New law: Individuals, businesses and their advisers consider implications of proposal to make digital assets a new form of personal property in England and Wales

The Law Commission is a statutory independent body that keeps the law of England and Wales under review and recommends reform where needed. Its proposals in relation to digital assets are set out in a 549-page consultation ‘Digital Assets: Consultation paper’.

‘Personal property’ is property other than freehold or leasehold interests in land, and related rights (which lawyers call ‘real property’). Currently there are only two types of personal property:

• physical personal property (property that lawyers call ‘things in possession’ and which are usually tangible, moveable and visible); and
• intangible personal property (property which lawyers call ‘things in action’ because they have no physical form and can only be claimed through legal action – for example, a company share, a debt or a right to sue for a breach of contract).

In disputes to date, the courts have treated digital assets as either physical or intangible personal property. The Commission’s view is that the law would be simpler and more certain if digital assets were categorised as a new, separate form of personal property, and given consistent legal recognition and protection.

This will create certainty as to how such assets can be held, used, dealt with and protected – clarifying, for example, how they can be held in trust, inherited, held in custody, stolen and recovered, and used as security, and what happens to them on a business or personal insolvency.

The proposed new category of personal property - called a ‘data object’ in the Commission proposals – will be:

• anything made up of data represented in an electronic medium (for example, computer code, electronic, digital or analogue signals);
• that exists independently of individuals and of the legal system; and
• which cannot be used simultaneously for different purposes (ie is not, in the Commission’s terminology, ‘rivalrous’).

This does not include all digital assets but does take in, for example, crypto-tokens and cryptoassets such as Bitcoin and non-fungible tokens.

The consultation contains, as usual with Law Commission reports, excellent coverage of the current law regarding digital assets. There is also a 20-page summary of the proposals ‘Digital assets: Summary of consultation paper’.

The consultation is open for responses until 4 November 2022.

Operative date

• Now

Recommendation

• Businesses and individuals should consider identifying and listing their digital assets with a view to protecting and exploiting them more effectively.
• Businesses and individuals may wish to view the consultation on the Law Commission website.