Per Hanguk Kyungjae, the ruling was made by the Seoul High Court’s Civil Division in a case involving two firms, both of which were unnamed for legal reasons.
The court ruled that it was “impossible to set interest rates when lending Bitcoin,” as “cryptocurrency is not money,” and is thus not “subject to” national “lending business laws.”
The two firms, the court heard, signed a contract involving Bitcoin in October 2020.
The first firm, referred to as Company A, was described as a “fintech company” that works with “cryptoassets.”
A second firm, Company B, penned a deal with A that saw it borrow BTC 30 for three months.
Company B appears to have agreed to pay Company A BTC 1.5, a sum equivalent to 5% of the total, for the first two months, and BTC 0.75, a sum equivalent to 2.5% for the final month.
But issues arose when Company B “failed to repay the Bitcoin properly.”
At this point, the court heard, Company A “extended the loan period to April 2021,” and “changed the interest rate to BTC 0.246 per month, a sum equivalent to an annual interest rate of 10%.
But when Company B failed to repay its creditor in accordance with the terms of the contract, Company A filed a civil lawsuit.
Why Does It Matter if South Korean Court Decides Bitcoin Is ‘Not Money?’
Company B claimed that Company A had “violated the Interest Limitation Act and the Loan Business Act” by setting new interest rates that were “in excess of the legal maximum.”
However, a lower court refused to accept Company B’s argument, ruling:
“The object of this contract is cryptoassets, not money. As such, interest restriction law and the loan business laws do not apply here.”
The firm refuted this, and took the case to the High Court for an appeal.
But the High Court upheld the original verdict, determining that Company B should “deliver the Bitcoin [as per] the contractual interest rate.”
The presiding judge said:
“The statutory interest rate on debt under commercial law can only be applied when the law is violated.”
But, the judge added, the 10% annual interest rate agreed upon by the two companies “could not be seen as a violation of the law,” due to the fact that the contract made use of BTC, rather than fiat.
Under South Korean law, parties are able to contest legal verdicts twice, meaning Company B could still choose to challenge the verdict at the Supreme Court, the highest court in the land.
Earlier this month, the trail of a Terraform Labs founder began, with prosecutors alleging that the cryptoasset LUNC is a security.
Should the prosecution succeed, legal precedent rules could dictate that other coins are also considered securities.