Claims advanced (causes of action)
- Mr D'Aloia advanced claims against the first defendant, Persons Unknown, in fraudulent misrepresentation and deceit, unlawful means conspiracy, and unjust enrichment. Because the lex situs of a crypto asset is the place where the owner is domiciled, and the misrepresentations were made in England, there was a good arguable case that the claim was governed by English Law despite the suspected whereabouts of the claimant being Hong Kong.
- A claim was also advanced in constructive trust liability, not just against the Persons Unknown, but also against the second to seventh defendant, who were the persons controlling the exchanges into which, according to the expert report, it was possible to trace the relevant crypto assets. Mr Justice Trowler agreed there was a good arguable such case against all seven defendants apart from the third, who on the evidence did not have sufficient control over the crypto wallets. The second defendant, Binance Holdings Limited - the holding company of the Binance Group - was deemed to have significant control over wallets holding the majority of the misappropriated assets.
Relief sought and the Judgment
Mr D'Aloia's application for interim injunctive relief, disclosure and ancillary orders was heard by Mr Justice Trowler on 24 June 2022. In keeping with a growing line of authority in such interim applications, such as AA v Persons Unknown, Ion Science, Re Bitcoin, Denisz and Foglia, Mr Justice Trowler granted the relief sought.
Firstly, an interim freezing injunction to prevent any of the defendants from disposing of his crypto assets, recognising damages would not have been an adequate remedy, given they would not prevent further dissipation of Mr D'Aloia's crypto funds.
Secondly, Mr Justice Trolwer granted Mr D'Aloia a Banker's Trust disclosure order against the exchanges, requiring them to provide documents which would enable him to locate the misappropriated crypto funds. The Bankers Trust order was granted on grounds that:
- There was a real prospect the information would lead to recovery.
- The applicant would pay reasonable costs incurred by the exchanges in providing the information was not disproportionate to risk confidentiality duties owed to third parties given the severity of the issue.
Permission to serve out of the jurisdiction
It was also found appropriate to serve the application outside of the jurisdiction through Gateway 9 applied under Practice Direction 6B, as there was a good arguable case that the damage would be sustained in the jurisdiction; this was where the cryptocurrency was immediately held before the misrepresentation and deceit. Further, there was a good arguable case that gateway 15 ('the constructive trust gateway'), and gateway 11 ('the claim relating wholly or principally to property within the jurisdiction') were also available.
Notably, the constructive trust gateway was available against the exchanges, as the claim arose out of "acts committed or events occurring within the jurisdiction or relating to assets within the jurisdiction" (PD 6B, para 3.1, (15)(a)).
Permission to serve out of Jurisdiction and by NFT
This was the first instance that claimant in the English Courts was granted permission to serve proceedings on a Persons Unknown via distributed ledger technology, in this case a Non-Fungible Token (NFT). This was in the form of an airdrop into the digital wallet which originally held the appropriated USD Tether coins, with the effect of embedding the service into the blockchain – the method most likely to put those behind the website on notice. Mr Justice Trowler was also satisfied that there was 'good reason for service on the exchange defendants to be by the alternative means' (i.e., by NFT), meaning exchanges such as Binance could in future be served notices in a similar way.
It has often been argued that banks through which fraudulently misappropriated funds flow should be treated as constructive trustees for the victim's assets - in the hope that such a finding may make them liable to restore lost trust assets. However, it has rarely been found that a bank is, in law and fact, affixed with this responsibility.