Interpretation of the minutes: How are disputes over entrusted investment in virtual currency heard?

1. Define the scope of virtual currency entrusted investment contracts

A trust contract is a contract agreed upon by the principal and the trustee, whereby the trustee handles the principal's affairs. This article stipulates that whether the principal registers an account in his own name and the trustee actually manages it, or engages in virtual currency investment management in the name of the trustee or in the name of another person, it can be deemed that a trust investment contract is established. This content is consistent with the trust contract section of the Civil Code. The trust contract is generally a contract concluded by the trustee in the name of the principal, but according to Articles 925 and 926 of the Civil Code, the trustee can conclude a contract with a third party in his own name, but when the third party or the principal is unaware of the existence of the other party, if the contract cannot be performed due to the principal or the third party, the trustee must promptly fulfill the disclosure obligation.

II. Defining the validity of the entrustment contract according to the Notice on Preventing Risks of Token Issuance and Financing (hereinafter referred to as the Notice of September 4th)

The Notice on Preventing Risks of Token Issuance and Financing, issued on September 4, 2017, clearly stipulates that any organization or individual is strictly prohibited from engaging in token issuance and financing transactions and related activities. Therefore, the Minutes of the Meeting distinguishes the validity of the entrustment contract based on the time when the September 4 Notice was issued. Generally speaking, a contract takes effect as soon as it is established. The establishment of a contract only requires civil subjects, expressions of intent and subject matter. Formal contracts require the signing of a written agreement, and real contracts require the actual delivery of the subject matter. However, the establishment of a contract is not equivalent to the effectiveness of the contract. The effectiveness of a contract also requires the contract to have general and special effectiveness requirements. Therefore, after discussing the scope of the establishment of the entrustment contract, this provision discusses the effectiveness of the contract based on the release time of the September 4 Notice.

1. The entrustment contract was valid before the release of the 94th Announcement

Article 84 only states that the People's Court shall deem the entrustment contract concluded after the release of the "September 4th Announcement" invalid because the agency matters are illegal. It can be inferred that if the contract is signed before the release of the "September 4th Announcement", the entrustment contract only needs to meet the general and special contract effectiveness requirements to become effective. The general effectiveness requirements are that both parties to the entrustment contract have civil capacity, the intentions of both parties are true and consistent, there is no fraud, major misunderstanding, collusion and false representation, and the investment in virtual currency does not violate the provisions of relevant laws and regulations. If the entrustment contract does not have special effectiveness requirements such as attached conditions, attached time limits, and pending approval, it only needs to meet the general effectiveness requirements to become effective. After confirming that the contract is valid, the relevant rules of the Civil Code on entrustment contracts can be used to determine the obligations that the entrusting party and the entrusting party should perform and the liability for breach of contract.

2. After the release of the September 4th Announcement, the entrustment contract is invalid

After the release of the "94 Announcement", since the regulations have clearly prohibited the development of virtual currency-related trading activities in China, if the principal entrusts others to engage in virtual currency-related investment activities at this time, the entrusted investment contract is invalid because the subject entrusted agency matters are illegal and do not meet the general effectiveness requirements of the contract, "not violating legal and regulatory provisions". An invalid entrustment contract is invalid from the outset and is of course invalid, and is not applicable to the breach of contract liability that is premised on the establishment and validity of the contract.

3. If the entrustment contract is invalid, the liability for contractual fault shall apply

The entrustment contracts concluded after the release of the 1994 Announcement are invalid. An invalid contract has no contractual effect from the outset and cannot be subject to the rules on liability for breach of contract. Therefore, the parties to the contract may consider applying the liability for negligence in contract. Negligence in contract refers to the liability borne by one party for the fault of not forming, invalidating or revoking the contract during the contract conclusion process. The constituent elements of liability for negligence in contract include: (1) the parties have transaction contacts in order to conclude the contract; (2) one party violates the pre-contractual obligations and conducts contract conclusion in violation of the principle of good faith; (3) the other party suffers losses; (4) there is a causal relationship between the losses and the contract conclusion behavior; (5) one party is at fault. According to Article 84, when judging the liability of both parties after the entrustment contract is invalid, the cause of the entrustment contract will be the main consideration for determining the degree of fault. For example, if the trustee concealed the fact that virtual currency-related transactions are illegal in the country during the negotiation of the entrustment contract, it is a deliberate concealment of important facts related to the conclusion of the contract or the provision of false information, which violates the principle of honesty and trustworthiness and causes losses to the principal due to the invalidity of the contract. The trustee should be responsible.

Attachment: Article 84 of the Minutes of the National Court Financial Trial Work Conference (Draft for Comments): [Trial of disputes over entrusted investment in virtual currency] If the parties agree in the contract that the principal registers an account on the virtual currency trading platform in his own name and entrusts the trustee to engage in investment activities; or if the principal directly delivers the funds to the trustee, and the trustee engages in investment management in his own name or in the name of another person, it can be determined that the two parties have established an entrusted investment contract. If the contract is signed after the release of the "Announcement on Preventing Risks of Token Issuance and Financing" (September 4, 2017), the People's Court shall determine that the entrustment contract is invalid because the agency matters are illegal. For the losses suffered by the principal as a result, the cause of the entrusted matters can be used as the main consideration for determining the degree of fault, and the parties shall share the losses.