Haidian Court rules in China's first crowdfunding case | Practical Law

Haidian Court rules in China's first crowdfunding case | Practical Law

A district level People’s Court has upheld the validity of a crowdfunding contract in what is believed to be the first case in China to expressly deal with crowdfunding.

Haidian Court rules in China's first crowdfunding case

Practical Law UK Legal Update 0-619-4011 (Approx. 3 pages)

Haidian Court rules in China's first crowdfunding case

by Practical Law China
Published on 12 Oct 2015 • China
A district level People’s Court has upheld the validity of a crowdfunding contract in what is believed to be the first case in China to expressly deal with crowdfunding.
On 15 September, Haidian District People's Court in Beijing upheld the validity of a crowdfunding contract created to finance a limited partnership restaurant. Beijing Nuomiduo Restaurant Management Co Ltd (Nuomiduo) entered into a commissioned finance services agreement with Beijing Feidu Network Services Co Ltd (Feidu), which agreed to finance the project through its licensed crowdfunding platform. Both parties performed their financial obligations under the contract, but a dispute arose over the style and cost of the business premises selected by Nuomiduo. After settlement talks stalled, Nuomiduo and Feidu each attempted to terminate the contract early and assert claims against the other for damages. The court upheld the validity of the contract for the following reasons:
  • Feidu did not offer securities to more than 200 specific persons (in violation of Article 10 of the Law of the People's Republic of China on Securities 2005) because it used a crowdfunding platform.
  • Feidu did not violate laws and regulations related to crowdfunding (mainly because there are no such laws or regulations in force at this time).
  • Feidu operated lawfully, including the use of YeePay to handle online payments, and implemented risk management controls, project supervision and other mechanisms designed to protect against potential abuse of the crowdfunding model.
  • The contract adhered to the principles set out in the Guiding Opinions on Promoting the Healthy Development of Internet Finance 2015 (2015 Internet Finance Guidelines).
For further information on the 2015 Internet Finance Guidelines, see Legal update: China publishes internet finance guidelines.
Source: Chinacourt.org article, China's First Crowdfunding Case (全国首例众筹融资案) http://www.chinacourt.org/article/detail/2015/09/id/1707099.shtml.