July 17, 2024

Obligate Law

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Law Commission Publishes Consultation on Digital Assets as Personal Property | Shearman & Sterling LLP

2 min read
Law Commission Publishes Consultation on Digital Assets as Personal Property | Shearman & Sterling LLP

The Law Commission, a U.K. body which makes suggestions for legislative reform, is consulting on wording for a possible draft piece of legislation establishing a third category of personal property that would encompass “digital assets”. English law currently recognizes “things in possession” (i.e., physical assets) and “things in action” (i.e., intangible assets). In case law to date, for example AA v Persons Unknown [2019] EWHC 3556 (Comm) and at least 23 other cases, the English courts have had no trouble in identifying, or accepting, various kinds of crypto-assets as constituting property, despite the fact they are neither things in possession nor things in action. However, coverage for asset classes is somewhat patchy, leading to some legal uncertainties. The Law Commission consulted on potential reforms to the law surrounding digital assets in July 2022, publishing a final report in June 2023 which found that, while the common law should be the primary forum for law reform in this area, it should be supplemented with legislation confirming that digital assets are capable of attracting personal property rights. This follows the approach in certain other jurisdictions, which have legislated on the topic – Japan, for example, has arguably brought crypto-tokens within the sphere of property law via amendments to its Payment Services Act, while Liechtenstein has enshrined tokens in legislation as a new form of legal object. A number of other jurisdictions, including Hong Kong, Singapore and New Zealand, have developed case law finding digital assets can attract property rights but have not so far confirmed this in legislation.

The bill is very brief, and simply states that a thing, including a thing that is digital in nature, is capable of being an object of personal property rights even though it is neither a thing in possession nor a thing in action. The bill deliberately does not delineate what type of asset would fall within this category (other than to provide that it may include digital assets) nor the nature of the personal property rights that would attach to these assets nor the consequences of them being property (e.g., rules as to priority of title are not addressed). It is expected that this detail will be developed by the courts. Carbon emission allowances may, for example, qualify as another category of “digital asset” for these purposes, but that will be determined by the courts through common law. As currently drafted, the bill would only extend to England and Wales, although responses are welcomed on whether it should be further extended to Northern Ireland. Responses to the consultation should be submitted by March 22, 2024.

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