W Legal's Digital Assets Team Respond To The Law Commission Consultation On Digital Assets As Personal Property

• Published date: 04 April 2024
• Subject Matter: Technology, Fin Tech
• Law Firm: W Legal
• Author: Mr Elliot Shear, Raf Demczuk and David Ellis

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...