Claims for transfer of cryptocurrencies and tokens

Nino Sievi
Nino Sievi

Consultants in the blockchain industry are often paid in cryptocurrencies or tokens. However, disputes in this area give rise to particular problems due to the volatility of these assets. One must ask oneself whether to convert the claim into a FIAT currency, thereby avoiding the risk of negative cryptocurrency-market developments during ongoing legal proceedings. Likewise, attention must be paid to a short duration of the proceedings.

Can the debtor choose to pay in FIAT currency instead of transferring cryptos?

According to Art. 84 para. 2 CO, a claim in a foreign currency can also be settled in Swiss Francs, unless the parties have excluded this in the contract. The question arises whether this provision is also applicable to cryptocurrencies or tokens.

Although this question has not yet been decided by the highest court, it has already been controversially debated in doctrine. The majority of scholars argues against an analogy, which means that no conversion into Swiss francs is open to the debtor. Nevertheless, a contrary court decision cannot be ruled out.

Should an analogy be affirmed, it would most likely be limited to cryptocurrencies and so-called payment tokens (see FINMA report: Link). If an analogy is affirmed, the debtor would be free to make a payment in Swiss francs instead of the agreed cryptocurrencies / tokens. The relevant exchange rate for the conversion of the cryptocurrency / token into Swiss francs is thereby determined in principle on the due date. This would mean that the debtor could retain any positive exchange rate development between due date and payment.

In order to cut off this advantage to the debtor, a creditor is well advised to provide for the immediate notice of default. In addition, the notice of default also protects the creditor from a negative price development, as this could then be claimed as damage caused by default.

Conclusion: it is unlikely, but not impossible, that a counterparty can convert the owed cryptocurrency / token into Swiss francs (without the counterparty's consent). Nevertheless, a creditor should be advised to put the debtor in default immediately after the due date in order to prevent the debtor from retaining any exchange gains.

Can the creditor sue for FIAT instead of cryptocurrency / token?

No authorization for the creditor to convert his claim denominated in cryptocurrency / token into Swiss francs can be derived from Art. 84 CO. However, if he puts the debtor in default by issuing a corresponding notice, additional legal remedies are open to him.

If, after the notice of default, the creditor sets the debtor an additional deadline (so-called grace period) to transfer the cryptocurrency / token and the debtor also fails to comply with this deadline, the creditor may waive the transfer of the cryptocurrency / token and instead sue for damages presumably corresponding to the Swiss franc value of the cryptocurrency / token at that time. In this way, an indirect conversion into Swiss francs is thus possible.

The duration of the court proceedings as a risk factor

One of the main problems with a claim for transfer of cryptocurrencies or tokens is the duration of the court proceedings. It is not uncommon for a creditor to wait 18-24 months before receiving a first-instance judgment. During this time, the cryptocurrency / tokens are subject to the well-known fluctuations in value. These fluctuations can be partly countered by a quick notice of default to the debtor and a possible conversion into a claim for damages. However, it should be noted that the financial stability of the counterparty in the blockchain industry is often itself directly dependent on the market development. In this respect, a concurrent solvency risk is added to the market risk.

This risk can no longer be effectively avoided in the event of litigation. This risk must be addressed as early as the contract drafting stage. It is advisable to include an arbitration clause in the contract and to declare summary proceedings applicable (regardless of the amount in dispute). This should ensure that an award can be obtained within 6 months. An example of such an arbitration clause reads:


"Any dispute, controversy, or claim arising out of, or in relation to, this contract, including regarding the validity, invalidity, breach or termination thereof, shall be resolved by arbitration in accordance with the Swiss Rules of International Arbitration of the Swiss Arbitration Centre in force on the date on which the Notice of Arbitration is submitted in accordance with those Rules.

The number of arbitrators shall be one. The Expedited Procedure shall apply. The seat of the arbitration shall be Zurich, Switzerland."


Conclusion

In cryptocurrency and token lawsuits, particular attention should be paid to the default rules due to the volatility of the market. The duration of the proceeding is important, which is why the conclusion of an arbitration agreement in the relevant contracts is recommended.

 
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