18
Examination of witnesses
Professor Louise Gullifer, Professor Robert Stevens, Professor Duncan Sheehan and Professor David Fox.
Q37 The Chair: Welcome to this meeting of the Special Public Bill Committee on the Property (Digital Assets etc) Bill. This will be an evidence session in which we will hear from two panels, the first consisting of no fewer than four professors and the second consisting of two members of the Bar. First, I welcome Professor Gullifer, Professor Stevens and Professor Sheehan, and online we have Professor Fox. Would you like to introduce yourselves and disclose any interests that you may have in the subject matter of this Bill?
Professor Robert Stevens: I am the Professor of English private law at the University of Oxford. I have no interests to disclose.
Professor Louise Gullifer: I am the Rouse Ball professor of English law at the University of Cambridge. I have no interests to disclose.
Professor Duncan Sheehan: I am a professor of business law at the University of Leeds. Apart from finding this interesting, I have no interests to declare.
Professor David Fox: I am a professor of common law at the University of Edinburgh. I have no interests to disclose.
Q38 The Chair: Thank you all very much indeed for coming. We have read with interest what most of you have said in writing already in response to the Law Commission, but we are very interested in following up and pursuing some of those points with you. I will start by asking all of you to tell us, as briefly as possibly, what useful purpose or purposes, if any, you think would be achieved by the enactment of this Bill. Professor Gullifer, would you like to start?
Professor Louise Gullifer: Thank you. I should say that I have put in some written evidence to the committee, so I hope that will be helpful and might be a bit lengthier than I can talk to you today.
The main purpose is that the courts in this country, as they are around the world, will have to consider new types of objects of proprietary rights, new types of things that can be proprietary rights now and in the future. I am not just talking about digital assets. There are other types of potential objects of propriety rights that are developing. They obviously rely to some extent, as do most things, on IT, but they are not necessarily what we mean by digital assets. There may be other types of objects we want to think about as well.
This Bill enables the court to look at these things and decide whether they can be the object of proprietary rights untrammelled by the idea that you have a dichotomy of potential objects of proprietary rights into things in possession and things in action. There was the idea that there is just this dichotomy and that no other type of object of proprietary rights can exist. That argument has been made in a number of cases. It has been written about. It is an argument that sometimes is made to say that these things cannot be the object of proprietary rights. The Bill will take away that argument and make the life of the courts easier, because then they can just focus on the actual substance of the discussion as to whether these things can be the object of proprietary rights.
The Chair: That is very clear. Thank you.
Professor Robert Stevens: The answer to your question is none. No benefits can be gained from this Bill. The only thing it would add is conceptual confusion into our law and a bad signal from Parliament. Why do I think that? All legal systems draw classificationary distinctions of rights that are not in relation to land. How do we classify rights that are not in relation to land? We split them between tangible and intangible, which is the same as between corporeal and incorporeal. That means rights that are in relation to things and rights that are not in relation to things. Unfortunately, English law does not use the words “tangible” and “intangible” to capture the distinction between rights in relation to things and rights that are not in relation to things. It uses a different pair of labels. It calls them things in possession and things in action. However, it is the same distinction that other legal systems have: rights in relation to things and rights that are not in relation to things.
Is it possible conceptually for there to be a third category outside of those two? The answer is that it is conceptually impossible. The rights are in relation to things or they are not in relation to things, and that is the end of the matter. If you own bitcoin or Ethereum or Tether—or whatever else it may be in this exciting new range of crypto assets—if that gives you a right, it is a right that is not in relation to a tangible thing. Therefore, it is a thing in action. The courts in Singapore have said that. The courts in Australia have said that. I agree with them. That is what Lord Justice Fry said in an old case called Colonial Bank v Whinney. That is why he said that these categories are exhaustive. There is no problem here that could be solved by adding in an extra category.
In the committee’s last session, the Chair asked the former law commissioner why we would not be classifying these as things in action in the way the Singaporean courts and Australian courts have done. That is a very good question: why would we not be doing that? It is very important that we understand the answer that is being given as to why that would not be acceptable. The argument that is being given is that things like bitcoin and Ethereum and all these other exciting new cryptocurrencies are different, because there is no legal right in relation to them. They are different because they are independent of law, which is no doubt true. They are independent of law. If you shut down the English legal system, that will have no effect whatsoever on bitcoin and Ethereum and all these other exciting things. They are not products of the English legal system or products of any legal system anywhere.
But if you do not acquire rights if you hold a bitcoin, by definition you do not have a property right. There are only two possible logical options, which are that holding bitcoin, Ethereum, Tether, or whatever else it may be gives you rights, in which case those are things in action, or it does not give you any rights, in which case it is not a property right. What possible purpose does this Bill have? To which the answer is none.
The Chair: Again, that is admirably clear. Thank you. We will come later to the question of whether any of you think this Bill might be actively harmful, but we certainly got your message, Professor Stevens, that you think it serves no purpose. Professor Sheehan, do you agree?
Professor Duncan Sheehan: I agree with Professor Stevens, yes. I think there is now no realistic prospect—I mean literally none—of the Supreme Court rowing back and saying that bitcoin and other crypto assets are not property. That focus is unnecessary, because it does not tell us anything that we do not already know. There may be a marginal benefit in removing Robert Stevens’s argument from last year that they are not property, but only very marginal, and frankly we are doing perfectly well without any Bill. What this Bill does that it must not do is that it is premised upon the existence of a third category of personal property that does not exist as a matter of English law. It is not necessary, and it is not desirable. We can get on to why I think it is positively harmful later on, but that is my view.
The Chair: Thank you.
Professor David Fox: There are perhaps three purposes to the Bill. One, as I think the other speakers have said, is that it would remove any lingering uncertainty about the recognition of digital assets as property at common law. It would certainly remove the need to take that matter to the Supreme Court for determination. To that extent it would provide some clarity.
Secondly, it is also to be remembered that it is not solely confined to digital assets, so it is in that sense keeping open the possibility of future development in the common law’s ability to recognise other kinds of asset class, other kinds of entity that it might then want to bring within the range of property.
Thirdly, I suggest that it also gives the quietus to legal argument about the categorisation of these sorts of things. It leaves open the possibility that we are not going to be confined to treating them as being choses in action, particularly given the fact that that term comes with a lot of historical baggage as to its interpretation. In the minds of some people looking at English law, coming from outside, it might then be seen as being a confusing or inapt way of describing that residual category of different kinds of right or different kinds of object. I see the main purpose as being clarificatory in its object.
The Chair: Professor Fox—and Professor Gullifer, who took your same line that it was a good idea for the purposes of clarification—are you really saying that the law is in any serious doubt on this issue? Is there any impediment to the common law continuing to develop in the way many would say it has developed, particularly over the last few years, so as to constitute these digital assets as forms of property? Do you really think that the intervention of Parliament will make a difference to a process that the judges, for better or worse, seem to have well in hand?
Professor Louise Gullifer: I will make two points. One is that I think the judges themselves are very keen and very competent to develop the law in this regard, but this gives them a bedrock of certainty. I understand that they may have asked it in the first place, because in my view, frankly, the question of whether a thing is a thing in possession, a thing in action or a third class is in one sense a separate argument and is rather distracting. You need to look at the thing you are talking about and ask whether it has the characteristics that enable it to be the object of proprietary rights. We want the judges to focus on that, so it is a kind of focus argument.
The other point, which I think Professor Fox has already mentioned, is that we are not just talking about crypto assets here. There are already a number of types of assets, if we can call them that, or things that have been said in courts not to fit very neatly within the choses in action/choses in possession dichotomy, such as milk quotas and carbon trading units. I am working in my capacity as part of Unidroit, which is an international organisation, on some transnational principles for verified carbon credits, and verified carbon credits do not fit very happily within things in possession or things in action either. We now have other types of these assets that are being developed, which may in the future become more numerous, and the Bill would enable those types of assets to be properly considered by the courts as well.
It also causes no harm in the sense that if the courts take the view that Professor Stevens and Professor Sheehan are right that you should have only two categories—one, things in possession, and one a sort of dumping ground for anything else that is not a thing in possession—the Bill will cause no harm and it does not stop the court taking that view.
The Chair: Professor Fox, is there anything you would like to add to that?
Professor David Fox: I agree that primary purpose is just about removing doubts about the property status of these things, and in some sense the courts are well on their way towards reaching that end.
On the categorisation point, it may seem that all we are really doing is arguing over the names that we ascribe to different legal categories, but can I suggest that names might actually matter in this context? As Professor Gullifer has said, we have already seen quite extensive argument taking place in the courts about the categorisation of all new forms of asset class within the range of choses in action, which simply indicates that that is not the natural fit for the kinds of asset that the courts are being asked to consider.
One might in an ideal world start with a blank sheet of paper and necessarily divide one’s objects of property into things that are straightforwardly corporeal—call them tangible—or that are incorporeal or intangible. That might well be the approach taken by other civil law systems with which we trade, but even the other legal systems that would treat these sorts of entities as being intangible or incorporeal would not try to force them into a categorisation that treated them as being networks of legally created rights. These sorts of objects are generically different in their very nature from the mainstream kinds of asset that would fall within that historically determined category of choses in action.
If I speak as someone looking at English law from outside, it has always been seen by outsiders looking at English law that it tends to use fictitious names and fictitious categorisations to describe its legal actions, but those legal names may well become misnomers in referring to the real substance of the assets and the way in which people actually transact with those assets.
I see there being two positive benefits from the Act. One is removing the block of lingering uncertainty, and the other is that there are real transactional benefits in using the correct kind of terminology to explain these sorts of objects.
The Chair: Thank you. I must give Professor Stevens a chance to respond to one new point that Professor Gullifer raised. She said that even if you are right and the judges were minded to follow you on the future development of the law, this Bill does not stop them doing it.
Professor Robert Stevens: No, it is pointless. If you listen to Professor Gullifer carefully, I think the pointlessness of it all was there. The prospects of any court anywhere being bothered by or having the result in a case determined by this Bill, if it were enacted, is literally nil. The idea that there is any argument here that anybody would run seriously in a courtroom that would be resolved by this Bill is completely implausible. I can take you on to what damage it does, but in resolving legal disputes it does not do anything.
The Chair: Thank you. In the second panel we will hear from barristers on the front line, and no doubt they will tell us whether they agree.
Q39 Lord Cryer: In the context of what you have just said, will this Bill have any harmful consequences? If so, what will they be?
Professor Robert Stevens: I would not be here if this was just an argument about whether a dictum of Lord Justice Fry in Colonial Bank v Whinney was right. I happen to think that Lord Justice Fry was right in Colonial Bank v Whinney: that these two categories are legally exhaustive, that is the end of it and there is just no issue here. If this was just an academic argument about the meaning of the phrase “choses in action” I would not have bothered responding to you.
Legislatures can pass these things and courts will have to make sense of them. If you pass this, some court will make sense of it. It will not cause any problem in litigated dispute terms, but that is not how this is being sold to you. This is not how the Minister of Justice sells this on the press releases. We are being told that this puts the United Kingdom at the forefront of the crypto race—that this is, as we heard from Professor Fox, England and Wales recognising the existence of crypto as property.
What is the problem with sending out that signal? That is how this will be sold. It is not going to be sold as a trivial Bill about Colonial Bank v Whinney. It is problematic, because this stuff is flat evil. It has no commercial use whatsoever. Nobody in 15 years has ever found any legal commercial use for bitcoin, Ethereum, Tether, any of these things. There is no legal commercial use for any of these things. Their only purposes are fraud, bribery, tax evasion, putting your assets out of the reach of creditors. Those are the only reasons you would use these things, and the only reasons why innocent people buy these assets is because they think there will be an even bigger fool than them who will pay even more for it at some point in the future. It has no utility whatsoever. It does not represent any assets out there in the world. There is no income stream for it.
Should our Parliament be signalling that we are at the forefront of the crypto race and that we endorse this as a property right in our system? You should not be sending that signal. That is not the signal this Parliament should be sending out into the world. This is the signal that Donald Trump is putting out there in the United States: that this is just a method of holding wealth like any other. No, it is not a method of holding wealth like any other. It has no legal commercial use, and it is enormously environmentally damaging. Instead of passing Acts like this, our legislature should be trying to regulate it, but you are not. You are passing pieces of legislation about Colonial Bank v Whinney, which is a very odd thing for us to be doing, very odd indeed.
Professor Louise Gullifer: I do not want to engage with the political point about whether bitcoin or whatever is a good thing or a bad thing. If something is bad, that does not necessarily stop it being a potential object of proprietary rights. Heroin is also bad, but we have to cope with that. We just legislate for it. I should also point out that the FCA, the Treasury and the Bank of England are all working very hard to regulate crypto assets. They are not just saying that these things should be banned; they are trying to have a regulated system for them to be used.
However, this Bill, as I tried to explain, is not just about digital assets or crypto assets. It is also about other forms of potential objects of proprietary rights that can be seen as far more useful in the world, particularly in the carbon trading market. I only mention that. There may be other examples that I am less aware of, but I know about this because I am doing some work on it with Unidroit on verified carbon trading because of the private carbon market. That is one example of where the Bill would be useful, but it is nothing to do with crypto.
Professor Duncan Sheehan: I would not go as far as Professor Stevens has and say that these things are evil. People do make commercial use of crypto assets. The reason I think it is harmful is because if you are a commercial party or a litigant and contemplating a choice, do you say that your crypto exchange will litigate in London or in, let us say, Singapore? Singapore is a crypto-friendly jurisdiction. Will you be minded to set up in London where you have to argue about what rights you have in completely unfamiliar terms, talking about third things and tertium quids when everything is potentially up in the air? You would have to work out what rules apply to, say, how you take security over these assets.
If it is choses in action, we know that we cannot have a pledge that is possession or a contractual lien that is possession, but maybe this is up in the air for a third thing, which is a real hybrid between choses in possession and choses in action. Certainly, if you look at the Law Commission’s report—I will come to that in a second—it accepts that maybe a control-based pledge is possible. No, it is not, but everything is up in the air.
You can go to Singapore where it is quite clear from ByBit Fintech v Ho Kai Xin that these things are choses in action, and you can talk about the rights that you have in familiar terms. Where are you going to go? It does not seem to me that the implication that these things are third things is a reason to come to London. It is a reason not to come to London. It is a reason to go to Singapore.
The second reason why I think is as bad is that it also risks the answer being completely and utterly wrong. We know how to deal with choses in action. You take a share, shares are fungible. It does not matter whether you have share 1 or share 2 if they are numbered, and most of the time they are not even numbered. Does it matter whether I have bitcoin 1 or bitcoin 2? No. Does it matter whether I have USDT Tether stablecoin 1 or 2? No, it does not. They all have the same functionality. They all have the same purpose, and so we get to D’Aloia.
Professor Gullifer is quite right that there is nothing in this Bill, because it does not define choses in action, that stops the Supreme Court from just saying, “This is a waste of everybody’s time. They are choses in action”. But the other courts do look at the Bill, even before it has been passed into legislation, and they do look at the Law Commission report and swallow it whole, uncritically, without thinking about it and without looking at Commonwealth case law like ByBit in Singapore or Ruscoe v Cryptopia in New Zealand or Australian cases.
This law is held uncritically, so you get cases like D’Aloia v Persons Unknown from September of this year where the judge says, “USDT, which is a stablecoin, is specifically identifiable. I can identify the difference between this one and that one. That is really important, so I’m now going to allow Mr D’Aloia to follow his USDT and try to identify exactly which one it is”. If you do that, you will get the answer wrong, because you deny yourself the possibility of what is called an equitable tenancy in common. That sounds a bit obscure, but basically we are talking about a case in which—
The Chair: I hate to cut you off. What you have said has been fascinating, but we have to accommodate other questions as well. If you want to furnish the committee with an example in writing of exactly what you are saying, we will certainly receive that and undertake to read it.
Professor Duncan Sheehan: Okay. In that case I will simply tell you that it is in paragraphs 19 and 20 of my written evidence.
The Chair: That is very helpful.
Q40 Lord Sandhurst: I have two questions. First, is it your opinion that an algorithm is a chose in action?
The Chair: Does anyone want to tackle that one? Do not all feel you have to tackle it.
Lord Sandhurst: If not, what is it?
Professor Robert Stevens: All property rights are constituted by rights. Is an algorithm a right?
Lord Sandhurst: Which category would it fall into at the present time?
Professor Robert Stevens: An algorithm could not be a property right, because it is not a right. You need to find a right for it to be a property right, and as an algorithm is not a right it cannot be a property right.
Lord Sandhurst: What is it then?
Professor Robert Stevens: It is an algorithm.
Lord Sandhurst: Can I tell you why I am interested in this? I am reading from other evidence that the Intellectual Property Office held that this is where an algorithm could have an element of personality because it had invented a product. For that period of time, it had an element of personality because it was the source of the property right underneath.
Professor Robert Stevens: If all we are talking about is, say, some form of AI that creates something that is an intellectual property right—we have an AI that writes a novel, or you have some sort of AI that creates—
Lord Sandhurst: Whatever it does.
Professor Robert Stevens: Whatever it does. What has happened there? I think it is a mistake to think that the AI has legal personality. It does not. The AI is just a tool, like a hammer, but if the person responsible for that AI sets it in motion and then it has created something that is an intellectual property right, like a novel or something that is patentable, the person who has created that is the person who is responsible for the AI. My own view is that it would be a mistake to say that AI itself has legal personality. It does not. You cannot sue AI.
Lord Sandhurst: I just want to be clear about this. Someone invents an algorithm and it has a value. What is it? Is it property? Is it a chose in action, or is it something else?
Professor Robert Stevens: The answer is that it is a valuable form of information, and in English law it can potentially go into one of the forms of intellectual property rights that we recognise by legislation. That one, if it is anything, would go into the box called patents. If that is an intellectual property right, it would be one of those, a patent. The problem with things like crypto and so on is that there is no—
Lord Sandhurst: I want to take an algorithm, because that is a benign thing. It may be used badly, but let us keep it neutral; it does not have bad vibes. I am interested in whether it is a thing in possession or a thing in action. If it is not one of those two, what is it?
Professor David Fox: I will put aside the point about legal personality and just deal with algorithms. I would say it is a thing, in a very generic sense, but not necessarily a thing that would qualify to become an object of property. I would not in any way call it a thing in possession, nor would I call it a chose in action, a thing in action. In a way, the algorithm demonstrates something about the operation of clause one of the Bill. In other words, we can see digital things out there—and we would call an algorithm in a broad sense such a digital thing—but there is still a further internal legal question is to be answered as to whether that thing would in any way qualify as an object of property.
Taking some of those criteria, which have been developed by the Law Commission, the algorithm might well have an existence independent of the legal system, but it would fail any test of rivalrousness—as the term is put—because the algorithm as algorithm is itself capable of being copied and not being compromised by that copying process. Separate from that, one could imagine an intellectual property right being created in respect of that algorithm. That would be property, but that intellectual property right in relation to the algorithm is different from the algorithm itself.
To answer your question, it would be a thing, but I am not convinced the algorithm, as such, would be property and this Bill itself would not turn the thing into property at all.
Lord Sandhurst: The registration would protect it. That is the point.
Q41 Viscount Stansgate: We do not have much time. My question is, first, factual. How are the assets for which the Bill is designed classified in other jurisdictions? This is just a factual point.
Professor Louise Gullifer: We have already heard from Professor Sheehan that, at first instance in the ByBit case in Singapore, it appears that bitcoin or some variety of crypto assets has been classified as a chose in action. Also, there is now a case in Australia called Re Blockchain Tech Pty Ltd, which I have only just come across but which others may know more about, which appears not to look at the object of the property right but is trying to classify the property right or the property interest itself, which is different from what we are talking about, which is the object of the property right. In that case, it was held that the property interest in bitcoin can be a chose in action, because Australia, so it is said in this first instance case, does classify a chose in action as a catch-all for all things that are not choses in possession.
The other jurisdictions that we might talk about are civil law jurisdictions. As Professor Fox says, civil law jurisdictions will generally have a category of intangibles, but quite often they will subcategorise within that. Some jurisdictions say that what we call a chose in action—in other words, what I call a chose an action, a right to sue someone where you have an obligor or someone who owes you a duty and you have an ability to sue them to enforce that obligation—cannot be the object of property rights at all. A whole lot of civil law jurisdictions say that. They would distinguish between those types of things and other types of things that are intangible and can be the subject of property rights. That is only some civil law jurisdictions and by no means all of them.
Q42 Viscount Stansgate: Is the Bill likely to affect the attractiveness of the UK as a place to do business and a forum for the resolution of legal disputes?
Professor Duncan Sheehan: In fairness, I have nothing more to add to my point earlier about whether you can choose London or Singapore. That is the answer. This is a disincentive to choose London.
The Chair: That is because someone will have to define what this third category looks like and decide which types of thing fit into it. In your view, that will not happen quickly.
Professor Duncan Sheehan: It will not happen quickly, no. In a sense, of course, it will happen over time, but I have a choice. These are highly international assets. You have to remember that. It is as easy for me to transfer my bitcoin to somebody in Singapore as it is for me to transfer to somebody in Bradford. It is much harder for me to sell my car to somebody in Singapore than it is to sell my car to somebody in Bradford. People have choices.
The Chair: Is part of the problem working out which remedies attach to this new third category or categories?
Professor Duncan Sheehan: Yes, that is part of the problem. It is quite easy if you see it as a chose in action. I have a right to the bitcoin, the Ethereum, the Solana, the USDT or whatever it may happen to be, and I alone—not you lot—am able to manipulate the blockchain to get the benefit from that. If you send it off to some Berne address where nobody can get it, that is a breach of my rights. Bang. The end. If you make it a third category, you will have to have all sorts of other complicated questions. The Law Commission spent ages talking about how you might adapt conversion. No, it is a breach of my right. Sue for damages. Bang. The end.
Viscount Stansgate: Can I ask the other witnesses whether this, in your judgment, would make London a more attractive jurisdiction for the resolution of disputes?
Professor Robert Stevens: No. I advise you to look at Professor Joshua Getzler’s responses to the Law Commission, which are more strongly worded than I am expressing myself, hopefully.
What does it look like if you think there are two categories, one of which is defined negatively? We have rights in relation to things and the other category, which is the ones that are not that. If you wanted to, you could define our property rights in terms of ones that arise on a Tuesday and ones that do not arise on a Tuesday. That is definitionally exhaustive, because one category is defined negatively.
What does it look like if Parliament passes a Bill saying that those two categories are not exhaustive? What does it make us look like to the rest of the world if we do that? You are enshrining in legislation a conceptual mistake. That does not look good. Will it make any difference in litigation? Judges will have to make sense of it, but the signal you are sending is not good.
Another point I might add concerns the premise of your question, which is to say, “Is there a crypto business out there that it is in the UK’s interests to try to grab?” Look at every case that has been litigated anywhere, every case. What are they about? They are about fraud. Every one is about fraud. They are all about people blackmailing, say, University College London Hospitals and shutting down their blood services unless they get paid in bitcoin or darkcoin, or whatever it may be, because today this is the modern form of unmarked, nonsequential Bills.
We will get this business because London is a great commercial centre for litigation, but it will not be attracted by this Bill.
Professor Louise Gullifer: It will have a positive effect in the sense that it will make the UK an attractive place because it will give the judges freedom to develop the law in relation to this.
It needs to be developed. I do not agree with Professor Sheehan that by calling them choses in action everything goes away. That is because we have the narrow definition of chose in action, which is a right against another person, which you have to enforce by action. That has, basically, a whole lot of law relating to it, which cannot apply to these assets. You cannot, for example, apply the rule in Dearle v Hall, which is the priority rule in relation to narrowly defined chose in action, because you cannot give notice to an obligor or because there is no obligor.
A whole load of law will not apply, and the courts will have to decide the rules one way or another merely from the nature of these things. Calling it chose in action will not help. The Singaporean judge will have to do exactly the same thing. This is a problem that has to be developed: how you take security and so on. This is a new type of asset. All courts, all legislatures, will have to deal with it. The label you put on it will not make much difference.
Professor David Fox: In terms of the comparability of England and Wales—I use that term deliberately—against other jurisdictions, yes, in some sense England and Wales does make a step forward by enacting this Bill. That is not to say that there are other definitional difficulties that will not go away. However, the point is that those same definitional difficulties still apply to other common law jurisdictions, notably Australia and Singapore, which have had to go through the motions in their case law of ascertaining how these digital assets can qualify as property.
The advantage for the UK, of course, is that this Bill would work alongside the work of the UKJT control panel being chaired by Sir Geoffrey Vos. Non-binding practitioner legal-based guidance will be given to people here about the operation, as it were, of the bare bones of how this Act might actually proceed.
Secondly, in relation to fraud, I do not doubt that crypto assets, like many other kinds of assets, can become objects of fraud, but by putting these things outside legal recognition we make it impossible to use private law means of recovering those assets to compensate the victims of those frauds.
Finally, one small point about comparability across different UK jurisdictions is the position in Scotland as it is emerging. There is now a public consultation about the recognition of digital assets in Scots private law, which is different from England and Wales. The approach being consulted on there is along the lines of recognising these as being a kind of incorporeal property but fully admitting the differences in the legal, analytical nature of the digital assets from other conventional kinds of incorporeal property, which consist in networks of legal relationships or choses in actions as traditionally called in English law.
There are also questions of alignment about the development of constituent private law systems within the broader United Kingdom. That is all I will say on that point.
The Chair: Thank you. We have three more questions, which I do not want you to interpret in a philosophical or jurisprudential way but more as questions that are directed to the drafting of the Bill and whether it is defective and whether it could be improved. For the first of those questions, Lord Clement-Jones.
Q43 Lord Clement-Jones: Thank you, Chair. I am conscious that you may have gone over this to some degree earlier, but the Bill applies to things, including things that are digital or electronic in nature, as the Bill states. What do you understand the word “thing” to mean? I am conscious that we might be lighting the blue touchpaper again. What, if anything, is achieved by the specific reference in the Bill to “things that are digital or electronic in nature”?
Professor Duncan Sheehan: The question “What is a thing?” is a more complicated question than I think you realise. There are things. My glasses case with the glasses in is a thing. That is fairly obviously a thing. When we talk about property, we often talk about rights in rem, rights in things, versus rights in personam. If Lord Anderson owes me £1,000, all that exists is the right that he pays me £1,000. There is no thing over which I have rights. There is a right.
Q44 The Chair: Bearing in mind what the Bill is trying to do, do you find the use of the word “thing” acceptable or problematic?
Professor Duncan Sheehan: On one level, the Bill tries to encompass everything. It tries to say that you do not have to be a thing like this or a thing like you owing me £1,000 if it is to be property. In that case, talking about the bit in brackets about digital assets is a bit redundant. You might as well say, “Things do not need to be things or rights”.
Lord Clement-Jones: Thank you. We get the message..
Professor Louise Gullifer: First, “thing” means a potential object of property rights or an object of property rights. A thing can be either tangible or intangible. “Thing” is not a brilliant word, partly because it is rather vague, partly because it can be translated into Latin as “res”, which means different things in different jurisdictions, but it has two benefits. The first is that the word “chose”, which is French for “thing”, has been for many years a chose in possession or a chose in action. If you are talking about those, “thing” echoes the words in those terms.
The second point is that it is difficult to think of another word. We have been around this loop a lot in the Unidroit work. We came with the word “asset”, but the word “asset” has a problem, which is that it comes with the implied meaning that these things have value. You do not want any form of criteria talking about something that has value, because it may not have value in particular contexts.
In terms of digital or electronic, it says “including”, and I still stress that there may be things that are not digital or electronic but that are in some way written down on a piece of paper, for example, which still could be things under this categorisation. It is not just about crypto assets. If you use the word “including”, you make it clear.
The Chair: What is the point of saying “including a thing that is digital or electronic”?
Professor Louise Gullifer: That is a technique that is used a lot in drafting. I do not know about English statutes because I have never drafted one, but it is certainly used in international instruments, and I know they use it in the US as well. It gives a signal without being limiting in what you are saying, but it does not preclude non-digital or electronic things.
Professor Robert Stevens: If members of the committee look at the Bill, it is only one clause. I can point out two problems with it for you. The most obvious one is that it has this “digital or electronic in nature” idea. Things like bitcoin and Ethereum and non-fungible tokens are digital. They are a form of digital information, but they are not electronic. “Electronic” refers to the devices on which these things are recorded. That is not the object of the property. The word “electronic” is completely misconceived in that list. It should be “digital”, if anything, but in a sense that does not matter, because it is “digital”, “electronic” or anything else”, so it is not intended as a qualifier of anything.
More seriously, as a legal matter, the drafting has an error. The drafting states: “A thing is not prevented from being the object of personal property rights merely because it is neither a thing in possession, nor a thing in action”. That states that a thing in action is an object of property rights. That is wrong. A thing in action includes things like debts and shares. Those are not the objects of property rights. Those are property rights. There is no separate thing that they relate to out there in the world. Those are property rights. If you are talking about tables, chairs, bags of gold and so on, those can be the objects of property rights. Things in action cannot. The section is conceptually confused on its face.
Professor David Fox: I will spare you the social oncology. What is a thing? I agree that one might seek to find a better word. One could perhaps talk about an entity, but that is not normally used in any legal usage, either in this country or internationally. What is a thing? Broadly, it might be any natural, social or digital entity that would satisfy the common law’s own internal tests for workability, as Professor Stephen says, as an object of property.
The key thing is that not all things that might exist in some loose commercial or social sense will necessarily be recognised as objects of property in consequence of this Bill. Things like data, emails or social media pages in a generic sense are things, but nothing in this Bill will have the effect of making those things into objects of property.
On your point about the specific benefits of using the terms “digital” or “electronic”, including those words has some benefit. Even though we realise that this Bill is not designed solely to bring digital assets within the capacity of recognition, it is about keeping the category open for future development of recognition of new kinds of property in the future.
Those words still point to the specific motivation for enacting the Bill. It has been created in response to this newly recognised asset class. It confirms that electronically or digitally created things can be objects of property, even though they have no direct existence in the material world or in the natural world. That is the specific clarificatory advance that the Bill is seeking to make.
Q45 Lord Sandhurst: I want to ask you about retrospectivity. It comes in two parts. If we did not have the Bill, if it is left to the common law and it comes to the courts with some new concept—let us be neutral—that has not hitherto been classified as any sort of property, a thing in possession or a chose in action, and the courts decide that it is or is not at least one of those two, would that be a declaration of the law as it has always been?
Professor Robert Stevens: You could redraft the Bill so that it would be clearer and more neutral and clearly did nothing. A nicer redrafting of this Bill would be to say that personal property rights, whether represented digitally or electronically, may be in relation to physical things capable of possession or not in relation to things capable of possession. The end. That would be exhaustive, and it would state the obvious, but at least it would state the obvious in clearer terms than this Bill does.
Lord Sandhurst: Would that be retrospective in effect?
Professor Robert Stevens: In a sense, because it does nothing. The question makes no sense in the sense that I do not see how this can legally alter anything. It is an argument about whether Lord Justice Fry was right in Colonial Bank v Whinney, which is of no legal significance in any dispute. I cannot see what dispute it could resolve. In a way, I do not care about the retrospectivity.
Q46 Lord Sandhurst: The Law Commission has said that the Bill will have effect only from the date of entry into force. It will be prospective. Are there advantages in it being prospective, or is it better for it to be declaratory and retrospective?
Professor Duncan Sheehan: In a sense, Professor Stevens is quite right that it depends on what it declares.
The Chair: Take this Bill.
Professor Duncan Sheehan: My preference is that there be no Bill, full stop, end of story. The courts will sort it out.
You need a Bill that is, if you like, declaratory. This is not it because this Bill assumes the existence of something that does not exist. You need to amend it along the lines that Professor Stevenson suggested to say that objects of property can be things in possession or not, which is a statement of the blindingly obvious and therefore does not need to be retrospective because it is by definition true.
If you want to be neutral as between the definitions of choses in action that we heard about, the narrow one, which is just a right enforceable in court or anything that is not tangible, you amend it along the lines suggested by the City of London Law Society’s Financial Law Committee. I know you had Sarah Smith in last week talking about its suggested amendment, and I have referenced that towards the end of my written evidence. In that case, again, it becomes a statement of truth. An object of property can be a thing in possession, a thing that sets out a narrow definition of chose in action, or not. Again, you make it retrospective if it makes you happy. It makes no difference.
Q47 Lord Sandhurst: If this Bill comes forward as an Act in this form regardless, despite your evidence, is it better that it remains as it is, in which case it only goes forward, or is it better that it should say that it has always been, so to speak, and has an express retrospective effect?
The Chair: We have the message from Professor Sheehan and Professor Stevens, but certainly for my part I am interested to hear what Professor Gullifer and Professor Fox have to say about that.
Professor Louise Gullifer: In my written evidence, I thought it was not necessary to be retrospective, because I understand—this may be faulty—that it has to be retrospective only if a legal decision has already been made that needs to be overruled or to give the courts power to deal with something that happened before the date of the Bill after the Bill has been passed. Both of those seem to be unlikely. We have no legal decision at the moment that is overruling. It would be odd if, after the date the Bill came into force, a court said, “This relates to something that happened before, so I can’t decide that according to the Bill because of the nature of the Bill”.
In my view, it is declaratory, because the categories are exclusive, but I do not know whether you need to go down the retrospective route to get to that. In my view, there would be no harm if it were retrospective, but I am not sure that if it is more difficult to pass a retrospective Bill—I imagine it is—you would get much benefit from it, either.
The Chair: If it were not retrospective, I suppose the thinking would be that clever people, like the barristers on the next panel, might be able to go to court on a factual situation arising before the entry into force of the Bill and say, “We know what Parliament has done, but of course this case is concerned with the position prior to that. Why did Parliament act if not to resolve an uncertainty? I will now address you on the uncertainty”. One has all the arguments about whether the 1895 dictum is still law, which this Bill seeks to avoid, and that would be the argument for giving it retrospective effect. You may not think much of that.
Professor Louise Gullifer: Well, I can, but I just think that it would be very strange for a court to do that, because what we are talking about is the court deciding the case in front of it at the moment: “Is this a thing and can I give a remedy?”, not, “Was it a thing last Tuesday?” or whenever it is.
Professor David Fox: I do not see any great advantage in seeking to make the Bill retrospective in its operation, even though it is in a sense declaratory or complementary of an understanding of the law as it exists now. There seems to be no evidence of any past decision of a court that has gone the other way and which might need to be overruled in its effect. That will be the true retrospectivity of its operation.
If it will apply only to the future, one might still ask: if the common law courts would have reached this position in any event and they are operating correctly in any event, what is the point of the Bill? The debate that has surrounded the whole question and developments overseas still show that there is a lot of room for distracting argument, possibly by the barristers you mentioned, as to whether these things are property and how they should be categorised. This Bill would give the quietus to the need to have those arguments.
Q48 Lord Holmes of Richmond: Thank you for making the time for being with us this morning. It is appreciated. A number of you have touched on this. Nevertheless, can the current version of the Bill be improved? If so, how should amendments be brought to achieve this?
Professor Louise Gullifer: The drafting cannot be improved to achieve what it wants to achieve. I have said in my evidence that I was only a bit concerned about the title. I do not know whether the title is within your remit, but to say “property, digital assets”, et cetera, seems to me to put too much emphasis on the digital asset side of it when it can be related to other types of property.
Professor Robert Stevens: It would be better if the Bill did not refer to things in possession and things in action at all, because that gets into an academic dispute about the meaning of the phrase “things in action”, which does not help anybody. If I understand the proponents of this Bill correctly, everything they want to achieve can be said by an Act that says, “Property rights may be either in relation to things capable of possession or not in relation to things capable of possession”, the end. You do not need to mention things in possession and things in action and get into all sorts of debates about that. That would be a more straightforward Bill that would achieve the signalling you desire and would not do any harm because it would be clearer.
Q49 Lord Shamash: Would you say that the Bill should now read, “A thing, including a thing that is digital or electronic in nature, is not prevented from being the object of personal property rights”, full stop?
Professor Robert Stevens: What I will do is I will send my draft to the committee, if that is helpful.
The Chair: Thank you.
Professor Robert Stevens: Essentially, yes, but I will send you a draft. I have spoken to a number of people, trying to work out what we would sensibly propose if you wanted to carry this forward.
Lord Shamash: It will be the shortest Bill ever, at this rate.
The Chair: It is already pretty short.
Professor Robert Stevens: I think that is indicative.
Professor Duncan Sheehan: If there is to be a Bill, the FLC, as I will call it, has it amended to be: “A thing is not prevented from being the object of personal property rights merely because it is neither a thing capable of possession, nor a right that may only be claimed or enforced by legal actions or proceedings against another person or persons.”
My understanding of that—Sarah Smith, as I say, was talking about that last week—is that that tells you that it is not prevented from being property because it is not a thing like my glasses, or it is a right like the right that George Anderson pays me £1,000. We know that already, but that allows the Bill, as I have tried to explain in my written evidence, to be neutral as between the narrow and wide definitions of chose in action, and between the two models of conceptualising crypto assets that I talk about in my written evidence, model 1 and model 2.
Professor David Fox: As to the title, it might seem as if it is unduly narrowing it by its reference to digital assets but, on balance, I would keep it in. It is clear from Clause 1 that the scope is not limited to digital assets, and this does explain the principal motivation, I think, for the enactment now.
As to removing references to things in action versus things in possession, I can see the merits in that in order to achieve the first purpose of the Bill, which is to confirm that digital assets and other related things can qualify as objects of property. It would meet that first hurdle. However, we are still stuck with the legal property terminology that we have, which is things in action and things in possession, so in terms of fit with the existing system there may well still be some merit in keeping those terms in.
The Chair: We are extremely grateful to all of you. It has been a condensed session but in conjunction with your written evidence you have given us a great deal to think about. Thank you.
