Jade Fenech

Legal Associate, E&S Group

Jade joined E&S Group as a legal associate in 2018. Before joining E&S Group she practised with a litigation firm for two years. She holds a Bachelor of Laws Degree and a Masters of Advocacy from the University of Malta and was admitted to the bar in 2019. Her primary areas of practice are corporate and commercial law, financial services and fintech.

Technology and Legal Personality

Wednesday 04th September 2019

This article is being published in furtherance to the article published on the 11th July 2019: ‘To regulate or not to regulate’ as part of a series of articles to be published on different aspects of blockchain technology that may necessitate regulation.

Legal Personality of Technological Arrangements (TAs)

What are TAs?

TAs such as Decentralised Autonomous Organisations (DAOs) can be equated to automated cars or robots insofar as they are created and become able to function on their own, pre-programmed to behave in specific ways.

However, there are significant differences which raise legal concerns far more elaborate than those raised by automated cars and robots. The main difference is the impossibility to apply the principle of the “nearest person” in certain cases. With automated cars and robots, it is possible to identify the manufacturer as the “nearest person”. If damage is caused, the manufacturer is liable. Moreover, if an they go rogue, they may be physically taken down. This would however not apply to DAOs where the developer might not be identified and the only means of stopping it, is by switching off the internet completely, which is practically impossible.

Anonymous developers

Taking Bitcoin as an example, a developer may decide to remain anonymous. This would render the ‘nearest person’ principle inapplicable. Moreover, as soon as a DAO is developed, it takes a life of its own and continues to exist even if the developer abandons it.

So how can we deal with this issue? One way to go about this would be by giving TAs a legal personality. This reasoning is based on different considerations:

1. A user would be able to hold the TA liable for damages;

2. Enforcement of regulations, such as imposition of fines on the TA itself if there is a breach of law;

3. A known designer might create an open source protocol, from which, an anonymous designer forks out a malicious protocol. If the latter causes any damage and the principle of the nearest person were to be applied, the first designer would be held liable, even if he is not to blame. Giving legal personality to the TAs would ensure that a designer in good faith is not held liable.

4. Distributed Ledger Technology (DLT) has no specific location. Different nodes may be subject to different legal obligations, if any at all. Therefore, if a TA has a legal personality, it would be easier to ascertain its home jurisdiction ensuring better certainty in cross-border disputes.

5. The permanent nature of DLT means that the technology outlives its creator. So even if the creator is known, the nearest person principle may still be inapplicable. If the TA is given a legal personality and the designer passes away or is no longer in the picture, such absence would not affect the users if a claim arises.

6. The assets of the DAO may be segregated from third-party assets that it may hold. Such third-party assets would not be subject to any seizures or claims which relate solely to the TA, and vice versa.

7. Giving TAs a legal personality means giving them legal capacity to validly contract.

Challenges faced by this proposition

The challenge lies in understanding what form of legal organisation can be used to confer legal personality. Is it more of an association of persons or of a universality of things? Is it more practical to use a purpose foundation?

At this stage, we cannot limit ourselves only to those forms which the law already sets out. Innovation and practicality may require the emergence of new forms of legal organisations which can be flexible enough and better suited to the nature of different TAs.

Moreover, although giving TAs a legal personality may solve several legal issues, an administrator of sorts would still be required to represent the TA.

This may all take us back to square one where the creator of the TA might opt to remain anonymous. It therefore goes to show, that whilst the regulator’s intervention in this regard may solve a number of practical and legal issues, such efforts may still be rendered fruitless in the face of the anonymous nature of the technology.

W: www.ellulschranz.com