Last year, the Law Commission of England and Wales launched a consultation paper regarding the recognition and protection of digital assets. The consultation recommended the introduction of a new category of personal property under English law to accommodate the unique features of digital assets. The new category was to be additional to the categories of personal property already recognised in English law: (1) things in possession; and (2) things in action. You can read more about the consultation in our article here.
The Law Commission has now published its final report with recommendations for reform in this area. It sets out three complementary approaches to reform: (1) Common Law Development; (2) Statutory Reform; and (3) Support from Industry-Technical Experts.
Common Law Development
The report supports common law development on this topic, which has to date recognised that digital assets are capable of being personal property despite not fitting into the traditional two categories. It particularly favours the agile approach of the common law due to the speed of technological change. It concludes that the law in this area is now fairly certain and that "any areas of residual legal uncertainty are highly nuanced and complex", in this regard, the report puts forward recommendations as to how the common law might develop appropriately to address any remaining uncertainties.
Whilst the common law in this area is now fairly certain, the report recommends that the current position is codified in statute in order to reduce future court time arguing over the position. This codification would make clear that a thing will not be deprived of legal status as an object of personal property rights merely by reason of the fact that it is neither a thing in action nor a thing in possession. This would thereby lead to a "third category of thing". However, in a departure from the consultation proposal, it is recommended that this third category should not have "hard boundaries" as to what is and is not included and should not be limited to digital assets. Instead, the Commission has refined the criteria proposed in the original consultation and suggested these should now be treated as "indicia" to guide the attribution of a "third category of thing", for example, the concept of rivalrousness. This characteristic is particularly useful in helping to distinguish a digital asset from other digital things which are not capable of attracting personal property rights (e.g., digital files).
Further, there is also a second recommendation for statutory change. The report recognises an area in which common law may not be able to provide certainty, that is in relation to the development of a new regime for collateral arrangements involving digital assets (specifically, crypto-tokens and cryptoassets). Therefore, the report recommends that the Government develops a bespoke statutory legal framework to better facilitate certain crypto-token and cryptoasset collateral arrangements.
Support from Industry - Technical Experts
The report also recommends that a panel of industry experts is created to produce future non-binding guidance, not least to assist judges trying to grapple with the technological aspects of cases that come to court. Digital assets are likely to evolve and proliferate in the future with different complexities, technologies and functionalities. In turn, the law will need to continuously adapt to keep pace with change. It is hoped that the publication of expert non-binding guidance will ensure consistency over time. The panel would be created or nominated by the Government and would be composed of technical experts, legal practitioners, academics and judges.
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