The UK Jurisdiction Taskforce has published a legal statement on cryptoassets and smart contracts under English private law. UKJT is part of the LawTech Delivery Panel, an industry-led group established in 2018, with the aim of identifying barriers and opportunities for growth. The legal statement provides the UKJT's view of the principles applicable under English and Welsh private law for determining when a cryptoasset will be considered property and when an enforceable contract is concluded through a smart contract. The intention of the statement is to help improve confidence among market participants and investors due to the perception of legal uncertainty on the legal status of cryptoassets and smart contracts.
The legal statement is limited to English private law and does not include any issues on regulatory characterization, taxation, criminal law, partnership law, data protection, consumer protection, settlement finality, regulatory capital, anti-money laundering or counter-terrorist financing.
The legal statement expresses the view that cryptoassets should be treated in principle as property, although that will depend in each case on the nature of the asset, the rules of the system in which it exists and the purpose of the classification. The legal statement expresses the view that because cryptoassets cannot be physically possessed, they cannot be the object of a bailment and only certain types of security could be granted over them. In addition, cryptoassets are not documents of title, documentary intangibles, negotiable instruments or instruments under the Bills of Exchange Act. However, where a cryptoasset is treated as property, then there will be implications for succession on death, the vesting of property in personal bankruptcy, the rights of liquidators in corporate insolvency and in cases of fraud, theft or breach of trust. The legal statement considers the factors that would be relevant in determining whether English law governs the proprietary aspects of dealing in cryptoassets, however, the UKJT believe that the complex issues would be best resolved by legislation following international dialogue.
According to the legal statement, English law is well-equipped to consider whether a smart contract creates an enforceable contract and at interpreting the intentions of the parties to the contract. According to the UKJT, a smart contract that is an agreement between two or more parties that intend to create a legal relationship by entering the contract and where each party has given something of benefit would be a contract under English law. The determination of whether a smart contract meets the requirements would need to be made on a case-by-case basis, depending on the parties' words and conduct, as it does with any other contract.