Cryptoassets and Smart Contracts
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Jane Lambert
in its Legal Statement on Cryptoassets and Smart Contracts, the UK Jurisdiction Taskforce ("UKJT") published the opinions of Lawrence Akka QC, David Quest QC, Matthew Lavy and Sam Goodman ("the drafting committee") on a number of legal questions relating to cryptoassets and smart contracts where there are areas of perceived uncertainty.
The Institutions
The UKJT is chaired by Sir Geoffrey Vos, Chancellor of the High Court and consists of Lawrence Akka QC, Sir Nicholas Green, Chair of the Law Commission of England and Wales, as an observer, Richard Hay of Linklaters LLP. Peter Hunn of the Accord Project, Mary Kyle of the City of London Corporation, Christopher Woolard of the Financial Conduct Authority and Mr Justice Zacaroli. The publication was delivered by the LawTech Delivery Panel which describes itself as "an industry-led, government-backed initiative, established to support the transformation of the UK legal sector through tech." It appears to have been established by Tech Nation which has recently received £2 million of government funding to help support the digital transformation of the UK’s legal sector. (see the Ministry of Justice press release of 4 Nov 2019 Tech Nation to support growth of UK Lawtech with £2 million of government funding).
The Consultation
The questions that Mr Akka and his colleagues addressed had were raised by the respondents to a consultation paper from the UKJT entitled The status of cryptoassets, DLT and smart contracts under English private law in May 2019 which appears at Appendix 1 Mr Akka's report. The names of those respondents appear in Appendix 2.
The Questions
The questions were as follows:
- What is a cryptoasset?
- Whether cryptoassets are property/
- What is a "smart contract"?
What is a Cryptoasset?
The drafting committee did not offer a precise definition because of the rapidly changing technology and the diversity of cryptocurrencies. Instead, they listed a cryptoasset;s characteristics at paragraph [31] of their report:
"(a) intangibility;
"(a) intangibility;
(b) cryptographic authentication;
(c) use of a distributed transaction ledger;
(d) decentralisation; and
(e) rule by consensus."
Whether Cryptoassets are Property?
The four members of the drafting committee considered the attributes of property and decided that cryptoassets possessed those attributes and that none of the above characteristics prevented them from being regarded as property. A cryptoasset was ca[able of being owned and can be transferred by recordal on the blockchain even though such a recordal should not be conclusive. A cryptoasset may not be bailed or pledged because it can not be delivered physically but there was no reason why it could not be mortgaged, that is to say, transferred with a right of redemption. Similarly, it could pass to a trustee or liquidator on insolvency.
The four members of the drafting committee considered the attributes of property and decided that cryptoassets possessed those attributes and that none of the above characteristics prevented them from being regarded as property. A cryptoasset was ca[able of being owned and can be transferred by recordal on the blockchain even though such a recordal should not be conclusive. A cryptoasset may not be bailed or pledged because it can not be delivered physically but there was no reason why it could not be mortgaged, that is to say, transferred with a right of redemption. Similarly, it could pass to a trustee or liquidator on insolvency.
What is a "Smart Contract"?
The drafting committee thought it was difficult and unlikely to be useful to try to formulate a precise definition of smart contracts. Instead, they decided to identify what it is about them that may be legally novel or distinctive and concluded that it was "automaticity". They explained at [135] that "a smart contract is performed, at least in part, automatically and without the need for, and in some cases without the possibility of, human intervention." They added: "that requires the terms of the contract to be recorded in computer-readable form, i.e. in code." In other words, a smart contract is a computer program. The committee noted that for most transactions contracts do not have to be in any particular form and there was no reason in principle why a contract expressed in code could not be enforced as well as any other.
Significance of the Report
At Thursday's launch of Legal Excellence, Internationally Renowned, UK Legal Services 2019 by TheCityUKm Sir Geoffrey Vos hailed the UKJT's report for "putting English law firmly on the technological map so that it can now develop incrementally as only common law systems can – to adapt to an ever-changing commercial environment" (see The Courts and Tribunals Judiciary email alert of 6 Dev 2019 speech by Sir Geoffrey Vos).
I admire and welcome the Chancellor's optimism for I fear that London's attractiveness as a legal centre will diminish if the Brussels and Lugano Conventions cease to apply to the UK and it ceases to qualify as a party to the Agreement on a Unified Patent Court. The confidence of Sir Geoffrey, the drafting committee and TheCityUK in the superiority of the common law seems to be a little overdone. Litigation is much cheaper and often faster in many civil law countries than it is in common law jurisdictions. The Cour de Cassation resolves far more cases than the Supreme Court and the judges of the civil law courts are at least as adept in adapting their law to new situations.
Anyone wishing to discuss this article or cryptoassets or smart contracts generally may call me on 020 7404 5252 during office hours or send me a message through my contact form.
Further Reding
2 Aug 2017 (Updated 7 Dec 2019) FinTech
Further Reding
2 Aug 2017 (Updated 7 Dec 2019) FinTech
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