Recently, the official account of the Jiahe County People's Court of Hunan Province published an article titled (Case Study | Jiahe Court: Virtual currency "mining machine" transaction contracts are invalid, and losses are borne by oneself!), in which the case involved a Bitcoin mining machine transaction contract with a case value of over 100 million yuan, which was invalid due to violation of green principles.
Because I participated in the second instance of this case, I understand and grasp some facts that are not disclosed in the article, and I have some different views on this case, so today I would like to discuss with you the controversial points in this case.
Brief introduction of case facts
The plaintiff Pan Moumou met the defendant Lei Moumou through a friend's introduction, and the two parties began to communicate and negotiate to order S19XP mining machines on November 4, 2021. From November 10, 2021 to November 14, 2021, WeChat communication was used to determine the order quantity, unit price, payment method, and commission that the defendant should receive.
Starting from November 14, 2021, the plaintiff transferred the USDT payable in installments to the defendant's designated address in accordance with the agreement, and paid a total of approximately 23.67 million USDT to purchase the S19XP mining machine involved in the case. The mining machine purchased was subsequently shipped from overseas factories such as Malaysia to the plaintiff's Canadian mine. Later, the plaintiff and the defendant had different opinions on whether the relationship between the two parties was a sales contract relationship or a commission contract relationship and the settlement price. The plaintiff then sued the court, demanding that the defendant immediately return the plaintiff's payment difference of 6.27 million USDT and continue to deliver 149 S19XP machines to the plaintiff.
The court’s effective judgment held that the dispute in this case focused on the validity of the contract involved. The plaintiff and the defendant negotiated for many times to purchase the S19XP mining machine and used USDT for payment. The plaintiff and the defendant used USDT for transaction payment. According to the (Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation) issued by the People’s Bank of China and other departments (hereinafter referred to as the (924 Announcement), USDT is not a legal currency, and the transaction and payment behavior of both parties is an illegal financial activity, and their civil legal acts are invalid.
In addition, the plaintiff purchased the S19XP mining machine from the defendant. The S19XP mining machine is a special "mining machine" for calculating and producing virtual currency. According to the (Notice on Rectifying Virtual Currency "Mining" Activities) issued by the National Development and Reform Commission and other departments, "mining" behavior is not in line with the concept of green development. Relevant national departments have issued documents strictly prohibiting investment in virtual currency "mining" incremental projects. Therefore, the civil legal act of the two parties to purchase the S19XP mining machine is invalid. The consequences caused by this should be borne by both parties, and the plaintiff's lawsuit requests are rejected.
Controversial points worth discussing in this case
1. Should the first instance be under the jurisdiction of the People's Court of Jiahe County, Hunan Province?
The S19XP mining machine, the subject of the transaction between the plaintiff and the defendant, was shipped directly from overseas factories in Malaysia and other countries to the Canadian mine operated by the plaintiff. According to Article 1 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Law of the People's Republic of China on the Application of Laws to Foreign-Related Civil Relations, if the subject matter is outside the territory of the People's Republic of China, the People's Court may determine that it is a foreign-related civil relationship.
Article 2 of the Provisions of the Supreme People's Court on Several Issues Concerning the Jurisdiction of Foreign-Related Civil and Commercial Cases stipulates that foreign-related civil and commercial cases with large amounts of dispute should be tried by the Intermediate People's Court at first instance. It also clarifies that the amount of the litigation of foreign-related civil and commercial cases under the jurisdiction of the Hunan Provincial Intermediate People's Court at first instance is RMB 20 million or more (inclusive), so this case should be tried by the Intermediate People's Court at first instance in terms of jurisdiction.
2. If the mining machines involved in the transaction are deployed overseas, is the contract invalid because it violates the green principles?
The subject matter of the transaction in this case, the S19XP mining machine, was shipped and delivered overseas. In the process of Bitcoin mining, the energy consumed and carbon emissions occurred overseas, and did not have an adverse impact on promoting high-quality economic and social development and energy conservation and emission reduction in China. Therefore, it is questionable that the court ruled that the contract for Bitcoin mining machines that were delivered and operated overseas throughout the process was invalid due to violation of green principles and China's "carbon peak and carbon neutrality" environmental protection policy.
Some areas of overseas countries such as Canada, the United States, and Russia support the Bitcoin mining industry. When the courts hear related civil disputes, they cannot reject all civil actions involving mining machines or virtual currencies.
3. Legal consequences even if the contract is invalid
(Minutes of the National Court Financial Trial Work Conference (Draft for Comments)) hereinafter referred to as (Minutes of the Conference) Article 85 stipulates that virtual currency "mining" refers to the process of calculating and producing virtual currency through special "mining machines". From the case hearing situation, disputes caused by "mining" can be summarized into two types. One is that the parties purchase or lease mining machines that produce virtual currency in order to obtain virtual currency through mining activities, and disputes arise over the payment of the mining machines; the other is a cooperation model that integrates multiple legal relationships such as mining machine sales, cooperative profit sharing or trusteeship services. For example, the two parties jointly invest in the purchase of mining machines and agree to share the profits after obtaining virtual currency, and then disputes arise because the seller fails to deliver or does not share the profits.
"Mining" activities are gradually being strictly controlled and orderly phased out due to their high energy consumption and carbon emissions, low contribution to the national economy, and limited role in driving industrial development and scientific and technological progress. When hearing cases, the people's courts should reasonably balance the rights and obligations between the parties based on the impact of public policies on contract performance in different periods.
For contracts in which the parties agree to buy, sell, lease, or store "mining machines" or provide additional related operation management, technical development and other services after September 3, 2021, the people's court shall determine that the contract is invalid.
During the trial of a case, if one party sues to confirm the validity of a contract and to continue to perform the contract, while the other party claims that the contract is invalid, or if one party sues to confirm the invalidity of a contract and return the property, while the other party claims that the contract is valid, the people's court should explain to the plaintiff to change or add a claim, or explain to the defendant to raise a simultaneous performance defense, so as to resolve the dispute at one time as much as possible. If the parties change their claims or raise a defense in accordance with the explanation, the people's court should summarize it as the focus of the case dispute and organize the parties to fully present evidence and cross-examine.
Even if the court deems the mining machine contract invalid, according to the spirit of the above (meeting minutes), it should also make explanations, change or add litigation requests, safeguard the plaintiff's procedural rights, and do its best to help both parties resolve the dispute at one time, rather than simply and crudely determine that all mining machines, mining and other businesses are invalid, and bear the risks according to the provisions of (924 Announcement) and (Notice on Rectifying Virtual Currency "Mining" Activities). This approach will allow the defendant to earn commissions while also obtaining valuable mining machines, condoning the use of mining machine trading to earn a large amount of USDT, which is unfair to the plaintiff.
4. If the contract is invalid, is it feasible to return the money or share the losses based on the fault of both parties?
USDT and other virtual currencies are not considered to have currency attributes in the industry regulatory documents issued by the People's Bank of China and various ministries and commissions, but are virtual commodities, and there are no laws, administrative regulations or departmental regulations that deny the protectability of virtual currencies as virtual property. The plaintiff in this case used USDT to exchange for Bitmain's S19XP mining machine under the instructions of the defendant, which is a barter contract.
Regarding the return of USDT, in the case published in May 2022 by the official WeChat account of the Shanghai High Court (Does Bitcoin have property attributes? How to execute the return and delivery? | Case Reference Book), the plaintiff requested the court to order the defendant to return 1BTC, and was eventually supported by the court, ordering the defendant to return 1BTC to the plaintiff within ten days from the date of the effective date of the judgment. In addition, in the case of (2022) Jing 01 Min Zhong 5972, a dispute over the return of the original property, heard by the Beijing No. 1 Intermediate People's Court, the judge also supported the plaintiff's request for the defendant to return 33,000 LTC.
Due to the decentralized nature of virtual currencies, if a judgment is made to return virtual currencies such as BTC and USDT, there will be difficulties and obstacles at the execution level. If the court directly converts the BTC and USDT ordered to be returned into RMB according to the objective market price for execution, it may violate the provisions of the (924 Announcement) and be deemed to support the pricing and exchange of virtual currencies in the country. However, the price can be discounted according to the autonomy of the parties. This case of the Shanghai High Court was finally settled under the organization of the court, and the RMB was compensated according to the purchase price at the time of lending. In this case, the plaintiff and the defendant used the USDT/USD exchange price set by Bitmain when communicating and calculating the purchase price, so it is entirely possible to use this price to resolve the dispute.
In addition, various domestic and foreign criminal cases involving currency have begun to seek the USDT issuer Tether to freeze the USDT in the decentralized chain wallet by blacklisting the transfer, and then obtain control of the frozen USDT by minting coins. Can this method also be used to handle civil cases?
For clues of centralized exchanges controlling virtual currency property, the executing court can theoretically send them a notice of assistance in execution and search the account of the person to be executed to handle the execution of related civil cases. The above solutions and methods can be explored, which can effectively solve the dilemma of difficult judgment and execution of currency-related cases.
Summary and Outlook
With the election of Trump as the US President and the implementation of the EU Crypto Asset Regulatory Act MiCA, more countries and regions around the world will accept and support crypto assets. At present, many criminal groups do use virtual currencies to engage in illegal activities such as money laundering and terrorist financing, but the regulatory and law enforcement departments in the United States, the European Union, Singapore, and Hong Kong, China are also updating their technical investigation capabilities to investigate related crimes and issuing relevant laws and regulations to regulate the development of the crypto industry.
Virtual currency is not a scourge. In the future, more and more people will participate in the development and construction of the industry. Crypto assets and blockchain technology will be closely integrated with more traditional industries. In the future, more and more criminal methods and civil disputes will emerge. It is better to open up this new technology and new field rather than block it. We cannot exclude it just because of its decentralized characteristics.
The field of artificial intelligence, which is also a new technology, has developed rapidly in recent years, improving production efficiency, but it has also spawned illegal and criminal activities such as using AI to change faces and simulate voices to commit fraud. Domestic regulatory and legislative departments are also gradually promoting the legislation of artificial intelligence laws and regulations to guide the industry and AI technology to develop and iterate in a more standardized and compliant manner.
Establishing and improving domestic virtual currency regulatory laws and regulations can allow the public security, procuratorate, and courts to more properly handle criminal and civil cases involving virtual currencies. For individuals holding virtual currencies, they no longer have to worry about the safety of virtual property, and no longer have to "change color when talking about virtual currency" when facing regulatory and law enforcement agencies, thus avoiding more difficult-to-resolve disputes. In view of the weak protection of virtual currency in China, criminals who use technical means and fabricate facts to steal and defraud virtual currency will be severely cracked down and sanctioned, effectively protecting the property interests of the people.
