Lending virtual currency has disputes. The Nanchang Court says, I don’t care about this matter.

Controversies arise from lending virtual currency, but the Nanchang Court remains indifferent.

Author: Liu Zhengyao; Source: Mankun Blockchain Law

On October 9th, the High-tech Court of Nanchang City, Jiangxi Province, issued a document titled “Request for Return of Borrowed Virtual Currency, Court: Not Within the Scope of Civil Litigation” [1].

The main idea is that if someone lends virtual currency and the other party refuses to return it as agreed, and the lender sues in court, the court will not support the lender’s request for return. After this article was published, many professionals in the industry consulted Lawyer Liu or Mankun Law Firm. Therefore, it is necessary to write an article analyzing the court’s viewpoint.

• Ethereum core developers have ruled out the possibility of a Dencun upgrade this year.
• Zhou Xiaochuan The universality of digital currency is crucial.
• From Ride-Sharing to Digital Currency Didi Chuxing Accelerates with the Digital Yuan

01 Background

The court provided the following main facts of the case: Xiao Ming borrowed approximately 80,000 USDT from Xiao Gang, and they agreed that it would be repaid after 6 months. However, when the 6 months were up, Xiao Gang violated the agreement and did not repay Xiao Ming. Therefore, Xiao Ming sued Xiao Gang in court, demanding the return of the USDT. However, the court directly rejected Xiao Ming’s lawsuit, stating that the subject matter of the lawsuit, USDT, is not a legal currency and does not have legal tender status (not protected by the state); Xiao Ming naturally disagreed and appealed to the Intermediate Court. However, in the second instance, the Intermediate Court upheld the ruling of the first instance court and also rejected Xiao Ming’s lawsuit.

In other words, from the perspective of the Intermediate Court and the High-tech Court in Nanchang, if you lend virtual currency and cannot get it back, you cannot sue in court.

02 Why is the court unwilling to accept civil disputes related to virtual currency?

In recent years, civil disputes related to virtual currency have been on the rise, but from the perspective of the court, the overall trend is that the possibility of the court accepting civil disputes related to virtual currency is becoming lower and lower. The main reason is that the regulatory authorities have issued more and more regulations on virtual currency, and these regulations are generally moving towards stricter regulation. This provides the “excuse” for the court to not accept virtual currency-related cases: originally, the court had a large number of cases and a small number of judges, coupled with the various “unfavorable” policies of the state regulators towards virtual currency, it is more convenient for the court to directly reject such cases. Of course, there are also cases where the plaintiff’s lawsuit request is rejected after acceptance.

(The graph shows the number of civil judgments involving virtual currency in the past 10 years, source: alpha)

Currently, Lawyer Liu has the following statistics regarding regulations on virtual currency:

On December 3, 2013, the notice titled “Preventing Bitcoin Risks” was issued, stating that Bitcoin and other virtual currencies are not legal tender and do not have legal compensation. Virtual currencies are categorized as virtual commodities.

On September 4, 2017, the announcement titled “Preventing Risks of Token Issuance Financing” clarified that token issuance financing is considered illegal financing and prohibits any organization or individual from engaging in illegal token financing. It also prohibits any trading platform from exchanging fiat currency with virtual currency or any intermediary services related to virtual currency, such as pricing or information provision. Financial institutions and non-bank payment institutions are also prohibited from conducting token financing-related businesses.

On September 3, 2021, the notice titled “Regulating Virtual Currency Mining Activities” strictly prohibits the addition of new mining projects and accelerates the exit of existing mining projects.

On September 15, 2021, the notice titled “Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation” states that virtual currency is not legal tender and does not have legal compensation. Engaging in virtual currency-related businesses within China is considered illegal, including exchange between fiat currency and virtual currency, exchange between virtual currencies, acting as a central counterparty for trading virtual currencies, providing information and pricing services for virtual currency transactions, token issuance financing, and trading virtual currency derivatives. Providing services to Chinese residents by overseas exchanges is also considered illegal (as it violates Chinese laws). When overseas exchanges operate in mainland China, the Chinese employees they hire may be held legally responsible. Individuals or organizations within China can invest in virtual currency and related derivatives, but any civil actions that violate public order and good customs will be considered invalid, and resulting losses will be borne by the individuals or organizations themselves.

However, these regulatory policies are not laws or administrative regulations, so the courts cannot directly refer to them as legal basis. However, the involvement of the Supreme People’s Court in the “9.24 notice” makes it a basis for judicial decisions without any major shortcomings.

So does this mean that if we lend virtual currency to others, they can simply refuse to repay? Not necessarily, as lenders still have legal remedies available.

Section 03: How can lenders of virtual currency protect their rights?

(1) Criminal prosecution:

For borrowers who clearly refuse to repay or engage in “loan fraud” (with the intent of illegal possession), lenders can choose to report to the police, as the other party may be suspected of fraud. Although courts may have a conservative view on the value of virtual currency in civil litigation, virtual currency obtained through legal means in criminal cases is the lawful property of citizens. If deceived, the police should certainly conduct an investigation. We have successfully helped clients recover virtual currency through criminal prosecution.

(2) Changing the grounds for civil lawsuits

In the current judicial environment, cases involving lending virtual currency directly based on grounds such as private lending and investment disputes are unlikely to be accepted by the court. However, it is entirely possible to resolve disputes through civil litigation by establishing grounds that are more likely to be accepted by the court. For example, grounds such as restitution of the original property or return of unjust gains, or including the disposal of relevant digital assets in company or commercial disputes, can be used as alternatives. (Refer to judgment documents such as (2021) Jing 0107 Min Chu 3360, (2022) Jing 01 Min Zhong 5972, (2021) Xiang 01 Min Zhong 6311, (2021) Chuan 04 Min Zhong 524).

(3) Preserve relevant evidence and consult professional lawyers

Lawyer Liu often encounters situations in the process of handling cases where parties fail to preserve relevant evidence, leading to a passive situation for themselves. At the end of the article, Lawyer Liu reminds everyone: whether it is virtual currency transactions or other transactions involving money, loans, etc., it is crucial to properly preserve basic evidence materials, such as contracts, transaction records, chat logs, call records, and relevant documents (loan agreements, IOUs, promissory notes, etc.). When it comes time to collect debts, do not persist due to face-saving concerns to prevent the statute of limitations from expiring, as regrets may come too late.

With the aforementioned evidence, especially in disputes involving virtual currency, where courts across the country have differing legal interpretations, it is essential to seek advice from professional lawyers.

[1]https://mp.weixin.qq.com/s/reMSwrN68rVShPVc11K64Q

We will continue to update Blocking; if you have any questions or suggestions, please contact us!