by Cindy Huynh
A Chinese Court recently ordered a company in a civil dispute to repay a misappropriated amount of cryptocurrency, setting a legal precedent for cryptocurrency-related disagreements. According to a Finance Magnates’ article published on November 5, 2018, despite China’s 2017 cryptocurrency ban, the Shenzhen Court recognized in the civil dispute that cryptocurrencies have economic value.
China Validates Bitcoin Trading Contracts
Finance Magnates reported that Shenzhen’s International Court of Arbitration recently solved a dispute concerning companies A, B, C, and D. Company A, which owns company B agreed to sell five percent of Company B to Company C for 550,000 Yuan.
Company C agreed and paid 250,000 Yuan directly to A. Company C was to pay the remaining amount owed using the profits that C made from managing cryptocurrencies on behalf of D. Company D provided cryptocurrencies to C with the belief that C would return the money to D and use the profit to finalize the payment with A.
Unfortunately, Company C decided to revoke the agreement and refused to pay the remaining amount. As a result, Company A and D sued Company C, demanding compensation of 20.13 bitcoin (BTC), 50 Bitcoin Cash (BCH), and 12.66 Bitcoin Diamond (BCD), which totaled approximately $493,000. While Company C acknowledged that they failed to honor the contract, they argued in court that the agreement was invalid.
Company C’s stance is based on the fact that the Chinese Government had banned cryptocurrencies in September 2017. The company mentioned that according to the law, the transfer of cryptocurrencies is illegal, which means that the existing contract is no longer valid.
The Shenzhen Court, however, disagreed with Company C’s reasoning. The Court noted that Company C initially took cryptocurrencies from Company D, and in that instance, C did not default on the agreement due to the cryptocurrency ban.
While the transfer of cryptocurrencies is illegal in China, the Court mentioned that since both parties signed the contract, the parties have demonstrated that they intend to uphold and honor the agreement. According to Qi Aimin of Guangxi University, this is significant since it’s the first time Chinese regulators and authorities have validated trading contracts involving cryptocurrencies.
Bitcoin: Private Property Under Chinese Law
While the Chinese Government prohibits bitcoin from being circulated and used as a medium of exchange, Chinese laws do not ban private parties from undergoing private transactions with cryptocurrencies. Finance Magnates noted that while the cryptocurrency is not fiat money issued by authorities, it is protected under Chinese law as private property.
In regards to compensation, company B argued that Company C should provide B an outstanding balance in U.S. Dollars. Company B noted that, since bitcoin is protected as property in China, company C does not want to transfer the cryptocurrency tokens as it breaks Chinese laws, and cryptocurrency prices a generally calculated in U.S. Dollars, the Court determined it sensical to uphold the agreement by paying in U.S. Dollars.
Although Company C mentioned that there is no legal pricing method and B’s claim for U.S. dollars is illegal, the Chinese Court also disagreed with C’s reasoning. The Court, however, noted that C is not liable for additional interest on the cryptocurrencies.