The recognition of Crypto assets in the Auckland and Auckland legal system is largely uncertain with there being no legislation confirming their position.
Many cases before now have recognised the possibility of a Crypto asset being a proprietary asset of an individual, but this had not yet been tested in a defended environment, until now. The case of D’Aloia v Persons Unknown Category A and others was a contested claim regarding the ownership and ability to trace Cryptocurrency, which was defended by Bitkub Online Co Ltd, a Crypto Exchange provider.
What is Crypto currency?
In its simplest form, Crypto currency is a form of digital/virtual currency that operates on blockchains (decentralized networks) and therefore there is no need for banks in order to hold and transact in Crypto currency.
Their value is wholly speculative, which combined with the lack of regulation and disregard for banks, has resulted in the recognition of Crypto currency in the English legal system being uncertain. The number of people using Crypto currency in the last 5 years has increased significantly and now some larger investment firms offer Crypto currency as an asset for an individual’s investment portfolio. The rise of Crypto currency should not be ignored and the Court has recognised this in previous cases to best secure a person’s ownership of such assets.
The nature of Crypto assets is vulnerable to being exploited and many of the cases regarding Crypto currency often revolve around a claimant being a victim of fraud. This is because the transfer between digital wallets is largely untraceable, making it difficult to recover assets obtained fraudulently.
The case of D’Aloia is no different, whereby the Claimant was deceived into transferring a large sum of Crypto currency to whom he believed to be a reputable brokerage firm. On discovering this was not the case, the Claimant instructed a Crypto asset expert to trace the transfer and the expert believed after several further transfers the currency was held by a customer of Bitkub Online Co Ltd, a Thai crypto exchange.
The Claimant pursued claims of unjust enrichment and constructive trusts against Bitkub with a view to recovering the Crypto currency. It was not submitted that Bitkub was aware of the fraud or assisted, but that they had notice of suspicious account activity and did not act in a commercially acceptable manner. Bitkub defended the claims on the basis there had been a change in position in respect of the Crypto currency and that it was a bona fide purchaser for value without notice.
Before the Court was able to make any award against Bitkub in favour of the Claimant, they were first required to establish whether or not the Crypto currency held by their customer was originally those of the Claimant. In considering the tracing of the Crypto currency, the Court scrutinised the evidence of the expert and concluded the evidence was inconclusive, primarily due to the funds being mixed at least once. Therefore, it could not be established that the Crypto currency held by Bitkub was in fact that of the Claimant.
The Court’s decision
Furthermore, the Court held in the event the Crypto currency was found to be the Claimant’s, any claim of those funds being held by way of a constructive trust would be against the unknown fraudsters, not Bitkub. The Claimant’s claim was therefore dismissed.
Despite the Claimant’s claim being dismissed, this case confirmed that the Courts are able to consider the Crypto currency as a proprietary asset of the Claimant. The Court sought to trace the asset in Common Law and Equity, as if it were any other recognisable asset in the English and Welsh legal system, but the claim ultimately failed due to the expert evidence being insufficient to reliably trace the assets.
Comment
This case provides some reassurance that individuals are able to seek to assert ownership rights in Crypto assets. However the very nature of and understanding of those assets currently make it difficult for owners to trace and recover.
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