It is anticipated 2022 will see progress on various areas of commercial law reforms. With much of the focus of 2021 having been on the post-Brexit trading relationship between the UK and the EU, it is expected more attention will be given this year to governance of the digital world.
In the last year, there has been growing momentum towards the prominence and intrinsic value of digital assets. As is often the case, there is a lag-time between rapid technological advancements (for example, cryptocurrency and Non-Fungible Tokens) and adequate legal frameworks to govern them. However, as these digital assets become more mainstream in society, legal reform will become necessary to ensure that those assets, and the rights of those who hold them, are properly protected.
Likewise, the COVID-19 pandemic has made us re-think how contracts are entered into and executed, so new legal and regulatory frameworks may be required to govern electronic signatures and smart contracts. Most recently, there is also the question of whether the Metaverse will have an impact on how contracts are formed.
In this article, we consider four different areas of commercial law where we expect to see developments in 2022.
Digital assets are becoming increasingly popular, with new forms of cryptocurrency such as Dogecoin rising to prominence following the success of Bitcoin. Mainstream payment providers such as PayPal have recently announced that they will start to facilitate the trading of cryptocurrency. El Salvador has become the first country to adopt Bitcoin as its official currency (and has even planned to build a “Bitcoin city”: (https://www.bbc.co.uk/news/world-latin-america-59368483).
Similarly, Non-Fungible Tokens (“NFTs”), which are unique digital assets supported by blockchain technology, have become legitimate sources of income and investment. Where Bitcoin is hailed as the digital answer to currency, NFTs are now being heralded as the digital answer to collectables. NFTs are “one-of-a-kind” digital assets which have no tangible form of their own. For example, as an NFT, a work of art can be converted into a token to create a digital certificate of ownership. This can then be bought and sold as with any other asset.
Whilst these new forms of digital asset exciting developments, they are often misunderstood and are not governed by any distinct legal framework. Likewise, they raise concerns about specific issues , such as ownership of the property rights(including the IP rights) in those digital assets.
As a starting point, the Law Commission acknowledges that digital assets can be property and that they can be owned by someone. However, the Law Commission also suggests that the concept of possession is currently limited to physical, tangible property rather than intangible property. On that basis, there is likely to be much-needed reform to ensure that existing law covers these digital assets, or new legislation will be introduced specifically to govern them. The Law Commission anticipates that it will publish its digital assets consultation paper in mid-2022, which will consider whether digital assets should be possessable or not. We anticipate that this will be a worthwhile read for any businesses looking to use digital assets more frequently in their operation or individuals considering investing in digital assets.
Updates relating to the consultation paper can be found here: https://www.lawcom.gov.uk/project/digital-assets/
Over the past two years – for obvious reasons – the pandemic has given rise to difficulties regarding the physical signing of legal documents. This, in turn, has led to a significant increase in the use of electronic signatures. Whilst there are many different e-signing platforms, the increased uptake in e-signatures has caused concerns over the security of signing documents electronically.
To that end, the Ministry of Justice (“MoJ”) is currently considering how to increase confidence and standards in e-signatures and address best practice in this area. In order to do so, the MoJ has established the Industry Working Group in response to a recommendation made by the Law Commission.
It will be interesting to see whether any new security measures will be recommended or even required by law to improve the level of security relating to e-signatures. Potential new security features may include using video calls to witness the digital signing of documents or using facial recognition technology to verify a user’s identify when logging in to e-sign documents. However, any requirement to provide further personal information may have a knock-on effect on privacy and data protection law, so that will need to be borne in mind as part of the consultation process.
There is still a degree of reluctance by legal practitioners to use e-signing platforms when executing documents (particularly deeds). As such, any further guidance or regulation giving greater confidence in electronic signatures is likely to be well-received.
Smart contracts are relatively new technology. They are effectively a collection of code and data that reside at a specific address on the Ethereum blockchain. The contracts are not controlled by a user, but rather are run as programmed. User accounts can interact with these smart contracts, which define specific rules (much like a regular contract), and can be automatically enforced when certain pre-determined conditions are met.
Smart contracts, for example, could include releasing funds to a specific participant, buying a house, registering a vehicle or issuing a ticket. When the defined conditions are met and the transaction is completed, it is then updated on the blockchain so that the transaction cannot be changed and only permitted participants can see the results.
The purpose of these contracts is to automate the process of executing, controlling or documenting certain events in a decentralised way, to ensure greater overall security and transparency and give immediate certainty to all participants of the outcome.
Although, these smart contracts generally require programming by a developer, the technology is becoming increasingly accessible and various tools are becoming available to simplify the creation of smart contracts.
However, much like other areas of technological advancement, it is yet to be seen how these smart contracts will fit into the existing regulatory framework.
The Law Commission has recently published advice to the Government about smart contracts, in which it has been suggested that there could be a written explanation provided alongside the contract, specifically on the code used. This, in turn, could help aid interpretation of the document and form part of the contract.
It is anticipated that we will see a rise in the use of smart contracts in 2022, as they become more mainstream in day-to-day transactions. Consequently, this will inevitably give rise to questions relating to smart contract interpretation and the function of these contracts in the non-digital world, which remain to be fully explored
CONTRACTS AND THE METAVERSE
The Metaverse has been created as a new, virtual universe. The Metaverse, although a relatively recent concept, can assist businesses in thinking more creatively by creating new opportunities. This includes the ability to conduct meetings in a virtual workspace with employees and clients being present using a virtual avatar.
Recently, we have seen a couple host their wedding ceremony in the Metaverse (https://www.nytimes.com/2021/12/08/fashion/metaverse-virtual-wedding.html), to facilitate the attendance of guests during the pandemic. Likewise, companies such as Gymshark have held trial meetings in the Metaverse and other companies are contemplating the potential use of the Metaverse to conduct job interviews
The rising prominence of the Metaverse and its future possibilities raises important questions for businesses about how contracts are formed and enforced in the Metaverse. These include, for example, whether it be possible to perform a contractual obligation in the Metaverse or whether contracts will need to specifically exclude performance of an obligation in the Metaverse (and instead require it to be performed in the ‘physical’ world).
Although the Metaverse remains in its infancy, and is far from replacing physical world functions, we will be watching closely to see if there are any cases which require judgment on these issues in 2022.
Whilst some of the above concepts may still seem somewhat futuristic and are unlikely to be prominent in the day-to-day lives of normal individuals just yet, it is likely that these new technological advancements will begin to feature more in the commercial world this year and beyond. It remains to be seen how, and the speed with which, the law will adapt to these concepts.
If you need advice on or have any questions about how these developments might apply to you, contact our Commercial Team by email or by calling 01603 610911. To keep up to date with the ongoing news, make sure to follow the Leathes Prior Social Pages (LinkedIn, Twitter, Facebook).”