Anne Rose, Managing Associate and Co-Lead
Blockchain Group, Mishcon de Reya
Good morning, everyone and Happy New Year, if it’s not too late to say that. My name is Anne Rose and I’m a Managing Associate and Co-Lead of the Blockchain Group at Mishcon de Reya. This morning we are going to discuss the guidance which this group has been working on over the past year. So as the complexity of distributed ledger technology grows, so does the need for lawyers to understand it and this guidance aims to produce a useful steppingstone in this process. And we hope it will be useful, not only to lawyers but to all those working in this landscape. Now to kick of discussion today, is Sir Geoffrey. So in 2019, you launched a UK Government Law Tech Delivery Panel statement on crypto assets and smart contracts which has been very received and last year, the UK JT published its dispute resolution rules. Can you please talk about some of the key developments that have happened over the past years and developments in the year ahead?
Sir Geoffrey Vos
Master of the Rolls
I believe that blockchain technologies and smart contracts will come to be seen to be central to the development of many, if not most, industrial and financial sectors. The UK JT published its legal statement on the status of crypto assets and smart contracts in November 2019 and in April 2021 it published its dispute resolution rules. In November 2021 the Law Commission’s advice on smart contracts was laid before Parliament and today in January 2022 we have the publication of the second edition of the TLA’s legal and regulatory guidance on the blockchain. And later this month the Lord Chancellor’s industry working group on electronic signatures is going to publish its interim report, pointing the way forward for widespread adoption of digital signing. And in March, the UK JT’s smarter contracts project will publish its report demonstrating how digital and blockchain technology is already transforming business and the law and what the UK JT has done is to collate some of the most accessible examples of how smarter contracts and the blockchain are improving every aspect of business and consumer activity. And in May 2022 the Law Commission’s report and draft bill on electronic transferrable trade documents will be published in… and that will allow as an example electronic bills have made it to be possessed and held as documents of title. And later in 2022 the Law Commission is going to publish a major report also and a draft bill on digital assets, non-fungible tokens and cryptocurrencies and we hope that major reports will follow on the changes needed to company law to cater for decentralised autonomous organisations and the rules on conflict of laws as they affect digital assets. Now against this background, litigation concerning crypto assets and smart contracts is increasing significantly but cases are proving complex because of the difficulty of applying our analogue rules to the digital world and in the world of crypto fraud, there are no national barriers and the unlawfully obtained crypto assets can be difficult to trace and so the Deputy Head of Civil Justice, Sir Colin Birss and I have set up a subcommittee of the Civil Procedure Rules Committee to look at amending or expanding the grounds on which proceedings can be served out of the jurisdiction. The Smarter Contracts report that the UK JT is going to publish shortly, aims to explain to lawyers and business people where blockchain technology and smart contracts are currently in use and the objective of the report is to show that blockchain is not a fringe technology used only by those wanting to risk their livelihoods or possibly make their fortunes on volatile crypto assets like bitcoin. We need to explain in the simplest possible language what blockchain technology does, why it’s important and how it will affect every aspect of our lives. People do not need to understand the finer technical details, they need to understand how distributed ledgers recording immutably every aspect of every transaction and smart documentation and contracts will change legal business, whether it’s transactional or litigious, will change the consumer world, will change the way financial and insurance markets work and will change the way people’s personal finances are operated. The UK JT will give real life examples of what is happening now. The idea is to capture people’s imagination. TLA’s guidance comes at the question from a different but equally important angle. It explains to lawyers and others what they need to know and why they need to know it. Ultimately, even if some of those involved in the blockchain space would like to think they can operate in a lawyer-free zone, they cannot. Lawyers are crucial to establishing English law in a poll position to be the law of choice for smart transactions on chain.
Anne Rose, Managing Associate and Co-Lead
Blockchain Group, Mishcon de Reya
Thank you, Sir Geoffrey. Sarah, I’d just like to talk about the advice that you published back in November to the Government on smart legal contracts.
Professor Sarah Green
Law Commissioner
The outcome of that report was a bit of a surprise to me and to the team. So, we set out with a view to finding out how the law of contracts would need to change and then suggesting changes that needed to be made but as the project went along it actually became increasingly obvious that the law of contract doesn’t actually need to be change substantively at all. I think interpretation is probably the thorniest issue but what we realised was that actually we only really need an incremental development to the standard interpretative forensic tests for interpretation. So rather than asking what a reasonable person would make of the language used, we suggest that actually asking what a reasonable coder would make of the code. So that’s just one example of how we took the law of contract, focussed in on it, analysed it, decided whether it needed to change and then out of that came a sort of minor suggestion for how lawyers need to think maybe slightly differently about the law of contract but that the substantive law doesn’t actually need to change. We did also think about the consumer angle because we wondered whether consumer legislation might have to change so, again we came to the same conclusion that actually the law is fine, the law does what it needs to do by telling traders for instance that they have to make their language fair and accessible to those consumers and it’s then up to parties to use experts in the same way that they would in any technical situation…
Anne Rose, Managing Associate and Co-Lead
Blockchain Group, Mishcon de Reya
And as Sir Geoffrey mentioned as well, he mentioned a few projects that are coming out in May. Do you want to talk a little bit about these projects and, you know, what issues have come out of some of the responses that you’ve seen from your core precedence and what you hope to achieve.
Professor Sarah Green
Law Commissioner
Electronic trade documents is pretty much finished now in that we are just finally putting together the draft bill, which is basically about ensuring that electronic trade documents can have exactly the same effect as a paper trade document. And the electronic trade… sorry, the digital assets project is a broader version of that really. Questions about how do we treat, as lawyers, how do we treat digital assets? Are they things in possession? Are they things in action? Are they neither of those things? Our current thinking is that actually, it’s probably better to have a third category into which crypto assets fit because they have an awful lot of things in common with the things in possession that lawyers are used to. What those crypto assets need to exhibit is independence from persons in the legal system so that they have an existence regardless of whether anyone lays a claim to them or whether a legal system recognises them, that they are rivalrous so that the consumption by one party means that another party can’t consume in the same way and to the same degree and that they are divestible so that when I transfer it to my crypto asset to another individual, I no longer have the ability to control it and all of these things look and feel like control. We’re thinking if you can control something in this way and of course DLT technology allows to do it with electronic things in a way that you couldn’t really in the past. If you can do these things, if you can control in this way, then there’s no obvious reason why you can’t have property rights in the same way that you could and have done for ages in relation to conventional tangible assets.
Anne Rose, Managing Associate and Co-Lead
Blockchain Group, Mishcon de Reya
Stephanie, I just wanted to come to you and talk about what the Law Society is doing to kind of maintain the UK’s leading position as the global legal centre.
I. Stephanie Boyce, President
The Law Society
Distributed ledger technologies are transforming our society and the publication of this guidance will greatly boost the efforts of practitioners to utilise those advancements as they become part of our core infrastructure. Technology absolutely underpins innovation in legal services. It is boosting productivity and giving lawyers new and improved ways to serve their clients. So, technology is playing a critical role in driving the post-Coronavirus recovery steps and it’s no different with legal services. The more lawyers become familiar with emerging technologies like distributed ledgers, smart legal contracts, crypto assets, the more adoption rates will rise in the legal services profession and the benefits to legal practices productivity are now clear. For the legal profession to unlock the benefits of innovation and emerging technologies, we must become familiar conceptually and functionally with those technologies. It’s clear that alongside evolution in technology comes evolution in the needs of our clients. We need to ensure that lawyers understand how the landscape is changing around them and what new capabilities will mean for them and their clients. So, we have an opportunity before us to develop and enhance the capabilities of our members and if we can achieve this goal then we will be able to unlock the benefits of digital transformation.
Anne Rose, Managing Associate and Co-Lead
Blockchain Group, Mishcon de Reya
Fantastic. Thank you so much, Stephanie. Will, I am absolutely delighted you could join us today. I just wanted to talk to you a little bit about what role do you think the lawyer plays in a future where more smart legal contracts are prevalent? And what skills do you think a lawyer might need for this?
Will Foulkes, Associate Director
Stephenson Law
An understanding of the technology. It’s becoming increasingly important and this year we’ve seen an absolute boom in corporate and individuals wanting to take advantage of blockchain technology. Often, they don’t really, themselves, fully understand what’s possible and of course where the risks lie and so as lawyers, we need to have a really good understanding of the technology and do what we’ve always done, which is risk allocation between parties. I think with the NFT space right now, particularly with it being used to represent digital art or tight links to digital art, we’re where web pages were in the 1990s, so where people used them very simplistically as brochures for their business and where we’re going to see them going is, well, they’re filled with exciting possibilities.
Anne Rose, Managing Associate and Co-Lead
Blockchain Group, Mishcon de Reya
Absolutely. Indeed. Tom, you know you set up your business idea to help businesses build their own platforms. As someone who’s moved, you know, from the traditional lawyer role to providing your clients with digital transformation, advice, legal engineering services, how do you approach designing and building solutions amidst some of this legal and regulatory uncertainty and change?
Tom Grogan, Head of MDRxTech
Mishcon de Reya
I think the main thing is to not consider those two things to be separate. We find that making sure that when we’re, when we’re conceiving business models with our clients and using very well known tools like business model compass, embedding the legal solution into that, conceptualisation is super important. If your tech solution isn’t legally compliant, it’s not a solution. The story of 2021 was NFTs. I think DAOs will be the story of 2022. Decent, sort of autonomous organisations. The carbon, the carbon question and the sort of sustainability questions are a really interesting one. The ways we are trying to adopt… sort of address the problem right now is trying to be discerning about the technologies that we use and then generally trying to help clients think about ways in which they can mitigate their carbon footprint more generally.
Sir Geoffrey Vos
Master of the Rolls
I was interested in something Tom said about that if it’s not legal, it’s… if it doesn’t really comply with law, it’s not really a good technical solution. I think there’s a perception, anyway in the judiciary, that there are sort of two streams. One is the stream of the use of blockchain and crypto assets, which is completely devoid of any legal foundation and people are just fly by night and looking to make as much money as they can and move on and then there is the mainstream use of these technologies and ne’er the twain shall meet but what I find it very difficult to understand is how we get a legal foundation for these technologies into the mainstream and whether you see… where you see the trigger points are.
Tom Grogan, Head of MDRxTech
Mishcon de Reya
There was a really interesting graph going around tracking the adoption of crypto assets and DLT alongside the internet and it showed that we were in roughly 1996 in terms of adoption. You go back to 1996, the internet was quite a dark place. You can say what you like about the back alleys, they tend to be quite innovative. To some extent, the internet in its early days very much benefitted from that and it took a little while for the mainstream business environment and then in turn the legal and regulatory environment to put the guardrails around it.
Sir Geoffrey Vos
Master of the Rolls
What I’m looking for really is the tipping point, it’s what needs to be done to move from 1996 to 2006 perhaps.
Tom Grogan, Head of MDRxTech
Mishcon de Reya
We need real leadership from The Law Commission in terms of helping us lawyers to understand how we should be approaching and dealing with and putting those guardrails around the environment. Legislators to try… in the same way as ecommerce never really took off until we had, at the time, EU based legislation to explain how it worked and so I hope that we get real leadership from our policy and our law makers. Once those things exist the tech will develop and we will have use cases that pull us all into the mainstream without realising we are using blockchain.
Sir Geoffrey Vos
Master of the Rolls
How do we fill that knowledge gap? I don’t think people get it and I’m finding it difficult to explain to them.
Tom Grogan, Head of MDRxTech
Mishcon de Reya
I think it’s got to be use case led. Very few lawyers in the City can explain to you what TCPIP is but they all use the internet every day. The technology ecosystem will build out these use cases. Hopefully the lawmakers will put the structure around it and then people will get interested in the use cases but I think they should care about what the technology is.
Will Foulkes, Associate Director
Stephenson Law
People are afraid of it or they think that it’s not trust… a trustworthy technology because they don’t understand it. So, overcoming that through storytelling or just stepping away from the intricacies of how it works and telling it exactly as Tom said, the use cases will… how does this? What does this disintermediation mean? How does that? That brings two people together, well that’s a 12,000 year old problem, bridging the trust gap between two people, this is just a new iteration of that and then ultimately, getting people excited about it. The other thing I would say is regulatory certainty so, taking a balanced regulatory approach and giving that clarity. The sooner that we can get that and then starting to speed up the ability for people to register and do things, all we need now are the final pieces just to make sure that on top of that they can operate out of the UK.
Anne Rose, Managing Associate and Co-Lead
Blockchain Group, Mishcon de Reya
Absolutely, and making as well the environment really safe. I’m just going to move them and pick a few questions. Can you envisage legal disputes between those who purchase property on the metaverse platform with those who own said property in a real, tangible world?
Professor Sarah Green
Law Commissioner
It’s a fascinating question. The Law Commission has got the go ahead, we are going to be looking at this next year. The point is that geographical location is obviously not, of the asset, is no longer a really inauthentic question and it may well be that we look at location of the parties instead but it definitely needs to change and we are on it.
Anne Rose, Managing Associate and Co-Lead
Blockchain Group, Mishcon de Reya
How can people learn a little bit more about this?
Tom Grogan, Head of MDRxTech
Mishcon de Reya
I listen to Exponential View podcast…
Anne Rose, Managing Associate and Co-Lead
Blockchain Group, Mishcon de Reya
Very good.
Tom Grogan, Head of MDRxTech
Mishcon de Reya
… from a guy called Azeem Azhar, he’s sort of been an investor, he’s been an academic, he’s a computer scientist and so crypto is a key thing that he talks about, he talks a lot about AI, he talks a lot about ML.
Anne Rose, Managing Associate and Co-Lead
Blockchain Group, Mishcon de Reya
I’d like to say a special thank you to everyone on the panel for joining me and giving up their time today, I think it’s been a really interesting discussion. I hope everyone has enjoyed this and that it has whet your appetite to go and read the report which is up on The Law Society website and has been up since 9.00 am this morning.