Friday, September 26, 2014
First law suit on failed bitcoin delivery
The discussion starts with a law suit of two people engaged in a bitcoin transaction. Party B failed to pay up the whole amount of bitcoins, although it had received all the money for it. Party A, after two weeks partially annulled the agreement (for the part of the bitcoins not delivered). However, this party later on decided to demand to be compensated for the financial loss that resulted due to the increase in price of bitcoins over the course of the year (after the moment of canceling the contract).
Party A based its reasoning on the fact that our law allows for something as 'current money' to be used in order to pay a sum of money. This terminology was explicitly chosen by our legislator (instead of the legal tender concept) to allow non-State forms of money to be condoned in our country in situations where it was commonly used and accepted by all the people.
Should this argument succeed and bitcoins be considered such 'current money' the consequence could have been that an additional compensation claim could be made under our civil law. The judge however outlined that Party A should be compensated for the price rise of Bitcoin between the moment of concluding the contract and of canceling it (some € 1700). No compensation was due however for the remainder of the time, as it was party A that had initiated the canceling of the contract.
In addition the judge outlined that Bitcoins cannot be considered current money that is condoned by the State. Our Ministry of Finance has outlined that it doesn't fit the definition of legal tender, nor that of electronic money and that it should be considered a means of exchange. The nature of bitcoin (tradeable) doesn't work as an argument as also silver and gold are tradeable but not considered to be current money.
New law suit on status of bitcoin as money
A number of players in the Dutch Bitcoin community have chosen to challenge the above verdict of the judge and has raised more than € 15.000 to pay for expenses of a law suit. It challenges the first verdict in order to have the judge reconsider its position and outline that Bitcoin is money. As a consequence it feels that it must then also be treated as such by our administrative bodies, supervisors, tax authorities etc. This would mean that bitcoin operators could be payment institutions, supervised and exempt from VAT (which, as I understand, are the underlying goals).
While I am very sympathetic to the concept of challenging a status quo and laws, I fail to see how a verdict on civil contract law could spill over into:
- the definitions of payments, money and payment institutions under the Payment Services Directive (and Dutch law),
- the definitions of payments under the Sixth Tax Directive.
Having said that, it will surely be very interesting to see which approach will be taken by the law firm involved and see if they are able to convince the judge that at least in civil contracts bitcoins may act as money.
Last edit: October 1, to outline that it's not the whole Bitcoin community that seek to challenge the verdict.