14
Examination of witnesses
Sarah Smith and Akber Datoo.
Q19 The Chair: Good morning. Welcome to this evidence session of the Special Public Bill Committee on the Property (Digital Assets etc) Bill. We have two evidence sessions this morning. For the first, we have Sarah Smith and Akber Datoo. Before we get on to the questions, I would like you to introduce yourselves briefly and explain what interests you have in this sector.
Sarah Smith: Thank you. I am chair of the Financial Law Committee of the City of London Law Society, or CLLS, which represents approximately 17,000 solicitors in the City of London through individual and corporate membership, including some of the largest law firms in the world and encompassing cross-border practices. Its specialist committees, including the committee on which I sit and chair, comprise leading solicitors in their respective fields. The members of the Financial Law Committee include those of us who advise operators of financial markets infrastructure, custodians of financial assets including crypto assets, banks and other financial intermediaries, and corporate issuers of debt, equity and digital assets, all of whom may be affected by the passing of this Bill.
Akber Datoo: Good morning. I am a technologist turned financial services lawyer, so dual-skilled, and I am here as co-chair of the Technology and Law Committee of the Law Society of England and Wales. The Law Society is the independent professional body for solicitors in England and Wales. We are run by our members and our role is to be the voice of solicitors, to drive excellence in the profession and safeguard the rule of law. Our Technology and Law Committee, of which I am co-chair, has a wide range of members, consisting of private practice lawyers from big City law firms, smaller firms including a sole practitioner, in-house solicitors with, for example, large investment bank experience, and those now in software companies, legal tech firms and consulting firms.
The Chair: Thank you. Both the City of London Law Society and the Law Society put in responses to the Law Commission consultation on its final report. Were you two involved in those documents?
Sarah Smith: I was.
Akber Datoo: Yes, I was.
Q20 The Chair: Could you give us some sense of the sort of involvement that your clients, or the clients of the bodies that you represent, perform in areas relevant to the subject matter of this Bill?
Sarah Smith: On the involvement of our clients, as operators of financial market infrastructure, anything that is a digital asset is a key element. Obviously, the United Kingdom wants to be—or wants to continue to be, I should say—a leader in the context of digital assets. You need the necessary legal regime, and a regulatory regime based on that, to foster that development. More and more, banks and corporates are digitising the securities that they issue. I think we are all aware that there are many advantages in moving away from paper form to digital form. That is all well and good as long as you have a clear, coherent and consistent legal system to support it. One example of that is the current initiative to digitise shares, which has been ongoing in Parliament for a while.
Akber Datoo: Digital assets are everywhere. Walking on to the train this morning, I saw that the opening word in City AM was “Crypto”. We heard last night and this morning about the taking down in the UK of a cash-to-crypto network. Every part of society knows what bitcoin is and digital assets businesses. Increasingly, we deal with digital assets in everyday life as we move into this increasingly digital world, from one of atoms into one of bits and bytes. It can be a means of payment, represent other things and can be valuable in its own right. Therefore, it is only to be expected that our profession, the members that we represent and our clients, will look at matters that have a digital asset element.
In particular, I call out the wonderful UK financial services sector, which is looking at the value and efficiencies that digital assets can bring. But as part of this they also bring legal and other risks for the membership and our clients, both internal and external. There are all sorts of regulatory questions. The profession requires us to take account of those in the role of guiding our clients, society and business in this increasingly digital world.
Q21 Lord Clement-Jones: First, I need to declare interests as a consultant to DLA Piper, as chair of Queen Mary University of London and chair of the board of Trust Alliance Group, which provides energy and comms ombudsman services.
Mr Datoo, in your submission to the Law Commission you stated that the Bill removes the legal uncertainty arising from case law and that it will provide more “certainty” for people holding bitcoin or for victims of crypto-fraud. What is the nature of the uncertainty and how will the Bill resolve it?
Akber Datoo: The law today sees property as either real property, such as interest in land, or personal property—of which there are two types. Things in possession are, as we see by looking around the room today at the tables, chairs and laptops, tangible, moveable and visible things that can be possessed. My use of the chair I am sitting on necessarily excludes others from enjoying the chair or using it. Digital assets do not really seem to fit this sort of property. One can transfer digital assets without there being a physical exchange. To do that, we are reliant on code and cryptography.
As I mentioned, there are two types of personal property. The first is the thing in possession, the second is a thing in action. An example of the latter is an intellectual property right. Section 90(1) of the Copyright, Designs and Patents Act 1988 recognises these to be property. This can only be claimed or enforced through legal action or proceedings. The relationship between these types of assets, these things, and a person is only there because they are recognised by a legal system. They do not function without that legal system giving them that recognition.
Let us turn our minds to digital assets. Those still exist, no matter whether the legal system recognises them. Were it to prohibit digital assets, you could still use those assets as a matter of fact because of the innovative way in which they combine cryptography, data and data models to essentially solve the double-spend problem. We could all use and exclude others from digital assets, whether the legal system were to recognise them. So, digital assets on their face are not a neat fit into the thing-in-action category or what we know of being a thing in action in law.
There is uncertainty because there is the authority of Colonial Bank v Whinney, regarded as a cornerstone of English property law, which says that for personal property there are only two categories: things in possession and things in action. Here is the uncertainty.
Digital assets feel as though they have property-like characteristics that are unlike those of things in possession and things in action. They feel, to society and people, as deserving of property-type rights, but, per Colonial Bank, they cannot be. The world is changing while this happens, becoming increasingly digital. The pace of that change and advance is getting faster and faster. Previously, we were certain that data, things like domain names, are not and instinctively do not feel like property and so we did not have that issue of needing to classify or think of them as such. But we are getting into, and are already in, an uncertain time due to innovation. For example, there is bitcoin. We read that overnight it has exceeded $100,000 in value. To take a more complex example of where something feels like property, there are in-game digital assets. We want the world and the law to make sure that the categorisation of these things is correct, not uncertain, and not a square peg in a round hole because of what Colonial Bank v Whinney says so emphatically. Currently, the only way is to look at one of these two things.
Why do we care if there is this uncertainty or the bad fit of a square peg in a round hole with these two categories? If there is uncertainty as to the characterisation of these things, there is uncertainty over how those assets will be treated were things to go wrong. When there is theft of these assets or some bad behaviour, as we read overnight, or if someone goes insolvent and digital assets are involved, the rights in law have been developed in different ways against these two particular types of personal property. The uncertain characterisation moves itself into uncertainty thereafter.
Lord Clement-Jones: Colonial Bank v Whinney is an 1885 case. Do you not think that recent developments in case law have created greater certainty?
Akber Datoo: Not the certainty that is required. As part of the process of the Bill and coming here today, and that we as the Law Society conducted through our committee and in outreach to our members, we find there is a view that there needs to be a fundamental statement to remove that uncertainty, even though there have been previous attempts to do so. In particular, the courts in Singapore placed these in an awkward fit into things in action. We are not moving forward with a firm step. It is an initial step, but working out what remedies we ideally want to make available cannot be developed without this firm step forward. That relies on a firm categorisation that we have not yet been able to have.
There has been comment from the judiciary, I think in AA v Persons Unknown, that it would be fallacious to regard this as a chose—a thing in action. Despite what some cases may refer to, there is a need to remove that uncertainty from recognising these emergent forms of property—not just digital assets. It is because of the uncertainty that we cannot get to what remedies may or ought to be available to allow business and society to flourish in an increasingly digital world.
The Chair: Thank you, Mr Datoo. You have made a case for the need for the Bill.
Q22 Viscount Stansgate: First, I must declare my interests. I think I have registered—the clerk will correct me if I am wrong—that I am president of the Parliamentary and Scientific Committee, which is Parliament’s oldest all-party parliamentary group. I am a trustee of the Foundation for Science and Technology. I have never bought or sold a share in my life but I was bequeathed some a few years ago and I ought to check whether they have been digitised. Thank you for raising that.
Sarah Smith: They are probably already uncertificated.
Viscount Stansgate: That will be one benefit of this session; I shall go back and check. My holdings are given in the House of Lords register but as far as I know I have no direct financial interest in any of this.
My question is for Sarah Smith: in your submission to the Law Commission, you stated that the Bill is not necessary. Can you please explain why?
Sarah Smith: It is interesting that we clearly take a very different view from other legal colleagues. To take up the point, Colonial Bank v Whinney is more than 100 years old and all it says is that personal property may be either a thing in action or a thing in possession. It does not further define or seek to circumscribe what a thing in action is. The marvel, beauty and genius of the common law is that it is able to adapt to circumstances over time. That is where we have a considerable advantage over civil law systems. We rely on the ingenuity of our judges and on them picking up empirical evidence and developing the law as society changes.
The Law Commission said that this Bill may be needed—in fairness, it says that this is a facilitative Bill—to recognise the so-called tertium quid, the third type of personal property right, because digital assets have certain characteristics which mean that they may not fall easily into the type of property recognised as a chose in action. The Law Commission makes two principal arguments, which my colleague also mentioned. First, digital assets exist independently. They do not require a legal system to enforce them. In “thing in action”, what do the words “in action” mean? They mean enforceable by an action before the courts. It says that is problem No. 1. Problem No. 2, says the Law Commission, is that digital assets can be stolen and choses in action cannot.
The first problem, that digital assets exist independently of any legal system, is also true of other types of choses in action. A simple example is government debt. Before the Crown Proceedings Act 1947, government debt was unenforceable in a court of law. It has existed for centuries and no one had ever suggested that it is intangible but not a personal property right, capable of disposition, et cetera. The same is true of foreign government debt, even today. You can sue the British Crown today if it comes within the Crown Proceedings Act, et cetera.
The High Court of Australia made this point clearly in what is known as Cain’s case from 1954, which related to a statutory right that was not enforceable in a court of law. However, other administrative remedies were available and the High Court had no difficulty in saying that it was a property right. It was not tangible so was not a chose in possession, but it was a chose in action. Australian law has continued that line ever since. One big concern that I and other members of my committee have with the Bill is that if we go down this route we will diverge from other major common law jurisdictions.
The second concern on which the Law Commission focused is that you cannot steal a chose in action but you can steal a digital asset. In making that argument, the Law Commission refers to debts, which are the simplest type of choses in action. I agree that you cannot steal a debt, except in very limited circumstances. However, that is not the only type of choses in action. To return to shares, if any Lord holds shares they are almost certainly held in dematerialised form these days. If they are shares in a British company, they will be in CREST. The Uncertificated Securities Regulations 2001 specifically deal with the potential circumstance of a forged instruction being sent into the clearing system saying, “Sell this share, buy that share”. The statute deals with the very possibility that you can steal or involuntarily alienate—to use another phrase of the Law Commission—a chose in action. The concept has always been there. It is a question of how you deal with it. You cannot look just at debts. There are many other types of chose in action. You cannot base the need for a Bill on an analogy with the fact that you cannot steal a debt.
The Chair: To summarise, are you saying that the Bill is unnecessary because, in law, all the digital assets that it seeks to encompass are capable—or ought to be capable—of being classified as things in action?
Sarah Smith: I would leave that to the judges of the common law. They are not constrained by a limited definition of a chose in action. That is demonstrated by judgments in Singapore, Australia and New Zealand. There is a judge of the Federal Court of Australia, Mr Justice Jackman, who before he went on to the Bench was a very distinguished senior counsel in New South Wales. He has written two articles this year in which he makes this very point: why is the Law Commission in its analysis trying to constrain the common law from developing to recognise these types of assets? That is not the sort of thing that you would ordinarily want Parliament to step into. I think he goes so far as to say in his article from October that the Bill would stultify—that is the verb he uses—the development of common law.
Viscount Stansgate: Part of the Bill’s purpose is to help entrench the jurisdiction of London, and Britain, as a place to do business, as it were. Would not having this Bill be a risk to that objective?
Sarah Smith: I do see it as a risk. There was a question as to whether it will enhance or enable litigation. I do not really want people to litigate. I want a stable system.
The Chair: The attractiveness of London as a jurisdiction will come up later. As you finished telling us why the Bill is not necessary, you began to tell us why it might have some downsides. As you probably know, Lord Ponsonby is a member of this committee, but he is also the Minister responsible for taking the Bill through the House of Lords.
Q23 Lord Ponsonby of Shulbrede: Do you anticipate that the Bill may have any harmful consequences? If so, what are they?
Sarah Smith: Yes, I do. The potential harmful consequences are as follows. First, we diverge from other common law systems. Our judiciary, all the way up to our Supreme Court, has made very clear that in the development of the common law we should try to march in step. It is a concern that we would differ from other common law jurisdictions. Looking specifically at the United Kingdom, as my colleague mentioned, if the judges of the common law decide that there is a tertium quid, you then have to create the apparatus that necessarily follows.
The Chair: You might need to explain “tertium quid”.
Sarah Smith: It is the third type of property.
Lord Holmes of Richmond: It sounds a bit like a digital asset, does it not?
Sarah Smith: If you have a third type of property that is neither a chose in action nor a chose in possession, how do you take security over it? We have developed systems. With a thing in possession, it is bailment: a pledge or a lien; it physically exists so you can physically possess it. With a chose in action, it is a mortgage or a charge. That has been the law for centuries and we know what we are dealing with. If you have a third type that is part possession because it has some possessory characteristics but part intangible, how do you take security over it? How do you hold it in custody?
The decision on the D’Aloia case in September this year was interesting because the deputy judge of the Hight Court took up the concept of a third property right and said that the piece of bitcoin, a digital asset, is capable of being individually distinguished. If that is correct, the arrangements for the custody of digital assets will need to differ from those we have for bonds, shares, securities, et cetera. The current custody arrangements are based on equitable tenancy in common, that everyone has an interest in a pool of assets that are of the same type. That is important because, if the custodian becomes insolvent, each beneficiary of that trust, the equitable tenancy in common, has an equal share to the assets that remain. On the other hand, if you are dealing with an asset where you can say, “That is mine, that is distinguishable,” the custody arrangement will have to be different. That will be expensive.
Going back to Australia, I noticed that ASIC, the Australian securities regulator, this week published a feedback paper encouraging responses on digital assets. In that, it noted that it was comfortable with omnibus custody arrangements for digital assets. In other words, if you have assets in a digital wallet, the same digital asset can be pooled among a number of different holders. Australia can be comfortable with that because they recognise that digital assets are a chose in action and capable of being subject to an equitable trust and equitable tenancy in common.
The Chair: Trying to summarise in headline form the reasons why you think the Bill might be harmful, you mentioned divergence with common-law jurisdictions.
Sarah Smith: Yes.
The Chair: Is your other point that it would introduce uncertainty relating to the formulation of the new third category and the remedies that exist in relation to things falling within that third category? Are those the points that you are making?
Sarah Smith: Yes: uncertainty and associated expense. Also, the regulatory regimes will need to change.
Lord Shamash: Uncertainty will settle down as people learn about the new beast we are dealing with. It is an initial problem but surely it will resolve itself in time.
Sarah Smith: It will take time.
Lord Shamash: So?
Sarah Smith: Meanwhile, other countries are moving ahead.
Lord Shamash: Not necessarily. They will see what we are doing. It does not follow automatically. You may be right but I just challenge you on that.
Akber Datoo: I think we will be left behind if we take the wrong first step forward. You need to make sure that you set off in the right direction. That is what this does. Through our process at the Law Society and the extensive process by the Law Commission, it is very clear that the judiciary—it was Mr Justice Bryan; I have looked him up—says that we need this assistance to facilitate the onward development of remedies. Once we have classified this as property, if that is appropriate for the fact pattern, we have a much heavier burden because of our pre-eminence as a legal jurisdiction and system. In the discussions that have been had through this extensive process since 2020 with the initial smart contracts call for evidence, other jurisdictions have said, “Wow, that is super-ambitious. You are taking the time to put the right foot forward and then enable the common law”. As I mentioned, the judiciary said, “Get us to that initial point: the small step forward of allowing there to be something other than a thing in possession or a thing in action. Then we can absolutely develop the remedies that do not exist today but will be appropriate, once we can firmly say that it does not need to be shoehorned into one of those two”.
The Chair: Do you agree with those who, you say, think that this is an ambitious or super-ambitious project?
Akber Datoo: It was a super-ambitious project. I am delighted to say that we have come out of it with validation of it being the right step forward.
The Chair: This is not a super-ambitious Bill, is it?
Akber Datoo: No.
The Chair: What might be thought ambitious is the endeavour to construct a third category, deciding how it is to be constituted and whether particular types of asset fall within it.
Akber Datoo: Another important thing leading from that is to worry about the cost and harm, and the signal we send after this long, detailed process that everyone in the world is looking at. What signal do we send to society and businesses if we do not fundamentally say that these things can be property and shoehorn them into this rather odd characterisation rather than facilitate that onward development of remedies?
Q24 Lord Sandhurst: I declare my interests as King’s Counsel, though retired from practice. I am also chair of the executive committee of the Society of Conservative Lawyers.
Regardless of your view of whether the Bill is necessary, should it have a prospective-only effect, as currently drawn, or should it be declaratory and retrospective in nature?
Akber Datoo: The Law Society committee did not consider that the Bill would seek to have retrospective effect, only prospective effect. On the draft Bill that we received and reviewed, we would only support retrospective effect if, through your work here in the various sessions, there emerges some sort of real need or benefit to make it retrospective that we are not now aware of, so long as that does not cause inadvertent harm or unnecessary, unfair interference with existing property rights.
Sarah Smith: That is a fair summation. I would say prospective-only. I see no policy reason to make it retrospective.
Lord Sandhurst: Prospective-only, as it is at the moment, does not prevent the court in a given instance when it looks at a problem afresh saying, “This particular thing or asset has, in fact, always been within this category, or is even a chose in action, although it has not been considered as such before”. Is that broadly right?
Sarah Smith: The Financial Law Committee proposed that the Bill be amended to make exactly that point. At the moment, the Bill refers to a thing in action being capable of enforcement by legal proceedings. We do not think that is right; we do not think that is the law. It constrains the ability of the judiciary to develop the concept of a chose in action. If the Bill goes through, our suggestion was to amend it so that you leave the judiciary with that option.
Lord Sandhurst: I do not have your recommendation here. Could you send us that again? Presumably you had a specific amendment.
Sarah Smith: It is in our paper.
Lord Sandhurst: I am sure it is.
The Chair: We have your paper and it is paragraph 1.1 of your response. We have that.
Lord Sandhurst: Oh dear. I apologise.
Q25 Lord Holmes of Richmond: I have a quick declaration of interest: I have a speaking engagement at a Future of Finance conference in London.
Will the Bill make England and Wales a more attractive jurisdiction in which to litigate, in respect of digital assets?
Akber Datoo: Certainly. Legal certainty is key to both attracting business and broader society use of digital assets. Through our processes at the Law Society and in our committee, we heard from the head of financial markets at a major investment bank, a prestigious technologist and prime finance experts. If the Bill is passed, we will—as we ought to—become leaders in the analysis and will have that firm, correct, small step forward in the categorisation of these things from the ground up. That means that, with the legal analysis required during litigation when something unexpected happens, we would be able to go straight to the real issues at play, the facts of the dispute, to allow the common law to do the phenomenal work it can do and work through the particular characteristics of the thing at heart, with a correct classification, without having this round peg and square hole which might taint or hamper the onward analysis.
That is extremely attractive for this industry, as we have been told by the people we spoke to and as detailed through the broader process, by people working in this area and seeking to be active in it. That is why we strongly believe this will make it a far more attractive place to do business and for any litigation around these sorts of assets. We are developing trust through the way in which the English legal system and governing law deals with them. The common law can then add flesh to the bone from this initial step through the Bill.
Sarah Smith: It will not surprise you to hear that I disagree. I do not think it will. As I started to say earlier, you would prefer not to have to litigate. You would prefer a legal system that was clear, unambiguous and stable, where it was acknowledged that these are property rights and fall within an existing type of property right. If you create a new type of property right, as I said earlier, you have to create the infrastructure to support it. How do you take security? How do you transfer it? How do you regulate it? How do you regulate the custody of this type of asset? It is a much longer process. The judiciary can do some of that. Some of it clearly falls within the bailiwick of the common law and judges, but they cannot do it all. Some of it will require regulation. We need to know the full proper legal analysis to have a starting point for that regulation. It will take the common law judges a while. As I said, this tertium quid—the third type of property right—has aspects of the law of possession and aspects of intangible property. What does that mean in practice and in jurisprudence? That is not an easy question to answer. I would rather it not be litigated to find the answer.
Lord Holmes of Richmond: What would your answer be to that, Mr Datoo?
Akber Datoo: It will enhance the economy and business. If there is a need to litigate, people have a surer foot. People will not come here in the hope that there will be litigation but there is an assurance that there will be the right legal remedies in due course, were this step to be taken forward.
The Chair: We were told last week by Sarah Green, who was at the Law Commission during this process, that there were at least two jurisdictions. She mentioned Australia and Singapore, in which there had been fairly recent judgments characterising some of these digital assets as things in action. Have those jurisdictions stolen a march over us? Might businesses be more inclined to choose the law of Singapore than that of England because the definition of a thing in action is more stable and defined than that of the third category that the Bill hints at?
Sarah Smith: They have not stolen a march because their jurisprudence is based on English case law. There is no reason why the judges of the English courts cannot, if they feel it necessary, continue to apply that case law to develop and recognise digital assets as a type of choses in action. Some judges within our Chancery Division, for example, would already say that of course they are a chose in action. It is not correct to say that a thing must be capable of enforcement in a court of law to be a chose in action. As I said earlier, that has clearly not been the case for centuries.
The Chair: What are the jurisdictions that we should be worried about because they are taking our work?
Sarah Smith: Singapore and Australia are the obvious ones because they already have case law out there. In fairness to the Law Commission, the Singapore case was last year and the case in the Supreme Court of Victoria was only last month, with the judgment on 12 November. New Zealand, Hong Kong and anywhere in the common-law world will be looking at this and the current jurisprudence. The common law is so flexible. It has always been the case that you want to work within the existing framework developed. Why create something new? If you do that, that has a lot of consequences.
The Chair: The truth is that we are effectively leading the way here and there might be some support for that, from what we heard from the Law Commission. Apparently, in Dubai there has been a judgment effectively adopting the Law Commission’s analysis of these things. Is there any force in that?
Sarah Smith: It uncritically adopted it. Sorry, that might sound a bit harsh, but it adopted it without looking at the other common-law jurisdictions. I think that was a mistake.
Lord Shamash: We heard last time about the United States. Where does that fit in all this?
Sarah Smith: The United States has the Uniform Commercial Code so the approach is different anyway. It is certainly the case that in the United States it recognises digital assets as a type of intangible property. It is just a question of where within the Uniform Commercial Code it then takes that. Professor Green said last week in her evidence that it is hard to compare this with the United States because there it is, in a way, codified property law through the Uniform Commercial Code, which we and other common-law jurisdictions have not done.
Lord Sandhurst: This is directed at you, Sarah, and it may be totally off the wall, but would your concerns be ameliorated if the existing clause was amended so that, at the end, it were to say that it is not to be prevented from being one or the other, and may be treated as giving rise to the same rights and obligations as if it was a chose in action or thing in possession?
Sarah Smith: I would have to think about that.
Lord Sandhurst: Do you see what I mean? The courts would have to determine which was the neater box, whether it was mortgageable and so on.
Sarah Smith: It might help. I am a bit nervous of—I will say what I am bound to say. I prefer our version of the amendment, which leaves open the ability to treat these as choses in action, with all the consequent advantages.
The Chair: Thank you. We have two questions left but they may both be fairly short.
Q26 Lord Shamash: Are you able to quantify the financial impact of the Bill on your clients and on the legal sector generally? How do you see that working?
Akber Datoo: The Bill is very small in many ways, including its length, but it is a sure foot forward, as I mentioned. It is very hard with a small step forward to establish the specific quantum that may result. We need to look at this in broad strokes in terms of legal certainty, with the onwards legal remedies resulting in more innovation, transactions and disputes involving emerging forms of property that potentially go beyond those that are digital and electronic in nature. As I said, we have seen more established, traditional financial institutions building confidence and growing in this area. The judiciary mentioned the financial benefits it would bring. It has been a very long process. The smart contracts call for evidence was in December 2020, which kicked off this whole series of pieces, with a close to 600-page consultation paper on the thinginess of things, if I may use that phrase.
The Chair: We are running short of time. The question was about the financial impact of the Bill on your clients and the UK legal sector. Is there anything you want to tell us specifically about that?
Akber Datoo: This Bill would bring a kind of launch pad. How far you can go will be a question of how big the rocket is that businesses, society and people build on top of that launch pad. The cost of not doing this and the signal that sends is also an important factor.
The Chair: Thank you.
Sarah Smith: I am tempted to say that I am just a simple lawyer and do not deal with finances.
The Chair: No one is expecting answers that you cannot produce.
Sarah Smith: I would say it is 50:50 either way. If the Bill goes forward in its current form, there is a real risk of a significant adverse financial impact for the reasons I have given. You must build the infrastructure around a third type of property right that previously has not existed in English law. There is also potential adverse impact because we are moving out of step with other jurisdictions. Thirdly, the Law Commission has not yet started its work on the conflict of laws in this area. As my colleague said, digital assets are everywhere and nowhere. With assets like this, if you do not have a coherent conflict of laws analysis accepted throughout other jurisdictions, you will not get very far.
On that point, there is the Electronic Trade Documents Act. This committee put in a submission saying that this was all very well, but it does not deal with the conflict of laws aspects. That concern has manifested because the Law Commission had to publish an FAQ paper just a month ago responding to questions because the conflict of laws issues have, of course, come up.
The Chair: To be clear, you said at the start 50:50, but then you seemed to major on the costs.
Sarah Smith: Probably, yes.
The Chair: Are you saying it is, on balance, likely to be costly?
Sarah Smith: I think it would be costly. I should make clear that I do not speak for the whole committee on this. It is my assessment based on my practice.
Q27 The Chair: Thank you. We are nearly out of time but maybe we can take the last question quickly. Do you think the Bill could be improved and how should it be amended? Sarah Smith, in your consultation response you set out an alternative clause to the operative one in the Bill. Is that still your position or, having seen the revised clause, would you want to stress something different?
Sarah Smith: If the Bill goes through, we think it would be improved by the amendment we proposed because that does not curtail the ability of the judges to develop the concept of chose in action.
The Chair: It does that by avoiding the words “thing in action”.
Sarah Smith: Yes, avoiding the reference to taking legal proceedings.
The Chair: Mr Datoo, you like this Bill. Do you think it could be improved?
Akber Datoo: No, we think the Bill is fine as it is for three reasons. First, it does not delineate between what is and is not a thing. Secondly, it does not define or confirm the status of any particular thing that is not a thing in possession or thing in action as the object of personal property rights. Thirdly, it does not seek to define the personal property rights that such things may have. We said in our submission that there are a number of boundary items and issues, and particular assets—
The Chair: Do you want to change the Bill? That is our question.
Akber Datoo: No, but the Law Commission suggested, for example, guidance notes, maybe issued through the UKJT or a body of experts. Our membership and committee feel that that is important but outside the Bill.
The Chair: Thank you both very much. I am sorry we had to gallop a bit but you both got your messages across extremely clearly. Thank you for turning up and giving evidence. You are now released and we shall wait for the next panel.
