One article explains in detail: How to enforce virtual currency after winning a lawsuit?

0 1 Introduction

In the process of legal consultation related to virtual currency, one of the most common questions we encounter from clients is "Can I get my currency back?" and "Is there any way to recover my currency?" The above questions often arise when the parties give virtual currency to others due to borrowing, project investment, mistaken transfer, fraud, etc., and hope to get their virtual currency back through legal means.

The question is: Will the court support it?

This article attempts to sort out my country’s judicial decisions involving the compulsory enforcement of virtual currency, hoping to provide some inspiration to readers.

It should be emphasized that the discussion of "enforcement involving virtual currency" in this article is limited to the relevant circumstances of enforcement in cases involving the return of virtual currency, and does not discuss the circumstances of using virtual currency to circumvent enforcement.

0 2 China's enforcement cases involving virtual currency

In my country’s judicial practice, it is often found that courts often do not accept or are unable to enforce cases involving virtual currencies. The former is because my country has strict supervision over virtual currencies, and the latter is because the encryption, semi-anonymity, and decentralization of virtual currencies have caused difficulties in domestic and cross-border law enforcement, especially in the supervision and investigation of the flow of virtual currencies.

After searching for keywords on the China Judgment Documents website, we found a total of 15 enforcement case documents on virtual currency. Most of the enforcement cases were judged in 2022, and the highest level of the cases was only the Intermediate Court.

It is known that cases involving the return of virtual currency often result in the return of money, but rarely in the return of virtual currency, and even fewer in the execution stage. However, virtual currency is of high value and has large price fluctuations, and people often want the currency rather than the money. However, according to data analysis, it is unlikely that the case can be recovered through judicial channels.

(1) What is the legal basis for enforcing virtual currency?

Although cases involving virtual currency emerge in an endless stream, the law does not have special provisions for it. There are multiple academic theories on the legal recognition of virtual currency, including "property theory" and "creditor's rights theory", which are mainly related to the characteristics of virtual currency. It is probably meaningless to pay too much attention to the concept. Focusing on judicial practice, the court's view often recognizes virtual currency as "network virtual property", so there is no legal obstacle to virtual currency as the subject matter of execution.

It can be seen from the public judgment that the court basically still cited the original legal provisions related to the litigation procedures.

For example, Article 492 of the more common "Interpretation of the Civil Procedure Law" stipulates: If the object of execution is a specific object, the original object shall be executed. If the original object has been damaged or lost, it can be compensated at a discount with the consent of both parties. If the two parties cannot reach an agreement on the discount compensation, the people's court shall terminate the execution procedure. The applicant for execution may file a separate lawsuit;

Article 517 of the Judicial Interpretation of the Civil Procedure Law also frequently states: If no property available for execution is found after a property investigation, the execution procedure may be terminated after the applicant signs and confirms or the execution court forms a collegial panel to review and verify and the president approves it. After the execution is terminated in accordance with the preceding paragraph, if the applicant finds that the person subject to execution has property available for execution, he may apply for execution again. The reapplication is not subject to the limitation period for applying for execution.

On April 13, 2023, the Supreme People's Court promulgated the "Minutes of the National Court Financial Trial Work Conference (Draft for Comments)" (hereinafter referred to as the "Minutes"). Article 87 of the conference answers the question of the execution of virtual currency: For the parties' litigation requests for the delivery or return of "virtual currencies" such as Bitcoin, the people's court shall ascertain the holding status of the virtual currency, clarify whether there is a possibility of delivery or return, and state it in the document. If it is determined after trial that it cannot be returned or delivered, the parties should be guided to make reasonable demands and encourage the parties to reach an agreement on property rights. If it is found after trial that there is a basis for actual performance, the people's court shall clearly deliver or return the virtual currency in the judgment in accordance with the parties' claims . If the party with the obligation to deliver or return refuses to perform the obligations determined by the effective judgment, the people's court may take corresponding measures in accordance with the relevant provisions of the execution procedure of the Civil Procedure Law.

According to the Minutes of the Meeting, the People's Court will need to proactively investigate the currency holdings of the party returning the virtual currency in future compulsory enforcement cases involving the return of virtual currency. Therefore, the court will have specialized technical departments to assist in the enforcement process, using technical means to investigate the circulation of virtual currency, which may greatly reduce the difficulty for the parties to find clues about virtual currency.

(2) What are the consequences of executing virtual currency?

The legal provisions are very comprehensive, but the actual implementation is very skinny.

With the court judgment, it stands to reason that the client’s claims should be supported, but unfortunately, the process of recovering virtual currency is often difficult and time-consuming, and there is no guarantee that they will get their cryptocurrency back. From the public cases involving virtual currency, we can see several common situations involving virtual currency enforcement cases.

1. The virtual currency is still in the hands of the returnee, and the court decides to seize the virtual currency.

There are relatively few cases where virtual currencies are seized. The seizure of virtual currencies often requires the assistance of virtual currency exchanges, prohibiting the user from trading virtual currencies on the platform. However, due to the strong supervision of virtual currency trading platforms in China, most virtual currency trading platforms are overseas companies and have no business addresses in China, so this seizure path cannot be implemented.

A typical case is: Execution ruling on the implementation of the loan contract dispute between Chen Jingliang and Feng Qiaohong (2022) Zhejiang 0702 Execution No. 2906. The execution ruling stated that although the court attempted to seal up the virtual currency of the person subject to execution, the virtual currency could not be converted into cash for the time being.

Another more feasible seizure path is to isolate the returnee from disposing of virtual currency, that is, judicial control of private keys. This specific execution measure has not yet been found in public judgment documents, but this operation exists in practice. We know that private keys can be stored in "hot wallets" and "cold wallets". The People's Court can seize relevant cold wallets (i.e. computers, hard drives and other storage devices) in civil execution. In principle, if the returnee refuses to inform the specific storage carrier of the cold wallet, it is possible to apply to the People's Court for a search warrant to search the residence or property of the person subject to execution. However, in general, the storage of private key mnemonics and cold wallets is relatively private, and the probability of the court approving an investigation order is also extremely low. In this case, the only way is to deter the person subject to execution from handing over the cold wallet or private key by further informing him of the serious legal consequences of refusing to execute the ruling.

2. The person subject to execution is unable to return the virtual currency and has no property available for execution. The court orders the return of the discounted value of the virtual currency.

When virtual currency has unfortunately been transferred to unknown hands, the court cannot investigate the relevant virtual currency, or the applicant cannot provide property clues. The latest judicial attitude of the courts in first-tier cities in China towards virtual currency transactions is consistent with the policy trend. The strict supervision of virtual currency has led to the court's judgment tendency that the risk of virtual currency trading is borne by the buyer.

Therefore, when the original virtual currency cannot be repaid, the party being repaid cannot claim to purchase the same virtual currency at the current market price for repayment, but needs to negotiate the price for repayment, that is, subjective pricing. Although the market price of virtual currency changes rapidly, if it is allowed to purchase virtual currency separately or allow it to be converted into RMB at the current value, then the court will become an invisible channel for trading virtual currency.

Typical cases include: Execution ruling on other contract disputes between Lu Bin and Lu Hao (2022) Hu0104 Zhi 3999; Execution ruling on objection to execution of contract disputes between Yang Nannan, Yu Weihu, etc. (2021) Yue0304 Zhi Yi 1212. The execution ruling stated that although the court attempted to seal up the virtual currency of the person subject to execution, the virtual currency could not be converted into cash for the time being.

In the other contract dispute between Lu Bin and Lu Hao, the plaintiff lent 60 bitcoins to the defendant, and the two parties signed an IOU to confirm the loan relationship. The court determined that the defendant did control the plaintiff's account and operated it at the time, and ordered the defendant to return the 60 bitcoins in September 2021. If it cannot be returned, RMB 4,830,000 will be returned at a discount. The exchange rate here is significantly lower than the exchange rate on the date of the judgment.

3. The person subject to execution is unable to return the virtual currency and has no property available for execution. The court decides to terminate the execution procedure .

Typical cases are: Execution ruling on the entrusted financial management contract dispute between Chen Yao and Zhu Yao (2022) Hu0104 Zhi 5449; Execution ruling on the dispute over the return of property between Gong Zhizheng and Sun Liujun (2021) Zhejiang 0782 Zhi 6272.

Overall, the number of cases where the courts have ruled for final execution is still relatively large, and most of them use the reason that "there is no specific company managing or operating the virtual currency involved in my country" and determine that "there is currently no property available for execution."

4. Issue a consumption restriction order and include the person in the list of dishonest debtors in accordance with the law.

If the person subject to execution refuses to deliver virtual currency, the court will basically consider taking measures such as restricting high consumption, listing the person on the list of dishonest persons, or imposing other relevant penalties based on the specific circumstances.

Typical cases are: Execution ruling on the private loan dispute between Tang Jinfu and Zhu Pei (2023) Hu0112 Execution No. 1043; Execution ruling on the implementation of the loan contract dispute between Chen Jingliang, Feng Qiaohong and others (2022) Zhejiang0702 Execution No. 2906.

0 3How should virtual currency be implemented?

A case involving the execution of virtual currency released by the Shanghai High Court on May 5, 2022 (the first-instance civil judgment in the case of other ownership disputes between Cheng Hong and Shi Yulian (2020) Hu0113 Minchu No. 23704). The judgment thinking of this case is very consistent with the views of Article 87 of the "Minutes of Financial Trials" on the execution of virtual currency. In our opinion, it can become a reference case for the execution of cases involving virtual currency.

The defendant Shi borrowed one bitcoin from the plaintiff Cheng on the grounds of investment needs, and agreed to repay it as needed. The plaintiff transferred one bitcoin purchased on Huobi.com to the address provided by the defendant. On October 10, 2020, the plaintiff Cheng filed a lawsuit with the People's Court of Baoshan District, Shanghai, demanding that the defendant Shi return one bitcoin to him. After trial, the court made a civil judgment on February 23, 2021: The defendant Shi shall return one bitcoin to the plaintiff Cheng within ten days from the date of effectiveness of this judgment.

After the judgment came into effect, the person subject to execution, Shi Moumou, failed to perform the effective legal documents, so the applicant for execution, Cheng Mou, applied to the court for execution on May 7, 2021, requiring the person subject to execution, Shi Moumou, to return one bitcoin. After the court accepted the application, it issued an execution notice to the person subject to execution on May 8, 2021, ordering him to perform the judgment obligations and declare his property, but the person subject to execution failed to perform.

On May 8, 2021, the execution court inquired about the property of the person subject to execution through the National Court Online Execution and Control System (hereinafter referred to as the "Online Control System"), but failed to find out the Bitcoin under the name of the person subject to execution. Subsequently, the execution court intends to issue an execution ruling and a notice of assistance in execution to the Bitcoin trading platform where the person subject to execution opened an account, requiring the platform to assist in execution. The execution court did not find the platform's valid mailing address and contact information in China. It was also found that all the Bitcoin under the name of the person subject to execution had been transferred to a person outside the case, and the person outside the case was missing. The person subject to execution reported the case to the public security organ on August 27, 2020, and the case was opened for investigation.

The execution court informed the applicant of the situation. At the same time, both parties expressed their willingness to negotiate. In view of the parties' willingness to reconcile, the Baoshan District People's Court of Shanghai organized the two parties to conduct execution and reconciliation on May 27, 2021, and reached a consensus:

First, the applicant for execution no longer requires the person being executed to return a single bitcoin.

Second, after negotiation, both parties unanimously agreed that the debtor should compensate the applicant for execution at a discount of RMB 84,000, the purchase price when the applicant for execution lent the property.

Third, if the person subject to execution fails to perform by then, the applicant for execution may assert his rights separately.

The overall idea is shown in the figure below.

0 4 Conclusion

In the case that the legal attributes of virtual currencies are not yet clear, the enforcement of virtual currencies is also in a state of chaos. Multiple factors such as the negative judicial attitude caused by the tightening of regulatory caliber and the complexity of tracking technology have led to difficulties in recovering virtual currencies. The final result is often "due to difficulties in property execution, the court ruled to terminate the enforcement procedure." If it is a virtual currency fraud case, it usually involves multiple jurisdictions. Not to mention the complexity of cross-border coordination and cooperation, just from a technical perspective, it will be more difficult to execute the return of virtual currencies.

Therefore, when trading virtual currencies in China, one should carefully assess the transaction risks of virtual currencies, form certain expectations for the recovery of virtual currencies, and take precautions in advance.