England and Wales’ digital era: no blank space when litigating in this jurisdiction

Sarah Murray
Stevens & Bolton, Guildford
sarah.murray@stevens-bolton.com

Miranda Joseph
Stevens & Bolton, Guildford
miranda.joseph@stevens-bolton.com

The jurisdiction of England and Wales has officially entered the digital era. In one of the most significant judicial developments in recent years, on 11 September 2024, the Property (Digital Assets etc) Bill (the Bill), was introduced to Parliament in England. For the first time ever, digital assets can now be considered as personal property under English statutory law. This legal milestone demonstrates Britain’s pioneering commitment to adapting to the realities of the digital age, shaking off any discrepancies between common law and statute. In this article, we seek to explore the key provisions of the Bill, and the implications for conducting litigation in the digital age.

What does the new legislation do?

Although the Bill represents a landmark moment, the courts of England and Wales have recognised that a digital asset is a thing which is capable of being an object of personal property rights since the judgment of AA v Persons Unknown in 2019.[1] The courts have continued to develop the law on a case-by-case basis, including most recently, on 12 September 2024, when judgment was given in the case of D’Aloia v Persons Unknown.[2] In this case, the High Court held that USD Tether (a cryptocurrency that is pegged to the US Dollar)[3] does indeed constitute property for the purposes of English law.

However, as recognised in D’Aloia, digital assets do not necessarily fit into the historical legal categories of personal property which were traditionally recognised by statute. These categories were: (1) things in possession - any objects that are capable of possession - for example a car, jewellery, or other tangible item; and (2) things in action - including any personal property that can only be claimed or enforced through legal action or proceedings against a particular party – for example debts, shares in a company, or rights to sue.

The new legislation has come about following a lengthy consultation process initiated by the Law Commission in 2022. Recommendations for reform were published in June 2023 which included confirmation 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.[4] The Law Commission consulted on a draft bill in February 2024[5] and published a revised draft in July. The Bill confirms the existence of a distinct third category of personal property.

Key features

The brevity of the Bill is notable:

 ‘Objects of personal property rights

 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—

1.  a thing in possession, nor

2.  a thing in action.’

The Bill deliberately refrains from specifying the characteristics of a third category of things, in recognition of the fact that technology continues to develop. The intention is for the statutory foundation to evolve through interpretation in the courts, cohesively embracing and adapting to technological advancements. Non-digital assets are also captured by the drafting, hence the insertion of ‘etc’ in the title.

The intention is that the Bill will increase market confidence in the digital sector in what is a leading jurisdiction for the industry. Justice Minister Heidi Alexander has said: ‘It is essential that the law keeps pace with evolving technologies and this legislation will mean that the sector can maintain its position as a global leader in cryptoassets and bring clarity to complex property cases.’[6]

Does the Bill go far enough?

Notwithstanding the underlying intention to clarify the classification of digital assets, there is still some ambiguity, leaving the courts to apply the statutory premise on a case-by-case basis. The Law Commission’s rationale is that these matters should be left to develop by common law, as has been the case historically, to allow for a ‘highly nuanced and flexible approach which is not possible to achieve in statute.’[7]

Questions have been asked, notably by the Financial Markets Law Committee, about conflicts of law rules and how they apply to digital assets. There can be confusion when identifying the governing law of proprietary claims in respect of digital assets, and concerns have been raised about the need for there to be a statutory rule to assist with the determination of the governing law of a digital asset.[8]

Challenges of enforcement remain, particularly when dealing with cross-border transactions, since other jurisdictions may not recognise a third category of assets in the same way, or indeed at all. Furthermore, it remains to be seen whether the drafting is sufficiently robust and capable of keeping up with technological advancements in a practical and meaningful way.

What does it mean for disputes?

The Bill potentially has significant implications for litigation. By providing a clear, legal framework which incorporates digital assets as a form of personal property, owners of digital assets can rely on the legal protections afforded by English property law, such as: (1) having an enforceable action in the event of fraud or theft involving their digital assets (eg, theft of cryptocurrency); (2) digital assets being included as part of an estate (eg, in probate or in insolvency procedures); or (3) digital assets being afforded the remedies that may be available for other proprietary claims, such as injunctions, orders for delivery, or asset tracing.

There may be evidential issues that arise because of the fact that digital assets often exist in intangible forms, making it difficult to present them as evidence in court.

The legal developments may give rise to a variety of different causes of action, relating to, for example, issues of contract (eg, concerning electronic trade documents and electronic bills of lading), and proprietary issues of transfer and security perfection, for example in relation to distributed ledger technology, the technological infrastructure from which blockchains are created.

Determining the value of digital assets may be complex, especially with volatile assets like cryptocurrencies. There could also be challenges concerning the level of compensation for damages. 

There will be new issues of liability to grapple with, for example: how to deal with office-holders’ duties in respect of digital assets (eg, the need to identify and safeguard digital assets, particularly in an insolvency or probate context);[9] disputes about title; steps to take in relation to asset-tracing; and inevitably difficulties concerning governing law, jurisdiction, and enforcement.

There is no doubt that the Bill is a crucial development in navigating the legal complexities of this digital era. It will be prudent for businesses to consider the implications of the legislation carefully, and review and update their policies, including in relation to asset management, security protocols and dispute resolution processes, as necessary. As for practitioners, it will be crucial to remain informed about the latest legal and technological developments to conduct litigation in this evolving realm.

Notes