Protect NFT investors: English High Court acknowledged NFTs to be considered property

By July 1, 2022NFT
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The English High Court acknowledged for the first time in a significant decision1 that there is a debatable case that non-fungible tokens (NFTs) should be considered as property under English law.

This implies that NFT fraud victims have access to the same potent patented cures as bitcoin fraud victims.

The Case

In September 2021, Boss Beauties, a women-led NFT avatar collection that raises money for programs to develop mentoring and scholarship possibilities for girls and women, sent NFTs that represented digital works of art to the creator of Women in Blockchain Talks (the claimant).

The NFTs had been taken out of her wallet without her knowledge in January 2022.

The NFTs were then linked to two accounts on the Ozone Networks Incorporated t/a Opensea (Opensea) peer-to-peer NFT marketplace that was controlled by unidentified individuals (the first defendant).

The claimant made an application without notice for: I) a short-term patented technology injunction restraining the dissipation of the NFTs in question; (ii) a disclosure order is known as a Bankers Trust Order, requiring Opensea to provide information to enable the insured to trace or identify those who controlled the wallets to which the NFTs had been transferred.

What is the Decision?

The judge granted each of the orders requested by the claimant and provided the claimant authority to serve both defendants outside of the jurisdiction using different methods since he understood that the NFTs may soon fade.

Similar to cryptocurrencies, it is debatable whether NFTs qualify as “property” in terms of English law (which is a pre-requisite to granting proprietary relief over an asset).

Unknown parties held the NFTs in “constructive trust” for the claimant. In conclusion, a constructive trust is placed on the fraudulent beneficiary when the property is gained by fraud, allowing them to hold legal title to the assets on behalf of the victim.

This conclusion is consistent with the English court’s prior assertion that digital assets might be kept in trust.

Conclusions

Although it is only an interim ruling and the defendants were not present to defend their position, it is nonetheless a significant step toward the recognition of NFTs as property and will reassure those who have fallen victim to NFT fraud that effective proprietary remedies are available through the English courts to help them reclaim their NFTs.

The use of strong remedies, such as disclosure orders against cryptocurrency exchanges operating outside the UK, can be used to breach the level of anonymity provided to users of crypto wallets and make it easier to take enforcement actions against people who are in possession of the stolen assets.

similar to what occurred in the Ion Science case, in which exchange was required to reveal the owner of a Bitcoin account that had been stolen

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