Property (Digital Assets etc) Bill

Lord Clement-Jones Excerpts

Second reading committee
Wednesday 6th November 2024 Grand Committee

[Lord Clement-Jones (LD)]

My Lords, I remind the Committee of my interests in the register. I add my thanks to the Minister for his clear introduction. I am an admirer of the work of the Law Commission, so it is intriguing to be debating the merits of this one-clause Bill with such a distinguished group of digital aficionados. Despite the brevity of the Bill, as the Minister has described, it has seen quite a careful run-up through consultation, response, report and draft Bill to help inform us. We have heard some great speeches today explaining why digital assets are important because of their impact, both negative and positive, on society and the economy.

The Law Commission has essentially recommended that we legislate to confirm that the outcome of the 1885 case Colonial Bank v Whinney, which decided that all personal things are either in possession or in action, is clearly superseded. Effectively, we are confirming that the common law of England and Wales has, over the last 10 years, clearly moved towards explicit recognition of a third category of things to which personal property rights can relate. In the words of the Law Commission, the courts have recognised that those things are

“capable of being objects of personal property rights at law”.

It was interesting to be reminded, while preparing for this debate, of the traditional forms of personal property. In the dim and distant past, I remember my supervising partner when I was an articled clerk—in the quill pen era—being very surprised when I had no idea how to draft an assignment of a chose in action. Actually, I had no idea what a chose in action was, despite two years of law at university. Anyway, young lawyers will now have to learn how to assign a digital asset as well.

The Electronic Trade Documents Act, mentioned by the noble Lord, Lord Holmes—it is also good to see the noble and learned Lord, Lord Thomas of Cwmgiedd—and which I was pleased to help on its way recently, was an exception in that it provided that electronic, or digital, trade documents could be treated as things in possession. Sadly, the Centre for Digital Trade and Innovation, soon to become an international centre, recently said that, while there are some signs of adoption, particularly among large commodity traders using e-bills of lading, the dial has yet to move on more general usage of the Act to make international trade faster, cheaper and simpler—as suggested in the impact assessment—especially for the SME sector. So, sadly, not all Law Commission efforts bear fruit quickly.

However, as the Law Commission discusses in its consultation paper, it did not think that the arguments for using possession as the operative concept for electronic trade documents were as persuasive in respect of other forms of digital asset. It concluded that

“it is not necessary or appropriate for legislation to define the boundaries of such a third category”.

We are essentially being asked to take an act of faith in the adaptability of the common law and to accept that

“the common law remains best placed to describe the parameters of third category things that are capable of being objects of personal property rights”.

This is in line with the first two of the principles that the Law Commission has explicitly and rightly adopted. The first is:

“Championing and supporting the inherent flexibility of the common law and making clear that, in general, it is sufficiently flexible, and already able, to accommodate digital assets”.


The second is:

“Statutory reform only to confirm the existing common law position or where the common law cannot develop the legal certainty the market requires”.


So we see reflected in this short Bill the Law Commission’s recommended legislation confirming the simple proposition that the fact that a thing is neither a thing in possession nor a thing in action does not prevent it being a thing to which personal property rights can relate. As we have heard today from a number of noble Lords—including the noble Lords, Lord Vaizey and Lord Holmes, and the noble Viscount, Lord Stansgate—this is designed to cover crypto tokens, such as bitcoin, ether and stablecoins, NFTs and carbon credits, which may not have rights or claims attached to them so they may not qualify as things in action.

Some lawyers say that there is already a high degree of legal certainty and that there exist certain types of intangible property that are already recognised by the law of England and Wales. In essence, the Law Commission says that the recommendation for statutory intervention seeks merely to confirm and support what it considers the existing position in law. It goes further in its belief that the common law can do the necessary job in further defining digital assets, saying that

“it is not necessary, appropriate or helpful for the law of England and Wales to adopt statutory definitions of digital things for the purposes of answering the question as to whether such things are capable of being objects of personal property rights”.

It continues:

“We think that this logic applies equally to defining hard boundaries of a category of thing to which personal property rights can relate, distinct from things in possession and things in action”.


So, broadly speaking, the Law Commission leaves detailed implications to be fleshed out through future judicial decisions and ongoing common-law development, perhaps with the expert panel.

This includes the important aspect of remedies. The commission concludes that

“the vitiating factors of mistake, misrepresentation, duress and undue influence apply similarly to contracts involving third category things as they do to contracts involving things in possession and things in action”.

We are taking quite a lot on faith here. However, when it comes to certain other aspects, such as the entry into operation and enforcement of collateral arrangements for crypto tokens and crypto assets, the Law Commission concludes that

“it is not possible for the common law alone to develop a legal framework”

and that

“such a regime would be beneficial for the law of England and Wales and would provide market participants with important legal tools that do not exist today”.

Some questions arise. What next steps are proposed for this? Is this another case for the expert panel to look at? Is the common law adequate to deal with transfers and intermediate holding arrangements?

There are a number of additional questions, to which I hope we will get the answers in the course of our Committee proceedings when we take evidence. For instance, the report touches on general consequences, such as clearer rules for inheritance, bankruptcy and insolvency proceedings. The noble Lord, Lord Meston, touched on the vexed issue of digital assets in wills, while the noble Viscount, Lord Stansgate, mentioned it in the context of divorce—happy days. What are the potential legal consequences of the Bill’s approach for the parties involved in digital asset transactions? How will this impact issues such as ownership disputes, inheritance, bankruptcy and insolvency?

The Bill leaves detailed implications to be fleshed out through future judicial decisions and ongoing common-law development. The report clearly states that the courts will play a critical role in shaping the contours of this new category. Are they fully equipped to do so? Is that the best way forward, rather than providing more granular definitions in the Bill itself? Is there any transition of existing digital assets required from their current legal status to their status as a result of the Bill? What are the potential risks or unintended consequences of the proposed legislation? Will the explicit recognition of digital assets as personal property have an impact on the financial, technological and legal sectors? How do stakeholders from those sectors view the proposed Bill?

While the Law Commission in its reports acknowledges the possibility of unintended consequences, it argues that the flexibility of the common law approach will allow for adjustments and refinements as necessary, rather than detailing specific risks, and I am certain that the Committee will want to explore that approach.

Finally, I have two questions that the Minister may be able to answer today. The report discusses potential impacts, such as increased legal certainty and more straightforward asset management, but it does not provide an in-depth analysis of sector-specific impacts. Do the Government propose to produce an assessment of the impact that the recognition of digital assets as personal property will have on various sectors, or do they believe that because of the confirmatory nature of the Bill, that is already baked in?

Then, on a matter that a number of other noble Lords raised today—the noble and learned Lord, Lord Thomas, and the noble Lords, Lord Vaizey and Lord Holmes—there is the whole question of how the proposed legislation aligns with existing international models. We heard mention of MiCA in the EU, while Dubai has digital asset legislation and a regulator, VARA, and the US will probably become more bullish about crypto assets under its new Administration. The noble and learned Lord, Lord Thomas, was also very clear about the importance of the competitive aspect in terms of choice of jurisdiction. This question remains largely unanswered in the report, with the Law Commission not detailing how the Bill will align with international legal frameworks or affect international transactions. What are the potential risks or unintended consequences of any of the proposed legislation in this respect?

Other questions were rightly raised about the future regulation of crypto assets and cryptocurrencies. On whether we are going as far as we should in this respect, the noble Lord, Lord Vaizey, and the noble Baroness, Lady Bennett, are pretty much on opposite sides of the equation. The noble Lord, Lord Meston, rightly made the point that the criminal law is ahead of the civil law—I see we are debating a statutory instrument on this subject on Monday. It may be beyond the Minister’s brief to be talking about the digital Michael Parkinson, but perhaps he could shine some light and give us a glimpse of the regulatory future as regards some of these digital assets.

There are many unanswered questions. I look forward to Committee, when I hope that we will get some more answers.