Factual and Procedural Background
This opinion concerns an application made without notice in proceedings initially issued in the Queen's Bench Division and later transferred to the Commercial Court. The claimant opened an account on Company B's peer-to-peer non-fungible token (NFT) marketplace. On or about 24 September 2021, a third party transferred various NFTs as a gift into the claimant's account. Subsequently, persons unknown removed these NFTs from the claimant's account without consent, a loss discovered on or about 27 February 2022. The claimant traced the NFTs to two other accounts maintained by Company B. The claimant seeks orders to freeze the stolen assets held by persons unknown and to restrain further transfers by Company B. Additionally, the claimant requests an order under the Bankers Trust jurisdiction compelling Company B, a foreign corporation with no apparent connection to the English jurisdiction, to provide information to identify the persons unknown controlling the wallets to which the NFTs were transferred.
Legal Issues Presented
- Whether the claimant has demonstrated a good cause of action against persons unknown for the theft of NFTs.
- Whether it is appropriate to grant an injunction restraining dissipation of the NFTs held by persons unknown.
- Whether damages would be an adequate remedy for the claimant.
- Whether permission should be granted to serve proceedings out of the jurisdiction on persons unknown.
- Whether the Bankers Trust jurisdiction applies to compel Company B to disclose information to trace the persons unknown.
- Whether service of the Bankers Trust application on Company B out of the jurisdiction is appropriate.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Ion Science Ltd v Persons Unknown (unreported) [2020] (Comm) |
Lex situs of crypto assets is where the owner is domiciled. |
The court followed this principle to treat the claimant as possessing the NFTs in England for jurisdictional purposes. |
| AK Investment CKSC v Kyrgyz Mobile Tel Ltd [2012] 1 WLR 1804 |
Tripartite test for service out of the jurisdiction: serious issue to be tried, good arguable case, and forum appropriateness. |
The court applied this test to grant permission to serve persons unknown out of jurisdiction. |
| Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 |
Property obtained by fraud is impressed with a constructive trust upon transfer to wrongdoers. |
The court held NFTs were impressed with a constructive trust when removed from the claimant's wallet. |
| AA v Persons Unknown [2019] EWHC 3556 (Comm) |
Principles for alternative service of injunctions, especially when Hague Service Convention applies. |
The court applied this to justify alternative service methods to ensure injunctions are effective. |
| Kyriakou v Christie, Manson, and Woods Ltd [2017] EWHC 487 (QB) |
Five principles for granting Bankers Trust disclosure orders. |
The court applied these principles to grant a Bankers Trust order against Company B, subject to limitations. |
Court's Reasoning and Analysis
The court proceeded on the assumption that the transfer of proceedings to the Commercial Court was valid. The claimant demonstrated a good arguable case that the NFTs were stolen by persons unknown and that NFTs can be treated as property under English law, with their situs being where the owner is domiciled (England). The court found it appropriate to grant an injunction against persons unknown to prevent dissipation of the NFTs, as damages would be inadequate due to the unique personal value of the assets and uncertainty regarding the defendants' means.
Regarding service out of the jurisdiction, the court applied the tripartite test from AK Investment and found it met: there is a serious issue to be tried, a good arguable case exists, and England is the appropriate forum as the claimant is domiciled there and the assets are treated as located there. The strongest cause of action identified was that the NFTs are held on a constructive trust by persons unknown, as per Westdeutsche Landesbank.
The court allowed alternative methods of service in accordance with AA v Persons Unknown, given the urgency and risk of asset dissipation.
For the Bankers Trust application against Company B, the court recognized a real issue to be tried and that the information sought would likely lead to tracing the assets. The order was to be narrowly tailored to identifying persons controlling relevant wallets, balancing claimant's interests against privacy rights. The court required undertakings from the claimant to protect Company B's interests.
Although Company B is a foreign corporation with no presence in England, the court found gateway three of Practice Direction 6B applicable for service out of jurisdiction, considering Company B a necessary party to the claim against persons unknown. Despite concerns about enforceability and expense, the court granted the order on the assumption of Company B's cooperation.
Holding and Implications
The court GRANTED the injunction restraining dissipation of the NFTs by persons unknown and permitted service of proceedings out of the jurisdiction on those persons. It also GRANTED a Bankers Trust disclosure order against Company B, subject to specified limitations and undertakings, and permitted service of that order out of the jurisdiction.
The direct effect is to enable the claimant to seek to preserve and trace the stolen NFTs and identify the persons responsible. No broader precedent was established beyond applying existing principles to NFTs and their treatment as property. Costs were reserved.