English legal system needs to keep pace with crypto and AI, lawyers say

A leading legal technology adviser has proposed the creation of a new Institute for Legal Innovation that would identify gaps in the law created by technologies such as crypto assets and AI and encourage greater use of English law in global business contracts.

Professor Richard Susskind, technology adviser to the Lord Chief Justice and director of think tank LegalUK, believes an independent body along the lines of the Alan Turing Institute, which is pioneering research into artificial intelligence, would highlight areas of the law that have previously failed to keep pace with innovation.

The institute would also promote English law among global companies as the law of choice for transactions in new areas such as blockchain.

The proposal comes as some lawyers fear England's legal sector, which employs 365,000 people, could lose out to rival centers such as Singapore and Dubai if its legislation does not keep pace with advancing technology.

“The business world will be transformed by technology and a challenge will be to provide a platform for supporting law for these new technologies,” Susskind said.

He added that a research center would fit into the government's UK innovation strategy, published in July, which aims to make the country an international leader in areas such as AI.

This week, Tech London Advocates, a network of technology leaders and entrepreneurs, published authoritative guidance on the legal and regulatory aspects of blockchain and its impact on litigation.

At a launch event, Sir Geoffrey Vos, the master of the rolls, said he believes every lawyer needs to be familiar with blockchain, “smart” legal contracts, agreements where contractual obligations are set out in computer code rather than words, and crypto assets.

According to CityUK, a professional association, legal services contributed £29.6 billion to the UK economy in 2019.

English law is already widely used in global corporate transactions for the financial, maritime and insurance sectors, including €661.5 trillion in derivatives trading contracts in 2018, according to a report by consultancy Oxera.

The UK's reputation as a leading center for global litigation is a strong driver for companies to choose legal contracts under English law.

However, the Social Market Foundation think tank concluded in a recent report that “there is growing evidence that English law is in dire need of modernization in some areas” and “is falling short”.

Richard Hyde, the report's author, said: "If companies cannot use English law to create contracts for cryptocurrencies, AI or green investments, they will use a different system."

He added that a failure to modernize could drive international companies to other countries where there is more certainty about how the law handles technologies like AI.

However, work is already underway in England and Wales to help legal services adapt.

The Lawtech Delivery Panel, an industry group chaired by Vos, issued a groundbreaking statement in 2019 clarifying that crypto assets can be legally treated like any other type of physical property.

Meanwhile, the Law Commission, an independent body that examines whether legislation needs to be revised, such as the law on self-driving vehicles.

Separately, it recently concluded that the introduction of smart contracts would not require changes to the legal code.

The commission is also investigating digital cross-border assets, including cryptocurrencies, where it collaborates with other jurisdictions such as the US-based Uniform Law Commission. It is scheduled to report in 2022.

The Ministry of Justice said the government was reviewing the legislation and working with the Law Commission on specific reform projects "to ensure that English law is fit for the future".

But there are still many areas of legal uncertainty. This includes whether existing intellectual property laws, tax and privacy laws apply to information stored on the blockchain, or whether existing corporate limited liability laws also apply to blockchain-related projects.

In some cross-border disputes over crypto assets, it is not clear which country has jurisdiction to adjudicate claims because the intangible assets are held virtually.

Legal issues surrounding AI technology include ambiguity over liability for damages and whether existing anti-discrimination laws are sufficient to deal with bias caused by algorithmic decision-making.

Courts in England and Wales are already polishing technology-related disputes where the law is unclear.

In September, the London Court of Appeal ruled that an AI system nicknamed Dabus could not be classified as an inventor in British patent applications under English law because it is not a person. The decision contrasted with rulings from other courts, including the Federal Court of Australia.

Recently, Liverpool art collector Amir Soleymani filed a High Court lawsuit against NFT marketplace Nifty Gateway, in what is believed to be one of the first cases related to the sale of non-fungible tokens, digital tokens that represent assets such as works of art, at the latest auction.

Miles Geffin, legal director at law firm Mishcon de Reya, said there had been a “long period of legislative inertia” in recent years and more clarity was needed on loopholes in the law relating to new technologies.

Progress is “pretty piecemeal at the moment,” he said, adding that “a coherent vision” and an “implementation plan and political will” are needed.

University of Surrey Professor Ryan Abbott, who files Dabus-related litigation around the world, believes further progress is needed to address legal challenges posed by disruptive technologies.

"Industry strategy, policy and law need to be aligned. There is still a lot to do but there are some promising things and I think the UK is on the right track."

Susskind said: “An institute would be a natural focal point for imaginative thinking about new fields of technology.”