Law Commission calls for evidence on digital assets and consults on draft legislation

February 28, 2024

The Law Commission has launched a call for evidence to inform its project on private international law in the context of digital assets and electronic trade documents. It is also separately seeking views on draft legislation following its report on digital assets in June 2023.

Digital assets and electronic trade documents in private international law

The Law Commission seeks a better understanding of the most challenging and prevalent issues that digitisation, the internet, and distributed ledger technologies pose for private international law.

When parties to a private law dispute are based in different countries, or the facts and issues giving rise to the dispute cross national borders, questions of private international law arise: in which country’s courts should the parties litigate their dispute, and which country’s law should be applied to resolve it?

The project has a particular focus on crypto-tokens and electronic trade documents because these assets are prevalent in market practice, whilst also posing novel theoretical challenges to the traditional methods of private international law.

The Law Commission is specifically asking the following questions:

  • To what extent can the existing methods and approaches of private international law be applied to the new digitised and decentralised contexts in which digital assets and electronic trade documents are used?
  • How easily can the existing rules of private international law be applied to determine when the courts should accept jurisdiction over a dispute involving a digital asset or electronic trade document?
  • How easily can the existing rules of private international law be applied to determine which country’s laws should apply to resolve a dispute involving a digital asset or electronic trade document?
  • What market practices have developed, and what challenges stakeholders have encountered in their dealings with either digital assets or electronic trade documents (under the Electronic Trade Documents Act 2023) in commercial and legal practice?

The deadline for responses is 16 May 2024.

Digital assets and personal property rights

The Law Commission is also consulting on draft legislation to confirm the existence of a third category of personal property into which crypto-tokens and other assets could fall.

Its June 2023 report concluded that certain digital assets, including crypto-tokens and non-fungible tokens (NFTs), can attract personal property rights. However, because digital assets differ significantly from physical assets, and from rights-based assets like debts and financial securities, they do not fit within traditional categories of personal property. In its report, the Commission said that the unique features of digital assets should be recognised as belonging to a separate category of personal property. Although the courts have been – expressly or impliedly – moving towards the recognition of a “third category” of personal property, the Commission recommended legislation to remove any uncertainty as it its existence. The prospect of this legislation was supported by a range of consultees, including members of the judiciary.

The Commission has now prepared draft legislation to reflect this recommendation, and is seeking consultees’ views on the draft clauses including as to their potential impact.

The draft legislation deliberately does not attempt to define what will fall within the third category, leaving this open for common law development. As well as assets like crypto-tokens, it could potentially include other things such as voluntary carbon credits. Similarly, the consequences of being a “third category thing” will be for the courts to determine.

The consultation ends on 22 March 2024.