The complexities of private international law (PIL) are not a recent phenomenon, as the Law Commission emphasised in their ‘Call for Evidence’ (CfE), released on 22 February 2024 aiming to tackle the intricate issues in PIL associated with digital assets and electronic trade documents in today’s decentralised and digital environment.
The Law Commission simultaneously published a short consultation and a draft Digital Assets Bill (which W Legal recently commented upon in relation to treating digital assets as personal property – here). Feedback on their CfE was invited from a diverse range of stakeholders across different jurisdictions.
The 3 Main Issues in PIL
While the CfE prompted respondees to answer 19 questions, 3 central challenges emerged within the domain of PIL which the Law Commission aimed to resolve:
- In which country’s Court should the parties litigate their dispute?
- Which law or combination of laws should be applied to resolve their dispute?
- How can a Judgment/Order be recognised and enforced in another country? (which only arises if the litigation actually results in a judgment being given)
Historically, these queries have been tackled through various methods such as supranational law, unilateralist and multilateralist approaches. However, with the rapid evolution of technology and its international reach, parties now engage in real-time transactions across multiple territorial boundaries, often anonymously, ushering in greater complexities.
Governments and regulatory bodies are responding by drafting and enacting legislation tailored to address digital assets, smart contracts, and blockchain technology. These legislative efforts incorporate provisions that directly or indirectly address jurisdictional ambiguities. Yet, technologies such as Distributed Ledger Technologies (DLT) circumvent ties to a central territory or authority, which in turn introduces grey PIL areas.
Law Commission’s Insights
The CfE primarily addressed digital assets, Bitcoin/old and new digital coins, tokens, and electronic trade documents, which are highly prevalent in current market practices and are available to everyone across the world.
The Law Commission offered analysis, proposals and observations in many key areas with the following highlights:
- Applications of DLT, whether centralised or privately deployed, can be effectively accommodated within existing legislation.
- The ‘reliable system’ requirement in the Electronic Trade Documents Act 2023 may lead to certain matters being resolved with reference to UNIDROIT Principle 5C.
- Our Courts should interpret the Rome Regulations (governing international contracts and negligence) broadly to apply ‘waterfall provisions’ and exemptions to achieve policy objectives.
- Regardless of how contracts involving the exchange of digital assets for Fiat currency are classified under Rome I, they should remain certain and consistent.
- The primary issue with contracts utilising DLT is the lack of clarity on ‘clear connections’ to other jurisdictions, particularly in negligence cases, where there are a number of potential connections to different jurisdictions.
- For any type of contract exchanging digital assets for currency, goods and services, or other crypto-tokens, the escape clause will be used rarely.
- The emergence of digital, decentralised, and omni-territorial phenomena often challenges the territorial premise on which the ‘gateways’ are based.
W Legal’s Comments
W Legal engaged with the CfE in the hope that our experience and insights would assist the Law Commission in their main objective of the consultation: to better understand the key challenges and priorities in this area.
Our recommendations emphasised the need to clarify existing legislation, practice directions and conventions. Where necessary, we suggested introducing legislation in areas that are lacking clarity and developing specialised commercial courts/arbitration staffed with judges/arbitrators well-versed in addressing the complex IT technological issues in conjunction with laws and regulations governing emerging digital assets.
Undoubtedly, this remains a focal point of ongoing discussion and debate. Last year, we saw collaborations between UNIDROIT and the Hague Conference on PIL, specifically focusing on the law applicable to cross-border holdings and transfers of digital assets and tokens — elements of which the Law Commission commented on in their CfE. We await further developments in this evolving area.
As of 16 May 2024, responses to the CfE have closed, and we look forward to the release of the Law Commission’s consultation paper containing their provisional law reform proposals. To read the CfE, click here and email info@wlegal.co.uk if you wish to read our full response to the Law Commission.
It is important to stay updated on the latest developments, as governments, international organisations, and industry stakeholders continue to explore and establish legal frameworks to address the ethical, privacy, safety, and accountability concerns associated with AI. Please contact the Digital Assets Team at W Legal to follow up in this area and related areas and we will be happy to discuss, review and offer training in these fast developing regulatory and compliance areas.
If you have any queries or would like to meet for an introductory conversation around these topics, please contact:
Elliot Shear at elliot.shear@wlegal.co.uk
Raf Demczuk at raf.demczuk@wlegal.co.uk
David Ellis at david.ellis@wlegal.co.uk
Raphael Uribe raphael.uribe@wlegal.co.uk
