Chinese Court Declares Virtual Currency-Based Sales Agreement Invalid
A court of competent jurisdiction in Shanghai China has declared that an agreement between two parties over the sale/purchase of a vehicle is invalid. The reason for this declaration revolves around the legitimacy of the medium of transaction involved in the agreement, which is the use of virtual currency for payment settlement.
In the case which was presented before the court in Shanghai, the sale contract in question was between parties that had agreed that the buyer would pay for a vehicle using a privately issued digital currency. The assertion by the court over this case is that a virtual currency does not possess the same legal status as a national fiat currency.
Such an agreement, as the court rules, violates the mandatory provisions of laws and administrative provisions. The court stated that a virtual currency “cannot be circulated in the market as currency”.
The case in question arose as a result of an aggrieved buyer who sought redress and approached the court in Shanghai. The buyer, identified as Huang, claimed to have signed a sale agreement with Shanghai Automobile Service Co Ltd in May 2019. In the agreement, it was included that Huang would buy an Audi sports vehicle, and payment would be made using Yurimi, a privately issued virtual currency.
As contained in the agreement, the seller was supposed to make delivery of the vehicle to Huang upon receiving 1,281 units of the said virtual currency, Yurimi. Hence Huang’s complaint, which he sought redress from the Shanghai Fengxian Court was because the seller failed to uphold the terms of the agreement. No delivery was made.
During the court process, Huang argued that Yurimi is a virtual commodity that could be exchanged for goods. He explained that it does not violate or prohibit the existing provisions of the law, and therefore should be valid for settlement of the transaction. However, Shanghai Automobile Service Co Ltd, in its counterargument insisted that the agreement is an invalid contract and does not merit any protection by the law.
The Shanghai Fengxian Court ruled in favor of Shanghai Automobile Service Co Ltd. The court hinged its judgment on the token issuance and finance regulations of China, which were implemented in 2017. The regulations state that tokens or “virtual currency” used in the financing of token issuance, are not issued by monetary authorities hence they lack attributes such as “legal compensation and compulsion.”
The regulation added that virtual currencies that fall under this category do not have the same legal status as national fiat currency. What this implies is that they cannot, and should not be circulated in the market as a currency. It is on this premise that Huang’s case was dismissed by the court in Shanghai.
Unsatisfied with the ruling of the Shanghai Fengxian Court, it is reported that Huang proceeded to a higher court to appeal the judgment. He approached Shanghai N0 1 Intermediate Court over the same matter. After reviewing Huang’s appeal, the ruling of the lower court was upheld, as the virtual currency-based agreement that Huang entered into with Shanghai Automobile Service Co Ltd remains invalid.
This ruling is consistent with the overall government sentiment over privately issued virtual currencies in China. In an attempt by the government to cleanse the country of all forms of cryptocurrency activities and increase its capacity to provide oversight functions on its finance industry, a contrary ruling by the court over Huang’s case would have come as a surprise.