UK High Court rules stablecoin Tether (USDT) has property status under English law.
A full trial in the High Court of Justice ruled on cryptocurrency status a day after the UK government tabled a bill clarifying crypto as personal property.
A Thursday, September 12 ruling by Deputy Judge Richard Farnhill held that stablecoin USDT is property. The verdict pronounced in the Chancery Division constitutes the first-ever determinative trial conducted under English law on cryptocurrency status and treatment.
The legal status of the stablecoin USDT emerged as a preliminary issue in charges leveled by a fraud victim. The plaintiff had digital assets – including Tether- stolen and offloaded via crypto exchanges after being sent via crypto mixers.
Deputy Judge Farnhill held that stablecoin USDT is a distinct property, though not premised on the underlying legal right. The Judge added that Tethers stablecoin is subject to tracing and constitutes trust property similar to other property forms.
Farnhill referenced the strong line of authority in a 2019 judgment that crypto constitutes property, though not made at trial. The recent ruling is consistent with the position held by the England and Wales Law Commission in 2023, classifying digital assets as property.
The court decision emerged a day after the government bill to clarify non-fungible tokens (NFTs), carbon credits, and cryptocurrency constitute things and personal property under English Law.
Crypto Exchange BitKub Ducks Suit
Judge Farnhill observed that the plaintiff in the case, Fabrizio D’Aloia, could not demonstrate how Thai-based crypto exchange BitKub enriched from receiving 400,000 USDT. However, 46,291 USDT was traceable from the alleged D’Aloia fraudsters.
Farnhill noted that though the fraud is evident, the plaintiff could not convinced that the BitKub wallet was the beneficiary of the stolen D’Aloia’s USDT even when the actors used crypto mixers.
BitKub’s attorney in the case, Quillon Law partner Nicola McKinney, indicated that the ruling indicated that stablecoin USDT, in principle, is identifiable in mixed pools. Nonetheless, D’Aloia “failed to evidence on the probabilities balance that any of the stolen USDT is traced to the BitKub wallet.
Farnhill illustrated the absence of defective transactions involving the plaintiff and BitKub to undo. The claim missed the legal link between D’Aloia and the crypto exchange Bitkub. Consequently, the judge ruled that the plaintiff could not succeed in the breach of trust claim.
Matt Green, the blockchain and crypto head at the Lawrence Stephens law firm, cautioned the analytic report providers to have evidence articulated by the courts. He urged the legal teams to prioritize understanding the fact patterns to advance the proprietary claims carefully. Doing so will ensure the issues contested are dealt with accordingly.
The plaintiff alleged that fraud was perpetrated on him by the first defendants by inducing him to hand over crypto, both Circle (USDC) and Tether (USDT), amounting to £2.5m. The First Defendants would pass the crypto in several blockchain wallets, and the Seventh Defendants would withdraw the proceeds as fiat currency.
The court heard that Polo, Gate, Binance, and Bitkub, identified as exchange defendants, were platforms where the Seventh Defendants supposedly held various accounts. Farnhill indicated the court would hear the consequential orders and the application for the summary judgment later.
UK Progression on Crypto Classification
The UK crypto community welcomes the government’s efforts to clarify the legal status of digital assets once the new bill is enacted. The bill seeks to expand the scope of the personal property category to include digital assets.
The bill’s enactment will facilitate the legal profession in settling ownership in existing disputes, particularly divorce cases. Moreover, the bill will provide legal protection to crypto owners who are victims of scams and fraudulent schemes.
The bill addresses the legal status of cryptocurrencies, tokenized real-world assets (RWAs), and Non-Fungible Tokens (NFTs). It aims to have the assets classified as personal property under UK law just as physical items, including money, vehicles, debts, and shares.
A Thursday, September 11 press release confirmed the Property (Digital Assets etc) Bill that Justice Minister Heidi Alexander indicated introduces a new category allowing crypto assets to reap benefits from personal property rights.
The bill will enable Britain to secure a pole position in the global crypto race among jurisdictions that recognize digital assets in law. The law seeks to fill the gap since digital belongings lack a definitive inclusion in the current scope of English and Welsh property law. Owners were left in the legal grey area even when their crypto assets were interfered with.
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