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The Global Legal Monitor is an online publication from the Law Library of Congress covering legal news and developments worldwide. It is updated frequently and draws on information from official national legal publications and reliable press sources. You can find previous news by searching the Global Legal Monitor.

China: Supreme Court Issues Rules on Internet Courts, Allowing for Blockchain Evidence

(Sept. 21, 2018) On September 3, 2018, China’s Supreme People’s Court (SPC) issued a judicial interpretation on the hearing of cases by the country’s newly created internet courts. Taking effect on September 7, 2018, the SPC Provisions on the Hearing of Cases by Internet Courts (SPC Interpretation) allows evidence stored and verified on blockchain platforms to be used in legal disputes heard by the three internet courts in Hangzhou, Beijing, and Guangzhou. (Zuigao Renmin Fayuan Guanyu Hulianwang Fayuan Shenli Anjian Ruogan Wenti de Guiding (Fa Shi [2018] No. 16, Sept. 3, 2018, effective Sept. 7, 2018) (in Chinese), SPC website.)

The internet courts are dedicated to handling internet-related cases, the court proceedings for which generally take place online. (SPC Interpretation art. 1.) In August 2017, China opened its first internet court in Hangzhou, a city known as the country’s e-commerce hub. In the past year, the Hangzhou Internet Court has heard over 12,000 cases, with the average duration of an online hearing being 28 minutes, taking only 40% of the time a traditional offline hearing takes. (Wang Mengyao, Zuigaofa: Hulianwang Fayuan Shen’an Ying Quancheng Zaixian, Shenli Wanggou deng 11 Lei Anjian [SPC: Internet Court Trials All Conducted Online, Covering Eleven Types of Cases Such As Online Shopping], XINHUA (Sept. 8, 2018).)

On September 7, 2018, the SPC announced that two more internet courts, in Beijing and Guangzhou, would officially start operation this month. In the meantime, China is closing two railroad courts in Beijing and Guangzhou, which specialized in handling criminal and civil cases concerning railway transportation, as part of the country’s judicial reform. (Id.)

The SPC Interpretation clarifies the types of disputes to be heard by the internet courts, which include disputes arising from online shopping, internet service contracts, online financial loans, ownership and infringement of online copyright, and domain names. (SPC Interpretation art. 2.)

According to the Interpretation, the current three internet courts are to hear first-instance cases within the jurisdiction of their own cities. (Id. art. 2.) Most appeals will be heard by the intermediate courts in their respective jurisdictions. Online copyright-ownership and infringement disputes and domain-name disputes heard by the Beijing and Guangzhou Internet Courts, however, are to be appealed to the Intellectual Property Courts in Beijing and Guangzhou, respectively. (Id. art. 3.)

Under the SPC Interpretation, the internet courts may consider evidence provided by defendants and plaintiffs that can be proven authentic through electronic signatures, time stamps, hash value checks, and tamper-proof verification methods stored on blockchain platforms. (Id. art. 11; Nathan Graham, Blockchain Evidence Legally Binding, Says China’s Supreme Court, ETHNEWS (Sept. 7, 2018).) In fact, the Hangzhou Internet Court has recently accepted blockchain-based evidence in a case involving online copyright infringement. The plaintiff in the case reportedly captured the violating websites and their source code, and then uploaded the data to a blockchain platform, creating an immutable record of the copyright infringement. The Court held that, on the premise that the technical verification was consistent and other evidence could be mutually verified, such electronic data could be used as evidence. (Id.)

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Israeli Family Court Recognizes Claim for Emotional Distress for “Forced Fatherhood”

(Sept. 21, 2018) On September 4, 2018, the Tel Aviv Family Court partially accepted a suit by a plaintiff who claimed that the defendant had harmed him by conceiving and giving birth to twins following sexual contact with her. He alleged that the defendant had deliberately seduced him to engage in sex with her on her ovulation day, telling him that she was using an intrauterine device (IUD) and was not interested in an additional pregnancy as she already had three children. Describing the suit, the decision’s introductory notes state that the decision “deals with a determination in a lawsuit filed by the plaintiff against the defendant that was essentially defined as [being based on] tort, fraud, robbery, semen theft, contractual negligence, monetary and nonmonetary damage.” (FamC (TA) 33934-08-17 Anonymous v. Anonymous, intro. notes (Sept. 4, 2018) (decision by Judge Shifra Glick), Takdin Legal Database (in Hebrew, all translations by author) (by subscription).)

Evidentiary Determinations

On the basis of the evidence submitted, Judge Shifra Glick determined that the defendant had been dishonest with the plaintiff, had asked him not to use contraceptives, and had told him that she was using an IUD, thereby “making the plaintiff a parent against his will.” (Id. ¶ 30.)

Legal Holdings

On the Issue of “Semen Theft”

Judge Glick rejected the plaintiff’s suit for financial compensation at the rate of child support levied against him and held that such compensation conflicted with the principle of the “best interest of the child.” (Id. ¶¶ 33–42.) Additionally, she opined that, “[i]n general, the claim of “semen theft” was accepted in decisions in the United States on a limited basis, and in Israel in limited cases and under exceptional circumstances, where the pregnancy did not derive from sexual relations, but from use of a man’s semen without his knowledge and consent … and this is a different case from the [current] case.” (Id. ¶ 40.)

Regarding Plaintiff’s Allegation of “Violation of a Contract”

Judge Glick also rejected the plaintiff’s claim for breach of contract. In her opinion, the relationship between the parties did not constitute a “contract” as they did not intend to engage in a binding contractual relationship. Their relationship, she held, was merely “random and casual contact.” (Id. ¶ 45.2.)

Additionally, she decided that, “[t]he fact that the defendant was willing to undergo an abortion [subject to payment of a large amount of money] (that was not possible for health reasons) also indicates a lack of willingness for a binding relationship.” (Id. ¶ 45.3.)

Claim of Robbery

Noting that the plaintiff had withdrawn this claim, Judge Glick added in an obiter dictum that such a claim cannot stand on its own. She noted that similar suits in the United States, for example, had been rejected on the grounds that a person cannot be awarded financial compensation for the birth of a healthy child. (Id. ¶¶ 49–50.)

Negligence

Similarly rejecting the claim of negligence, Judge Glick cited the following writing of an Israeli legal scholar:

Needless to say that imposing tort obligation for misrepresentation on the basis of negligence raises difficult questions of legal policy, but even if we accept in principle extending tort liability for negligent misrepresentations, one needs to distinguish between random and casual contacts and permanent and lasting relationships, and conclude that there existed a duty of caution only in the latter case. (Prof. Shifman, A Parent Against His Will – Misrepresentation Regarding the Use of Contraceptives, 18 Mishpatim 459, at 479 (in Hebrew).)

Fraud

The mere factual recognition of the existence of fraud, Judge Glick opined, does not result in establishing liability when the result is giving life to a healthy baby. This conclusion is even truer, she held, when the alleged monetary harm is the rate of support allocated to minors. (Id. ¶¶ 59–60.)

Compensation for Nonmonetary Damages

Judge Glick identified only one case where an Israeli court had previously awarded compensation based on a claim of “semen theft.” Unlike in the current case, however, the plaintiff was Haredi (an ultra-Orthodox Jew), according to whose beliefs bringing a child into the world outside of marriage was sinful. Additionally, in that case the plaintiff donated the semen for the purpose of in vitro fertilization and did not know that the defendant had received an egg donation for the purpose of in vitro fertilization outside of Israel. (Id. ¶ 65 (referring to FamC (Jer) 22317-08-11 M.V. v. Z.S.V. (Apr. 21, 2013) (decision by Judge Nimrod Flex), Nevo Legal Database (in Hebrew) (by subscription).)

In the current case, Judge Glick concluded, the plaintiff was willing to have sexual contact “not in the context of spousal relationship and purely for pleasure” and was aware of the need to use contraceptives. Nevertheless, she opined, it was unreasonable to let the defendant avoid any responsibility for having intentionally lied to the plaintiff. (Id. ¶ 71.) She therefore recognized that the plaintiff incurred emotional distress by becoming a father against his will. Considering the circumstances, however, she imposed a limited amount of compensation (40,000 new Israeli shekels, about US$11,160) to be paid to him by the defendant. (Case 33934-08-17, ¶¶ 68–72.)

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Japan: Law to Establish Casino Resorts Enacted

(Sept. 20, 2018) The Act on Development of Specified Complex Tourist Facilities Areas was enacted in Japan in July 2017. (Integrated Resort Development Act, Act No. 80 of 2018, KANPOU [OFFICIAL GAZETTE] Extra ed. No. 166 (July 27, 2018), at 18, National Printing Bureau website (in Japanese).) This Act corresponds to the Act on Promotion of Development of Specified Complex Tourist Facilities Areas that was enacted in December 2016. (Integrated Resort Promotion Act, Act No. 115 of 2016, Ministry of Justice’s Japanese Law Translation website.) These Acts concerning “integrated resorts” define “specified complex tourist facilities” as facilities integrating casino facilities, convention and conference facilities, recreation facilities, exhibition facilities, accommodation facilities, and other facilities. (Integrated Resort Promotion Act art. 2; Integrated Resort Development Act art. 2.) The government intends to promote tourism and regional economies while facilitating the improvement of public finance by the development of integrated resorts. (Integrated Resort Promotion Act art. 1.)

Japan has no casinos. The Penal Code of Japan states that a person who runs a for-profit gambling establishment is punishable by imprisonment for three months to five years. (PENAL CODE, Act No. 45 of 1907, as amended by Act No. 72 of 2017, art. 185, para. 2, Japanese Law Translation website.) However, gaming and gambling establishments would be legal if specific legislation to allow them were enacted. (Id. art. 35; Ministry of Justice Criminal Affairs Bureau, Material Provided by the Ministry of Justice for 8th Conference on Promotion of Development of Specified Complex Tourist Facilities Areas (July 18, 2017), Prime Minister of Japan and His Cabinet website (in Japanese).) The Integrated Resort Promotion Act and Integrated Resort Development Act allow the establishment of casinos and gambling at integrated resorts. (Integrated Resort Promotion Act arts. 1 & 2; Integrated Resort Development Act arts. 1 & 2.)

By January 2020, the government is obligated to establish a Casino Management Committee that manages the establishment of casinos and maintains order in the management of casinos. (Integrated Resort Development Act arts. 213 & 214.) The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) must establish a basic policy on developing integrated resorts by July 2020. (Id. art. 5.) Then, prefectures or designated large cities (large cities designated by a Cabinet order) that plan to establish an integrated resort must set the implementation policy for the resort’s development in line with the basic policy of the MLIT. (Id. art. 6.) A prefecture or a designated large city must choose a company to submit an application to the MLIT for approval to develop an integrated resort. (Id. art. 8.) The application periods are to be publicized by a Cabinet order. The MLIT can approve up to three integrated resort plans nationwide. (Id. art. 9, paras. 10 & 11.)

Once a casino has been established and in operation, the national government and the government of a prefecture or designated large city must jointly impose a casino-entrance fee of 3,000 yen (about US$27) for residents of Japan (id. arts. 176 & 177), as well as a 15%-tax on the casino’s profits (id. arts. 192 & 193).

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Liechtenstein: Government Adopts Consultation Report on Draft Blockchain Act

(Sept. 20, 2018) On August 28, 2018, the government of Liechtenstein adopted a consultation report on a proposed Blockchain Act. The goal of the Blockchain Act is to take advantage of the potential of blockchain technology, create legal certainty for market participants, protect users of blockchain technology from potential abuse, and reduce potential reputation risks for Liechtenstein. The deadline for comments on the consultation report (consultation period) is November 16, 2018. The consultation procedure is a preliminary voluntary step in the legislative process before the draft is submitted to Parliament for debate. (Ministerium für Präsidiales und Finanzen [Ministry for General Government Affairs and Finance], Vernehmlassungsbericht der Regierung betreffend die Schaffung eines Gesetzes über auf vertrauenswürdigen Technologien (VT) beruhende Transaktionssysteme (Blockchain-Gesetz; VT-Gesetz; VTG) und die Abänderung weiterer Gesetze. [Consultation Report on Enacting an Act on Transaction Systems Based on Trustworthy Technologies (TT) (Blockchain Act; TT Act; VTG) and the Amendment of Further Acts], Aug. 28, 2018, Government Chancellery website; Press Release, Government of the Principality of Liechtenstein, Consultation Launched on Blockchain Act (Aug. 29, 2018), Government website.)

Scope of Application

The proposed Blockchain Act applies to all trustworthy technologies (TT) service providers, unless the TT system is available only to a closed user group. (Consultation Report, supra, at 138 (quoting Blockchain Act arts. 2 & 4).) “Trustworthy” technologies are defined as “technologies through which the integrity of tokens, their clear allocation to the person in possession as well as their use without an operator can be ensured.” (Id. at 138 (quoting Blockchain Act art. 3, para. 1).) The rules on the control and use of tokens are only applicable when tokens are generated or issued by a TT service provider who is subject to Liechtenstein law, or when the Blockchain Act declares them applicable. (Id. at 144 (quoting Blockchain Act art. 11).) The Consultation Report states that the term “trustworthy technologies” was chosen as a technology-neutral term to encompass a wide range of technology options instead of the narrower terms ‘blockchain” and “distributed ledgers.” Furthermore, technology-neutral terms ensure that the law will not be outdated after a few years and only have a limited scope. (Id. at 40.)

Tokens and Related Concepts

The Consultation Report uses the word “tokens” to describe all types of technical implementation methods of the blockchain technology, even if the system does not actually use a “token” to implement it. “Token” is understood in an abstract and not in a technological sense. (Id. at 46.) The draft Blockchain Act defines “tokens” as “information on a TT-system that can represent transferrable claims or rights of membership vis-à-vis a person, rights in rem, or other absolute or relative rights, and that secures the attribution to one or more public keys.” (Id. at 139 (quoting Blockchain Act art. 5, para. 1, no. 1).) A token functions as a “container” that represents all types of rights on a TT-system. “Empty containers,” meaning tokens like Bitcoin that do not represent a specific right, are also possible. (Id. at 43.) The report states that the Blockchain Act serves as a framework law for all types of token-based applications. (Id. at 29.) It was decided to establish autonomous rules for ownership of tokens and TT-systems instead of modifying the existing property rules. (Id. at 47.)

A “public key” is defined as “consisting of a series of characters that constitute a specific publicly accessible address in a TT-system to which a token can be clearly attributed.” (Id. at 139 (quoting Blockchain Act art. 5, para. 1, no. 2) (all translations by author).) A “private key” on the other hand consists of a series of characters that, by themselves or together with other private keys, enable the use and transfer of the public key. (Id. at 139 (quoting Blockchain Act art.  5, para. 1, no. 3).) A transfer of a token by the person who owns the private key causes a transfer of the right that is represented by the token, meaning the online transfer precedes the offline transfer. (Id. at 49; id at 141 (quoting Blockchain Act arts. 6, 7).)

General Requirements for Persons Involved in Token Transactions

The draft Blockchain Act introduces a number of requirements for persons involved in token transactions. In general, TT services may be provided only by persons who have full capacity to act and are trustworthy. (Id. at 144 (quoting Blockchain Act art. 13, para. 1).) Trustworthiness exists when a person has not been convicted by a court of fraudulent bankruptcy or similar offenses and there are no other reasons that would give rise to serious doubts regarding the provider’s trustworthiness. (Id. at 145 (quoting Blockchain Act art. 13, para. 3).) In addition, TT service providers may provide services only if they have a clear organizational structure, including procedures to deal with conflicts of interest; written internal control mechanisms; and a minimum capital of 100,000 Swiss francs (CHF) (about US$102,843) or equivalent collateral. (Id. at 145 (quoting Blockchain Act art. 13, para. 4).)

Specific Requirements for Selected TT Service Providers

For selected TT service providers, in particular token issuers, token generators, physical validators, TT custodians, and TT protectors, the draft Blockchain Act sets out additional requirements and establishes a duty to register with the Financial Market Authority of Liechtenstein (FMA).

Token Issuers

A “token issuance” is defined as the “public offering of a token.” (Id. at 139 (quoting Blockchain Act art. 5, para. 1, no. 5).) Token issuers (Token Emittenten) are the “persons who perform the token issuance in their own name or on a professional basis in the name of a third party.” (Id. at 140 (quoting Blockchain Act art. 5, para. 1, no. 8).) They must set up appropriate internal control mechanisms to

  • ensure the disclosure of basic information as defined in articles 28–32 during the token issuance and for at least ten years after the issuance;
  • ensure the proper execution of the token issuance;
  • prevent the repeat token issuance for the same rights;
  • note a previous token issuance for a subsequent issuance on related rights; and
  • ensure business continuity in the case of disruptions during the token issuance. (Id. at 146 (quoting Blockchain Act art. 14).)

The rules are similar to the ones found in the Securities Prospectus Act, which may therefore be used as an additional interpretation aid. (Id. at 68; Wertpapierprospektgesetz [WPPG] [Securities Prospectus Act], May 23, 2007, LIECHTENSTEINISCHES LANDESGESETZBLATT NUMMER [LGBl.-Nr.] [LIECHTENSTEIN OFFICIAL LAW GAZETTE NO.] 2007.196, LILEX website.)

Token Generators

“Token generators (Token Erzeuger)” are defined as “persons who generate one or more tokens and make them available on a TT-system.” (Id. at 140 (quoting Blockchain Act art. 5, para. 1, no. 9).) Token generators must ensure by appropriate means that the transfer of the token causes the transfer of the represented right and that any other transfer of the represented right is not possible. (Id. at 142 (quoting Blockchain Act art. 7, para. 2).) The law does not specify what the appropriate means are. (Id. at 49 et seq.) In addition, token generators must establish internal control mechanisms to ensure the technical operability of the generated tokens during the token generation and for the following three years. (Id. at 148 (quoting Blockchain Act art. 19).)

Physical Validators

“Physical validators” are defined as “persons who ensure the enforcement of property rights within the meaning of property law that are represented by the tokens on a TT-systems.” (Id. at 140 (quoting Blockchain Act art. 5, para. 1, no. 11).) They must establish internal control mechanisms to ensure at all times

  • that the person initiating the token generation is the actual owner of the object at the time of the token generation;
  • that a collision of rights concerning the same object is avoided; and
  • that they will be held liable if the rights guaranteed by them cannot be enforced as stipulated in the contract. They must also ensure that the owner of the token has a direct claim against the insurance company of the physical validator or against the insurance for the specific object. (Id. at 148 (quoting Blockchain Act art. 20).)

TT Custodians

“TT custodians” (VT Verwahrer) are defined as “persons who provide custodial services for private keys of third parties on a TT-system.” (Id. at 140 (quoting Blockchain Act art.5, para. 1, no. 10).) They must establish internal control mechanisms to ensure

  • the establishment of appropriate security measures that prevent the loss or misuse of private keys by unauthorized third parties;
  • asset separation between the business assets of the TT custodian and the private keys of the customers; and
  • business continuity in the case of disruptions. (Id. at 147 (quoting Blockchain Act art. 15).)

TT Protectors

“TT protectors” are defined as “persons who hold tokens as a trustee in their own name on behalf of third parties.” (Id. at 140 (quoting Blockchain Act art. 5, para. 1, no. 12).) They are required to obtain an authorization according to the Trustee Act or the Banking Act. (Id. at 147 (quoting Blockchain Act art. 18); Treuhändergesetz [TrHG] [Trustee Act], Nov. 8, 2013, LGBl.-Nr. 2013.421, as amended, LILEX website; Gesetz über die Banken und Wertpapierfirmen [Bankengesetz] [BankG] [Act on Banks and Investment Firms] [Banking Act], Oct. 21, 1992, LGBL.-Nr. 1992.108, as amended, LILEX website.)

Duty to Register

The following persons must register with the Financial Market Authority of Liechtenstein (FMA) if they intend to provide TT services on a professional basis in Liechtenstein:

  • Token issuers
  • TT protectors
  • TT custodians;
  • TT exchange platforms
  • Physical validators
  • TT identity service providers as defined in article 5, paragraph 1, number 16 of the Blockchain Act. (Id. at 159 (quoting Blockchain Act art. 36, para. 1).) Other TT service providers may register with the FMA on a voluntary basis. (Id. at 159 (quoting Blockchain Act art. 36, para. 2).) Registered service providers are to be listed in a publicly accessible TT service provider registry by the FMA. (Id. at 161 & 164 (quoting Blockchain Act arts. 37, 41, respectively).)

Protections in Bankruptcy Proceedings

Tokens that are held by TT protectors or private keys that are held by TT custodians do not become part of the bankruptcy estate when the TT service provider becomes bankrupt and are to be held separately for the benefit of the customer. (Id. at 150 et seq. (quoting Blockchain Act arts. 24, 25).)

Fines

TT service providers that do not comply with the obligations set out in the draft Blockchain Act are subject to a fine of CHF20,000–30,000 (about US$20,570–30,853) depending on the type of violation. (Id. at 169 et seq. (quoting Blockchain Act art. 49).)

Due Diligence Act

Finally, the Consultation Report proposes amendments to the Due Diligence Act. The due diligence obligations codified in the Due Diligence Act serve to combat money laundering, organized crime, and terrorist financing. The Consultation Report includes token issuers, TT protectors, physical validators, TT custodians, TT identity service providers, and TT exchange office (bureau de change) operators among the persons subject to the due diligence requirements. (Id. at 173 (quoting Blockchain Act art. 3); Gesetz über berufliche Sorgfaltspflichten zur Bekämpfung von Geldwäscherei, organisierter Kriminalität und Terrorismusfinanzierung [Sorgfaltspflichtgesetz] [SPG] [Act on Professional Due Diligence to Combat Money Laundering, Organized Crime, and Terrorist Financing [Due Diligence Act] [DDA], Dec. 11, 2008, LGBl.-Nr. 2009.047, as amended, LILEX website.)

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