Key Takeaways
This judgment provides four clear implications for litigators seeking to impose a Constructive Trust over stolen crypto assets.
- Constructive Trust Legal Mechanism Available: The court accepted that a constructive trust will arise automatically over property obtained by fraud against the fraudulent recipient (Persons Unknown) [J.341]. This applies to crypto assets with the same force as it does to traditional assets.
- Burden of Proof on the Claimant: The claim ultimately failed because the Claimant could not prove, on the balance of probabilities, that the stolen assets ever reached the defendant VASP[J.383]. The essential legal link was technically missing.
- VASP Not Liable on the Facts: The court accepted the legal availability of a constructive trust, but the VASP was not found to hold any trust funds and could not be considered a constructive trustee in this instance [J.383].
- Evidence of Cryptocurrency Tracing was the Failure Point: Establishing a constructive trust was primarily a question of successful, admissible, and forensically sound cryptocurrency tracing [J.6-7]. Flawed cryptocurrency tracing evidence meant the legal link was absent.
Case Citation & Jurisdiction
- Case Name: Fabrizio D’Aloiaa v Persons Unknown Category A and Others
- Neutral Citation: [2024] EWHC 2342 (Ch)
- Jurisdiction: High Court of Justice of England and Wales, Business List (Chancery Division)
- Date of Judgment: 12 September 2024
Factual Background: D’Aloia vs. Persons Unknown
The Claimant, Mr D’Aloiaa, was the victim of a sophisticated cryptocurrency investment scam that began in July 2021. He was duped into believing he was investing through a legitimate cryptocurrency exchange. This conviction led to the transfer of a substantial quantity of digital assets.
In total, approximately 2.1 million USDT, a stablecoin, was stolen across multiple transactions. The core of the legal action focused on one specific tranche of 400,000 USDT.
The fraudulent transactions were traced to a specific wallet address controlled by the anonymous fraudsters (Persons Unknown). This Constructive Trust was accepted as arising over those funds at that point. The central factual issue was the subsequent movement of those specific funds.
The Claimant asserted that the 400,000 USDT were moved through the blockchain and ultimately reached an account held at the Sixth Defendant, Bitkub. Bitkub is a registered VASP (Virtual Asset Service Provider) based in Thailand. The entire case against Bitkub hinged on establishing this final link via cryptocurrency tracing evidence. [J.1-3]
Imposing a Constructive Trust on a VASP
This case required the court to navigate established equitable principles and technical blockchain evidence. The High Court accepted the principle of a constructive trust in cryptocurrency: property obtained by fraud creates an automatic trust in favour of the original owner [J.343]. This framework applies to digital assets with the same force as it does to traditional assets.
The core legal question was whether the Constructive Trust should be extended from the fraudster to the VASP (Bitkub). To succeed, the Claimant had to technically prove that his specific, stolen crypto assets were still identifiable within the Bitkub ecosystem. The claim against Bitkub relied entirely on the assertion that the funds had been deposited into a specific Bitkub wallet address. Bitkub’s defence was purely factual, arguing that it was an innocent third-party intermediary that never received the Claimant’s crypto assets. Therefore, there could be no constructive trust and VASP liability, as Bitkub was not holding any trust property [J.4ii]. The success of the Constructive Trust claim rested entirely on the technical accuracy, admissibility, and forensic soundness of the underlying cryptocurrency tracing report.
The Court’s Findings
The Court ruled in favour of the Sixth Defendant, Bitkub. The Claimant failed to satisfy the court, on the balance of probabilities, that any of his stolen USDT ever arrived at the designated Bitkub wallet address [J.383]. The tracing evidence presented was deemed unreliable and failed to establish a critical factual link between the Claimant’s loss and Bitkub’s receipt.
The judgment confirmed the legal availability of the Constructive Trust mechanism in a cryptocurrency context. The court accepted that a Constructive Trust had automatically arisen over the funds in the hands of the fraudsters (Persons Unknown). However, the absence of a proven receipt by the VASP meant the legal link connecting the Claimant to Bitkub was missing from the claim [J.383].
Since Bitkub was found never to have received the trust property, the claim for Constructive Trust, VASP liability, and breach of trust could not succeed. The court noted that no claim for “knowing receipt” had been asserted, preventing the Claimant from pursuing an alternative path for remedy [J.20]. The outcome thus turned entirely on the failure to establish the factual chain of ownership, not on a fundamental flaw in the equitable principle.
Analysis and Implications
The D’Aloia Judgment found that the equitable remedy of Constructive Trust was fully available for crypto asset recovery. It signalled that UK courts will apply well-established equitable principles to digital assets. The objective of establishing a Constructive Trust in cryptocurrency is sound, provided the technical burden is met.
This case is a reminder that legal principles are not precise. The failure to prove that the stolen funds reached the VASP was the single, fatal flaw of the claim [J.382]. Therefore, the Constructive Trust and VASP relationship requires a chain of evidence that is admissible and forensically defensible under cross-examination.
For any action seeking a Constructive Trust over funds held by an exchange, parties must consider the quality of the cryptocurrency-tracing evidence to prove the factual link to the VASP.
