Virtual Currency Contract Signing: How to Choose a Litigation Approach?
Original author: Jin Jianzhi - Senior Lawyer at Shanghai Mankun Law Firm
No matter what industry you invest in, investors need to pay attention to dispute resolution, especially in the cryptocurrency industry where various experts are mixed. Although no legitimate investor is willing to trigger dispute resolution clauses, once the parties confront each other, dispute resolution becomes the last line of defense to protect investor rights and investment asset security.
01, More suitable for the cryptocurrency industry system: Arbitration
When the situation develops to the stage of dispute resolution, the subsequent direction is basically determined by the people involved in the proceedings, among which the arbitrator plays a very important role. It is undoubtedly a major advantage to ensure that the arbitrator is familiar with the cryptocurrency industry and holds an open attitude towards it.
There are two traditional dispute resolution methods, litigation and arbitration.
Litigation is an official dispute resolution procedure, while arbitration is a private dispute resolution procedure. Therefore, the two differ in terms of procedure, substantive trial, and other aspects, as shown in the table below:
As can be seen from the above table, although arbitration also has many constraints, only arbitration can choose arbitrators, which is crucial for the dispute resolution of the rapidly changing cryptocurrency industry. The obvious advantages are:
1. Ensure the dispute is properly understood: Choosing arbitrators with specialized knowledge and extensive experience in the cryptocurrency industry can ensure a thorough understanding and trial of the dispute.
2. Understand the parties' needs: Choosing arbitrators favorable to oneself can ensure that the arbitrators better understand our position and needs, thus helping to achieve a favorable resolution of the dispute.
3. Ensure the impartiality and neutrality of the arbitrators: By examining the background and records of arbitrators, it can be ensured that they are not biased toward any party.
4. Prompt resolution of disputes: Arbitrators with relevant experience can usually understand the case more quickly, reducing the time for case hearings. This helps reduce the cost and delay of dispute resolution.
5. Reduce uncertainty: Choosing favorable arbitrators can reduce uncertainty and anticipate that they are more likely to support our views in the ruling.
In short, arbitration can enable parties to start exerting efforts before formal hearings by selecting arbitrators, laying the groundwork for the smooth resolution of disputes.
02, Mainland Arbitration vs. Overseas Arbitration, Choose Overseas
Generally speaking, domestic cases in China adopt mainland arbitration, while cross-border and international cases adopt overseas arbitration. The main reason is that mainland arbitration typically applies Chinese mainland laws and regulations, including Chinese legal procedures and court rules, and the rulings are usually effective within mainland China. Overseas arbitration, on the other hand, can apply international law, international contracts, international arbitration rules, as well as laws from different countries or regions. Arbitral awards are usually bound by international conventions and can be enforced globally.
For investors in the cryptocurrency industry, after determining that arbitration is the optimal solution, the main considerations for choosing the arbitration venue are: whether the applicable laws and regulations are favorable to the cryptocurrency industry and whether the judgment can be enforced globally.
As of now, the countries and regions with a sound legal environment, relatively friendly to the cryptocurrency industry, and receiving considerable attention within the industry are mainly the United States, Japan, Singapore, and Hong Kong. The main regulatory attitudes and relevant policies of these countries and regions are shown in the table below.
From the above table, it can be seen that currently, Singapore is friendly to the cryptocurrency industry and its policies have foreseeable stability. However, since the announcement of the "Hong Kong Virtual Asset Development Policy Declaration" on November 1, 2022, Hong Kong's relevant system has also been continuously improved and visibly enhanced.
In terms of enforceability of the judgments, since both Singapore and Hong Kong have signed the "New York Convention," in principle, judgments made by Singapore and Hong Kong can be enforced in the courts of any member country of the "New York Convention." In particular, judgments made in Hong Kong have a major advantage in that they can be easily enforced in mainland China.
In addition, the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC) also enjoy international reputations in the field of arbitration and are among the best arbitration centers in the world. Both the SIAC and the HKIAC have also established representative offices in Shanghai, although the current main function of these offices is to facilitate external contacts and not handle arbitration cases, they still provide great convenience for conducting arbitration business within mainland China.
Considering the regulatory policies in mainland China and the guidance case involving the encryption industry issued by the Supreme People's Court on December 27, 2022 (Case No. 719 of Guangdong Civil Special Procedure, Gao Zheyu vs. Shenzhen Yunsilu Innovation Development Fund Enterprise and Li Bin, Application for Revocation of Arbitration Award), after a difficult arbitration process, it was still unsuccessful in the court. So why not choose the cheaper, more convenient, and more familiar arbitration in mainland China? Is it because of weighing the pros and cons?
03. Chinese Lawyers First Choice for Overseas Arbitration
Through the analysis in the previous text, it is hoped that investors have understood that under the current regulations in the encryption industry, although overseas arbitration is expensive and unfamiliar to investors, it is still the best option for resolving disputes in the encryption industry.
There is no doubt that overseas arbitration is a complex legal process, and its complexity covers various aspects such as the clarity of arbitration agreements, suitability of arbitration rules, selection of arbitrators, case strategies, language requirements, international legal knowledge, cultural differences, evidence requirements, enforcement of awards, expenses, and budget. Any omission in any aspect may result in serious consequences.
However, due to investors' unfamiliarity with the foreign arbitration environment, foreign laws and regulations, it is also possible to fall into a pit by rashly seeking foreign lawyers. When facing such complex and large-scale overseas arbitration, hiring Chinese lawyers to be involved in advance and throughout the process can ensure that the case is handled in the best interest.
Because Chinese lawyers will utilize their legal expertise, international arbitration experience, language communication abilities, familiarity with the Chinese market and Chinese clients, and extensive connections with international law firms, they will fully mobilize various resources to ensure comprehensive analysis and argumentation of the facts and laws of the case. They will also increase the chances of Chinese enterprises winning in overseas arbitration while controlling legal costs.
04. Article Easter Egg
Finally, here are sample arbitration clauses from the Singapore International Arbitration Centre and the Hong Kong International Arbitration Centre for reference.
1. Singapore International Arbitration Centre:
Any disputes arising out of or in connection with this contract, including any question regarding its existence, validity, or termination, shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre ("SIAC Rules") for the time being in force, which rules are deemed to be incorporated by reference in this clause.
The Tribunal shall consist of _________________ arbitrator(s) appointed by the Chairman of the Centre.
The language of the arbitration shall be ________________.
This contract is governed by the laws of _________________.
Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration administered by the Singapore International Arbitration Centre (“SIAC”) in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC Rules”) for the time being in force, which rules are deemed to be incorporated by reference in this clause.
The seat of the arbitration shall be [Singapore].
2. Hong Kong International Arbitration Centre
Any dispute, controversy, difference or claim arising out of or relating to this contract, including the existence, validity, interpretation, performance, breach or termination thereof or any non-contractual dispute arising out of or in connection with it shall be referred to and finally resolved by arbitration administered by the Hong Kong International Arbitration Centre (the “HKIAC”) under the HKIAC Administered Arbitration Rules in force when the Notice of arbitration sent (the “HKIAC Rules”).
This arbitration clause is governed by the laws of... (Hong Kong).
The seat of arbitration shall be... (Hong Kong).
The number of arbitrators shall be... (one or three). The arbitration proceedings shall be conducted in (choose language).
We, the undersigned, agree to refer to arbitration under the HKIAC Domestic Arbitration Rules in force when the Notice of Arbitration is submitted any dispute, controversy, difference or claim (including any dispute regarding non-contractual obligations) arising out of or relating to:
(Brief description of contract under which disputes, controversies, differences or claims have arisen or may arise).
The law of this arbitration agreement shall be … (Hong Kong law).
The seat of arbitration shall be... (Hong Kong).
The number of arbitrators shall be... (one or three). The arbitration proceedings shall be conducted in... (insert language).
Special Statement
This article is an original work by Shanghai Mankun Law Firm, representing the personal views of the author and does not constitute legal advice or opinions on specific matters. For reprinting, please contact Mankun Law Firm staff: MankunLawFirm
