Quillon Law wins landmark crypto case

In a landmark decision, Quillon Law has successfully defended Thailand-based crypto exchange Bitkub Online Co Ltd in the High Court case of D’Aloia v Persons Unknown and Others. The ruling, delivered by Deputy Judge Richard Farnhill on 12 September 2024, marks a significant development in the treatment of cryptocurrencies under English law.

Case Background

The claimant, Mr. D’Aloia, had fallen victim to a complex crypto fraud involving Persons Unknown. Over several months, he transferred approximately £2.5 million in fiat currency to the fraudsters, who used various methods to deceive him into transferring additional funds to "unfreeze" his account. The fraudsters then moved the USDT (Tether cryptocurrency) to wallets associated with sham entities.

In 2022, Mr. D’Aloia initiated legal proceedings against Persons Unknown and several crypto exchanges, including Bitkub, seeking damages and compensation. He claimed that Bitkub had received 46,291 USDT belonging to him and that the exchange was unjustly enriched or held his assets as a constructive trustee.

Key Findings and Legal Implications

1. Status of Cryptocurrency: The judgment is notable for its detailed analysis of the status and treatment of cryptocurrencies under English law. The court confirmed that USDT/Tether is considered property, aligning with the approach proposed in the Law Commission’s 2023 Report, "Digital Assets: Final Report". This establishes USDT/Tether as a distinct third type of property, separate from traditional choses in action or choses in possession.

2. Tracing Methods: The case also delved into the methodologies for tracing cryptocurrency. The court recognised that while USDT could theoretically be traced through mixed pools of cryptocurrency, Mr. D’Aloia failed to provide sufficient evidence to prove that his USDT had been traced to the specific Bitkub wallet. The court concluded that although new tracing methods could be developed, Mr. D’Aloia’s evidence was not robust enough to succeed.

3. Claims Against Bitkub: The High Court dismissed all claims against Bitkub, ruling that Mr. D’Aloia did not prove that his USDT had been received by Bitkub. The court also found that there were no breaches of Thai law and rejected allegations of commercial misconduct or "know your customer" (KYC) failings by Bitkub.

Commentary from Quillon Law

Nicola McKinney, Partner at Quillon Law, expressed satisfaction with the outcome: “We are delighted that the court accepted our defence that the Claimant’s tracing analysis was flawed. This judgment provides clarity on the nature of cryptocurrency and the methods available for fraud victims, which will be valuable in future cases.”

Next Steps

The judgment concluded a five-day trial in June 2024. Although Mr. D’Aloia’s claims against Bitkub were unsuccessful, the case continues as an application for summary judgment against Persons Unknown and other parties remains to be decided. Further orders, including those related to costs, will be addressed in subsequent hearings.

Quillon Law’s team, including Colette Bacon, and barristers Darragh Connell and Eoin MacLachlan of Maitland Chambers, played a crucial role in securing this significant legal victory for Bitkub. This case sets an important precedent for the treatment of cryptocurrencies in English law and the methodologies for tracing crypto assets in fraud cases.