D'Aloia v Persons Unknown Category A & Ors

Factual and Procedural Background

The Claimant alleges he was the victim of a cryptocurrency scam involving multiple Defendants. The claim against the Second Defendant was settled, and the claim against the Fifth Defendant was struck out. The Claimant sought summary judgment against the First Defendants, the Third, Fourth, and Seventh Defendants. The trial primarily concerned issues between the Claimant and the Sixth Defendant, a cryptocurrency exchange. The Claimant alleges that the First Defendants fraudulently induced him to transfer approximately £2.5 million in cryptocurrency, which was then laundered through various blockchain wallets before being withdrawn as fiat currency by the Seventh Defendants. The Exchange Defendants, including the Sixth Defendant, are alleged to have held accounts used in this laundering process.

Legal Issues Presented

1. What is the pleaded basis for the Sixth Defendant's alleged liability to the Claimant, including identification of the "Identifiable Cryptocurrency" and the basis for constructive trust claims?
2. Whether USDT (Tether) is property under English law and the nature of such property rights.
3. Whether the Claimant can establish, factually and legally, that his Identifiable Cryptocurrency reached the Sixth Defendant's wallet through following or tracing.
4. Whether the Sixth Defendant has been unjustly enriched at the Claimant's expense and the availability of related defences.
5. The applicability and scope of constructive trusts in the context of the alleged fraud and the Sixth Defendant's conduct.
6. The proper legal characterization and admissibility of expert evidence on blockchain analysis and tracing methodologies.
7. The availability and application of defences such as good faith purchase for value without notice, ministerial receipt, and change of position.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by summarising the pleaded issues, focusing on the Claimant’s allegations against the Sixth Defendant (the Exchange Defendant) and the basis for constructive trust claims. It accepted that USDT (Tether) qualifies as property under English law, though it is neither a chose in action nor possession but a distinct form of property combining data and transactional functionalities. The court analysed expert evidence, particularly the Claimant’s blockchain tracing expert, and found significant methodological flaws and inconsistencies. The expert’s use of FIFO (first in, first out) tracing was contradicted by his own admissions and lacked a principled basis, undermining the factual demonstration that the Claimant’s funds reached the Sixth Defendant’s wallet.

The court distinguished between following and tracing, confirming that the Claimant’s pleadings supported a claim based on tracing, which includes substitutes for original property, and that the Claimant was entitled to advance claims on that basis despite some imprecision in terminology. It reaffirmed that tracing through mixed funds is not available at common law but may be possible in equity, a distinction relevant to the Claimant’s claims.

On unjust enrichment, the court applied the structured approach requiring enrichment at the Claimant’s expense and an unjust factor. Although the Sixth Defendant was enriched by receipt of USDT, the Claimant failed to prove that his funds were part of that enrichment. The court accepted that the Claimant had established unjust factors of unauthorised payment and mistake, but the absence of evidence tracing his funds to the Sixth Defendant’s wallet was fatal.

The court examined defences raised by the Sixth Defendant, including good faith change of position and ministerial receipt. It found that the Sixth Defendant had actual knowledge of suspicious transactions and breaches of withdrawal limits, failed to investigate adequately, and therefore could not rely on these defences. The defence of counter-restitution being impossible was rejected as irrelevant since the Claimant had no benefits to return.

Regarding constructive trusts, the court analysed four possible bases: (i) a trust imposed on the fraudulent First Defendants under Westdeutsche principles; (ii) a trust arising from vitiated intention or rescission under Angove; (iii) a rescission-based trust arising prospectively from commencement of proceedings; and (iv) a trust imposed directly on the Sixth Defendant based on its alleged failure to act commercially reasonably. The court accepted that a constructive trust arose against the First Defendants but found no basis for a direct trust against the Sixth Defendant, which was not pleaded and for which no breach of trust was established. The Claimant’s failure to prove receipt of his funds by the Sixth Defendant was fatal to any claim against it, including knowing receipt claims, which were not pursued.

The court also addressed the public policy arguments against recognising property rights in cryptoassets and concluded that existing English law supports treating USDT as property capable of tracing and trust claims. It rejected arguments that public policy or institutional competence concerns should prevent the court from deciding the issue.

Overall, the court found the Claimant’s case legally complex and factually unsupported in key respects. The Claimant failed to show on the balance of probabilities that his USDT reached the Sixth Defendant’s wallet, and the pleaded constructive trust claims against the Sixth Defendant were either unpleaded or unsupported. The defences raised by the Sixth Defendant were rejected on the facts, but this was insufficient to save the Claimant’s claims given the evidential shortcomings.

Holding and Implications

The court dismissed the Claimant’s claims against the Sixth Defendant. The Claimant failed to prove that any of his USDT reached the Sixth Defendant’s wallet, undermining tracing and unjust enrichment claims. The constructive trust claims against the Sixth Defendant were not pleaded or supported by evidence. The court rejected the Sixth Defendant’s defences of good faith purchase, ministerial receipt, and change of position, finding actual knowledge of suspicious activity and failure to investigate.

The direct effect is that the Claimant’s claims against the Sixth Defendant fail. No new legal precedent was established; the court applied existing principles on tracing, property in cryptoassets, unjust enrichment, and constructive trusts. The judgment clarifies the application of these principles in the context of complex cryptocurrency fraud and highlights the importance of clear expert evidence and precise pleadings in such cases.