Legal services in the age of ChatGPT

Who is not talking about ChatGPT? Everyone is. In the legal community, some conversations have been about how it may replace lawyers. In the legal education space (as in the education sector more broadly), some conversations have been disallowing or policing the use of ChatGPT by students. In my opinion the better conversation is about ChatGPT can improve our work, no matter what line of work we are involved in. One law academic rightly noted (on twitter) that ‘lawyers are going to need to learn to use AI effectively to deliver cost-effective results’. This was in response to someone who tweeted about how ChatGPT could be given instructions to write a good legal brief. I’ve extracted it below.

Well there have been some first movers. PWC, across offices in a few countries, has already introduced a chatbot program which is expected to help lawyers ‘speed up work from due diligence or regulatory compliance to broader legal advisory and legal consulting services’. It is interesting that it is not traditional law firms but rather an accounting firm which has been a first mover in using the latest AI to make the work of lawyers more efficient. Perhaps this is a function of accounting firms embracing ChatGPT early, and lawyers within these firms were brought into it as well. The AFR reports that another one of the big 4, KPMG has commissioned KymChat, a private version of ChatGPT, to ‘automate the dreary’. Apparently, the first use case of KymChat is to ‘securely access internal data to quickly find experts within a 10,000-strong consulting team for use in proposals’. It is useful to note here that KPMG commissioned KymChat after initially asking employees not to use ChatGPT and later cautioning them against entering sensitive data into ChatGPT. Law Firms might similarly find it useful to commission their own version of the AI application. The tool continues to learn from data inputted into it so it makes sense for firms to invest in their own private version of the tool.

Of course this leads to questions about big firms being able to provide high quality services at lower costs and smaller firms being unable to compete if they can’t afford to invest in their own version of ChatGpt. However, as the AI tool is adopted more widely, it is bound to become more affordable.

Time to allow equity crowdfunding in India

India, unlike many other countries, does not allow for equity crowdfunding.

In a recent post on Indian Corporate Law Blog, Mr. Mohammad Kaif writes about an order by the Indian Ministry of Corporate Affairs (MCA) where two companies used a fintech platform to issue securities for violating the rules of private placement per the companies legislation of the country.

A Mint article notes that ‘start-ups tend to use such platforms to reach a large number of investors’. So this order seems to send the message to all such companies. Another news story on this order, points at the bigger implications: ‘India’s teeming crowdfunding world has come under a new shadow at a time when many startups are dealing with waning investor interest and the backlash from the recent collapse of the boutique American lender Silicon Valley Bank’.

My own view is that the use of fintech platforms by start-ups in a country which bans equity crowdfunding should be enough indication that it makes sense to facilitate equity crowdfunding via regulations that strike the right balance. As I noted in an earlier post, equity crowdfunding picked up in Australia in 2022 and a similar tight venture capital scene in India might be pushing start-ups to access fintech platforms to issue securities.

Equity crowdfunding in Australia – 2023 update

When equity crowdfunding was introduced in Australia, it seemed to hold great promise – to some of us anyway. In a co-authored paper, I had compared equity crowdfunding in Australia and New Zealand. In the paper, we had noted New Zealand’s relative success in the equity crowdfunding context.

It is therefore interesting to note that in 2022, when venture capital in Australia dried up, equity crowdfunding came to the rescue. An article in the AFR notes:

Start-up founders embraced equity crowdfunding in record numbers in 2022 amid a tighter venture capital funding market, but even this early-stage funding segment was not immune to valuation pressure.

Highlighting the gatekeeping role played by crowdfunding platforms, Matt Vitale, Co-founder of Birchal, one of the largest equity crowdfunding platforms in the country, notes:

“We work closely with companies as they prepare for an offer. There’s an expression of interest period where the terms aren’t set … and companies meet with [possible] investors…”

Vitale adds in a different article that the quality of businesses using this model had also improved:

“with 47% of established businesses achieving positive earnings at time of their CSF offers in 2022, compared to about a third in the previous three years”. 

However, as one would expect, companies that have used this funding model have not all been successful. There is a news report about Endeavor Brewing not releasing financial statements as required.

To end on a positive note, Shebah (the female rideshare company,) an equity crowdfunded company which went into voluntary administration during the pandemic, was successfully restructured under a Deed of Company Arrangement.

Corporations and technology – sneak peek

The corporate form is becoming more and more imbued with technology. This post will look into two items in the news that speak to two important aspects of corporate functioning – (i) engaging with employees, and (ii) ESG – and how these two items are in fact changing the corporate form.

(i) Apparently employers are messaging Gen Z employees on Instagram because they may not check their email. Thierry Delaporte, the chief executive of Wipro is quoted as saying:

“To speak to my employees I go on Instagram or LinkedIn. It works better. They don’t even check emails sometimes. We have about 20,000 who we know don’t check even one email per month. They’re 25, they don’t care. They don’t go on their emails, they go on Snapchat, they go on all these things.”

Apparently these sorts of measures aim to address quiet-quitting and the desire for more work-life balance.

Vimeo is apparently doing the same thing. All this comes from this news article.

Changing the channel of communication is hardly revolutionary. Yet, I think this little trend, mostly in tech companies, shows that paying attention to employee satisfaction, and engaging on their terms, has become important in sectors with younger employees. There may also be security issues around such communication channels and companies would do well to pay attention.

(ii) Blockchain being used to prevent greenwashing

The second story is about farmers reporting environmental data through a blockchain application. Howard Silby, NALB’s chief innovation officer put it like this:

“The advance here is the data can be reported in an automated way using blockchain. This may simplify the reporting process for farmers, so they are not sending data in multiple ways, to multiple different places.”

NAB is involved because they are the loan provider. The loan requires customers to show that they are ‘operating in a sustainable way’. More specifically the data that is required to be reported to the loan provider is ‘evidence of ground cover using satellite imagery, and the health of legume plantations that reduce the carbon emission of cattle’. This then helps NAB ‘prove the impact of its green lending book amid more regulatory scrutiny of ESG claims’ (the AFR article I’m referring to makes note of ASIC actions against greenwashing).

This is an interesting innovation and one to watch out for.

The broader message I’m picking up from this and the previous news story about communications with employees is that, as the corporate purpose and sustainability calls escalate, corporations are attempting to address specific issues innovatively. Sometimes this is through the use of very simple pre-existing technologies and at other times it is by means of more sophisticated technology.

The topic of corporations and technology is the subject of a bigger project I am working on and this post simply offers a very small view into that project.

Guest post: NFT litigation against persons unknown: Jurisdiction, Proprietary rights and Service

Richard Xu*

Introduction

In early 2021, almost everyone was talking about Non-Fungible Tokens (“NFTs”). What seemed like mere pictures were selling for millions and even Justin Bieber purchased one for USD1.31 million. Justin Bieber’s NFT is worth USD74 thousand dollars today.

While the promoters claimed that owning an NFT being akin to owning exclusive rights to a piece of digital artwork, one might have observed that even the legal status of an NFT itself was unclear. Now, the Singapore High Court has held in Janesh s/o Rajkumar v Persons Unknown (“CHEFPIERRE”) [2022] SGHC 264 have held that NFTs can be considered property, albeit in an ex parte interlocutory hearing.

Background

The claimant entered into an NFT-collateralised cryptocurrency loan with another user on a cryptocurrency lending platform, only known as “chefpierre.eth”.

Under the loan agreement the claimant provided an NFT known as Bored Ape Yacht Club (BAYC) No. 2162 as collateral to borrow cryptocurrencies. The claimant later asked for an extension of the deadline to pay off the loan and the parties agreed to a refinancing loan.

However, the defendant allegedly foreclosed the collateral prematurely and the NFT was transferred into his cryptocurrency wallet. The claimant then filed a suit claiming that the defendant was liable on tortious, contractual and restitutionary grounds, and now applied for a proprietary injunction to prevent the defendant from dealing with the NFT.

So what exactly is an NFT?

NFTs are created using a code on blockchain (a.k.a smart contract). In this instance, the Bored Ape NFT was created using a code called the MastersToken v2, which powers most NFTs on the Ethreum Blockchain. The code creates a new token in the crypto wallet address, which can then be transferred to another crypto wallet. The ownership of NFTs is powered by smart contracts and protected by Blockchain technology.

NFTs can then be used to represent underlying assets such as digital artwork, music, writing, and contractual assets such as event tickets as well as physical assets such as cars and yachts.

The decision

The court dealt with the broad issues of jurisdiction, the existence of proprietary rights in NFTs, and the manner of effecting service of the court documents through social media and cryptocurrency wallets.

Jurisdiction

The court held that it has jurisdiction to hear the application for the proprietary injunction despite the fact that the domicile, residence and present location of the defendant was unknown. Importantly, the court reasoned that in spite of the decentralised nature of blockchains, there must be a court with jurisdiction to hear the dispute. In this case, the appropriate court was the Singapore court since the claimant was located in and carried on his business in Singapore.

The court also satisfied that it had jurisdiction to grant a proprietary injunction against a person unknown. It was sufficiently certain for Singapore’s civil procedure rules that the defendant was identified as:

• the user behind the account “chefpierre.eth” on Twitter and Discord; and
• the person to whom the Bored Ape NFT was transferred to.

Whether NFTs give rise to proprietary rights

The court held that the Bored Ape NFT, and NFTs in general, are capable in giving rise to proprietary rights. The court reasoned that NFTs passed muster under the four criteria test set out in National Provincial Bank Ltd v Ainsworth [1965] AC 1175.

First, the property must be definable i.e., must hence be capable of being isolated from other assets whether of the same type or of other types and thereby identified. The court found that the NFT was definable because the metadata that is central to an NFT, distinguishes one NFT from another.

Second, the property must be identifiable be third parties i.e., asset must have an owner being capable of being recognised as such by third parties. This requirement was satisfied because the presumptive owner of an NFT would be whoever that controls the wallet that is linked to the NFT. Further, excludability is achieved because one cannot deal with the NFT without the owner’s private key.

Third, property is capable in its nature of assumption by third parties. This element has two aspects, that third parties must respect the owner’s right in the asset and that the asset must be potentially desirable. The first aspect was satisfied as the nature of blockchain gives the owner the exclusive ability to transfer the NFT to another party. The second aspect was also satisfied since such NFTs are clearly the subject of active trading in the markets.

Fourth, the property must have some degree of permanence or stability. This requirement has a low threshold and a ticket to a football match is regarded as property despite its very short life. This requirement too was found to be satisfied as NFTs have as much permanence and stability as money in bank accounts which, nowadays, mainly exist in the form of ledger entries.

Accordingly, the court held that NFTs were capable of giving rise to proprietary rights and granted the interim proprietary injunction.

Service

The court held that service of the proprietary injunction could be effected through Twitter, Discord and the messaging function of the defendant’s cryptocurrency wallet address. This was possible since the civil procedure rules in Singapore did not prescribe a closed lists of manners of effecting service. The court also highlighted that this was the only practical method of serving court papers on a person unknown.

Comments

This decision marks a significant development for crypto investors now that their investments in NFT are legally recognised to have proprietary rights. The court nevertheless did highlight that the hearing was ex parte and a different conclusion may be reached with fuller submissions.

In respect of legal processes, the decision affirms the that a proprietary injunction is also now available against persons unknown in the context of dispute over cryptocurrency and now NFTs as well. The ability to serve injunctions on persons unknown via communication channels also adds another tool to a litigator’s toolbox in crypto-based disputes.

* Richard is a fresh graduate of SMU, Yong Pung How School of Law and is currently preparing for his Bar examinations.

Are Uber workers employees? NZ edition

The title of my post is partly click-bait. I will say right at the outset that there is no blanket declaration about the status of gig workers or even Uber employees in the instant case. Instead, the court was deciding the status of specific individuals.

The case in question is E Tu Incorporated & Anr. v Rasier Ops BV & Ors and it was decided by the Employment Court of new Zealand. It appears that the court relied heavily on statutory construction to decide this case. (It followed a purposive approach, stating that ‘such legislation must be approached in a way which recognises and supports the broader legislative purpose, rather than undermines its place within the fabric of society…They reflect a statutory recognition of vulnerability based on an inherent inequality of bargaining power, that certain workers are unable to adequately protect themselves by contract from being underpaid or not paid at all for their work, from being unfairly treated in their work and from being overworked’ [para 8].)

This probably followed from the fact that the court framed the question that ‘needed to be asked and answered’ as whether s 6 (the relevant provision of the statute), ‘construed purposively, was intended to apply to the relationship at issue when viewed realistically’.

I don’t think this outcome is reflective of what is going on in the gig economy at all.

The case of platforms does not exactly fit this picture of vulnerable workers that the court has painted. For instance, drivers on Uber make a choice to take on a different work model. Sometimes they take on ‘work’ (or jobs) from more than one such company (so in this example, it could be Lyft and Ola).

The counsel for Uber seems to have argued that the drivers were building their own businenss. The court dismissed that line of argument in the following paragraphs:

It can hardly be said to reflect a driver’s ability to build their own business, particularly where the driver is constrained in their ability to establish an ongoing relationship with a rider and the reduction comes out of what would otherwise be paid to the driver.

[para 38]

…

There was no evidence that the drivers advertised or promoted their own business via the work they did while logged in to the Uber App. They were not free to organise their work other than in respect of when and if they logged in to the Uber App and the rides they accepted or declined, which (as I have already observed) were choices made under the shadow of significant adverse consequences, determined and unilaterally imposed by Uber.

These features of the relationship stand in marked contrast to those that usually apply to a person who operates their own business. A person who operates their own business is generally able to run it as they see fit, including, for example, by setting prices, marketing, service standards, the way in which complaints are dealt with and bringing in substitute labour.

[paras 49 and 50]

…

In this case I am not satisfied that the evidence as to the provision of a vehicle is other than neutral. I do not consider that the fact that each of the plaintiff drivers provided their own vehicle and smartphone reflects the sort of investment which might.

[para 69]

Even if the court’s reasoning makes sense for traditional businesses, gig workers are clearly not operating as traditional businesses.

Mazzoni and Schuler argue, in a forthcoming paper, that Uber drivers (and others taking on work from platforms) are really entrepreneurs because of, amongst other things, of the uncertainty they take on. They choose a work situation where they are not bound on employment terms to any on employer. Instead, they opt for a flexible situation where they decide when to take on jobs and this involves some uncertainty in terms of how much they will earn each day/ week/ month. (This work is forthcoming later this year so look out for it!) Here we have to remember that the term entrepreneur is wider than that of a business owner.

Eric Crampton argued on these lines on Twitter:

A driver is on three apps simultaneously, picking the jobs that best suit. Later that night, the driver is on standby with those apps, watching movies at home, but ready to drive if a plum fare comes up. Which platform is the employer?

In a subsequent tweet, he added:

If the driver is sitting at home at leisure, ready to take a fare if a plum one turns up on one of three platforms, but otherwise watching movies, which if any of the three should have to pay minimum wage for being on standby? What do you think happens to flexibility if any are?

I think these questions support Mazzoni and Schuler’s argument.

The court has addressed the flexibility issue very unsatisfactorily by noting that even though ‘a number of the classic hallmarks of a traditional employment relationship are missing’, there was ‘evidence about the high level of control and subordination’ by Uber (para 32). The court bases this assessment about Uber’s high level of control on the fact that ‘access to the App is nontransferrable’, that Uber decides the cost of each trip and charges that to the customer (paras 33 and 34), and that drivers had to comply with Uber’s ‘community guidelines’ (para 41).

The court dismissed the issue of a gig economy worker being able to log in and choose from jobs on multiple platforms by simply comparing with a situation where an employee holds multiple part-time jobs (para 72). This is inadequate analysis.

The discussion of overseas authorities is also wanting. There is only a mention of relevant cases, some in the footnotes, with no engagement with the substance of those cases.

My own take is that gig workers are not employees but government can decide to craft laws that protect them in different ways. There are some efforts in this direction in Australia.

The development of Australian corporate law vis-à-vis other areas of Australian law

Sir Anthony Mason has been credited with the development of “a body of common law and equitable principle that was distinctly Australia” during the late 1980s to early 1990s. There are important public and private law judgements that are referred to during this time, which can be said to have ‘altered the common law in Australia’ during this period. Yet, corporations law seems to have bucked this trend. What gives? Major developments in Australian corporations law (as it is called in Australia) have come from statute rather than from courts. Further, Sir Anthony Mason’s much quoted 1992 statement about this area of law captures the big problem in Australian corporations law: “Oscar Wilde would have regarded our modern Corporations Law not only as uneatable, but also indigestible and incomprehensible.” In late 2022, we are still grappling with this problem. Not only have various scholars expressed concerned on this issue, but the ALRC has also set out to remedy this.

But is complexity the only thing that sets Australian corporate law (or corporations law as it is called here) apart? Rather than looking to develop uniquely Australian principles in this area, the statutory amendments have sometimes borrowed from outside. For example, the introduction of the business judgment rule in 2000 took inspiration from the corporate law in the American State of Delaware.

Even where courts have advanced (or could have advanced) the law in this area, it has not paid any particular attention to the development of UK common law. For instance, Australian courts have been more reluctant to pierce the corporate veil than UK courts.

Even in the absence of common law or statutory convergence however, corporate law, unlike other areas of law, offers another avenue for convergence in law – corporate governance codes. Not only this, market forces like institutional investor demands across jurisdictions can also bring convergence in terms of corporate governance best practices. I’m not trying to imply that Australian corporate law is not distinct in substance from other common law countries. Rather, my point is that Australian corporate law is also unique within Australia when we think of how its journey has been quite different from other areas of law.  

Innovative thinking in the legal sector

Why is there no innovation in the legal education sector?

In the Australian context, Prof. Margaret Thornton has written that ‘deference towards the admitting authorities’ has been an issue. As a result of this deference, law schools comply with the Priestly requirements. Consequently, there is almost no diversity in what is offered by different law schools. As Thornton rightly asks, ‘…one would have to query whether having 40 virtually identical programs is economically rational’. I agree and would add that a diversity in offerings will help schools differentiate themselves and allow students more choice. In support of challenging the Priestly requirements, Thornton says:

To focus on legal doctrine, or law as it is, is to teach frozen knowledge that is likely to be out of date by the time the student graduates. The focus should be on principles and transferable knowledge.

I agree with this approach not only in using it as a basis of decision-making regarding what subjects should compulsorily be taught, but also as a basis for thinking about how to teach any given subject. (As an aside, it is interesting to note that changes in this directions were proposed and then suspended in Australia.)

Going back to the issue of lack of diverse offerings, I am reminded of a session in the diversity in law conference held at Deakin University in 2017. I remember putting it to one of the panels that we don’t see as much innovation in the legal sector across jurisdictions because there is so little diversity (I was referring to the lack of outsiders i.e. immigrants) in the profession. (I think the panel had been talking about how onerous qualification requirements made it difficult for people to move across jurisdictions within the professor or for non-lawyers to enter the sector so as to advance tech solutions.) My comments then were in reference to the legal sector in terms of practice but I think part of the story is also academia. Lack of diversity in legal education, coupled with a general focus on existing legal doctrine rather than on principles and concepts, means that students aren’t being pushed to think deeply about issues. Obviously such a approach chills original thinking and curiosity. Both are important abilities/ traits of a successful legal professional.

To end on a more optimistic note, I am aware of quite a few academics across the common law world who focus on principles and critical thinking rather than just the transmission of massive amounts of information. Although this is not the norm, it offers some hope at the level of individual academics. At the level of individual students, many discerning students do find and engage with interesting ideas beyond the curriculum. To a large extent, we owe this to blogs, podcasts, and other means through which ideas are made accessible today.

Post Script: Because I say this so often, and because it seems to obvious to me, I haven’t mentioned it in my initial post. But I should add here that every time I mention ideas, I am referring to a diversity of ideas.

Rescue finance in Australia

While Australia doesn’t have a formal rescue finance regime, s 447A orders are often used to get court permission for rescue finance. An empirical analysis of rescue finance applications found that the annual average number of applications was five times higher between 2016 and 2021 than it was between 2001 and 2006. So a recent court order in Park (Administrator), in the matter of Ellume Limited (Administrators Appointed) v Evangayle Pty Ltd (Trustee) [2022] FCA 1102 approving such an application under s 447A is not novel or controversial. The court’s reasoning in approving the funding agreement was short and included a call-out to the goals of Part 5.3A.

However, the circumstances leading to the entry into the Funding Agreement were such that, had it not been entered, the business would cease to trade almost immediately.  This would likely have resulted in the termination of the employment of the vast majority of, or all, employees, a dividend to priority creditors, at best a nominal dividend to general unsecured creditors and no return of monies to shareholders.

Another fairly routine but important matter is for the administrator to avoid the personal liability arising under s 443A of the Corporations Act. The court approved this, again stating that the funding agreement is consistent with the goals of 5.3A.

Finally, the court also approved the application for a section 588FM order in respect of the registration time for security granted to the creditor (the one providing rescue finance). As is common the court decision does not provide details of the security granted.

The fact that these practices have developed to ensure that rescue finance is possible in Australia, despite there being no rescue finance regime like there is in other countries is an interesting illustration of the law in action (as against on the books).

Companies looking to innovate on social justice issues

Many companies tend to tolerate “brilliant jerks” (I’m borrowing Netflix’s language here because they expressly say they will not tolerate “brilliant jerks”). However, recent social movements and media (including social media) emphasis on unsavoury workplace issues have had some effect in terms of companies being more alert to negative consequences of retaining such “jerks”. Of course not all actors are rational. NBA’s Phoenix Suns decided to retain its leader, Robert Sarver, who apparently ‘used the N-word on multiple occasions and fostered a culture of bullying and discrimination against female employees at the team (amongst other things)’. As a result, Sarver was only suspended for a year, and was required to pay a fine. It turns out that a leading sponsor, PayPal has said it will suspend it’s sponsorship if Sarver remains in charge. What are PayPal’s motivations? The idealist would say that PayPal wants to contribute to solving pervasive problems and the cynic would say that PayPal has seized an opportunity to virtue-signal. As far as I’m concerned, if PayPal puts its money where its mouth is, it will have gone beyond idle virtue-signaling. Also, a company that goes this far is presumably holding itself to the same standards. Companies are looking find innovative ways to either actually solve social justice issues or be seen to be solving social justice issues. In the latter case, they have to be aware that similar incidents in their own workplace would need to be met with similar level of seriousness.

This is good but the next step for companies (I’m not singling out PayPal) would be to look within and find innovative solutions to workplace problems in their own company.