The Changsha Intermediate People’s Court in China’s Hunan Province recently published a series of typical cases in the environmental and resource fields. One case involving cryptocurrency mining attracted a lot of attention.
The case highlights the legal and environmental implications of cryptocurrency activities and serves as a serious warning to anyone involved in high-energy-consuming projects that violate public order and morality.
Background of the case
According to reports, the dispute began when plaintiff Luo signed three “service contracts for the purchase of server equipment and software systems” with a Hunan-based company on May 7, 8 and 18, 2021. According to the contracts, the defendant company was to provide Luo with five servers for crypto mining, for which Luo paid a total of 1.65 million yuan. The company also guaranteed that the revenue generated from “crypto mining” would not fall below the average level across the network and assured that any fines resulting from technical problems would be borne by the company.
However, after receiving full payment, Fan, the actual owner of the defendant company, failed to deliver the promised crypto mining server equipment or software systems, nor did Luo receive the promised investment returns. Luo then sued the company, seeking to terminate the contract and claim damages for the losses incurred.
The verdict
The Tianxin District Court of Changsha City ruled that the contract between Luo and the defendant was invalid because it violated public order and morality. It was found that the defendant company had spent 60,000 yuan to rent a cabinet from a third-party company but had failed to fulfill the main obligations of the contract.
Since both parties were held responsible for the invalidity of the contract, the court ruled that each party should bear damages of 30,000 yuan. The defendant company was ordered to repay 1.62 million yuan to Luo, with the company owner Fan being held jointly and severally liable for the payment obligations.
Luo’s other lawsuits were dismissed. Dissatisfied with the verdict, the defendant appealed to the Changsha Intermediate Court, which upheld the original verdict in the second instance.
Legal and environmental impacts
The Changsha Intermediate People’s Court stressed that “crypto mining” involves the use of special equipment to generate cryptocurrencies through computing processes. These activities have a significant impact on the environment due to their high energy consumption and are considered a threat to national interests in areas such as environmental protection and financial security.
On September 15, 2021, several Chinese authorities, including the People’s Bank of China, the Central Cyberspace Affairs Commission, and the Supreme People’s Court, issued the “Notice on Further Preventing and Managing the Risks of Speculation in Crypto Trading.” This notice emphasized that investments in virtual currencies and related derivatives by legal or natural persons violate public order and morality, which invalidates the related civil actions. The notice also stipulated that any losses resulting from such investments should be borne by the investors themselves.
Also read: Bitcoin drops to $58,130 despite increase in trading volume: Is there hope for a recovery in August?
