Law Commission publishes Draft Bill on digital assets as personal property

On 30 July 2024 the Law Commission of England and Wales published a supplemental report and amended draft bill which would introduce a new category of personal property for digital assets. This is further to the Law Commission’s consultation on the treatment of digital assets in June 2023 (see previous blog here) and consultation on a previous iteration of the draft bill in February 2024 (see previous blog here). The draft bill will now be considered by Government.

What will the draft bill do?

If enacted, the Property (Digital Assets etc) Act 2024 would confirm that “a thing (including a thing that is digital or electronic in nature) is not prevented from being the object of personal property rights merely because it is neither (a) a thing in possession, nor (b) a thing in action” (emphasis added).  

The underlined wording is the only change from the February 2024 draft bill. The previous draft stated that digital assets were “capable of being” the object of personal property. The amended wording is designed to correct concerns raised by consultees that the previous wording meant any thing was capable of being personal property, which was not the Law Commission’s intention or position. Rather, the supplemental report notes that certain things (including certain digital assets) will not fall within the third category of property, as they do not satisfy the existing criteria for attracting property rights – such as not being rivalrous nor independent. As such, pure information and items such as domain names, digital files and records and certain in-game assets would still not be property. 

The draft bill’s provisions are also in line with the responses to the consultation, with a “strong majority” of consultees agreeing that either (i) the common law has already developed a third category of things, or (ii) it should recognise the existence of such a category. 

In terms of what it hopes to achieve, the Law Commission intends the bill to:

• enable courts to exercise their powers in an appropriate manner, such as granting freezing injunctions to prevent dissipation;
• ensure purchasers have the property rights they would in traditional property;
• allow digital assets to be sold to make repayments to creditors if the owner becomes bankrupt or insolvent;
• result in reduced litigation costs by allowing courts to focus on the key legal issues; 
• provide a “strong signal” to the market that the law of England and Wales will protect rights in emergent forms of property, including digital assets; and
• encourage innovation by clarifying that certain digital things can now be “owned”.

How much of a change is this?

The draft bill reflects the trajectory of recent case law, but should remove the uncertainty that remained in the absence of a definitive statement from the appellate courts. To that end, the report notes consultees “including senior and specialist judges”, indicated they would welcome confirmation of the existing law in order to remove any lingering uncertainty in this regard.

While certain consultees felt the draft bill does not go far enough in clarifying which assets would fall within this third category, and their legal treatment, the Law Commission confirms it was an active choice for the drafting of the bill to be minimal, allowing the law “to develop from a strong and clear conceptual foundation” while leaving the precise manner in which it develops to the common law. One reason for this is to avoid ossifying any particular form of technology in the Bill, given the speed of developments in this sphere. As such, while the bill will provide a helpful confirmation of the position, it does not go further than recent cases, and therefore the extent of its impact in practice remains to be seen.

Further, the Law Commission can only make law reform recommendations in relation to England and Wales, so the report and draft bill only addresses the law of England and Wales. Any potential extension of the draft bill to Northern Ireland would be a matter for Government and the Northern Ireland Executive to discuss. As for Scotland, the Law Commission notes that Scottish personal property law does not include certain of the concepts which are central to its recommendations. Given matters relating to cryptoassets tend to have a cross-border implications, uncertainty will remain as to the extent to which it will assist parties to litigation, and the extent to which the same approach is followed elsewhere – both in Northern Ireland and Scotland and further afield.