01 Case Introduction
Mr. A from Beijing, introduced by a friend in the cryptocurrency circle, met Mr. B from Shenzhen online. A intended to purchase the virtual currency USDT (referred to as "U" below) from B. After agreeing on the price, they decided to conduct a trial transaction to familiarize themselves with the situation. They arranged to meet in Shanghai for an offline transaction, with A handing over the money and B handing over the U. After meeting in Shanghai, A and B had a pleasant conversation and felt very harmonious, so they decided to proceed with further transactions. The scale of their transactions continued to increase, from a few thousand U initially to several tens of thousands of U. Once, as usual, A traveled from Beijing to Shanghai to trade with B, but B arrived late from Shenzhen. B explained that his cold wallet had just been stolen and it might take a few days to gather enough U to give to A. A said it was not a problem and pre-paid cash to B, who then issued a receipt. After that, A repeatedly inquired about the U from B, who always claimed to be short of U at the moment and needed to wait, or else could only refund the money to A. A sensed something was amiss and, after inquiring from various sources, only then realized that due to the current rise in USDT, B did not want to deliver as agreed and had been making excuses to delay. After learning the truth, A was furious, thinking that B's behavior was unacceptable and decided to sue B, demanding the delivery of the USDT as agreed. However, A was uncertain about where to sue B, so he sought help from Lawyer Mankun.
When there is a dispute in virtual currency transactions, it is important to consider where to file a lawsuit, which is more likely to succeed, and how to choose a dispute resolution location. It is necessary to consider both issues at the same time. Otherwise, if the case cannot be filed or is rejected after being accepted by the court, it is equivalent to wandering outside the court; if the case is accepted but the court does not support the claim, it is also futile. In short, the acceptance of the case by the court and the court's support for the claim are two different matters. To win a lawsuit, both aspects need to be handled properly. It is important to note that the discussion in this article on the acceptance of currency-related disputes mainly targets virtual currency buying and selling disputes among domestic cryptocurrency players, and does not involve currency disputes between virtual currency customers and platforms, especially those related to foreign platforms.
02 Judicial Status: Acceptance of Disputes in Virtual Currency Trading
Currently, disputes related to the buying and selling of virtual currencies present a complex situation in terms of jurisdiction and trial. According to the "Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Trading" jointly issued by the People's Bank of China and ten other departments (referred to as the "Notice of Ten Departments"), virtual currencies do not have legal tender status and should not and cannot circulate in the market as currency. Business activities related to virtual currencies, especially the exchange of legal tender and virtual currencies, have been characterized as illegal financial activities and are resolutely prohibited.
Therefore, the first obstacle for currency-related disputes is that the courts often do not accept or reject the lawsuits, on the grounds that virtual currency trading is illegal and the court does not have jurisdiction. Even if the case is accepted, contracts related to the buying and selling of virtual currencies are often deemed invalid by the court. As for the return of related property after the invalidation of the transaction, the court's standards for handling it are also not uniform. For example, in the case of the return of investment funds related to currency, there are three types of judicial tendencies: full refund, sharing the responsibility, and no refund.
The effectiveness of buying and selling contracts for virtual currencies is likely to be deemed invalid in most courts, including those in Guangdong, Jiangsu, Zhejiang, and other regions. However, there are also some local courts that consider currency transactions to be valid. For example, the Shanghai First Intermediate People's Court believes that although virtual currency is not legal tender, it is still protected by law as virtual property and has exchangeability. Therefore, it holds a more affirmative attitude towards virtual currency transactions (Judgments of Shanghai First Intermediate People's Court (2019) Hu 01 Min Zhong 13689, (2020) Hu 01 Min Zhong 12524, and similar cases in the Shanghai area, such as the Pudong New Area Court (2022) Hu 0115 Min Chu 16440). The Beijing High People's Court also has a case that considers virtual currency as a commodity with trading attributes, and the trading behavior between the parties in buying and selling virtual currency does not violate the effectiveness and mandatory provisions of China's laws and regulations (Judgment of Beijing High People's Court (2020) Jing Min Zhong 747). However, even in the same region, different courts have inconsistent attitudes towards currency transactions. For example, the Fangshan Court in Beijing holds an affirmative attitude towards the effectiveness of virtual currency trading contracts, similar to the Beijing High People's Court, while the Third Intermediate People's Court and Chaoyang Court in Beijing believe that the entrustment contracts related to virtual currency investments are invalid ((2021) Jing 03 Min Zhong 10254, (2021) Jing 0105 Min Chu 97473), possibly because the agency matters were illegal due to the signing of the contract after the "94 Announcement."
Therefore, for virtual currency players, the key to determining the rights and obligations of both parties through contract agreements lies in where the contract disputes are accepted: if the currency-related disputes are under the jurisdiction of the relevant courts in Shanghai or Beijing according to prior agreement or legal provisions, the court will likely recognize the validity of virtual currency transactions and allocate the obligations and responsibilities of the parties according to the prior agreement; otherwise, the currency-related disputes are more likely to be deemed invalid. The legal consequences of the invalidity of the contract depend on the various and even conflicting judicial tendencies of local courts. Therefore, compared to the judicial recognition of virtual currency buying and selling contracts, the uncertainty of the invalidity and its legal consequences after the currency-related transactions are deemed invalid will make the trading parties feel uneasy about engaging in high buying and low selling, and chasing the rise and fall of the currency.
03 General Rules: Determine Jurisdiction Based on Agreement or Statute
How to determine the dispute resolution location for currency-related disputes? According to the relevant provisions of the Civil Procedure Law and judicial interpretations, the jurisdiction of currency-related disputes follows the rule of "agreed jurisdiction if there is an agreement, statutory jurisdiction if there is no agreement." Specifically, for lawsuits arising from contract disputes, those with an agreement are subject to agreed jurisdiction, while those without an agreement are subject to statutory jurisdiction, i.e., the court of the defendant's domicile or the place of contract performance.
Agreed jurisdiction requires a written agreement and the agreed jurisdiction must have a practical connection to the dispute, such as the defendant's domicile, place of contract performance, place of contract signing, plaintiff's domicile, or the location of the subject matter, and cannot arbitrarily designate a place that has no connection to the transaction. It must also not violate the rules of exclusive jurisdiction and hierarchical jurisdiction.
When the parties to the contract have not made a clear agreement on the place of performance, statutory jurisdiction applies. In this case, if the focus of the dispute between the parties is the payment of money, the court of the domicile of the payee is the place of performance, and if the dispute is related to the delivery of U, the court of the seller's domicile, who bears the obligation to deliver U, has jurisdiction. If the currency-related transaction is settled immediately, the court of the place of the transaction has jurisdiction. It is important to note that the "focus of the dispute" refers to the specific contractual obligations pointed to by the parties' litigation requests ((2021) Supreme Court Zhi Min Xie Zhi 73 ruling). In simple terms, it is not automatically assumed that the court of the payee's domicile, i.e., the seller's domicile, has jurisdiction whenever money is involved; the specific basis for the money claim needs to be considered: if it is based on the contractual obligations, the court of the payee's domicile has jurisdiction; if it is due to the invalidity of the contract or breach of contract, the jurisdiction cannot be arbitrarily determined based on the payee's domicile.
04 Specific Analysis: Choosing the Dispute Resolution Location for Currency-Related Disputes
Based on the analysis of the above two parts, the choice of the dispute resolution location for currency-related transactions can be said to be crucial. The answer to how to choose the dispute resolution location for currency-related disputes is also evident. If the jurisdiction was agreed to be in Shanghai at the time of the transaction, or if a lawsuit can be filed in Shanghai even without an agreement on jurisdiction, then from filing to confirming the claim related to the validity of the currency-related transaction, everything will proceed smoothly; on the contrary, if the jurisdiction is not in Shanghai or Beijing according to the agreement or statute, the process from filing to the claim will be full of obstacles, as if opening a legal blind box, and the court will likely deem the currency-related transactions invalid. The invalidity of currency transactions does not mean that there are no legal consequences. However, after the transactions are deemed invalid, there is a great deal of uncertainty regarding the return of currency-related property.
Of course, it cannot be said that outside of Beijing and Shanghai, all investment and trading activities in virtual currencies are "banned and managed by prohibition." For example, the Cangzhou Intermediate People's Court in Hebei Province has a case that states: "Although the above-mentioned documents prohibit issuing institutions and individuals from engaging in token issuance financing activities, deny the legal status of 'Bitcoin' and other virtual currencies as currency, they do not deny their property attributes as commodities. Ordinary people have the freedom to hold and trade under the premise of assuming investment risks independently" (Cangzhou Intermediate People's Court in Hebei Province (2020) Ji 09 Min Zhong 4997, and similar views are held in Guangxi (2021) Gui 06 Min Zhong 1365). In some courts in Shanghai, it is considered that the purchase of virtual currency (TRON) involves illegal public financing, and related entrusted financial management activities are invalid (Baoshan District Court in Shanghai (2020) Hu 0113 Min Chu 2912). However, it cannot be denied that according to the current judicial tendencies of most courts outside of Beijing and Shanghai, if currency-related disputes are handled through litigation, there is a greater risk in terms of filing, effectiveness confirmation, and legal consequences. "Be cautious in trading outside of Beijing and Shanghai!" It is inevitable to feel that only large cities like Beijing and Shanghai are still so influential, leading the way in the determination of virtual property transactions, and can be considered the first choice for jurisdiction in currency-related dispute litigation.
If there is no agreement, then the jurisdictional court will be determined according to the law, based on the plaintiff's domicile or the place of contract performance. Under statutory jurisdiction, if the jurisdictional court is in Shanghai or Beijing, then congratulations, file the case quickly and lock it in 100%! Because once there are multiple jurisdictions, if someone else files a lawsuit outside of Beijing and Shanghai and it is accepted, then it generally cannot be re-filed in Beijing or Shanghai. If currency-related disputes are accepted by courts outside of Shanghai and Beijing, there are legal risks from filing to the effectiveness of the transaction to the legal consequences, and it can be said to be very difficult: if the case is not accepted or the lawsuit is rejected, an appeal is needed; if the case is accepted and the investment is deemed invalid, the court will determine that the investor assumes the risk and is fully responsible, and an appeal is still necessary…
Of course, when suing or defending against courts that hold a negative attitude towards currency-related transactions, one cannot simply accept it, but must take an active approach: not only consider the court's tendencies in handling currency-related transactions, but also argue persuasively to convince the judge that the buying and selling of virtual currencies between individuals should be valid. Even if the currency-related transactions are deemed invalid, the best result to strive for is the full refund of the investment. For the assertion of full refund after the invalidity of the contract, refer to the previous article "If there is a dispute in investing in virtual currency, can the investment be refunded?"
One more thing, for eligible cryptocurrency traders, the jurisdiction for trading disputes can also be agreed upon in Hong Kong. After obtaining a favorable result in Hong Kong, they can seek enforcement in mainland China through the arrangement of mutual judicial assistance between mainland China and Hong Kong, effectively safeguarding the contractual rights of cryptocurrency traders. This strategy is mainly based on two current situations: on the one hand, as Hong Kong aspires to become a processing hub, trading hub, financial hub, and digital hub, it is now also committed to becoming the center of Web3.0 in the world. Therefore, in disputes related to cryptocurrency investments, the judicial institutions of the Hong Kong government will be more open and inclusive. On the other hand, the arrangement for mutual recognition and enforcement of civil and commercial judgments between mainland China and Hong Kong has been officially implemented since January 29, 2024. Therefore, this "litigation in Hong Kong, enforcement in mainland China" arrangement in currency-related disputes can cleverly safeguard the rights of cryptocurrency traders. For specific legal application and jurisdictional choices, refer to the article "Implementation of Judicial Assistance between Mainland China and Hong Kong, What Impact Does It Have on the Web3.0 Industry?" by other legal experts.
05 Mankun Lawyer's Suggestions
1. It is best to agree on the jurisdiction of virtual currency transactions in Shanghai or Beijing. If there is no agreement, try to arrange the actual transaction in Beijing or Shanghai. Strive to anchor the dispute resolution location in these two places, regardless of the jurisdiction, so that the claims related to currency-related transactions can receive judicial support. In addition, the jurisdiction for currency-related transactions can also be agreed upon in Hong Kong, to avoid the litigation risks in currency-related disputes through the arrangement of "ruling in Hong Kong, enforcement in mainland China," and to maximize the protection of one's own rights.
2. If unable to control the choice of jurisdiction, there is a risk of the court not accepting the currency-related disputes or deeming the transactions invalid. At this time, try to transform the currency-related disputes into typical civil and commercial debt disputes; if there are criminal activities disguised as virtual currency in the transactions, such as theft and fraud, try to seek restitution through criminal reporting.
- Considering the difficulties in filing currency-related disputes, the high likelihood of being deemed invalid after filing, and the uncertainty of property return after the invalidity of the transaction, the parties involved should not only determine the jurisdiction before buying and selling virtual currencies, but also seek professional help promptly after a dispute arises. Only by combining the court's tendencies and arguing persuasively based on reason, can one effectively protect their legitimate rights and interests.
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