The phenomenal growth in the use of cryptocurrencies worldwide has led to an exponential increase in incidence of cryptocurrency disputes across the globe. 

Legal issues in enforcement of an international arbitration award

An international arbitration award is enforceable in over 150 countries under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). This is particularly important given the cross-border nature of cryptocurrency disputes.

An award can only be refused enforcement under the New York Convention on very limited grounds, one of which is if the enforcement of the arbitration award would be contrary to the public policy of the country where enforcement is sought (Article V, New York Convention). Given the increasingly robust regulatory environments all over the world in the treatment of cryptocurrencies, we can expect greater pressure being placed on this “public policy” ground to challenge the enforcement of an arbitration award of a cryptocurrency dispute.

In April 2020, the Shenzhen Intermediate People’s Court in the case of Gao Zheyu v Shenzhen Yunsilu Innovation Development Fund Enterprise (LP) and Li Bin (2018) Yue 03 Min Te No. 719 set aside an award issued by an arbitral institution in Shenzhen. The award was for damages in USD in lieu of cryptocurrency. However, China has banned cryptocurrencies and does not recognize digital currencies as having any legal status of a currency. The arbitration award was set aside on the ground that the arbitration award was contrary to China’s public policy and in particular, as contravening China’s mandatory laws prohibiting the exchange of cryptocurrencies into fiat currencies. Other countries including several in the Middle East have similarly banned cryptocurrencies or imposed strict rules against dealing with cryptocurrencies.

This presents serious difficulties given that we can expect arbitral tribunals to commonly issue awards ordering a party to pay monetary damages to compensate for losses suffered equivalent to the value of the cryptocurrencies in question, as opposed to ordering a party to pay the disputed cryptocurrencies, given the substantial challenges in tracing the cryptocurrencies, assuming if they are not already dissipated to a secret account, a multitude of anonymous users or otherwise innocent third-party users. The award for monetary damages would invariably have to be prescribed in a particular fiat currency. If monetary award is perceived under the mandatory laws of a jurisdiction as an unlawful, automatic conversion of cryptocurrencies to fiat currency, that would mean the award would be unenforceable in that jurisdiction. The better view would be that cryptocurrencies, being property as opposed to a form of currency (notwithstanding the nomenclature), was lost, and all the tribunal did was to order monetary damages to compensate for the loss of the property; it did not convert cryptocurrency into fiat currency. This would obviate the arbitration award from contravening those mandatory laws prohibiting the conversion of cryptocurrency to fiat currency, thereby guaranteeing its enforceability locally.

There appears to be some authority for this position. The Shanghai First Intermediate People’s Court in the case of Li and Bu v Yan, Li, Cen and Sun (2019) Hu 01 Min Zhong No. 13689 recognised Bitcoins as valuable property. While the value of Bitcoins could not be determined by its trading price on cryptocurrency exchanges, given that these are not legalised nor recognised in China, the court found it appropriate to order the unsuccessful party to return the specific Bitcoins owed to the successful party.