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A Singaporean investor lost millions in a crypto investment after a Chinese court deemed the contract to be illegal. The case, released by the Jiangsu Provincial High Court, indicated investments in virtual currency are unlawful money-making businesses in China. The investor, who partnered with a citizen in China, could not recover the remainder of the money.
Investment Turns Into Legal Dispute
The case dates back to 2019, when Singapore citizen Pan and a citizen from China Tian collaborated to build a project titled “MFA Blockchain.” Pan put in the money, and Tian put in the tech and operation. Pan invested 15.74 million yuan, expecting to gain profits in the long term. However, concerns arose when he did not see his money back. Firstly, Tian delayed the repayments, citing market fluctuations.
After Pan’s insistence, Tian repaid 10.6 million yuan, leaving 5.15 million yuan outstanding. The project’s account ended up getting locked, and any other deals could not be carried through. In response, Pan went to the law in a Chinese court to seek the return of the money. The court, nonetheless, ruled in his disadvantage, claiming investments in cryptocurrency are illegal in China and Pan himself must bear the monetary loss.
Legal Restrictions on Crypto Investments
China has implemented strict regulations against crypto-related activities. In 2021, a joint notice from ten government departments reinforced the prohibition on virtual currency transactions. Under Chinese law, contracts related to illegal financial activities are deemed void. Despite being a Singaporean citizen, Pan’s lawsuit in China was subject to local regulations, leading to the invalidation of the agreement.
Chinese courts have consistently ruled against crypto contracts, prioritizing financial stability and legal compliance over individual agreements. In similar cases, courts have denied the applicability of foreign laws, emphasizing that contracts violating Chinese regulations cannot be enforced.
Overseas Arbitration Challenges
Some investors assume that including overseas arbitration clauses in contracts can bypass Chinese legal restrictions. However, China’s legal framework allows courts to reject arbitration agreements that contradict public policy.
Even if the agreement stipulates Singapore arbitration, the Chinese courts are authorized to refuse to recognize the decision if the decision is harmful to the economic security of the nation. China, although a member of the New York Convention, under whose terms the awards in international arbitration are usually upheld, gives exceptions if the decision is in conflict with the public interest.
Conclusion
China’s firm position in regulating cryptocurrency risks exposing overseas investors to major risks. The agreements in cryptocurrency could be invalidated, and the investor gets zero recourse. It’s suggested to conduct detailed law reviews before entering into cryptocurrency-related businesses associated with China, because the risks are high, and the agreements could turn out to be unenforceable.
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