A guide to Non-Fungible Tokens (NFTs), 2023 - Flipbook - Page 42
While the courts have successfully granted remedies including injunctions and
freezing orders in relation to cryptocurrencies, these principles have yet to be
applied in practice to NFTs, so it remains to be seen how the principles may
apply. However, the Court has now held that there is “at least a realistically
arguable case that such tokens are to be treated as property as a matter
of English law” (see Osbourne v Persons Unknown). For more on freezing
orders, see Practice note, Freezing orders: an overview.
The recent ruling in Tulip Trading Ltd v Bitcoin Association for BSV and others
([2022] EWHC 667 (Ch)) also has implications for the enforcement options
available in the context of digital assets. While the court rejected the idea that
cryptocurrency software developers owed a fiduciary duty to network users
on the specific facts, some non-binding comments did leave the door open for
future developments in this area.
As suggested above, it is important to bear in mind that solutions to any
enforcement issues can be coded into the NFT smart contract itself. For
example, in a situation where security is being taken over an NFT with a right
to take control or, where there is an agreement for onward sale of an NFT,
a transfer mechanism could form part of the smart contract terms. This
would effect transfer of the NFT on the occurrence of certain predetermined
events, with a condition that the NFT is to remain in a certain location for the
duration of the contract term to allow such an automation to be effective. This
would be for commercial discussion between the parties but demonstrates
how forward-thinking in the creation of a smart contract could help avoid
difficulties further down the line.
