On 18 November 2019 the UK Jurisdiction Taskforce (Chaired by Sir Geoffrey Vos) launched its "Legal Statement on cryptoassets and smart contracts" in the magnificent Victorian and mock medieval surroundings of the City of London's Guildhall complex. A nineteenth century venue to launch a twenty-first century report.
A crowded hall of lawyers, computer scientists and business people heard Sir Geoffrey Vos tell us that cryptoassets should be treated in principle by the courts as property and that in principle a smart contract can be identified, interpreted and enforced by the courts using ordinary and well-established legal principles.
These two questions – can cryptoassets be property and are smart contracts true contracts which the courts will enforce – are questions the English and Welsh courts haven't yet definitively answered. And they may not for some time – until cases work through the system that address these two fundamental questions in detail. So the Legal Statement, written by a team of experts, is a landmark statement.
There have been debates in English and Welsh legal circles about whether bitcoin and other cryptoassets are "property" in English and Welsh law. If they are not then they couldn't be stolen, or owned, used as security or held on trust. Nor could they be easily transferred on the death (or insolvency) of the "owner", for example. If they are just information/mere data stored in a distributed ledger as some have argued they cannot be property. The statement puts the matter beyond doubt as a general principle but of course it depends on the facts.
A related area are "smart contracts" – contracts automatically performed by a computer and written in computer code. Such contracts often work alongside cryptoassets and are implemented using similar technology. Smart contracts can be used to transfer money, shares, and property, for example. If smart contracts were not legally binding and couldn't be enforced in the courts that would be very problematic. Some have argued such contracts are just computer programs not contracts, for example. The statement also puts this matter beyond doubt as a general principle under English law but of course it also depends on the facts too.
Some countries have enacted laws here to clarify the position and give legal certainty. But nothing is currently proposed in the UK at present. Indeed the Legal Statement suggests caution in this area – it is a feature of the common law of England and Wales to be flexible. As the report notes, the law is well able to deal with technological developments and has an impressive track record of doing so. Legislation can be inflexible and can quickly go out of date – judges applying tried and tested principles of the common law of England and Wales may be better suited to the task of applying the law to the complex world of cryptoassets and smart contracts than the legislator.
Having said that, whether the law of England and Wales applies to the contract or transaction under consideration may not always be an easy question to answer. Greater clarity can be gained by those involved choosing the law of England and Wales to apply where they can (so they have legal certainty) or the courts may hold it does because there is a close connection to England and Wales – but that will be a matter of fact.
For more information on cryptoassets, contact Simon Stokes or a member of our Technology team.
