Clifford Chance

The English courts have dealt with a steady stream of cases arising from crypto frauds and it has been through these cases that the law on digital assets has developed. Whilst many of the decisions in this area to date have been interlocutory, a recent judgment (Fabrizio D'Aloia v Persons Unknown Category A & Ors [2024] EWHC 2342 (Ch)) following a trial of claims against a crypto exchange is more significant.

What makes this a significant judgment?

• It explores the nature of the property in cryptocurrency: Property rights attached to the USDT itself, rather than the right to control it. USDT was neither a chose in action nor a chose in possession, but rather a distinct form not premised on an underlying legal right.
• It identifies when following and tracing can be applied to transfers on a blockchain: Claimants may be able to use following rules if specific cryptoassets remain identifiable following transfer but typically will need to use tracing rules and, unless equitable tracing applies, will be unable to trace through wallets holding cryptoassets from multiple sources (i.e., "mixed funds"). However, it also highlights how claims in unjust enrichment may be circumvent some of those strict rules.
• It discusses appropriate methodologies for blockchain analytics evidence: Claimants must present cogent expert evidence based on a transparent methodology that also strikes a fair balance between multiple fraud victims.
• It progresses the debate on crypto exchanges being constructive trustees: The fraudsters were constructive trustees and the Exchange (had the Claimant's expert evidence been accepted) took title to the USDT subject to the Claimant's equitable interest. The Exchange was held not to be a constructive trustee itself. However, while no knowing receipt claim was pleaded, the Court did not dismiss entirely the argument that an exchange which acts in a commercially unacceptable manner would be a constructive trustee.
• It demonstrates the importance of AML compliance in a private law context: The Exchange was deprived of key defences to the constructive trust and unjust enrichment claims because it failed to block the account following blatant signs of suspicious use.

Download our PDF Briefing to read our full analysis of the case.