What Has Taxonomy Ever Done For Us? UNCITRAL’s 2023 “Taxonomy of Legal Issues Related to the Digital Economy”

2024 United Nations Day Lecture, UNCITRAL National Coordinating Committee for Australia

Justice Jackman 24 October 2024

I would like to begin by acknowledging on United Nations Day, in the magnificent language of the early articles of the Universal Declaration of Human Rights, that all human beings are born free and equal in dignity and rights (Article 1), that everyone is entitled to all the rights and freedoms set forth in the Universal Declaration without distinction of any kind, such as race, colour, social origin, birth or other status (Article 2), and that all are equal before the law and are entitled without any discrimination to equal protection of the law (Article 7).

2023 was an important year for reports concerning that most modern feature of international trade and commerce, digital technology. UNCITRAL produced its long-awaited report entitled “Taxonomy of legal issues related to the digital economy”, first commissioned five years earlier, on which I will focus. Separately, UNIDROIT published its “Principles on Digital Assets and Private Law”. In addition, the Law Commission in the United Kingdom published its final report on “Digital Assets” (Report No 412). The first two of those reports are supranational in nature, transcending national limits in accordance with the respective charters of UNCITRAL and UNIDROIT. The third is directed to the legal position under the common law of England and Wales, although it has important (and, I think, misconceived) implications for the common law world more generally.

Before I turn to the UNCITRAL report, let me candidly acknowledge some of my own preconceptions. I confess to being wary of attempts to control or influence the laws of any democratic country from outside its borders. The free expression of divergent views on laws and the legal system, together with the willingness to compromise, which are fundamental elements of liberal democratic government, are greatly advanced by the sense of solidarity among the population which derives from a shared inheritance and a shared future within the territory of the nation state. In the present context, there are some highly controversial and necessarily value-laden issues which legal systems must address, such as the ethical use and governance of artificial intelligence and how best to curb the potential for cryptocurrencies to facilitate organised crime, which are the subject of intense debate, and which will ultimately demand a degree of compromise within the operation of municipal legal systems. That said, much of our prosperity depends on international trade and its efficiency, which is facilitated by the harmonisation and modernisation of important elements of international trade law, thereby removing some of the barriers to trade. UNCITRAL has historically played an important role in that process of harmonisation. In my own experience, a prime example is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1958, a triumph of Cold War diplomacy, adopted in Australia by the International Arbitration Act 1974 (Cth). Other examples are the Convention on Contracts for the International Sale of Goods in 1988, the Model Law on Electronic Commerce in 1996 and the Model Law on Cross-Border Insolvency in 1997, all of which are the subject of legislation by the Commonwealth or by its States and Territories. Whatever our suspicions of internationalism in commercial law may be, we should be open to persuasion as to its merits in particular cases, especially where our national sovereignty is neither renounced nor significantly diminished. But even the most radical internationalist ideals must ultimately depend on nation states for their realisation.

As the title of the UNCITRAL report makes clear, the fundamental methodology deployed by its authors is that of classification or taxonomy, and the use of its companion concept, definition. The classic form of definition is encapsulated by the Latin per genus et differentiam: by family and by distinguishing feature. That is the same methodology as taxonomy, as practised for example by zoologists and postage stamp collectors. I regret to say that use of the term “taxonomy” in the context of the common law recalls some of the sillier writings of the late Professor Peter Birks, who drew up a taxonomy of legal principles based on an analogy with techniques of classification in zoology (Peter Birks, “Annual Miegunyah Lecture: Equity, Conscience and Unjust Enrichment” (1999) 23 Melbourne University Law Review 1; Unjust Enrichment (2^nd ed, OUP, 2005), pp 20–21). So when I saw the word “taxonomy” in the title to the UNCITRAL report, to adopt a line of Philip Larkin’s, my mind “lay open like a drawer of knives” (“Deceptions”, 1950).

Are definition and taxonomy the appropriate starting-point for analysing rapidly changing and inherently untidy subject-matter, in which innovators pride themselves on being “disrupters”? If we take cryptocurrency alone, there now exist somewhere between 12,000 and 20,000 different cryptocurrencies (depending on who is doing the counting), many of which carry a great deal of sail and very little ballast. Things are moving so rapidly that the production time of a lengthy report (in this case five years) is almost certain to include matters that are already being superseded, and to contain many gaps relating to new phenomena which may or may not succeed in being adopted generally. Apparent identities are undergoing transformation and nothing remains as it is for long. For example, since the UNCITRAL report was published, we have seen in January 2024 the launch of bitcoin spot exchange traded funds in the United States, and their fervent embrace by Wall Street, which have radically changed the ease of access to bitcoin without the perils and difficulties of self-custody. In the words of one commentator, Tibor Fischer (Spectator, 10.8.24, p. 29), access to bitcoin has gone from a muddy country path to a six-lane highway. But there is a deeper methodological problem in giving explanatory priority to definition and classification, which would exist even if the subject matter were relatively stable and predictable. I note in passing that management consulting firms tend to adopt a stepped framework for addressing the business and governmental problems which their clients throw at them, the first step of which is sometimes expressed as identifying the problem, and in the more dogmatic versions of the framework, the first step is said to be defining the problem. That is no doubt useful in their work in trying to prevent the task from spilling over the sides. But is definition in the strict sense really the best place to start in the present context? Let me illustrate the methodological question by reference to two philosophical problems.

First, let us suppose that we wish to understand the nature of friendship, an inherently stable concept, as Aristotle did in Books 8 and 9 of his Ethics and as Aquinas did in following Aristotle on the point. Aristotle gives as the central case the relationship between those who desire the good of their friends for the friends’ sake rather than merely because of utility or pleasure (Nicomachean Ethics, 8.3.1156). The latter are said to be friendships “only by analogy” to that central case (ibid., 8.4.1157). At the outer limits is the very peripheral case of the goodwill between strangers who pass each other on their travels (ibid., 9.5.1166). As Professor John Finnis explains, the subject-matter of friendship includes everything that is relevantly related or analogous to the central case even if they are watered-down instances of it. Thus, the concept of friendship can also include the goodwill between passing strangers, which is not a deep or rich instance of friendship (in Aristotle’s phrase it is by a metaphor undeveloped friendship), but it is all that the situation reasonably requires, and calling it friendship is neither senseless nor necessarily misleading (John Finnis, Aquinas, OUP, 1998, p 43). The important point is that the meaning of the word shifts significantly as we move from the centre or focus to the outer limits. By contrast with that approach of identifying and distinguishing central and peripheral cases, a definition of friendship must be equally correct and bear that meaning for all accepted usages of the term. In Aquinas’s term, a definition is “univocal”. A definition of “friendship” might thus refer simply to a relationship involving mutual affection and regard. That is a relatively anaemic formulation but it has to be lacking in any real vigour if it is to include all the watered-down cases of friendship which still represent technically correct uses of the word. Definitions are therefore not at all illuminating if differences between central and peripheral cases are inherent in the subject-matter, and of practical importance to those trying to understand and grapple with the subject.

The point may be developed by a second example, namely one of the most fundamental questions in jurisprudence: What is law? Before H.L.A. Hart’s The Concept of Law revolutionised the subject in 1961, the answer was given by Bentham, Austin and Kelsen in the classic form of a definition per genus et differentiam, namely law is a set of commands distinguished from other commands by the threat of sanctions. As Hart showed, the definition failed because (among other reasons) it was based on the wrong genus, namely “commands” rather than “rules”, and there are many kinds of laws which are really power-conferring facilities to enable people to choose to do certain things like forming contracts, declaring trusts, making wills and getting married. But Hart also made a more fundamental methodological criticism of his predecessors. If we try to understand law by starting out with a definition, we will never get beyond a relatively trivial question about the correct meaning of words when what we really want to do is to address serious questions about the nature of things. It simply did not occur to his predecessors to ask the more interesting question: Why do we have law in the first place? That is, what are the social functions of law? A more fruitful approach is to select a central case of law which fulfils those social functions, and then to analyse the elements of that central case, and not to exclude watered-down or peripheral cases from the subject. For example, the pre-Hart positivists were adamant that international law is not law, for want of an effective central authority which could enforce sanctions. But Hart’s methodology does not make that issue turn on definition. International law is not the central case of law, but one of the watered-down or peripheral cases, with many of the features and social functions of law but not all of them. When it works well, as in the formation and implementation of a long-lasting treaty, it more closely resembles the central conception of law than when it works badly and breaks down, as in the use of unprovoked military aggression. Having thus developed a concept of law by reference to its social function, embracing all of the relevant subject-matter and noting the differences between central and peripheral cases, we may well find that little or no useful purpose is actually served by attempting a definition of law. As Friedrich Hayek rightly said in his critique of Kelsen: “Conclusions drawn from a definition can never tell us anything about what is true of particular objects observable in the world of facts” (Law, Legislation and Liberty (Routledge & Kegan Paul, 1982), vol 2, p 50).

With that background, let me turn to UNCITRAL’s “Taxonomy of legal issues related to the digital economy”, which is said to serve two functions (para 1). First, it serves as a record of the exploratory work carried out by the UNCITRAL secretariat since 2018 to identify topics for possible future work by UNCITRAL to address the applications of emerging digital technologies in trade. Second, and more significantly, it is said to serve “as a map to guide the development of proposals for legislative work to fill gaps in existing law”. I will return later to consider the report by reference to that second stated criterion for success, but I will put down a marker at the outset in relation to two key questions: (1) why should the proposals for future work be confined to, or even require legislation?; and (2) what gaps in existing law has UNCITRAL identified? In the interests of time, I will focus on the prominent issues of whether, and in what ways, digital or crypto assets are treated as property by various legal systems.

The UNCITRAL taxonomy addresses five topics: (i) artificial intelligence; (ii) data; (iii) digital assets; (iv) online platforms; and (v) distributed ledger systems. The methodology is identified at the outset as comprising three matters in relation to each of those five topics (para 2):

• first, defining key concepts in legal terms;
• second, exploring the actors, legal relationships and legal issues involved in the deployment and use of associated technologies and applications; and
• third, appraising the application of existing UNCITRAL texts.

Taking the first topic of artificial intelligence (or AI), the report begins by formulating a definition of an AI system as a type of automated system, being a software system that is programmed to perform pre-defined tasks without human involvement (para 12). That definition expressly (and I think unfortunately) seeks to avoid what are called “loaded human analogies such as ‘autonomy’” (para 14), and avoids the word “intelligence” because disagreement exists among computer scientists as to what constitutes the so-called “intelligent” behaviour to be exhibited or simulated by these systems (para 10). Further, the report insists on “the principle of technology neutrality” by avoiding reference to the methods or techniques that are used (para 14), such as “machine learning approaches”, “logic- and knowledge-based approaches” and “statistical approaches” (para 11). In my view, the resulting definition, while undoubtedly correct so far as it goes, is almost completely uninformative. The commentary on the legal issues goes on to identify potential problems in applying the conventional law of contract to “smart contracts”, which are used to automate transactions on a distributed ledger (para 32). However, the report then says (wrongly as one can see from paras 37 and 38) that it does not use the term “smart contracts”, again because of the principle of technology neutrality, and refers instead to the use of “automated systems” (para 33). In my view, the use of such generalised abstractions, rather than the close observation of the real world in all its untidy detail, is not a fruitful starting-point.

Turning then to digital assets themselves, Part 3 of the UNCITRAL report begins promisingly by identifying six different functions of digital assets in trade, where they are used as: (i) items of trade and objects of trade-related services; (ii) a method of payment; (iii) collateral for raising finance; (iv) an investment vehicle; (v) a consumable in business operations; and (vi) a tool for improving business processes (para 81). That struck me as a prudent way to begin. But then the report falls back on the task of definition, saying that there is no widely accepted definition of a digital asset, for which various different names exist (such as “crypto assets” and “tokens”) (para 82). The reader is then told that, in its ordinary meaning, the term “digital asset” connotes a collection of data, stored electronically, that is of use or value (para 82). Thus, rather than pursuing the manner in which digital assets perform those six functions, the report retreats into the question of definition.

The report then refers to the suggestion in the trade context that the feature of legal significance that distinguishes cryptocurrencies and asset-backed digital tokens from a mere collection of data messages or an electronic record is their transferability; that is, that the digital asset is supported by a system that provides control over the asset, and that control may be transferred from one person to another (para 85). The report refers in this regard to the 2023 UNIDROIT “Principles on Digital Assets and Private Law” as providing what it calls “legislative guidance” on digital assets that are used in trade, and also as defining a digital asset as an electronic record which is capable of being subject to exclusive control (para 85). Neither of those propositions faithfully reflects the UNIDROIT report.

As to the first proposition concerning legislation, UNCITRAL appears to have taken out of context a sentence in the introduction to the UNIDROIT report saying that: “It is recommended that States adopt legislation consistent with these Principles” (Introduction, para 0.4). However, the UNIDROIT report is adamant that the jurisdictional neutrality of its Principles means that it is for the jurisdiction in question to decide how to implement the Principles into its own laws and legal system, noting that common law and civil law jurisdictions traditionally use different approaches to address new phenomena and to implement supranational law, and the Principles therefore do not prescribe a specific approach (Introduction, para 0.7). The Principles thus take no position as to whether their rules should be included in a State’s special law on digital assets, should be incorporated into more general laws, already follow from general laws, or are to be addressed by a combination of these approaches (Introduction, para 0.7; and see paras 2.18–2.19).

As to the second proposition concerning exclusivity of control over the digital asset and the transferability of that exclusive control, UNIDROIT’s Principle 6 contains two important qualifications to that concept. First, Principle 6(2) expressly states that the change of control need not involve the same asset. Rather, “change of control” is used in an extended sense to include the destruction or cancellation of a digital asset and the corresponding creation of a new digital asset which is subject to the control of another person. That is important in the context of so-called “transfers” of cryptocurrency, where the transferor typically brings into existence a new cryptoasset with a new pair of public and private data parameters. The data representing the “old” cryptoasset persist in the network, but cease to have any value or function because the cryptoasset is treated by the consensus as spent or cancelled so that any further dealings in it would be rejected. The “new” cryptoasset is represented by new data and controlled by a new key (see the UK Jurisdiction Taskforce’s “Legal statement on cryptoassets and smart contracts”, November 2019, at [45]; UK Law Commission Report No. 412, at [6.25] and [6.28]).

Second, UNIDROIT’s Principle 6(3) states that the ability to control, the digital asset need not be exclusive if, and to the extent that:

• (a) the digital asset, or the relevant protocol or system, limits the use of, or is programmed to make changes to, the digital asset, including change or loss of control of the digital asset; or
• (b) the person in control has agreed, consented to, or acquiesced in sharing that ability with one or more other persons.

Unless Principle 6(3) had relaxed the notion of exclusive control, control would not exist in the case of a multi-signature wallet, or a custodian or sub-custodian arrangement, or the grant of a security interest in the cryptoasset to a lender. These are all now of fundamental importance.

The upshot of UNCITRAL’s analysis of the question “What is a digital asset?” is what is described as a working definition as follows: an electronic record (ie a data message or collection of data messages that are logically associated or otherwise linked together) that is capable of being controlled and uniquely identified (para 88). But just as the question “What is law?” becomes much more illuminating if we change it to the question “Why do we have law?”, so too the narrow concentration on developing a definition of digital assets should be changed to a question relating to the various functions of digital assets and the ways in which the legal system can assist that functionality.

As I indicated earlier, I wish to focus on the way in which the UNCITRAL report deals with the key legal question of whether digital assets, particularly those in the form of cryptocurrency, constitute an object of property rights. The report observes that the civil codes of many civil law jurisdictions only establish property rights in tangible things (para 92, reiterating a point made earlier at para 65). However, the report notes that the law in some civil law jurisdictions has moved to recognise certain digital assets as objects of property, referring in that regard to Liechtenstein, Germany, China, and the Russian Federation. As to common law jurisdictions, the report (at para 93–94) cites cases in Singapore, the UK and New Zealand which have recognised Bitcoin and other cryptocurrencies as property, by reference to Lord Wilberforce’s famous (but, if I may say so, over-worked) statement in National Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1248, that before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability. The UNCITRAL report then refers back to the UNIDROIT Principles on Digital Assets and Private Law, which is again misrepresented as advising jurisdictions to legislate to the effect that digital assets are capable of being the object of property rights (para 95). As I have already said, the UNIDROIT commentary on its Principles explicitly states that the Principles may already follow from general laws in particular jurisdictions and it is entirely a matter for the jurisdiction in question as to how the Principles should be implemented in its own laws and legal system (Introduction, para 0.7; and see paras 2.18–2.19).

Part Five of the UNCITRAL report deals with distributed ledger systems (or DLTs), including blockchain. A number of different approaches to the definition of distributed ledger systems are discussed. There are legislative definitions by reference to the technologies and methods deployed to implement and maintain a distributed ledger, as exemplified by legislation in Belarus, Italy, Malta, Arizona, Vermont and Illinois (para 166). Other legislative definitions are said to be more technology-neutral, focusing on the qualities of data recorded in the distributed ledger resulting from the application of technologies and methods, as exemplified by legislation in France, Germany, Switzerland and a current proposal in the European Union (para 167). Then there are definitions of DLT systems in terms of trust (paras 168–9), definitions in terms of automation (para 170), and definitions in terms of platforms (para 171). The UNCITRAL report then advances its own “working definition” of distributed ledger technology as a bundle of technologies and methods that are deployed to implement and maintain a ledger (or database) that is shared, replicated and synchronised on multiple networked computers (or servers) (para 172). While that definition is correct so far as it goes, does it really tell us anything useful or significant? The authors of the report are immediately on the defensive, and acknowledge expressly that describing distributed ledger technology systems in that way “risks ignoring the complexity of the technologies involved and the pace at which those technologies are developing” (para 173). At this point, the report comes very close to conceding the lack of utility in propounding definitions. The authors then say that a focus on the types of data recorded in a distributed ledger is a useful starting-point to understand the trade-related applications of DLT systems (para 173). Examples are given of supply chain platforms, identifiers for electronic signatures, records of commercial transactions, tradeable digital assets, and smart contracts. That could have been developed further as an explanation of the commercial purposes and functions of DLTs. One might ask, however, whether the working definition proposed is in reality the most uninformative aspect of these lines of inquiry.

In terms of identifying gaps in existing law on the question of rights of property in digital assets, what can be taken from the UNCITRAL report? It has identified a fundamental and rather glaring gap in many civil law jurisdictions, namely that their civil codes do not typically recognise property rights other than in tangible things, and thus legislation is required if digital assets are to be recognised as property. But the report does not identify any such defect in common law systems. While the report does not deal in detail with common law reasoning on the point, except for referring to Lord Wilberforce’s dictum in Ainsworth, there is in fact a serious question about the nature of the proprietary status of digital assets at common law, which takes us back to important questions of methodology. And if you are beginning to suspect that I am about to extol the virtues of the common law, and the virtues of the 1950s High Court of Australia in particular, then you will be reassured to know that there is a happy truth in that.

If we are serious about seeking to harmonise commercial law around the world relating to digital technology, a useful preliminary step would be to gain a common understanding among participants in common law systems as to how the law of property relates to digital assets. To achieve that, two propositions which feature prominently in common law judicial reasoning on whether crypto assets are a form of property must be addressed and, it is to be hoped, extinguished.

The first is the notion that the traditional division of personal property into two mutually exclusive and exhaustive categories, namely choses in possession and choses in action, is unsatisfactory, and must be supplemented by a third amorphous category. The traditional position was expressed in Fry LJ’s famous passage in Colonial Bank v Whinney (1885) 30 ChD 261 that:

All things are either in possession or action. The law knows no tertium quid between the two.

The existence of a supposed third category originated in the Privy Council’s decision in Attorney-General of Hong Kong v Nai-Keung [1987] 1 WLR 1339 at 1342, a case concerning export quotas. The third category has subsequently been said to include milk quotas (Swift v Dairywise Farms Ltd [2000] 1 WLR 1177), waste management licences (Re Celtic Extraction Ltd [2001] Ch 475), and EU carbon emissions allowances (Armstrong v Winnington [2013] 1 Ch 156).

Most importantly for the present topic, it has been said in a number of cases that crypto assets do not fit comfortably within the two traditional categories, in that they are not choses in possession because they are intangible, and they are not choses in action because there is no counterparty against whom the right could be enforced by legal action: Ruscoe v Cryptopia Ltd (in liq) [2020] 2 NZLR 809 at [123] (Gendall J); Re Gatecoin Ltd (in liq) [2023] 3 HKC 401 at [47] (Linda Chan J); AA v Persons Unknown [2019] EWHC 3556 (Comm) at [55] (Bryan J). The UK Jurisdiction Taskforce’s Legal Statement (at [66]–[84]) treated Colonial Bank v Whinney as no more than a case concerning the construction of the Bankruptcy Act 1883, and said that crypto assets should be regarded as belonging to a third category. The UK Law Commission in its final report on Digital Assets in 2023 (Law Comm No. 412) also supported the notion that cryptocurrency belonged in this third category of things to which personal property rights can relate (paras 2.52–53, 3.3, 3.25–30, 3.36–58, 3.65–69 and 4.1–5). The UK Law Commission pointed out that some crypto assets are explicitly designed not to consist of a legal right or claims against a legal person, and bitcoin and ether are examples of crypto assets to be used regardless of their legal recognition and enforceability (at para 2.49).

The UK Law Commission has maintained its position on digital assets belonging to a third category of personal property in its Supplemental Report and Draft Bill published in July 2024 (Report No. 416), even going so far as to say that Fry LJ’s dictum in Colonial Bank v Whinney “is almost certainly no longer correct (to the extent it ever was)” (para 2.34; and see to the same effect para 3.3 of Law Comm No. 412). Again, the Law Commission’s approach is based on an assumption, which is asserted but never analysed or tested, that things in action must be claimable or enforceable only by legal action or proceedings (para 2.36), and that the use or enjoyment of a thing in action is dependent entirely on the enforceability of the right or claim of which it is constituted (para 2.37). The Law Commission thus propounds a bill which contains a single substantive section as follows:

A thing (including a thing that is digital or electronic in nature) is not prevented from being the object of personal property rights merely because it is neither —

• (a) a thing in possession, nor
• (b) a thing in action.

We can at least be grateful that the draft bill does not draw any definitional lines, and thus departs from that typical feature of parliamentary drafting, thereby leaving open-ended the kind of assets which it is intended to cover. However, the bill seeks to impose on the common law what I will seek to show is a misconception as to the nature of choses in action which, if it is enacted, will stultify the proper development of the common law. In short, the proposal is based on a remarkably ill-informed understanding of the common law in this area.

The key question is whether the assumption that choses in action must be legally enforceable by way of action in court is correct. The High Court of Australia addressed that issue in Cain’s Case in 1954. As there are four other High Court cases also known as National Trustees Executors and Agency Company of Australasia Ltd v Federal Commissioner of Taxation, I will refer to this one (appearing in (1954) 91 CLR 540) as Cain’s Case. Kitto J (with whom Dixon CJ and Fullagar J agreed) held that is not necessary in order for property to be classified as a chose in action that it be enforceable by action in court. The argument in that case for the executor of Mr Cain’s estate involved two propositions: first, that all personal property known to the law must consist either of choses in possession or of choses in action; and second, that choses in action comprise only rights enforceable by action in the courts (at 584). However, Kitto J observed that the term “chose in action” furnished an instance of the subject-matter of property having outgrown its nomenclature, and said that the second proposition needed to be recast in more flexible terms if the first was to be accepted (at 584). His Honour observed that the term “choses in action” comprised a heterogeneous group of rights which have only one common characteristic, namely that they do not confer the present possession of a tangible object. In other words, the distinction between choses in possession and choses in action corresponds to the distinction, which is made by all legal systems of which I am aware, between tangible and intangible things. That is a logically exhaustive dichotomy. It is also entirely reasonable. It corresponds almost exactly to the way in which the Nicene Creed divides creation into “all things visible and invisible”.

Returning to Kitto J’s reasoning, reference was made to Sir William Holdsworth’s History of English Law which showed that the meaning of the term “chose in action” had become progressively extended to accommodate many forms of personal property which were not within the original conception of a right to be asserted by an action in court. For example, a debt remained a kind of personal property even after becoming statute-barred (at 584–5). More importantly for the decision in Cain’s Case, government bonds and debts could not be the subject of a suit against the Crown in England until the Crown Proceedings Act 1947 came into operation, but no one could doubt that a debt owed by a government was personal property, and indeed government bonds were among the most common forms of such property (at 585–6). Similarly, foreign government bonds could not be sued for, but there was no doubt that foreign bonds were property, both in common language and in the language of lawyers (at 586). The two dissentients, McTiernan and Taylor JJ, also agreed that it was not necessary that the right be capable of enforcement by legal process, as illustrated by a statute-barred debt and by foreign government securities, which were said to be “so much a subject of trade that it would be idle to deny that a holder, being possessed of a saleable commodity, is not the owner of property” (at 566).

I note that the principle that a chose in action need not be legally enforceable by court process has not been doubted in Australia since that decision, and was reiterated by Gummow J in Commonwealth v WMC Resources Ltd (1998) 194 CLR 1 at [180]. Accordingly, there is no need in Australia to resort to a third category to accommodate assets which could not be enforced by way of legal process. Nor is there any need to explain Colonial Bank v Whinney as not meaning what it says as a matter of general principle for which it has been treated as authoritative for almost 140 years. And Colonial Bank v Whinney cannot be dismissed on the basis that it belongs to a world which did not experience great technological advances as our own era has done. In the decade leading up to 1885 patents were granted to Alexander Graham Bell for the telephone, to Karl Benz for the two-stroke internal combustion engine and to Thomas Edison for the electric light bulb. By reason of the exhaustive dichotomy correctly described in Colonial Bank v Whinney, we are spared the unedifying task of trying to explain by reference to some third category how milk quotas and crypto assets are like cases which must be treated alike. The fundamental flaw in this so-called third category is that it artificially narrows the range of circumstances from which appropriate analogies are drawn in the task of treating like cases alike. This is a prime example of what the Germans call a Schlimmbesserung: an intended improvement that makes things worse. The human capacity for creating mess is so well developed that, if something works well, the only sensible course is to leave it alone.

In ByBit Fintech Ltd v Ho Kai Xin [2023] SGHC 199, Jeyaretnam J of the Singapore High Court in dealing with crypto assets similarly said that over time the category of things in action has become broad, flexible and not closed, and that is what explained and justified the statement in Colonial Bank v Whinney that all personal things are either in possession or action and there is no third category (at [35]). His Honour thus concluded that the holder of a crypto asset has in principle an incorporeal right of property recognisable by the common law as a thing in action, although added (in my view unnecessarily) “and so enforceable in court” (at [36]).

Accordingly, the Bill proposed by the UK Law Commission to enshrine in legislation a third category of personal property to accommodate digital and electronic assets should be firmly resisted. It is worse than superfluous. It expressly undermines what is well-established (at least in Australia and Singapore) to be an exhaustive dichotomy in the law of personal property between choses in possession and choses in action.

The second proposition which must be addressed is the misplaced notion that Lord Wilberforce’s statement in Ainsworth as to the nature of property and rights in property is an authoritative definition of property and rights in property. It is a common feature of the recent cases which have considered whether crypto assets are property for courts to find that they satisfy the elements of Lord Wilberforce’s statement, and are therefore property at common law: Ruscoe v Cryptopia Ltd (in liq) [2020] 2 NZLR 809 at [104] – [119] (Gendall J); Re Gatecoin Ltd (in liq) [2023] 3 HKC 401 at [57] and [59] (Linda Chan J); AA v Persons Unknown [2019] EWHC 3556 (Comm) at [59] (Bryan J); Tulip Trading Ltd v Bitcoin Association for BSV [2023] EWCA Civ 83 at [24] (Birss LJ); ByBit Fintech Ltd v Ho Kai Xin [2023] SGHC 199 at [33] (Jeyaretnam J).

One criticism, which has been made by Professor Robert Stevens, is that Lord Wilberforce’s statement in Ainsworth is not a definition of property, in that Lord Wilberforce was doing no more than stating necessary conditions, not sufficient ones (“Crypto is Not Property” (2023) 139 LQR 615 at 622). That point is well made, but one can and should go further. Returning to Cain’s Case, the statutory right in that case was expressly stated in the relevant Act to be absolutely inalienable by way of sale, assignment, charge or otherwise prior to receipt of the relevant payment from the Commonwealth (which had not occurred at the time of Mr Cain’s death). Kitto J (again with the agreement of Dixon CJ and Fullagar J) said “categorically” (his word) that alienability is not an indispensable attribute of a right of property according to the general sense which the word “property” bears in the law (at 583). Kitto J said that rights may be incapable of assignment either because assignment is considered “incompatible with their nature”, as was the case originally with debts (subject to an exception in favour of the King), or because a statute so provides, or considerations of public policy so require, as was said to be the case with some salaries and pensions (at 583). However, Kitto J said that they are all within the conception of “property” as the word is normally understood. Indeed, Sir William Holdsworth in his History of English Law said that there was a tendency at one time to regard the non-assignability of a right as actually being the feature which qualified it to be classified as a chose in action (at 583).

This principle has consequences for how Lord Wilberforce’s dictum in Ainsworth should be viewed in Australia. In The Queen v Toohey; ex parte Meneling Station Pty Ltd (1983) 158 CLR 327 at 342, Mason J cited Lord Wilberforce’s statement in Ainsworth, but said that assignability is not in all circumstances an essential characteristic of a right of property, noting that by statute some forms of property are expressed to be inalienable. Mason J did not refer to Cain’s Case, but five members of the High Court did so in Federal Commissioner of Taxation v Orica Ltd (1988) 194 CLR 500 at [91] (Gaudron, McHugh, Kirby and Hayne JJ) and [110] (Gummow J), as too did Gummow J in Yanner v Eaton (1999) 201 CLR 351 at [85], when making the same point that property need not necessarily be susceptible of transfer. As a general proposition, the High Court of Australia has traditionally had to analyse the concept of “property” more deeply and broadly than its UK counterpart because of the provision in s 51(xxxi) of the Commonwealth Constitution, conferring on the federal Parliament power to make laws with respect to the acquisition of property provided that such acquisitions are on just terms.

The most important and fundamental point which emerges from Cain’s Case for present purposes is that the judgments in Cain’s Case refer on multiple occasions to the actual conduct of the commercial community in the way in which assets are traded or otherwise dealt with as a compelling reason for recognising those assets as proprietary in nature. The point appears most explicitly in the reasons of McTiernan and Taylor JJ to which I have already referred, to the effect that foreign government securities “are so much a subject of trade that it would be idle to deny that a holder, being possessed of a saleable commodity, is not the owner of property” (at 566). Kitto J said in Cain’s Case (at 586) that it was too dangerous to attempt to define “property”. I do not have the self-harming need, or the self-assurance, for that kind of excitement. However, I will attempt an answer to the narrower question: what is it about crypto assets that makes them a kind of property at common law? Most fundamentally, the answer lies in the fact they are actively bought and sold, and they are therefore sufficiently analogous to things which are already treated as property. And they would not be actively bought and sold unless they were sufficiently definable, identifiable by third parties, capable of assumption by third parties, and permanent and stable. These are all relative concepts and raise questions of degree. As we know from Cain’s Case (contra Lord Wilberforce), not all of them must be satisfied in order for something to be treated as property. Ultimately, if market participants in very large numbers are satisfied of those matters in undertaking transactions on the basis that crypto assets are property, then it would be most surprising if the judiciary in a common law jurisdiction were to disagree.

That reasoning corresponds closely to the approach of Jeyaretnam J in ByBit Fintech Ltd v Ho Kai Xin [2023] SGHC 199 at [36]. His Honour drew an illuminating analogy with how the law approaches other social constructs, such as money, saying that it is only because people generally accept the exchange value of shells or beads or differently printed paper notes that they become currency. Money was thus said to be accepted by virtue of a collective act of mutual faith. As I would put the point, money is a convention, being simply a commonly accepted medium of exchange, noting the original meaning of convention, from the Latin convenire, of agreeing or coming together. The noun “convention”, which is sadly much deprecated in modern political and social discourse, is really best understood as based on a verb. A particular currency does not become money just because the government says so. For example, Panama has a government-based currency, the Balboa, but no one uses it; the locals use the US dollar instead (see Andrew M. Bailey, Bradley Rettler and Craig Warmke, Resistance Money: A Philosophical Case for Bitcoin (Routledge, 2024), p 45). Justice Jeyaretnam’s reasoning reflects how a common law court should approach the issue of whether, and in what way, crypto assets should be regarded as property, untroubled by the width of the category of choses in action, and cognisant of the simple fact that crypto assets are being actively traded for value, made the subject of trusts and charges, and bequeathed in wills. If a court observes that a new kind of asset is generally accepted by the commercial community as being of a proprietary character, then that should be sufficient in and of itself for the common law to treat it as property. Most importantly, the process of reasoning does not require any attempt to be made to define the new kind of asset or to classify it according to some taxonomy, but merely to identify the features of the particular asset in question and to observe how the asset functions in the commercial community. Those features and functions can then be compared to analogous facts, and a body of legal principles is thus built up inductively by the process of treating like cases alike.

That is the traditional methodology of the common law, as one of the finest practical expressions of British empiricism. The common law method operates by close observation of the facts as they are revealed by actual experience in the real world, and provides an educated response to those facts, reasoning by analogy from other observed circumstances. In that way, the common law fulfils its purpose of embodying in a relatively predictable way the reasonable expectations of ordinary and honest people.

The common law has a distinct advantage over civil law systems in this regard, based as it is on bottom-up empiricism, rather than top-down deductive reasoning. Friedrich Hayek argued that the chief concern of a common law judge must be the expectations which the parties in a transaction would have reasonably formed on the basis of the general practices that the ongoing order rests on: Law, Legislation and Liberty, vol 1, p 86. In this way, order emerges from our free transactions, not because it is imposed, but because it is implicit in our dealings: ibid.,vol. 2, pp 108–9. In other words, the common law encapsulates what reasonable people already assume when they engage in free transactions. Roger Scruton took up that argument, and said that implicit in Hayek is the thought that free exchange and enduring customs are to be justified in exactly the same terms, both being indispensable distillations of socially necessary knowledge (Roger Scruton, How to be a Conservative, p 56). Scruton and Hayek both drew a legal analogy with Adam Smith’s “invisible hand” in economics, and the notion that order may emerge from consensual dealings without someone having imposed it (ibid., p 67; Law, Legislation and Liberty, vol 1, pp 37–38). As Scruton said, the common law contains information dispersed through the record of the law that could not be contained in a legislative program. That includes information about conflicts and their resolution, about the sense of justice in action, and about human expectations (Mark Dooley (ed.), The Roger Scruton Reader (Continuum, 2009), p 48).

To extend the point in the context of the present issue relating to methodology, there is no need at all in that process for definition and classification. Those intellectual steps only get in the way of proper common law reasoning. Rather, the common law technique is to make close observation of the facts as they arise and to draw analogies and distinctions with how other factual scenarios have been treated, identifying in that way central cases and peripheral cases. If the received principle does not apply directly to a new factual scenario, it might still apply analogically, whereas that possibility is not available with respect to statutory law. In terms of common law reasoning, if there is a socially agreed solution by custom, convention and the operation of the market, all the common law has to do is recognise and adopt it. In that way, the common law is simultaneously both facilitative and reflective: it states rules which one can pick up and use, and those rules in turn reflect modes of actual observed practice. On this point, I part company slightly with Hayek who praised the common law as preserving a Middle Ages tradition whereby the law was discovered, not made (Hayek, op. cit, vol 1, pp 83–84). I do not see these concepts as dichotomous, but as occurring simultaneously in common law reasoning.

There is no reason why statutory intervention relating to digital assets should be preferred to common law development. In the English tradition, which Australia is fortunate to have inherited, there is no such preference. In the context of digital assets, a statute is unlikely to keep pace with technological innovations and be capable of handling new implementations of the technology. You cannot legislate for something in advance of its invention. There also seems to me to be a real prospect that the rigidity of a statute would inhibit experimentation, by creating legal uncertainty in the shadowlands which exist beyond the terms and definitions adopted in the legislation. To return to Hayek, one of the great values of freedom is that it rests on the opportunities it provides for unforeseen and unpredictable actions, such that we will rarely know what we lose through a particular restriction of freedom (Law, Legislation and Liberty, vol I, p 56). The genius of the common law lies in the way in which well-reasoned statements of fundamental principle can be adapted and applied to circumstances which previous generations could never have imagined. There is no need to lament that the Australian High Court in 1954 was not equipped with an understanding of the wonders of digital technology. We should view the common law as a geologist sees a landscape: different eras co-exist irrespective of their chronological order. Lawyers in civilian systems have a fundamentally different frame of reference. However, digital assets are evolving far too quickly and unpredictably for anyone to view the landscape in the manner of a field botanist, carefully classifying the subject-matter according to a fixed and stable Linnaean system, and expecting that taxonomy to survive more than the most fleeting contact with the real world.