTs (see our previous article on this here). The Court had jurisdiction to make this finding because, although the Tokens have left the jurisdiction, the thefts most likely occurred in England and there is scope for arguing that they are held on constructive trust by the Defendants (who would be trustees of the Tokens).

This latest development continues to pave the way for victims of crypto-asset fraud to pursue claims against their anonymous hackers or fraudsters. It follows in the footstep of the decision in D’Aloia v Person unknown and others, which granted permission for proceedings to be served by NFT for the first time – however, Osbourne marks the first time that NFTs have been permitted as the exclusive method of service.

Social media and even email are relatively recent additions to the Court’s accepted forms of service (the former with the Court’s permission only), but this latest development shows that the Court is willing to adapt and innovate, and move with the times when traditional methods of service are challenging or impossible. It is encouraging to see that the Court is willing to adopt the latest technological developments and permitting real-time changes to its procedures to align itself with these advancements.