Shen Guozhong Case Selection | Bitcoin Arbitration

This case is the real arbitration case of the equity transfer contract dispute accepted by Shenzhen International Arbitration Institute (Shenzhen Arbitration Commission). The arbitral tribunal consists of the chief arbitrator Ms. Fan Qijuan, the arbitrator Ms. Ge Wenzhu and Mr. Li Meixin. The case is from Shenzhen International Court of Arbitration. (Shenzhen Arbitration Commission) Mr. Zhuang Huaiqing compiled and compiled. The case copyright belongs to the Shenzhen International Arbitration Institute (Shenzhen Arbitration Commission) and welcomes reprint, discussion and exchange.


Case review



This case is a dispute over equity transfer, which is a new type of case because it involves special types such as BTC (Bitcoin), BCH (Bitcoin Cash) and BCD (Bitcoin Diamond). At present, China has not clearly defined the concept, legal attributes, and delivery of bitcoin based on blockchain technology at the legal and administrative level. Under the current legal system, the arbitral tribunal affirmed the property attributes of Bitcoin in accordance with the provisions of the General Principles of the Civil Law, the "Contract Law" and the contractual agreement, and the principle of good faith and the arbitration concept of respecting party autonomy. Protection and proper handling of private Bitcoin contract disputes .



The referee points of this case:

1. The bitcoin return contract concluded between private individuals does not violate the mandatory provisions of the legal and regulatory effects and should not be considered invalid. Chinese laws and regulations do not prohibit privately held and legally transferred bitcoin.



Second, although Bitcoin exists in the virtual space of the network, it has special characteristics in terms of possession and publicity of rights change, but it does not prevent it from becoming an object of delivery.



3. Before the laws and regulations define Bitcoin, the arbitral tribunal cannot forwardly identify it as “network virtual property” as stipulated in Article 127 of the General Principles of Civil Law, but can reversely identify that it is neither a currency issued by the monetary authority. It is also not electronic of legal tender and does not generate interest.



4. Bitcoin is not a legal currency and does not prevent it from being protected by law as a property. Bitcoin has property attributes that can be dominated and controlled by manpower, have economic value, and can bring economic benefits to the parties. This is the meaning of the parties' agreement and does not violate the legal provisions. The arbitral tribunal recognizes this.


Brief introduction




Applicant A (partnership), applicant B (natural person) and respondent C (natural person) signed the "Equity Transfer Agreement", stipulated that the respondent C shall transfer 5% of the shares of Company X held by the applicant. The equity transfer amount is 550,000 yuan, of which 250,000 yuan is paid by the respondent C to the applicant A. Since Applicant B entrusts the respondent C to manage the assets such as Bitcoin, based on the partial income generated by the part of the assets, the respondent C will return the BTC, BCH and BCD agreed upon in the contract to the applicant B as scheduled. Person B agreed to pay the applicant's share of the remaining equity transfer of 300,000 yuan instead of the respondent C. After the signing of the agreement, the respondent C did not return BTC, BCH and BCD in accordance with the contract, and did not pay the equity transfer payment according to the contract. The two applicants submitted the arbitration to the Shenzhen Arbitration Commission and made the following main arbitration requests:



1. The first applicant is changed to hold 5% of the shares of Company X to the respondent, and the respondent simultaneously pays the equity of RMB 250,000 to the first applicant;



2. The respondent compensated the second applicant for 20.13 BTC, 50 BCH, and 12.66 BCD assets losses of US$493,158.40 and interest (calculated from the date of application for arbitration according to the Bank of China's US dollar interest rate for the same period, until the date of return);



3. The respondent paid the second applicant a penalty of 100,000 yuan.





Arbitral tribunal opinion




I. About the effectiveness of the contract

The respondent claimed that the contractual “Equity Transfer Agreement” was invalid because the digital currency was illegal and the circulation and delivery of the digital currency was illegal. According to the relevant provisions of the “Announcement on Preventing the Risk of Subsidy Issuance Financing” issued by the 7 departments of the People's Bank of China, the issuance of tokens (ICO) refers to the financing of entities through the illegal sale and circulation of tokens, and the raising of bitcoins to investors. The so-called "virtual currency" such as the Ethereum is essentially an unauthorised illegal public financing. It is suspected of illegally selling tokens, illegally issuing securities, and illegal criminal activities such as illegal fund-raising, financial fraud, and pyramid schemes. Therefore, the “payment and arrangement of the transfer price” in the contract is invalid because it violates the mandatory provisions of the law. And it is the core clause of the contract, so the case is not valid as a whole.



The arbitral tribunal held that, according to the relevant provisions of the "Announcement on the Prevention of Financing Risks of Tokens Issuance", Bitcoin is not issued by the monetary authorities, does not have monetary attributes such as legal and mandatory, and does not have the legal status equivalent to currency. It should not be used as a currency in the market. However, there is no law or regulation that explicitly prohibits parties from holding bitcoin or private transactions in bitcoin, but rather reminds the public about the investment risks. The contract in this case stipulates the obligation to return the bitcoin between two natural persons, and does not belong to the ICO financing activities stipulated in the Announcement on Preventing the Risk of Subsidy Issuance Financing (the financing entity sells the token through the token, Circulation, raising so-called "virtual currency" such as bitcoin and Ethereum to investors, not even illegally selling tokens, illegally issuing securities, and illegal fund-raising activities such as illegal fund-raising, financial fraud, and pyramid schemes. In this case, the contract involves the signing of the parties, which is the true meaning of the parties, and does not violate the mandatory provisions of the laws and regulations. Therefore, the contract is legally binding on the parties to the contract, and all parties should fully perform. Contractual obligations.



2. Whether the respondent constitutes a breach of contract

The two applicants claimed that the respondent did not return the digital assets such as Bitcoin and pay the equity in accordance with the contract, which constituted a breach of contract. The respondent confirmed this fact. However, the respondent claimed that it was not possible to deliver the digital assets such as Bitcoin to the second applicant, which was not the fault of the respondent, and therefore did not have to bear the liability for breach of contract. Because: 1. The digital currency cannot be traded and circulated; 2. The ownership of the digital currency is owned by Company X and does not belong to the respondent. For these two points, both applicants and the respondent were aware of the contract when they signed the contract.



The arbitral tribunal considered that the respondent who had the first performance of the obligation did not perform the relevant obligations in accordance with the contract, which constituted a breach of contract and should be liable for breach of contract. The arbitral tribunal considered that the respondent could not deliver the digital assets such as Bitcoin and did not bear the responsibility. The arbitral tribunal considered that it could not be established. The reasons are as follows:



(1) There is no legal obstacle to the delivery of bitcoin, bitcoin cash, etc.

As mentioned above, according to the relevant provisions of the "Announcement on the Prevention of Financing Risks of Tokens Issuance", bitcoin, bitcoin cash, etc. can only be used in the market as currency (ie legal tender). However, there are no laws and regulations that prohibit it from becoming an object of private delivery or transfer.



(2) There is no technical obstacle to the delivery of bitcoin, bitcoin cash, etc.

Internet technology extends the real life space of human beings to cyberspace, bitcoin, bitcoin cash, etc., which exist in cyberspace, and its delivery process operates by electronic coding programs supported by Internet technology. In the actual use of Bitcoin, Bitcoin cash, etc., each transaction party must first install an e-wallet on the computer terminal, thus having a unique address, automatically generating a pair of keys - private key and public key. The public key is publicly disclosed and the private key is specific identity information. The owner can control, dispose of its bitcoin, bitcoin cash, etc. at any time through the private key. In other words, Bitcoin and Bitcoin cash can be delivered via Internet technology. The arbitral tribunal noted that the bitcoin trading platform operating in China after September 2017 was stopped from trading, but this technically did not prevent the respondent from returning the contracted bitcoin, bitcoin cash, etc. Transfer to) the second applicant.



(3) The respondent stated that the first applicant had not paid the remaining capital increase after paying only RMB 550,000 in capital increase according to the “Investment Agreement”, and then the two applicants, the respondent and the X company agreed by the two The second applicant, as the controlling shareholder of the first applicant, pays the remaining capital increase in the digital currency on behalf of the first applicant. Therefore, the digital currency involved in this case is part of the capital increase of Company X, which belongs to Company X and does not belong to the legal property under the name of the respondent. Therefore, the respondent cannot deliver and is not unilaterally wrong.



In this opinion, the arbitral tribunal held that, first, the X Company’s Asset Ownership Agreement issued by Company X, which is the controlling shareholder of the respondent, did not have the signatures of the two applicants, and the arbitral tribunal could not accept the letter; The applicant claimed that the second applicant had entrusted the respondent to manage the money, and the bitcoin actually paid the remaining capital increase for the first applicant and the parties had reached a consensus. The respondent also did not provide evidence to prove that the arbitral tribunal also Unable to accept the letter. Second, the respondent, as the controlling shareholder of Company X, has the ability to control the business conduct of Company X. The respondent defended this by dissatisfaction. Third, even if the respondent’s case concerning Bitcoin is now the property of Company X, the transfer must be approved by all shareholders to use the key of all shareholders, and the statement that is not controlled by the respondent unilaterally is true, according to the first paragraph of the Contract Law. Article 21 If the party concerned has breached the contract due to the third party’s reasons, it shall be liable to the other party for breach of contract. If the third party causes a breach of contract, the respondent shall still bear the responsibility of the two applicants. Liability for breach of contract.



In summary, bitcoin, bitcoin cash, etc. can be transferred by means of Internet technology. Although it has particularities in possession and publicity of rights change methods, it does not prevent it from becoming an object of delivery. The respondent did not deliver the bitcoin, which was jointly agreed by both parties and was deemed to have property significance, in accordance with the contractual agreement, which constituted a breach of contract.



3. The commitment of the respondent to breach of contract

According to Article 60 of the Contract Law, “Parties shall fully perform their obligations in accordance with the Agreement” and Article 107 “Parties who fail to perform their contractual obligations or perform their contractual obligations do not meet the agreement, they shall undertake to continue to perform and take remedial measures. Or the compensation for damages and other liability for breach of contract, and according to the provisions of Article 3 of the contract concerning the “payment and arrangement of the transfer price”, the two parties to the contract have the right to choose the different debts of the contract. The defaulting party is required to be liable to the claimant for damages or to continue to perform the breach of contract.



(1) Arbitration request for the first applicant to request the change of equity and payment of the equity transfer payment



In the case of the contract, 3.1 the respondent will return the assets including 12.66 BTC (Bitcoin) and 50 BCH (Bitcoin Cash) to the second applicant before December 8, 2017... 3.2 Second Applicant After receiving the first digital currency, the first applicant cooperated with the completion of the signing of all equity change instruments within two working days and assisted the respondent and X company in handling the industrial and commercial change registration procedures for the transferred equity. ......3.4 The respondent promised to pay the remaining RMB 250,000 equity transfer to the designated account of the first applicant within 90 days after the completion of the equity transfer business registration procedure.



Obviously, if the respondent performs in good faith, the time limit for the respondent to pay the equity transfer amount of RMB 250,000 has expired. Therefore, the arbitral tribunal supported the arbitration request for the first applicant to “change the 5% stake in the X company held by the applicant to the respondent and the respondent to pay the equity transfer amount of RMB 250,000”.



(2) The arbitration request for the second applicant to claim compensation from the second applicant for 20.13 BTC, 50 BCH, and 12.66 BCD assets loss of US$493,158.40



The second applicant believes that there is no prohibition or freedom in the law. The digital assets of Bitcoin are legally protected. In this case, the respondent clearly stated that it cannot return the digital assets handed over to the second applicant for management, so the respondent should compensate the property. Loss, return the dollar of the corresponding value. The general pricing methods and practices of the Bitcoin market are denominated in US dollars.



The respondent believes that with regard to the pricing of digital currency, virtual currency has no legal pricing method and trading place, so its value or price cannot be measured. The applicant claims that the respondent will perform the price with the US dollar equivalent to the virtual currency. The payment obligation has neither the agreement nor the basis for the price, nor is it legal or reasonable.



The arbitral tribunal held that Bitcoin is not a fiat currency and does not prevent Bitcoin from being protected by law as a property. From the case of the Equity Transfer Agreement, Party C (the second applicant) entrusted Party B (the respondent) to manage the personal digital currency assets, and Party B has not repaid the relevant assets and income of Party C. Based on the partial income generated by the above assets, Party C agrees to replace Party B with the payment of part of the equity transfer (ie RMB 300,000). ... Party B will return all the digital currency assets entrusted by Party C for financial management to Party C in three phases..." The agreement can be seen that Bitcoin has Property attributes can be dominated and controlled by manpower, have economic value, and can bring economic benefits to the parties. This is the unanimous expression of the parties and is recognized by all parties. The expression and recognition do not violate the law, and the arbitral tribunal should recognize this. According to Article 5 of the General Principles of Civil Law, “a civil subject engaged in civil activities shall follow the principle of voluntariness, establish, change or terminate civil legal relations according to his own will” and Article 7 “Civil subjects engaged in civil activities shall follow the principle of good faith and uphold In the principle of “honesty, abide by the promise”, the respondent voluntarily signed a contract with the two applicants and promised to return the bitcoin with property attributes to the second applicant, so they should be honest and not defy. The respondent not only failed to perform the contract in accordance with the contract, but also violated the principle of honesty and credit by the fact that the value of the bitcoin transaction was illegal after the breach of contract and its value or price could not be measured as its defense responsibility for breach of contract. Therefore, in the event of failure to perform the obligations of the Equity Transfer Agreement, the second applicant is subject to property damage. According to Article 107 of the Contract Law, the respondent shall be compensated.



The arbitral tribunal held that, according to Article 113 of the Contract Law, "one party who fails to perform its contractual obligations or fulfills its contractual obligations does not meet the agreement and causes losses to the other party, the amount of damages shall be equivalent to the losses caused by the breach of contract, including The benefits that can be obtained after the performance of the contract, but not exceeding the provisions of the “Equity Transfer Agreement” that are foreseen or foreseeable when the contracting party concludes the contract, and the “Equity Transfer Agreement”, respect BTC (Bitcoin) and BCH (Bitcoin Cash) trading habits, refer to the contractual agreement to fulfill the public information on the closing price of BTC (Bitcoin) and BCH (Bitcoin cash) on December 8, 2017 and December 25, 2017, and estimate the compensation. The property loss was US$401,780 (approximately less than US$17,370.50×12.66+1,518.94 USD×50+14,180 USD×7.47). It was fair and reasonable, in line with the true intention of the parties and did not exceed the applicant’s foresight. Taking into account the relevant provisions of the People's Republic of China on personal foreign exchange management, the arbitral tribunal considers that the loss of property of USD 401,780 should be settled in RMB against the RMB exchange rate on the date of the award.



Regarding the public information referenced in the estimation of the amount of property damage, the arbitral tribunal states the following:



1. In view of the fact that BTC (Bitcoin) and BCH (Bitcoin Cash) have their own market fluctuations, the price information published on related websites around the world is almost the same. The arbitral tribunal compares the okcoin.com and btctrade.im/bcd provided by the applicant. / The published closing price and the corresponding information displayed by the lower okcoin.com are used as reference information for estimating the amount of compensation for property damage.



2. The respondent did not approve the BTC (Bitcoin) and BCH (Bitcoin Cash) information obtained by the arbitral tribunal from okcoin.com at different times. It is not an objection to the authenticity of the above-mentioned seized data information, but mainly because the transaction such as Bitcoin is illegal, the price generated by the transaction is also illegal; the website does not file a permit in China, and it is illegally operating the website; There is evidence that the website can legally complete the Bitcoin transaction, etc., on the grounds of negating the valuation of the property in Bitcoin, Bitcoin cash, etc. However, the arbitral tribunal believes that, as mentioned above, there are no laws and regulations in China that prohibit the holding or trading of Bitcoin, etc., and whether the website is in China for registration and whether it can successfully complete transactions such as Bitcoin and Bitcoin cash. It does not affect the arbitral tribunal's estimation of the amount of compensation for property damages with reference to its published data.



In addition, according to the Equity Transfer Agreement, “Party B. (Brivate) will split the BTC (Bitcoin) spot quantity snapshot owned by Party C (the second applicant) by 12.66 BCDs, etc. The agreement returned to Party C, because the second applicant has already diverted the 12.66 BCDs for the BTC (Bitcoin) spot snapshot, and did not provide corresponding evidence, so the second applicant was asked to be The claim of the claimant for compensation of 12.66 BCD (bitcoin diamonds) property losses was not supported by the arbitral tribunal.



In summary, the arbitral tribunal confirmed that the respondent should pay the second applicant 401,780 US dollars due to non-performance of the contractual obligations (the US dollar against the RMB exchange rate on the date of the ruling is settled into RMB).



(3) Arbitration request for the second applicant to claim interest



1. The so-called interest generally refers to the remuneration or asphyxiation obtained by the money holder (creditor) from the borrower (debtor) due to the lending of money or monetary capital. Bitcoin, Bitcoin cash and Bitcoin diamonds are not issued by the monetary authorities, so there is no interest on Bitcoin, Bitcoin cash and Bitcoin diamonds.



2. If the second applicant claims interest in the equivalent of money such as Bitcoin, Bitcoin cash and Bitcoin diamonds, the amount of the property compensation is determined on the date of the decision, and there is no interest payable. Therefore, the arbitral tribunal does not support the arbitration request for interest by the second applicant.



(4) Arbitration request for liquidated damages



According to Article 6.2 of the Equity Transfer Agreement, if Party B (the respondent) fails to repay the Party D (second applicant) digital currency assets and equity transfer payments on time, Party B shall pay (pay) every one day The value of the assets or the five-thousandth-thousandth-thousand-thousand-thousand-day payment of the transferred amount shall be paid for the overdue payment. If Party B fails to pay more than 30 days, in addition to paying the interest of overdue payment, it shall also pay an agreement of 100,000 yuan of liquidated damages. Failure to pay the bitcoin and other assets or equity transfer payments in accordance with the contract has exceeded 30 days. The contract stipulated that the conditions for the respondent to pay liquidated damages of 100,000 yuan have been achieved, and there is no excessive situation relative to the loss. Therefore, the arbitral tribunal held that the two applicants required the respondent to pay a liquidated damages of 100,000 yuan to the second applicant for a contractual basis and factual basis, which could be supported.