23. September 2024
Metaverse Update issue #37 – 2 von 5 Insights
The recent judgment in D'Aloia v Persons Unknown [2024] EWHC 2342 has important implications for disputes involving crypto assets, particularly where the claimant is seeking to recover assets following a fraud.
The Claimant, Mr D'Aloia, was the victim of a fraud. The fraudsters convinced Mr D'Aloia to transfer cryptocurrency in the form of Circle and Tether (USDT) worth around £2.5 million. The fraudsters transferred the cryptocurrency through multiple wallets held on multiple exchanges, including Bitkub (the Sixth Defendant in the claim) before withdrawing the value of the cryptocurrency in fiat.
The key issue for this aspect of the claim was whether Mr D'Aloia could recover from Bitkub the Tether he lost pursuant to the fraud. Mr D'Aloia argued that Bitkub held the misappropriated Tether on constructive trust. Alternatively, that Bitkub had been unjustly enriched at his expense.
While the Judge accepted that the First Defendants (being persons unknown) who received the funds from Mr D’Aloia did so as part of a fraud, which gave rise to a constructive trust, Mr D'Aloia's claims against Bitkub failed. While the constructive trust against the fraudsters could found a claim against parties that received trust property and were not bona fide purchasers for value without notice, Mr D'Aloia was unable to show that the fraud involved his funds and that those funds had flowed to Bitkub, or that Bitkhub still held assets over which a proprietary claim could be asserted.
The Judge also held that there was a significant gap in Mr D'Aloia's claim resulting from the fact that he did not plead a claim of knowing receipt against Bitkub. When a person receives property in breach of trust, and that person, who is not a bona fide purchaser for value without notice, no longer has the property, (e.g. because they have transferred, dissipated or destroyed the property in question) they can still be liable to account to the claimant for the value of the assets – which is a personal, rather than a proprietary claim. That may assist claimants in circumstances where they are unable to assert a proprietary claim. However, in this case Mr D’Aloia would still have faced the challenge of proving that his funds actually flowed to Bitkhub.
Were the Judge to have held that Mr D'Aloia could establish that Bitkub held the Tether on trust for him, Bitkub would not have been able to rely on good faith defences. The Judge held that Bitkub had actual knowledge of suspicious activity in the accounts that were used to perpetrate the fraud and failed to investigate. The suspicious activity included that the account holder exceeded the daily withdrawal limits for her account, which was supposed to trigger other steps to be taken by Bitkub but did not, and the value of the deposits and withdrawals made to the relevant accounts far exceeded the annual income declared by the account holder as part of Bitkub's account processes.
This judgment serves as a warning to claimants to take extra care when pleading a case against an exchange which has received funds as a part of a fraud, and to ensure that the expert evidence in support of a tracing and/or following claim is based on an appropriate methodology and does in fact demonstrate how the claimant's assets have been used.
The key points to be aware of for claims involving crypto assets are as follows:
Where a third party has received trust property, it will usually have a defence to the claim if it can show that it acquired the asset for value and did not have notice of the claimant's proprietary interest. The defences of bona fide purchaser for valuer without notice, good faith change of position, and ministerial receipt can be applied in claims involving crypto assets.
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