Mafia Economics

'Returns to education in criminal organizations: Did going to college help Michael Corleone?' by Nadia Campaniello, Rowena Gray and Giovanni Mastrobuoni in (2016) 54 Economics of Education Review comments 

Is there any return to education in criminal activities? This paper is one of the first to investigate whether education has not only a positive impact on legitimate, but also on illegitimate activities. We use as a case study one of the longest running criminal corporations in history: the Italian-American mafia. Its most successful members were capable businessmen, orchestrating crimes that required abilities that might be learned at school: extracting the optimal rent when setting up a racket, weighting interests against default risk when starting a loan sharking business or organizing supply chains, logistics and distribution when setting up a drug dealing system. We address this question by comparing mobsters to a variety of samples drawn from the United States 1940 Population Census, including a sample of their closest (non-mobster) neighbors. We document that mobsters have one year less education than their neighbors on average. We find that mobsters have significant returns to education of 7.5–8.5% , which is only slightly smaller than their neighbors and 2–5 percentage points smaller than for U.S.-born men or male citizens. Mobster returns were consistently about twice as large as a sample of Italian immigrants or immigrants from all origin countries. Within that, those charged with complex crimes including embezzlement and bookmaking have the highest returns. We conclude that private returns to education exist even in the illegal activities characterized by a certain degree of complexity as in the case of organized crime in mid-twentieth century United States. 

Additional years of education are known to increase earnings in legitimate labor activities. But, what about illegal ones? In this study we will not discuss the activities of common criminals. Our focus is professional criminals who belonged to one of the most successful and long-lasting criminal organizations: the Italian-American mafia between the 1930s and the 1960s. We match a list set up by the Federal Bureau of Narcotics (FBN) of 712 mobsters belonging to the Italian-American mafia with the 1940 United States (U.S.) Census of Population. This gives us information about income, housing values, education, job characteristics, as well as the precise address of residence for each individual. We create a sample of white, male, similarly aged, neighbors of these mobsters that serves as the closest comparison group and we also present estimated returns to education for other samples drawn from the 1940 Census, including all working-age white men; whites born in the U.S.; all U.S. citizens; all immigrants; all Italian immigrants; and second-generation Italians (who are born in the U.S. but have at least one parent born in Italy). 

Economists have shown that increased levels of education reduce criminal participation. This implies that education is valued more by legitimate firms than by illegitimate ones. This is consistent with our first finding: mafia mobsters have on average one less year of education when compared to the sample of neighbors. 

But, this finding does not imply that annualized returns to education are smaller for organized crime members than for ordinary workers. Criminal careers are known to start very early and are likely to be interwoven with schooling choices. Individuals who choose to be part of the mafia are likely to trade off income and power for risk of injury, prison, and death. This alone, without the need of lower returns to education, would predict a lower investment in education as there would be fewer years of working life in which to recoup foregone wages (Mincer, 1974). Indeed, economic theory predicts that individuals with lower (working) life expectancy should have larger annualized returns to education. 

This is true unless the extra schooling is not marketable. So, is schooling marketable in the mafia? This question really involves the mafia’s complex business model and the link between human capital and schooling. Let us start with the latter. If one takes Bowles and Gintis (2002)’s view that schools “prepare people for adult work rules, by socializing people to function well (and without complaint) in the hierarchical structure of the modern corporation” it would seem that schools are an ideal training environment for aspiring mobsters. 

While we do not fully embrace this view of schooling, many of the skills students acquire at school are likely to be useful when setting up a racket (i.e. extracting the optimal rent), a loan sharking business (i.e. weighting interests against default risks), a drug dealing system (i.e. setting up supply chains), etc. It is ultimately an empirical question as to whether the returns to education in the mafia are similar to the ones ordinary workers enjoy. This comparison, we believe, is also informative about the workings of the mafia. The results presented below hold, we argue, for criminals engaged in complex criminal activities, but may not be more generally true of petty criminals or criminals operating at the lowest levels of criminal organizations, whose everyday tasks are much simpler and do not involve the planning, risk evaluation, and communication skills needed of those higher in the network. We are therefore providing a counterpoint to Carvalho and Soares, and Levitt and Venkatesh (2000), who study the characteristics of regular gang members. 

We estimate Mincer-type regressions using log income and log housing value as the main outcomes. The main independent variable of interest is years of education. We present results for the mobster sample and compare to other reasonable comparison groups: all men; U.S. citizens; immigrants; Italian immigrants and second-generation Italian men; and a sample of mobster neighbors, who lived on the same block (and usually the same exact street) in 1940. 

We find large returns to education within the mafia, no matter the model, or the outcome variable, that we use. This shows that private returns to education exist not only in legitimate but also in the illegitimate activities that imply a sufficient degree of complexity. Mobster returns (in terms of income) to a year of schooling are around 7.5–8.5% , compared to 9–10% for the neighbor sample and 10.5–13% for the U.S. born and U.S. citizen samples. Interestingly, mobster returns are substantially larger than we find for the immigrant and, especially, the Italian immigrant, samples, while they are only about one percentage point higher than we find for second-generation Italians. Moreover, for mobsters who, according to the FBN records, were involved in white-collar crimes or in crimes that require running an illegal business (i.e., racketeering, loan sharking, bootlegging, etc.) we find returns to education that are about three times as large as for those who are involved in violent crimes (i.e., robberies, murders, etc.). 

To our knowledge, this is the first systematic attempt to estimate the returns to education in criminal activities and provides intuitive insights into the workings of complex criminal gangs such as the mafia and into the factors considered by those deciding to become criminals in the first place. Carvalho and Soares provide some evidence on the returns to education for low level Rio de Janeiro gang members but it is not the main focus of their study. 

The paper proceeds as follows. We first discuss the existing literature on education and crime, before providing a brief overview of the history of mafia organizations and members in the U.S. before 1960. We then present our novel dataset as well as our comparison samples drawn from the U.S. Census. We then discuss the empirical methodology before finally presenting our results, discussing mechanisms, and concluding.

Pharma and other IP Protection

The Benefits of Intellectual Property Rights in EU Free Trade Agreements report by Fredrik Erixon, Oscar Guinea, Erik van der Marel and Philipp Lamprecht at the European Centre for International Political Economy calls for stronger intellectual property protection for the EU pharma sector and other rights interests.

The authors provide 'key takeaways' -

 1: What are Intellectual Property Rights and why do they matter? 

Intellectual Property gives the creator (e.g. an artist, a company doing R&D, indigenous peoples, a creative studio) an exclusive right over the commercial use of that intellectual creation for a certain period of time. IP motivates people/companies to invest in innovation by providing the opportunity to recoup the investments made. By motivating such new discoveries, innovations and other immaterial creations, IP directly leads to progress that is beneficial for society as a whole. 

2: The economy-wide relevance of IP-intensive industries 

IP-intensive industries constitute 44.8 percent of EU GDP and generate 38.9 percent of total EU employment. Wages are 47 percent higher on average in IP-intensive industries compared to non-IP-intensive industries. They are responsible for 68% of total EU exports and they drive investments in the EU economy (51% of all investments occur in a set of IP-intensive industries). 

3: EU trade agreements: strong on niche types of IP but weaker on the broad IP types 

EU FTAs are particularly strong in some niche types of IP (e.g. geographical indications), but less so in the broad types of IP of patents and trademarks, while the latter matter most economically. The EU did not copy the equivalents of EU law into its FTAs and there is much less focus on patents and trademarks in EU FTAs compared to US FTAs. 

4: 55% of EU exports (of which 60% is IP intensive) are not covered by an FTA 

Because of the EU’s bilateral FTA strategy, the share of EU exports covered by FTAs rose to 45% in 2018 and IP-intensive trade covered by FTAs grew fast. However, 55% of all EU exports are not covered by bilateral FTAs and 60% of these exports are IP-intensive. They do not have FTA IP protection which could be an issue for trade with countries where IP systems (including enforcement) are weaker. 

5: The EU IP score and EU’s global share of IP-intensive exports declined 

From 2009 to 2018, the EU IP score has declined vis-à-vis the US, China, Japan and Switzerland. The global share of EU IP-intensive exports is also eroding gradually. The fact that the decline in IP-intensive export shares is gradual is likely due to the long-term nature of R&D, which also means this trend cannot easily be turned around once it happens. 

6: Sector-specific relevance of IP-intensive industries. 

Most value-added for the EU economy is created by machinery (€232bn), motor vehicles (€206bn), and architecture & engineering (€158bn). Pharmaceuticals (€161k), telecoms (€156k), chemicals (€107k), transport equipment (€88k) and motor vehicles (€81k) create the most productive and highest value-added jobs. These sectors are 2-3 times as productive as non-IP-intensive industries (€51k). Machinery (€240 bn), motor vehicles (€169 bn), chemicals (€161 bn) and pharmaceuticals (€135bn) contribute most to EU exports. IP-intensive sectors export 68% of all EU exports. Telecom (€44k per person), motor vehicles (€39k p.p.), machinery (€22k p.p.) and electrical equipment (€13k p.p.) create most investments per capita in the EU in 2019. 

7: Strengthening IP in EU FTAs has a significant positive economic and societal effect for the EU and EU Member States 

Stronger IP provisions in EU FTAs matter: they create a level playing field, improve market access, reduce trade costs for IP-intensive products, and create predictability for long-term investments. Stronger IP provisions in EU FTAs lead – each year – to higher EU GDP (€63bn), more EU exports (€74bn), higher investments in the EU (€17bn) and higher wages for EU citizens (€245 per EU family of 4). Every EU Member State benefits. All 27 EU Member States participate in these gains. 

8: Strengthening IP in EU FTAs also has positive sectoral effects in the EU and in EU Member States 

The EU IP-intensive sectors that would increase exports most in case of stronger IP provisions in EU FTAs are: machinery (+4.0%), transport equipment (+3.4%) and electronics (+3.2%). In terms of production, transport equipment (+6.3%), machinery (+2.3%), electronics (+2.2%), electrical equipment (+2.0%) and pharmaceuticals (+2.0) would increase production in the EU. 

9: Patents and trademarks matter most for IP-intensive EU exports 

The largest positive impact on exports comes from patent and patent-related provisions, followed by the effects of trademarks. For EU FTAs, however, the patent and trademark provisions have a weaker trade-enhancing effect compared to other FTAs due to EU FTA patent and trademark provisions being weaker than those in other FTAs. By strengthening these provisions a stronger export performance and more export-oriented jobs in EU Member States would result. 

10: IP and the EU Industrial Strategy: an opportunity for EU IP-intensive industries 

The biggest gains in economic activity are created when new innovations such as digital technologies, new machines, innovative medicines, and green technologies are also broadly adopted. IP provisions in EU FTAs can meaningfully contribute to EU strategic resilience by promoting innovation in the EU, driving the digital transformation, green technology development and R&D into innovative medicines, especially if done in parallel to a strong regulatory framework and deepening of the EU Single Market. 

11: IP in the EU pharmaceutical strategy: the EU at a crossroads 

The EU has lost ground in terms of pharmaceutical innovation – the most R&D intensive industrial sector – since 1990. The EU Pharmaceutical Strategy has the potential to turn this trend around, but in spite of some positive IP elements in the strategy, it looks like this may not happen, mainly because it could introduce conditionalities on IP and incentives. This is the opposite of what the EU’s global trading partners are doing and could undermine the positive effect of strong IP provisions in EU FTAs. 

12: IP effective against counterfeit goods 

Counterfeiting is a violation of IP. Strong IP provisions (e.g. trademarks, patents, copyrights) that are enforced jointly by companies and governments (e.g. an EU-wide food fraud risk management system, the EU falsified medicines directive) are one of the most efficient ways to combat counterfeiting and piracy and reducing their negative economic, environmental, health and societal impact. 

13: IP and biodiversity 

The EU-ANDEAN FTA contains most IP provisions on the protection of ‘traditional knowledge and genetic resources’. IP helps to combat the overexploitation of natural resources, supporting the lives and livelihoods of indigenous and local communities and allowing these communities to capture larger shares of the economic benefits, while focusing on preserving the planet for future generations. 

14: IP and SMEs 

The protection granted from IP is vital for small- and medium-sized enterprises (SMEs). Many SMEs fail to consider their IP in early stages of development and overlook that it is one of their most valuable assets. Stronger IP provisions in EU FTAs, linked to SME chapters, could help SMEs overcome the export hurdle as more predictability and certainty are provided and investments protected. Stronger FTA enforcement too is especially beneficial for SMEs who do not have the resources for legal battles to protect their (intellectual) property.

The paper offers the following policy recommendations - like Captain Renault in Casablanca I confess to being "shocked, shocked" - 

1: Stronger IP provisions in EU FTAs 

The EU should strengthen IP provisions in EU FTAs to the level of protection provided for in EU law, especially, but not only, with developed countries (e.g. Australia, New Zealand, Chile). The EU has the opportunity to deepen FTAs and strengthen IP after several years when FTAs are ‘upgraded’ to the benefit of EU Member States’ and trading partner economies. Mirroring the EU IP system in EU FTAs was the ambition in 2006 of the ‘Global Europe’ strategy. If the EU would refocus on this objective in 2021, the EU economy and its citizens would benefit in various ways: economically (e.g. higher levels of welfare, investments and exports), socially (e.g. higher wages, more high-quality export jobs), environmentally (e.g. support for biodiversity, green technologies), and in terms of recapturing part of the EU’s former global leadership in innovation, and via stronger resilience for the EU economy. 

2: Strengthen patent and trademark provisions in EU FTAs especially 

The EU is already including strong provisions in its FTAs for geographical indications (GIs), plant variety rights (PVRs) and – depending on the trade partners – traditional knowledge. But the EU should include stronger provisions on two large types of IP: trademarks and patents. For these two types, the EU should agree provisions in line with those provided for in EU law. Currently, EU FTAs are weaker in these two types of IP than other FTAs, notably US FTAs, while these two types of IP are among the most important for the EU and EU Member State economies. The current levels of trademark and patent protection constitute the largest untapped potential of EU FTAs. The EU should lift the level of patent and trademark protection to what is already done on GIs. On trademarks, the EU could include provisions in its FTAs that would allow for the refusal or invalidation of a trademark on the grounds of bad faith, in order to disincentivise bad faith registrations by local companies infringing foreign trademarks. On patents, the EU could agree on EU-levels of RDP and SPC provisions in its FTAs. 

3: Strengthen the enforcement of FTAs 

The EU should strengthen IP in EU FTAs via more emphasis on enforcement of its FTAs, including for IP provisions. The appointment of the Chief Trade Enforcement Officer (CTEO) in 2020 and the entering into force new trade enforcement rules in February 20212 are important. In addition, the EU should continue its bi-annual reporting on IP frameworks in third countries, the use of bilateral IP forums to strengthen IP frameworks in third countries, and use the Access2Markets Database to collect and follow IP-related market access barriers. In addition, trading partners should not be allowed to circumvent FTA provisions by adopting mitigating domestic policies that undo the effect of the FTA after the FTA has been applied. Also, the EU should actively check how the FTA (and its IP provisions) are embedded  in national laws of the partner countries, taking likely implementation and enforcement already into account when (re)negotiating an FTA, and the scope of dispute settlement provisions in EU FTAs should as a standard include trade-related disputes arising from the violation of IP. This will strengthen global IP enforcement and – for example – help address the common challenge of counterfeit / fake goods that have significant negative economic, environmental, health and reputational effects. 

4: Strengthen the wording of IP provisions in EU FTAs 

Effectiveness of IP provisions in EU FTAs does not only depend on more or longer protections (e.g. years of copyrights, patent term restoration or trademarks), but also on the detailed ways of wording provisions in EU FTAs. One way to strengthen IP in EU FTAs would be for the European Commission to engage in a dialogue with IP-intensive industries to discuss how provisions are applied / work in practice and how they could be reformulated to become more effective in protecting and enforcing IP on the ground.  

5: Link IP in FTAs more directly to EU strategic objectives 

The EU should add a requirement in its impact assessment work around EU FTAs to explore the effects of strong IP provisions in EU FTAs on achieving EU core policy objectives, especially in combination with the trade enhancing effects of the FTA. For example, how can IP strengthen the EU’s Green Deal, the Digital Transformation, support economic development of the poorest nations in the world, or increase EU strategic resilience against future pandemics? And what flanking measures could be agreed upon with the EU’s trading partners to allow the IP framework to best support these policy objectives. 

6: Make IP work better for SMEs 

With IP generating substantial benefits for SMEs in Europe, there is not only a need to strengthen IP provisions in EU FTAs overall with a focus on benefiting SMEs, also a clear link to SME chapters in EU FTAs needs to be made and the FTAs need to be flanked by a stronger interaction between IP offices, SME support institutions, business associations, national, regional and local governments and other relevant actors to first identify the IP needs of entrepreneurs and remove barriers to a more effective use of the IP system. 

7: Support partner countries to enforce IP better 

Very often, implementation and enforcement of IP in trading partner countries is weak and not up to the level of implementation and enforcement in the EU. This is not always bad will, but also simply the result of weaker systems and structures, lack of budgets, and lack of understanding of IP. We therefore recommend the EU to think of flanking capacity building projects in the area of IP – especially in case of FTAs with developing countries. These capacity building projects could focus on: 1) Helping trade partners to set-up specialised IP courts and train judges that will strengthen domestic IP enforcement; 2) Support partner countries to be clear on what has to happen with seized counterfeit goods: create ample storage space for detention of seized products and budgets for destruction of these counterfeit goods; 3) Awareness raising on what IP is and what IP enforcement entails. 

8: Extend the global coverage of EU FTAs 

Ideally, each country would have its own strong domestic IP system to support innovation and R&D and protect creators from illegal use of ones’ IP. This is vital for IP-intensive industries first and foremost, but also for the EU, because if EU company’s IP rights are violated in a third country, the negative consequences are also born by the EU where the investment costs were made and where falsified goods could enter. Parallel to deepening IP in EU FTAs, the EU should consider expanding the bilateral coverage of EU FTAs with strong IP provisions with Australia, New Zealand, Indonesia, Chile, but also – more challenging – with key trade partners like China and Russia where domestic IP systems are much weaker and an FTA would add much-needed legal certainty for industry. Also an understanding with the US, where EU and US could together set a global example of strong IP provisions driving R&D and innovation, should be considered. 

9: Explain the benefits of IP better 

Because they are important, but also conceptually difficult to understand, the EU – together with EU IP-intensive industries – should explain more about what IP is, how they work, and why it is important for the EU to have a strong IP framework. Especially the use of concrete examples in illustrating IP is important. One way would be to add more information to the “Report on the protection and enforcement of Intellectual property rights in third countries”. Another way would be to explain the quid pro quo inherent in certain IP rights. For example, patents will not be granted unless the patent application contains sufficient detail concerning the invention, permitting further research. Similarly, regulatory data protection (RDP) for innovative medicines protects marketing authorisation dossiers which in turn leads to more transparency. That transparency forms the basis for future generic and biosimilar products. 

10: IP provisions in EU FTAs matter for EU Member States 

Working on stronger IP provisions in EU FTAs is not only a role for the European Commission or the negotiators. Industry has an important role to play by highlighting the actual effects and benefits of IP provisions in EU FTAs and share these broadly, including illustrative examples. IP-intensive industries should invest into reporting and be transparent about the relevance of different IP provisions for them. This also applies to making clear to EU Member States what the specific Member State benefits of stronger IP in EU FTAs are in terms of production, exports, jobs and wages – and for what types of IP and IP-intensive industries these effects are most pronounced.

UK Smart Contracts

The UK Law Commission paper on Smart Contracts states 

1.1 Emerging technologies, such as distributed ledgers, are increasingly used to create “smart contracts”: computer programs which run automatically, in whole or in part, without the need for human intervention. Smart contracts can perform transactions on decentralised cryptocurrency exchanges, facilitate games and the exchange of collectibles between participants on a distributed ledger, and run online gambling programs. 

1.2 Smart contracts can also be used to define and perform the obligations of a legally binding contract. It is this specific type of smart contract – a “smart legal contract” – that is the subject of our analysis. For the purposes of this paper, we define a smart legal contract as a legally binding contract in which some or all of the contractual obligations are defined in and/or performed automatically by a computer program. Smart contracts, including smart legal contracts, tend to follow a conditional logic with specific and objective inputs: if “X” occurs, then execute step “Y”. 

1.3 Smart legal contracts are expected to revolutionise the way we do business, particularly by increasing efficiency and transparency in transactions. They are increasingly being considered by contracting parties as a means of automating specific processes within conventional contracts, from payment of insurance claims to managing supply chains. Currently, smart legal contracts are likely to be useful in respect of only fairly rudimentary agreements, such as to transfer an amount of cryptocurrency to a person’s wallet when certain conditions are met. However, as the technology underpinning smart legal contracts becomes increasingly sophisticated, a greater range of obligations may be suitable for coding, resulting in these contracts becoming increasingly more complex and able to perform a greater range of tasks. 

1.4 Smart legal contracts can take a variety of forms with varying degrees of automation. In the first instance, a smart legal contract may take the form of a natural language agreement with performance automated by code. Alternatively, a smart legal contract may be written solely in (and performed by) code. In between these two extremes, a smart legal contract may take the form of a hybrid contract, consisting of both natural  language and coded terms. Different forms of smart legal contract give rise to different legal considerations. 

1.5 Automation should be considered on a spectrum. Smart legal contracts which involve elements of standard automation, such as payment by way of direct debit, have been in use for many years and are therefore unlikely to give rise to novel legal issues. However, a smart legal contract drafted primarily or solely in code and recorded on a distributed ledger, is likely to give rise to novel legal questions; the automation in question takes the contract out of the realm of legal familiarity. 

Background 

1.6 The Law Commission was asked by the Lord Chancellor to include work on smart legal contracts as part of our 13th programme, agreed in December 2017. After discussions with stakeholders, our initial intention was to publish a call for evidence in January 2019. 

1.7 In the same period, the Lawtech Delivery Panel was created with the support of Government. There was clearly some common ground between the proposed Law Commission work and that of the Delivery Panel, and in particular its UK Jurisdiction Taskforce (“UKJT”). In those circumstances, we agreed to pause our work until such time as the conclusions of the UKJT were known. 

1.8 In November 2019, the UKJT published its legal statement on cryptoassets and smart contracts. The UKJT Legal Statement concluded that, in principle, smart contracts are capable of giving rise to binding legal obligations, enforceable in accordance with their terms. Following this, the Ministry of Justice asked the Law Commission to undertake a scoping study on smart legal contracts. 

1.9 The purpose of the scoping exercise is to provide an analysis of the current law as it applies to smart legal contracts, highlighting any uncertainties or gaps, and identifying such further work as may be required now or in the future. The project is intended to build on the foundations laid by the UKJT Legal Statement, and consider additional questions raised by stakeholders regarding smart legal contracts. Our terms of reference do not include other areas of law in so far as they relate to smart legal contracts, such as tax and data protection. Our full terms of reference are set out at Appendix 1. 

Call for evidence 

1.10 In December 2020, we published a call for evidence, which closed on 31 March 2021. The primary function of the call for evidence was to seek views about, and evidence of, the ways in which smart legal contracts were being used, and the extent to which the existing law could accommodate them. In each chapter of the call for evidence, we set out our understanding of law and practice, and asked consultees for their views. We did not make any proposals for law reform. 

1.11 We received 47 responses to the call for evidence. The responses were from a mix of stakeholders, including individuals who responded in their personal capacity, individuals who responded on behalf of organisations, and academics. We summarise our findings and conclusions to the consultation exercise in this paper. A list of all consultees who responded to the call for evidence is set out in Appendix 2. 

Extent 

1.12 This project focuses on the law of England and Wales. International conventions, including the United Nations Convention on Contracts for the International Sale of Goods, are not considered. 

1.13 In relation to Wales, we consider that the subject matter of the project is reserved, being primarily a matter of private law.  

1.14 The project does not consider the law of Scotland or of Northern Ireland. 

Activity in other jurisdictions 

1.15 Some other countries have already taken steps to put smart legal contracts and associated concepts on a statutory footing. In addition, courts in other jurisdictions have had the opportunity to consider some of the issues that we discuss in this paper. Given the cross-border nature of many of the transactions which take place using smart legal contracts, it is and will continue to be important to be aware of developments elsewhere, with the hope that legal approaches will be broadly compatible. In the call for evidence, we asked consultees which other jurisdictions we should look to for their approach to smart legal contracts. 

1.16 Consultees noted that various states in the United States of America including Arizona, Illinois and Tennessee have introduced legislation which defines the term “smart contract”, and provides that a contract is not to be denied legal effect solely because it is a smart contract. 

1.17 Some consultees mentioned other jurisdictions which are perceived as being particularly proactive in the development and use of smart legal contracts and distributed ledger technology, including Australia, China, Dubai, Estonia, India, New Zealand, Sweden and Switzerland. Several consultees commented that Singapore is   particularly important because of its advanced use of smart legal contracts, and for its developing jurisprudence on smart legal contracts following High Court and Court of Appeal decisions in Quoine Pte Ltd v B2C2 Ltd. 

1.18 We refer to specific developments in other jurisdictions throughout this paper, where they are relevant to the particular issues being discussed. 

Related work within the Law Commission 

1.19 The UKJT Legal Statement also considered the legal status of cryptoassets. The Law Commission is currently working on a separate digital assets project drawing on this aspect of the UKJT Legal Statement. We published a call for evidence on digital assets in April 2021. We are analysing the responses received, and intend to publish a consultation paper next year.  

Structure of the paper 

1.20 This paper analyses the current law as it applies to smart legal contracts, particularly in relation to:

(1) formation and enforceability, including in relation to deeds; 

(2) interpretation; 

(3) remedies; 

(4) vitiating factors (mistake, misrepresentation, duress and undue influence); 

(5) consumer protection; and 

(6) jurisdiction. 

1.21 It comprises six further chapters. In each chapter, we provide a summary of the responses we received to the various questions raised in the call for evidence. We build on additional insights provided by consultees, and provide more complex and detailed examples. We also explain where, and why, our thinking has changed and developed since the call for evidence, and draw on consultee views to inform our thinking and to formulate our conclusions. 

1.22 In Chapter 2, we set out the background to smart legal contracts, our working definition of what a smart legal contract is, current use cases and a discussion of distributed ledger technology in the context of smart legal contracts. We include a discussion on the prevalence of the various forms of smart legal contracts, how they are used in practice, and the costs and benefits associated with smart legal contracts. 

1.23 The next three chapters provide an analysis of the “lifecycle” of a contract formed under the law of England and Wales (from negotiation through to remedies for breach) and explain how the law might apply to smart legal contracts. Chapter 3 considers the formation of a smart legal contract, including whether the parties intended to enter into legal relations, with all the associated legal rules and remedies. In Chapter 4, we consider how the courts might interpret a smart legal contract, looking at existing principles of interpretation. In Chapter 5, we consider the remedies which might be relevant if things “go wrong”, such as where the code does not execute as one or more of the parties intended. 

1.24 In Chapter 6, we specifically consider potential issues for consumers who enter into smart legal contracts, and consider how existing consumer protections might apply in the context of smart legal contracts. 

1.25 In Chapter 7, we consider the factors which may determine whether the courts of England and Wales have jurisdiction in relation to a smart legal contract, in the absence of a jurisdiction or choice of court agreement between the parties. 

Conclusions 

Existing legal principles can accommodate smart legal contracts 

1.26 In this paper, we undertake a detailed analysis of the application of existing contract law to smart legal contracts. Our findings conclude that the current legal framework is clearly able to facilitate and support the use of smart legal contracts. Current legal principles can apply to smart legal contracts in much the same way as they do to traditional contracts, albeit with an incremental and principled development of the common law in specific contexts.  In general, difficulties associated with applying the existing law to smart legal contracts are not unique to them, and could equally arise in the context of traditional contracts. In addition, even though some types of smart legal contract may give rise to novel legal issues and factual scenarios, existing legal principles can accommodate them. 

1.27 This paper therefore builds on the conclusions reached by the UKJT Legal Statement, which established that the current legal framework is sufficiently robust and adaptable so as to facilitate and support the use of smart legal contracts. The conclusions reached in this paper echo the view expressed by Sir Geoffrey Vos below.

English law is in a good position to provide the necessary legal infrastructure to facilitate smart legal contracts if, but only if, we try to keep any necessary reforms simple. We should, I think, keep sharply in focus the advantages of the common law. It is dependable and predictable and able to build on clear principles so as to apply them to new commercial situations. We should, therefore, be looking to identify and, if necessary, remove any fundamental legal impediment to the use of smart contracts. We should try to avoid the creation of a new legal and regulatory regime that will discourage the use of new technologies rather than provide the foundation for them to flourish. 

1.28 The flexibility of our common law means that the jurisdiction of England and Wales provides an ideal platform for business and innovation, without the need for statutory law reform. 

1.29 The market also has an opportunity to anticipate and cater for potential uncertainties in the legal treatment of smart legal contracts by encouraging parties to include express terms aimed at addressing them. Throughout the paper, we identify particular issues that parties may wish to address in their smart legal contract in order to promote certainty and party autonomy. A non-exhaustive list of these issues is set out in Appendix 3 to this paper. In addition, as smart legal contracts become increasingly prevalent, we anticipate that the market will develop established practices and model clauses that parties can make use of when negotiating and drafting their smart legal contracts. We hope that work in this area could be led by the UKJT or LawtechUK. 

1.30 We also consider separate, related areas of law, such as the law of deeds and the rules on jurisdiction. Deeds and private international law are the two areas where we think future work is required to support the use of smart contract technology in appropriate circumstances. In relation to both of these areas, future law reform projects are in train. 

Related technological advancements 

1.31 Smart legal contracts should not be considered in isolation. Related technological developments, such as the evolution of sophisticated smart contract platforms and the digitisation of contracts, have a direct bearing on smart legal contracts and their uptake. Digital contract initiatives and associated technologies are aimed at digitising commercial and legal documentation.  Rather than being written in natural language and stored as such, such technologies enable a contract to be produced in structured formats, with supporting code that acts as a map or set of instructions, enabling a computer to read it.  Legal documents produced in such a format can have their contents more easily read for reporting, analysis, automated processing, and lifecycle management.16 Even though a digital contract does not need to be a smart legal contract, digital contracts will likely trend towards the inclusion of coded elements. Although these developments are outside the scope of this paper, it is worth noting their advancements. 

1.32 The development of smart legal contracts may introduce new issues and harms which the law needs to respond to. For example, oracles (external data sources which transmit information to a computer program) may require further consideration or indeed regulation. As technology and use cases develop, it will be important to keep the law under review, and consider whether reform or regulatory intervention is necessary to address novel issues which arise.

Ontologies

'Learning to read the signs: law in an Indigenous reality' by Ambelin Kwaymullina and Blaze Kwaymullina in (2010) 34(2) Journal of Australian Studies 195-208 comments

This article examines Aboriginal views of knowledge, time and space, and discusses the implications of these views for understanding Aboriginal legal systems. In doing this, we adopt an Indigenous perspective formed and informed by the ancient holistic knowledge systems of Aboriginal people. The article is part of a new wave of Indigenous scholarship where Indigenous thinkers worldwide are seeking to elucidate the nature of our systems and their interaction with Western ways of knowing. 

In a discussion with one of my grandfathers, he commented that he thought Captain Cook was a man who couldn’t read the signs. He was talking about an intuitive way of knowing, a fluid and dynamic language grounded in country and linked to the wider world, that our old people are very adept at. Country is alive. The world is alive. This is the essential unchanging nature of the universe. This is the reality of life for Indigenous peoples. 

When Captain Cook landed on the east coast of Australia in 1770 he carved the date of his arrival and the name of his ship, the Endeavour, into a nearby tree. For Cook, the carving was a way of marking presence and territory, a warning to the other colonial powers that the British Empire now had a legal interest in this land. But to the Aboriginal peoples who already occupied the territory that Cook sought to annex, this statement of legal claim was itself a violation of laws far more ancient than those governing the colonial powers of Europe. Unbeknownst to Cook, he had just made first contact with one of the many thousands of living beings inhabiting a vast continent, a contact that had ended with mutilation. The same act that signalled ownership to European colonial powers signalled just the opposite to the Aboriginal custodians of the land, whose right to inhabit country is premised on a responsibility to care for all the life within it. This initial clash of cultures has, in many respects, yet to be resolved. While praiseworthy efforts have been, and are being, made to engage with Aboriginal understandings of the world, the historical dominance of Western knowledge systems and the damage wrought by colonisation mean that there is still much work to be done before there can be a true and lasting meeting of minds, hearts and worlds. 

... While this paper presents an Aboriginal perspective - and in particular a perspective influenced by the culture of the Palyku people to whom we belong - it is not to be read as the only Aboriginal viewpoint on these issues. The perspectives held by Aboriginal peoples of Australia are many and varied, informed as they are by the specific Aboriginal country from which we each come, the people to whom each of us belong, and our individual and collective experiences of the trauma of colonialism. 

Knowledge in a holistic worldview 

In Aboriginal philosophy the universe is a pattern comprised of other patterns, of systems inside systems. It is a holistic view in which everything is interrelated and interdependent. Nothing exists in isolation. All life - and everything is alive in an Aboriginal worldview -  exists in relationship to everything else:

Imagine a pattern. This pattern is stable, but not fixed. Think of it in as many dimensions as you like - but it has more than three. This pattern has many threads of many colours, and every thread is connected to, and has a relationship with, all the others. The individual threads are every shape of life. Some - like human, kangaroo, paperbark - are known to Western science as ‘alive’; others, like rock, would be called ‘non-living’. But rock is there, just the same. Human is there, too, though it is neither the most nor the least important thread - it is one among many, equal with the others. The pattern made the whole is in each thread, and all the threads together make the whole. Stand close to the pattern and you can focus on a single thread; stand a little further back and you can see how that thread connects to others; stand further back still and you can see it all - and it is only once you see it all that you recognise the pattern of the whole in every individual thread. The whole is more than the sum of its parts, and the whole is in all its parts. This is the pattern that the Ancestors made. It is life, creation, spirit, and it exists in country. 

Aboriginal knowledge systems exist within the context of relationships, and because all relationships interconnect, so does all knowledge. In a sense, the way one thing relates to another is the core of what knowledge is. It is in the dynamic interplay between relationships that information is shaped, defined and becomes ‘known’. This has been described, in Western terms, as a ‘holistic’ worldview because it stresses the connections between the parts and the whole. Aboriginal knowledge systems do not compartmentalise knowledge or ways of knowing into specific disciplines, because intellectual, emotional, physical and spiritual understandings of the world cannot be divorced from one another. Many, but not all, conflicts between Aboriginal and Western ways of knowing are derived from a clash between a reductionist view of the world and a holistic one. It was this form of ‘knowing’ that dominated during the colonial era where the powers of the West believed they had a mandate to take dominion over the earth, and it continues to exert a strong influence over Western ways of knowing. Embedded in Western disciplines is the idea of progress, the idea that the more knowledge that is acquired, the more advanced and powerful human beings become. In a sense, knowledge is power. In contrast, the purpose of knowledge within Aboriginal systems folds back into the underlying principle of balance. Knowledge is both constructed and transmitted around the idea of balancing relationships between all things in the universe. Gladys and Jill Milroy of the Palyku people comment on this, in relation to the invention of the wheel as a mark of human ‘progress’:

the British valued the wheel, but they did not value its connection to the tree. The invention of the wheel is tied inexorably to the progress of Western civilization, but at the heart of the wheel, was the death of the tree ... the spiritually rich nature of Aboriginal cultures, where knowledge and relationships between people, country and all living things are highly prized, went unappreciated [by the British] because they could not see beyond the missing wheel to the living tree. What they valued was the resources and material wealth the land could provide, with no understanding of, or care for, the deeper story. 

A reductionist worldview, which has at its core the idea that the whole is never more than the sum of its measurable parts, results in compartmentalised disciplines of knowledge. It results also in a belief that the only way to understand the world is to stand apart from it; that it is both possible and desirable to disconnect from surrounding relationships so as to become an ‘impartial’ observer. Central to this notion of impartiality is the need for emotional distance or objectivity, the requirement to sever most of the self from the subject in order to acquire knowledge of it, leaving only a tenuous connection of the intellect.  But Indigenous peoples across the world have experienced, all too intimately, what it was to be researched by those who had disconnected their intellect from their hearts:

To know of culture, they took story, song, knowledge; to know of body, they measured skills and stole bones, leaving spirits shrieking from collector’s shelves and behind museum glass. To know of sacred places, they trespassed and violated. Their learning dispossessed - of song, story, dignity, humanity, voice - and the findings of that learning justified those dispossessions. They gazed through a fragmented vision of their understanding at all they took; they categorized, classified, named - they described each part in a minutiae of detail, and understood nothing of the whole. 

In Aboriginal systems, the world can only be known by acknowledging and respecting relationships, not by ignoring or denying them. Disconnection can only result in inaccurate observations - for any observer, if only by the mere fact of their presence, must always affect that which surrounds them. In the words of Gagudji elder Bill Neidjie ‘[m]an can’t split himself’. All learning is shaped by the broader nexus of connections that is the world, and it is by locating the self within this nexus, rather than removing the self from it, that understanding is to be gained. Thus, far from producing valuable knowledge, Indigenous systems would view a perspective based in disconnection as a fundamentally flawed one - for, since the whole is in all its parts, there is no distance in creation. Indeed, a state of being where the individual sought to remove themselves from the system, to sever or suppress their connections to the web of relationships that forms the world, might well be termed exile. Such a state, which would result in a failure to perceive connections that inevitably leads to a failure to value them, could only end in destruction for both the individual and the collective. Nunga lawyer Irene Watson writes of this in the context of contemporary Western law:

Today in the modern world the will to live in a place of lawfulness is lost to the greater humanity. Evidence of this is found in the growing list of global crises, poverty, environmental disasters, famine, war, and violence. What the greater humanity have come to know as law is a complex maze of rules and regulations; the body of law is buried, barely breathing. Law came to us in a song, it was sung with the rising of the sun, law was sung in the walking of the mother earth, law inhered in all things, law is alive, it lives in all things ... Law was not imposed, and those who lived outside the law did just that, they were in exile from the law. We could say the greater proportion of humanity now lives in exile from the law.

The privileging by the colonising nations of Western Europe of their own reductionist knowledge-systems above all others led to a systematic devaluing of holistic Indigenous worldviews that is only now being overcome. In the legal field, a colonial inability to conceive of Aboriginal legal systems as equal to those of the West is reflected in the persistent description of Aboriginal legal systems as comprising ‘custom’ or ‘customary law’. Such terms are inevitably burdened by historical constructions of Indigenous societies as inferior and lacking in ‘real’ law. In addition, the concept of custom - which rests on the notion that behaviour practised over long periods solidifies into rules of conduct - inherently contradicts Aboriginal views on the origin of law in Australia. Aboriginal creation stories tell that law was given by the same Ancestors who made the world and continue to live within it, and that the purpose of the gift of law was to show all life how to sustain country. In this context, Aboriginal statements that ‘something is to be done because the Ancestors did so’ - historically often misinterpreted as indicating that an individual is blindly copying the behaviour of previous generations - in fact reveal a complex legal system premised on the interconnection of life in country and of the place of human beings in sustaining that life. It is possible that a scholar employing a reductionist Western perspective might disagree with Aboriginal views on the nature of creation, but what is important is that Aboriginal systems are based on this view being true. It seems strange indeed to assert that an understanding of Aboriginal law can be gained by employing a descriptor, such as ‘customary’, that both echoes colonial prejudice and contradicts Aboriginal views of legal origins. 

In a holistic Indigenous worldview, law cannot exist in isolation from the connections between all life. Law both sustains and reflects the nexus of relationships, the pattern of creation that is the world. Law is part of a larger way of knowing the world, one which is formed by a living landscape where time is measured by cycles, not lines; and the ‘space’ of country is both physical and metaphysical.

Bullying

'Appearance, insults, allegations, blame and threats: an analysis of anonymous non-constructive student evaluation of teaching in Australia' by Richard Lakeman, Rosanne Coutts, Marie Hutchinson, Megan Lee, Debbie Massey, Dima Nasrawi and Jann Fielden in (2021) Assessment and Evaluation in Higher Education comments 

 Within higher education student evaluations of teaching (SET) are used to inform evaluations of performance of courses and teachers. An anonymous online survey was constructed and implemented using Qualtrics. This study was situated within a more extensive study investigating the impact of narrative SET comments on teaching quality and the health and wellbeing of academic staff. This paper reports specifically on two open questions that were designed to elicit examples of non-constructive and offensive anonymous narrative feedback. Five themes were identified: allegations; insults; comments about appearance, attire and accent; projections and blame; and threats and punishment. These are represented in non-redacted form. Personally destructive, defamatory, abusive and hurtful comments were commonly reported. These kinds of comments may have adverse consequences for the well-being of teaching staff, could contribute to occupational stress and in some cases could be considered libellous. The high prevalence of offensive comments accessible to and shared by teachers may be a reflection of the anonymity afforded to respondents using internet surveys, resulting in de-individuation and enabling some respondents to give voice to ‘hate speech’ which has no place in evaluations of teaching.

'Sexism, racism, prejudice, and bias: a literature review and synthesis of research surrounding student evaluations of courses and teaching' by Troy Heffernan in the same journal comments 

This paper analyses the current research regarding student evaluations of courses and teaching. The article argues that student evaluations are influenced by racist, sexist and homophobic prejudices, and are biased against discipline and subject area. This paper’s findings are relevant to policymakers and academics as student evaluations are undertaken in over 16,000 higher education institutions at the end of each teaching period. The article’s purpose is to demonstrate to the higher education sector that the data informing student surveys is flawed and prejudiced against those being assessed. Evaluations have been shown to be heavily influenced by student demographics, the teaching academic’s culture and identity, and other aspects not associated with course quality or teaching effectiveness. Evaluations also include increasingly abusive comments which are mostly directed towards women and those from marginalised groups, and subsequently make student surveys a growing cause of stress and anxiety for these academics. Yet, student evaluations are used as a measure of performance and play a role in hiring, firing and promotional decisions. Student evaluations are openly prejudiced against the sector’s most underrepresented academics and they contribute to further marginalising the same groups universities declare to protect, value and are aiming to increase in their workforces.

Shredder

'Law Is in the Bin: New Frontiers in Conceptual Art and Legal Liability' by Katelyn E Doering in (2021) 97 Notre Dame Law Review 441 comments 

Part I of this Note begins with a discussion of who Banksy is and why his work is important to this legal debate, finishing with a detailed description of the features of conceptual art that are relevant for legal analysis and an argument that the shredding stunt – the event itself, not the partially shredded canvas – is a work of conceptual art. Part II argues that the unique features of the shredding stunt, and of future works in the same artistic category, present a novel legal problem both for artists and for buyers. This novel problem is explored through the lens of the legal recourse available to buyers of modern art who become aware at the time of purchase that the artist had different plans for the tangible elements of the work than were communicated prior to purchase. Whether the court adopts the artist’s or the buyer’s definition of the ‘artwork’ is crucial to the resolution of these disputes. Existing law governing sales of artwork indicates that a reviewing court is more likely to side with the buyer. 

In light of the ramifications of the shredding stunt and the new questions it raises, Part III issues recommendations for artists seeking to realize their creative goals and buyers seeking to avoid harm to themselves and liability to third parties. In the absence of formal copyright protection for conceptual artworks, artists can avoid legal action from potential buyers by ensuring they only sell to willing buyers. While this option has adverse consequences for artistic integrity, as risk mitigation is antithetical to the element of surprise at the heart of works like the shredding stunt, artists might need to voluntarily accept this reality as a limitation on their ability to pursue any concepts they desire. Buyers, on the other hand, need to begin scrutinizing art transactions with more caution if they want to avoid becoming unwilling participants in conceptual artworks. In fully evaluating risk, buyers may also be able to rely on industry norms to incentivize artists to be mindful of their interests.