Cryptoassets and smart contracts: UK Jurisdiction Taskforce publishes legal statement
What legal status do cryptoassets have under English law? Are smart contracts legally valid and enforceable under English law?The key takeaway
The legal statement is likely to be legally persuasive, but its principles have not yet been tested in the English courts. The statement provides some key findings:
- Cryptoassets are to be considered property and to be treated as property in law. However, cryptoassets cannot be “possessed” because they are not physical assets. This means that certain legal principles cannot be applied to them.
- Smart contracts are valid and enforceable contracts and electronic signatures are recognised as valid.
The UK Jurisdiction Taskforce (UKJT) is one of six taskforces of the Law Society’s “LawTech Delivery Panel”, which includes industry experts and members from the government and judiciary. The UKJT launched a public consultation on the legal uncertainty regarding the status of cryptoassets and smart contracts under English law in May 2019.
Following the consultation, the UKJT published a legal statement with the intention of relieving legal uncertainty in this area. The statement is likely to be legally persuasive but its principles have not yet been tested in the English courts.
According to the statement, cryptoassets are to be considered property and to be treated as property in law. Therefore, cryptoassets are to be subject to laws concerning the passing of property on death, bankruptcy and insolvency, among other things.
However, because cryptoassets are not physical, the UKJT suggests that they cannot be “possessed” in law. In particular, this would mean that cryptoassets cannot constitute “goods” under the Sale of Goods Act 1979 and they cannot be the object of a bailment. The types of security which can be granted over cryptoassets would be limited and cryptoassets cannot be the object of a pledge or lien.
The UKJT considers that smart contracts are capable of satisfying the requirements for the formation of a valid contract under English law. The UKJT also gives its opinion that smart contracts can be interpreted and enforced using ordinary English legal principles and that they can be enforced in Court.
According to the legal statement, it is very likely that statutory signature requirements will be met by the use of private key encryption.
Why is this important?
The UKJT’s statement provides a level of certainty for market players as to how cryptoassets and smart contracts may be treated under English law and by the English Courts. The statement was intended to bolster market confidence.
Any practical tips?
When making legal and commercial decisions in relation to cryptoassets or smart contracts, it is helpful to review the UKJT’s position as described in the statement.