Property (Digital Assets etc) Bill

Lord Ponsonby of Shulbrede Excerpts

Second reading committee
Wednesday 6th November 2024 Grand Committee

Moved by

[Lord Ponsonby of Shulbrede]

That the Committee do consider the Bill.

[The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Ponsonby of Shulbrede) (Lab)]

My Lords, as we begin, I would like to set out some of the history of property law and how this Bill came into being. It is worth noting at the outset that these proposals are concerned with the law of personal property in England and Wales; that is, anything that is not land or real estate. Specifically, the Bill is designed to respond to the challenge the common law faces in recognising certain digital assets, such as crypto tokens, as property; and to position the UK as the pre-eminent jurisdiction for the transaction of digital assets and the resolution of disputes arising from them.

As your Lordships will be aware, certainty around personal property rights is important for a number of reasons, including: in cases where objects of property rights are interfered with or unlawfully taken; in cases of bankruptcy or insolvency; and for the legal rules concerning succession on death. These rights are also important for the proper characterisation of numerous modern and complex legal relationships, including custody relationships, collateral arrangements and structures involving trusts.

Traditionally, personal property has been categorised into two types: tangible property that you can hold or otherwise physically possess, known as “things in possession”; and intangible property that can be claimed or enforced only through a court action, such as a debt or contractual right, known as “things in action”. These categories have been recognised in English and Welsh law for centuries, long before digital assets existed. It is not surprising that they do not fit neatly into either category, yet some digital assets have characteristics that mean they should be recognised as property by the common law and treated as such.

For example, it has long been held that pure information cannot be the object of property rights because it can be copied exactly without affecting the original version. If one party sends another party a Word document, for example, the original party still has their copy. By contrast, the technology used to create crypto tokens means that they cannot be duplicated or “double spent”. This has been recognised in some recent case law, which found that certain digital assets, specifically crypto assets, can still attract personal property rights even though their unique nature means that they are neither things in action nor things in possession.

It is worth noting, however, that these cases are not definitive in that the decisions were not made by a precedent-setting court. This has left some ambiguity, as there is old case law suggesting that something cannot be personal property if it does not fall within either of the two traditional categories. Under the previous Government, in 2020, the Ministry of Justice asked the Law Commission to review the law on crypto tokens and other digital assets, and to consider whether reform was required. In its 2023 report, the Law Commission concluded that certain types of digital assets can attract property rights and recommended legislation to reflect this. This Government agree wholeheartedly with that approach, which is why we have brought forward this Bill.

I turn to the details of the Bill, which has only one limited and technical operative clause. It recognises that:

“A thing … including a thing that is digital or electronic … is not prevented from”


attracting

“personal property rights merely because it is neither … a thing in possession, nor … a thing in action”.

The Bill simply signals a further category of personal property. What it does not do is state which assets fall within this further category. It also does not provide for the legal consequences of falling into this category. These are matters purposefully left to the common law, which is best placed to respond in a nuanced and flexible way.

The Bill does not mean that all digital assets will be recognised as property. There are many kinds of digital assets with different features, including crypto tokens, non-fungible tokens, virtual carbon credits, digital files, and domain names. The well-established common-law tests for personal property will be applied by the courts to each specific digital asset. This means that only things with the necessary characteristics of property will be recognised as attracting property rights.

We believe that the Bill has clear benefits for England and Wales as a legal jurisdiction, and the UK as a whole, enabling more efficient dispute resolution, attracting international businesses to use our law, and promoting economic growth. The Bill will: first, encourage the use of English and Welsh law by international businesses by increasing confidence in how our law will treat certain digital assets; secondly, ensure protections for owners of crypto tokens and other assets in the event of unauthorised use or misappropriation; thirdly, decrease litigation costs and court time by giving certainty as to the existence of a further category of personal property; and, lastly, empower the courts with the tools to develop our world-leading common law.

Ultimately, the Bill will ensure that our jurisdiction continues to be an attractive place to do business with, and litigate in respect of, crypto tokens and other emerging assets that have the characteristics of property under the common law. The Property (Digital Assets etc) Bill represents a step forward in modernising the law of personal property in England and Wales. By recognising a further category of personal property, it recognises the unique features of digital assets, ensuring that they can be protected and managed effectively under the law.

The Bill underscores our commitment to fostering innovation. It supports our efforts to ensure that our jurisdiction remains at the forefront globally, providing a flexible legal framework that can react to the dynamic nature of digital assets and other emerging technologies. I hope the Bill receives strong support and I look forward to noble Lords’ contributions. I beg to move.

--- Later in debate ---

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I am grateful to those noble Lords who contributed to today’s debate. All of them will, I hope, acknowledge the expertise in the Room. Committee stage is likely to be very expert as well; I look forward to it.

I am keen to emphasise, as the noble Lords, Lord Clement-Jones and Lord Sandhurst, did, the great deal of work that has gone into the Bill: from the Law Commission, which produced an excellent report and followed that up with a consultation on the proposed Bill, and from the practitioners, businesses, academics and organisations that engaged with the process throughout. I give my thanks to all who were involved in that work.

The result of those efforts is a simple but elegant Bill. As has been said, most notably by the noble and learned Lord, Lord Thomas, it will support our efforts to remain a pre-eminent jurisdiction, with English and Welsh law the global law of choice, and it will signal that the UK is a leader in innovation and technology. As our society evolves, so too must our laws. The Bill is just one of the ways in which we are modernising our legal framework. I will endeavour to address some of the points made by noble Lords. If I miss any points in particular, I will of course write to noble Lords.

First, the noble Lord, Lord Holmes, asked a number of questions, and I will have a go at answering them— I recognise his expertise in this matter. The first question was on whether the Government are sure that the current categorisation is not exhaustive and unable to accommodate existing digital assets. The Law Commission considered this option as part of its extensive and detailed report. It acknowledged that it would be possible to recognise crypto tokens as falling within an expanded category of things in action—that is, to treat “things in action” as a catch-all category for all personal property that is not capable of possession. However, crypto tokens and similar assets are fundamentally different from other things in action, which can only be claimed or enforced through a court action. For example, unlike debt they can be stolen, which in some ways makes them more like things in possession despite them not being physical objects.

Digital assets could not have been conceived when the original categories of personal property were developed and so it is no wonder that these do not fit neatly into either category. The commission, and most of its consultees, concluded that it would be better for the law to recognise that this unique combination of features means that they belong to a different category. That is why we chose the third category option, which is promoted in the Bill.

The second point the noble Lord, Lord Holmes, made, was on the implications for our courts. One of the great strengths of the common law is its ability to evolve. We are, however, dependent on the right cases being brought to the precedent-setting courts. While we could have left the law to develop, there is no guarantee of if or when this would happen, and in the meantime the uncertainty would remain about whether digital assets could be treated as personal property. The underlying point of the Bill is to put into statute the way that the common law was developing in any case, and to allow the common law to continue to develop once this particular bit of legislation is in place. To that end, the Government took the decision to legislate to give the market confidence and clarity in English and Welsh law. It also provides a strong indication to the courts that Parliament then intends to develop common law and that there is a further category of personal property that some digital assets can fall within.

The third question the noble Lord, Lord Holmes, asked, was on what this means for the common-law community. The Bill does not put the law of England and Wales at odds with other common-law countries. Courts in New Zealand and Singapore have considered that crypto assets are capable of attracting property rights and question the appropriateness of there being only two categories of personal property. The Bill is consistent with further international legal developments —for example, the US, New Zealand, Singapore and the Dubai International Finance Centre have recognised crypto tokens as property, and the latter has recognised them as specifically belonging to a new category of personal property.

The noble Lord, Lord Holmes, asked about Scotland. Scotland’s law of personal property is distinct and does not share concepts of things in action or things in possession, so any legislative intervention in this area would have to be slightly different. I understand that the Scottish Government recently appointed an expert reference group to consider how Scots private law may best accommodate digital assets. It will be interesting to see how its work develops in this area. No noble Lord raised Northern Ireland, but the Bill could be extended to include Northern Ireland, subject to a legislative consent Motion at the Northern Ireland Assembly’s request.

The noble Lord, Lord Vaizey, spoke about the importance of the financial regulation of crypto assets. The Bill supports and complements the work of the Treasury and the Financial Conduct Authority, which are currently working on appropriate financial regulation of crypto assets.

The noble Baroness, Lady Bennett, asked what impact the Bill will have on things such as illegal transactions, fraud and tax avoidance. I recognise her points, and the answer is that the Bill deals only with a specific issue of personal property law. Illegal transactions, fraud and tax avoidance are properly dealt with by other statutes and initiatives.

The noble Baroness spoke about the environmental impact of crypto in a wider sense, and my noble friend Lord Stansgate also made that point. Of course, the Bill does not have a direct environmental impact, as it does not mandate for an increase in the use of crypto tokens or other digital assets—digital assets will continue to be used and created regardless of the Bill. Rather, the Bill is about clarifying the legal status of digital assets that already exist when a dispute has arisen. The Bill will help keep the courts of England and Wales as a leading place to mitigate these disputes.

However, I agree that environmental issues are important. This falls to a much wider discussion on things such as improving energy efficiency and adoptable sustainable power sources, and that is best addressed by other statutes and initiatives. Conversely, it is possible that the Bill could bring positive environmental benefits by enabling innovative green finance for particular projects and things. Nevertheless, I take the noble Baroness’s point.

My noble friend Lord Stansgate asked a number of questions. The first was: is the panel on the legal concept of control proceeding? I am happy to confirm that the UK Jurisdiction Taskforce, an expert group chaired by the Master of the Rolls, is taking forward this work, as a body that already has an internationally credible voice in the intersection of law and technology. In fact, I met Sir Geoffrey Vos last week, and we spoke about that very point.

Secondly, my noble friend asked whether the Bill would help in the division of matrimonial property on divorce—the noble Lord, Lord Meston, made this point as well. I am pleased to say that the Bill will help courts to say with confidence, in divorce cases, that crypto assets are matrimonial property. This is also a case for crypto assets on death.

The third question my noble friend raised was: will the Bill help people access the iPhone photos, for example, of deceased relatives? The situation for other digital assets, such as digital photos, is not addressed by the Bill, as the assets are not personal property. So it will not address that point as such, but it will be for the common law to develop the answers to those sorts of questions.

The noble Lord, Lord Freyberg, in a thoughtful speech of which he gave me good notice—I thank him for that—raised the impact of NFTs on the traditional art market. As he rightly said, there are many different aspects to this, and many uses for digital assets, giving rise to different legal, practical and other issues. This Bill does not purport to deal with all the issues that arise; that would be a very different and hugely extensive Bill. This Bill deals with a discrete issue of personal property law; it does not relate to the existing statutory framework of copyright law, artists’ resale rights or consumer protection law. Those areas of law raise different policy issues and need to be considered separately. I recognise the important work done by the CMS Select Committee on issues such as copyright infringement, and other bodies such as the Financial Conduct Authority on issues of consumer misinformation about crypto. These issues are too varied and complex to be brought within the present Bill, which is deliberately limited in scope.

On the noble Lord’s comments relating to AI, the Government believe in both human-centred creativity and the potential of AI to open up new creative frontiers. The AI and creative sectors are both essential to our mission to grow the UK economy. However, this is an area which requires thoughtful engagement. I understand that the Intellectual Property Office, the Department for Science, Innovation and Technology and the Department for Culture, Media and Sport are working closely with a range of stakeholders, including artists, on issues related to AI, copyright and IP. This includes holding round tables with AI developers and representatives from the creative industries.

I thank the noble Lord, Lord Clement-Jones, for his broad support for the Bill, although he asked whether this should be left to the common law. The idea is that this Bill will enable the common law to continue developing in this field. There will be new technologies, including things that perhaps we have not even thought about in this debate. The law of personal property is an area which has traditionally been developed through common law. If the noble Lord wishes to pursue the issue, we could develop it in Committee.

[Baroness Bennett of Manor Castle (GP)]

Will the Minister write to me about the issue I raised from COP 16 about digital sequence information on genetic resources, and the broader point about digital commons?

[Lord Ponsonby of Shulbrede (Lab)]

Yes, I will be happy to write to the noble Baroness.

Motion agreed.