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UpdateW Legal’s Digital Assets Team Respond to the Law Commission Consultation on Digital Assets as Personal Property

March 28, 2024

The Law Commission’s recent consultation paper (the Consultation), released on 22 February 2024, marks a pivotal moment in the statutory acknowledgment of digital assets as personal property. The Consultation stems from a report that the Law Commission published in June 2023 which suggested that non-fungible tokens (NFTs) and cryptocurrency tokens are capable of attracting personal property rights, concluding that legislation should essentially keep up with the common law by recognising this. The Consultation asks stakeholders to comment on their draft legislation proposing this ‘third category’. The Digital Assets Team at W Legal responded to the Consultation with a positive view of the draft Bill overall but highlighted the possible challenges in having a broad and undefined category.

The ‘Third Category’

The Law Commission took a cautious, but deliberate approach by refraining from defining or expanding upon this ‘third category’. Clause 1 of the draft Bill acknowledges the broad nature of digital assets, recognising that they can be neither physical nor an intangible right. It simply states that:

“A thing (including a thing that is digital or electronic in nature) is capable of being the object of personal property rights even though it is neither—

(a) a thing in possession, nor
(b) a thing in action”

The scope of what constitutes a “thing that is digital or electronic in nature” remains ambiguous. Despite this, the Law Commission outlined in their Consultation that “the Bill would eliminate the need for the courts to decide the question whether a thing is capable of being the object of property rights despite not being a thing in possession or a thing in action. This will make disputes more efficient by enabling parties to focus on the substantive questions about legal treatment of crypto-tokens or other third category things” (para 4.5 of the Consultation).

The Consultation

The Law Commission asked consultees to answer the following 3 questions:

(a) Do you agree with the general approach of the draft Bill, and agree that it will achieve the desired effect?
(b) What do you consider the positive impact of the Bill to be? Could you quantify them (for example, by how much in £ or days/hours might a dispute be reduced)?
(c) What do you consider the costs and/or risks of the Bill to be?

Response

W Legal answered these questions with a generally supportive view of the draft Bill, anticipating potential challenges if enacted. The Digital Assets Team suggested that these issues should be entrusted to the Courts to consider, determine and resolve in the usual way, but to be assisted by expert advice from individuals and groups focused on the technology and legal aspects of the assets. This collaborative approach ensures that the legal regime surrounding such assets remains up to date and evergreen.

Analogous to EU’s carbon emission allowances, milk quotas and other carbon credits/tokens, digital assets are not physical and, as such, the rights attaching to them can be complex to enforce. W Legal emphasised that the category of digital assets will need considerable clarification by the Courts in relation to the function, purpose and underlying asset as it is by no means clear that the same legal and regulatory rules should apply for monetised currency tokens, art related collectable NFTs and online gaming tokens/rewards. There may well need to be further refinements in relation to public and private blockchain digital assets and their treatment in law and regulation.

The Digital Assets Team highlighted the rapid pace of technological innovation in connection with digital assets, which in turn, introduces additional complexities. New types of digital assets, such as NFTs or decentralised finance (DeFi) protocols, gaming, staking, minting and gas payments continuously emerge, challenging regulators and legal experts to adapt quickly to evolving market dynamics. The dynamic nature of these assets necessitates a flexible legal framework that can accommodate innovation while still ensuring investor protection and market integrity. The adoption of the new Bill would align with other leading foreign jurisdictions – both common law (including Canada, Australia, Hong Kong and New Zealand) and civil law-based (including Japan, Lichtenstein, Switzerland and Dubai) – marking a significant step forward in global harmonisation and regulation.

By engaging with the Law Commission’s consultation, W Legal aims to contribute to the development of a robust legal framework that fosters innovation while ensuring legal certainty and accountability. We look forward to seeing the legislation in final form (if enacted), advising clients on its impact, and contributing to future thinking around this developing area of law. To read the Consultation, click here and email info@wlegal.co.uk if you would like to read our full response to the Consultation.

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 do 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

W Legal Limited (Company No. 6649868)
Registered Address:
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info@wlegal.co.uk

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