In recent years, non-fungible tokens (NFTs) have garnered huge popularity in China. However, its legal status has remained largely in the grey zone due to China's blanket-ban on traditional cryptocurrency.
Things seem to be changing thanks to a recent judgement handed down by a court in China. Last November, the Hangzhou Internet Court of the Zhejiang Province made a significant stride toward legal recognition of NFT as property.
In this judgement, the Court ruled that NFTs are a new type of virtual property. The Court also said NFTs not only possess attributes of traditional properties, but also have special characteristics as virtual assets.
The facts of the case are relatively straightforward. A summary is as follows:
The seller was a tech company that specialised in the sales of digital artwork via e-commerce platforms;
The seller released a limited-edition of NFT Digital Collectible Package (in China, NFTs are often referred to as Digital Collectibles) that were only sold on a first-come-first-serve basis. The defendant's offer for sale required prospective purchasers to provide personal information such as phone and ID numbers, so as to ensure each purchaser could only purchase one package;
The buyer made an order and a payment of Rmb 999 (around AUD 220) to purchase a NFT Digital Collectible Package from the seller. However, while making the order the buyer provided incorrect personal information;
After noticing the incorrect information , the seller decided not to deliver the NFT. Ten days later, the seller made a full refund to the buyer.
The buyer was unhappy with the refund, therefore sued the seller in the Hangzhou Internet Court, seeking that the seller perform the contract, or compensate him 10 times of the purchase payment. The Hangzhou Internet Court was set up in 2017 to specialise in cases involving e-commerce and internet matters. It is located in Hangzhou, where the Chinese e-commerce giant Alibaba group is headquartered.
The legal reasoning of the judgment largely hinged on the contract of sale, which allowed the seller to cancel any order, if the buyer failed to provide accurate personal information. However, before it ruled on the validity of the contract, the Hangzhou Internet Court decided to determine whether the underlying good, being the NFT Digital Collectible Package, is a property duly recognised and protected by Chinese laws.
The Court found that NFTs, which it called Digital Collectibles, have attributes of traditional property, such as possessing value and scacity, and being subject to controlled and transaction. Meanwhile, the Court also ruled that NFTs are special, in the way that they are virtual and powered by technologies. The Court concluded that NFTs are property protected by Chinese laws, therefore the contract of sale was valid. Under that the contract, the seller was entitled to refuse a sale and refund the buyer when the latter provided inaccurate information.
The Court further commented that NFTs should be protected by Chinese law and subject to similar rules that apply to items sold on e-commerce sites.
This judgment is a major milestone in China's recognition and protection of NFTs as property. The approach is consistent with the Chinese government's pursuit to develope a state-backed market place for NFTs and to encourage adoption of NFTs in China. While the legal status of NFTs is being driven largely by cases being decided in many jurisdictions, last year the Singapore High Court also ruled that NFTs are property in a precedent-setting decision. We expect more and more jurisdictions to follow this path.
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