According to a recent case concluded by a court in Urumqi, Xinjiang, we found that it actually deemed the cooperation agreement for the judicial disposal of virtual currency invalid, and the reasons given were quite far-fetched. Today we will talk about whether the cooperation agreement for the judicial disposal of virtual currency has legal effect, as well as some suggestions from Lawyer Liu to those engaged in the judicial disposal of virtual currency.

1. Case Introduction

According to the public information of the court, the case is as follows: In November 2023, Sun and Lu jointly signed the "Virtual Currency Asset Processing Cooperation Contract", which stipulated that both parties would use their respective resources to cooperate in the judicial disposal of virtual currency. Sun also contributed 200,000 yuan as a performance bond and deposited it into a bank account, which was kept by Lu. After the cooperation ended, the excess amount would be refunded and the shortfall would be supplemented through the settlement of the bond.

However, disputes arose during their cooperation. In December 2024, Sun sued Lu in court, seeking to terminate the above cooperation contract and ask Lu to return the deposit and interest.

II. Court Decision and Reasons

After hearing the case, the court ruled that the "Virtual Currency Asset Processing Cooperation Contract" was invalid, and at the same time did not support Sun's request for Lu to return the 200,000 yuan deposit.

1. Reasons for invalidity of contract

The court held that, with respect to the two parties entrusting a third party to dispose of virtual currency, according to the 2017 "Announcement on Preventing the Risks of Token Issuance and Financing" (the "9.4 Announcement", which prohibits ICO business in the currency circle in my country), virtual currency is not legal tender, and any token financing trading platform shall not engage in the exchange business between legal tender or virtual currency, virtual currency, or buy and sell tokens or virtual currency or act as a central counterparty to buy and sell tokens or virtual currency, and shall not provide pricing, information intermediary and other services for tokens or virtual currency.

The court then held that the actions of Sun and Lu were essentially disguised support for the exchange of virtual currency and legal currency, which was inconsistent with the provisions of the "9.4 Announcement" and violated the public interest (generally referred to as "public prosecution morality" in legal terms), and therefore the contract was invalid.

(II) Reasons for not returning the deposit

Since the contract is invalid, it should be restored to its original state, and God's things should be God's, and Caesar's things should be Caesar's. However, the court believed that based on the evidence provided by both parties, it should be determined that Sun and Lu constituted an actual partnership. Partnership is a specific civil subject in the field of Chinese civil law. Before the partnership is terminated, the partners may not request the division of partnership property. Therefore, the court did not support Sun's request for Lu to return the 200,000 yuan deposit.

3. Is there any problem with the court’s decision?

Yes, and the problem is not small.

First, we must make it clear that the contract handled by the court in this article is a cooperation agreement between two natural persons. I speculate that it should be a cooperation agreement between intermediaries, not a "service agreement" between the disposal company and the intermediary or a "disposal agreement" between the disposal company and the entrusted agency. However, whether it is the agreement in this case or the agreement between the disposal company and the intermediary or the entrusted agency, according to the court's view, as long as they involve the exchange of virtual currency and legal currency (the essence of judicial disposal is to convert the virtual currency involved into legal currency), they are contrary to public prosecution ethics and are invalid.

This is obviously a wrong conclusion in law: currently in currency-related cases, whether it is preliminary disposal before the court's judgment or centralized disposal after the court's judgment, they all have legal basis, and the legal effect of the laws, regulations and departmental rules they are based on is obviously higher than industry regulatory documents such as the "9.4 Announcement".

Secondly, the basis for the judgment cited by the court is wrong. The "9.4 Announcement" was issued in 2017, mainly to regulate the ICO in the currency circle, which was obviously overheated at the time, and the regulatory subject is the "token financing trading platform" rather than natural persons and disposal companies or even judicial disposal agencies. In fact, it is more appropriate to apply the "9.24 Notice" ("Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation") issued by ten ministries and commissions of the State in 2021 to this case, but it still cannot be directly concluded that the "Virtual Currency Asset Processing Cooperation Contract" signed between the intermediaries is of course invalid. The most direct reason is that this is a completely legal and compliant business, and it is essentially a judicial activity. There is no essential difference from the common court entrusting a third-party platform (JD.com, Alibaba) to dispose of the property involved (auction).

Thirdly, the current legal disposal involving virtual currency and legal currency is not carried out in mainland China. The legal disposal companies all dispose of and cash out overseas and then transfer the funds into the judicial organs or fiscal accounts. This is also in full compliance with the "9.24 Notice" and "9.4 Announcement" and other regulatory provisions.

Finally, whether Sun's contribution of 200,000 yuan as a guarantee can be finally recognized as a partnership contribution may still depend on the evidence. From the court's statement of "comprehensively identifying the evidence of both parties", it does not rule out that there is some evidence that can indeed prove that the two people are in a partnership (such as partnership agreements, articles of association, etc.); of course, if there is no direct evidence that the two people decided to form a partnership, it would definitely be inappropriate to elevate it to a partnership.

IV. Conclusion

Judicial disposal business is both an emerging business and has increasingly become a traditional business. Even in the context of my country's current strong supervision of virtual currency transactions, it has long been an industry consensus to legally and compliantly dispose of the virtual currency involved. Therefore, the intermediary agreement or cooperation agreement between the intermediaries of judicial disposal is certainly not invalid. If anyone happens to encounter such legal issues, you can contact our team to solve them.

Although virtual currencies represented by Bitcoin have been created and circulated for more than 15 years, many judicial authorities do not understand the basic knowledge of virtual currencies. However, Lawyer Liu believes that with the continuous popularization of virtual currencies, blockchain technology, and knowledge, the understanding of virtual currencies by judicial authorities across the country will inevitably be further improved in the future.