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The Property (Digital Assets etc) Bill (the “Bill”) was introduced on 11 September 2024 and is historic in nature. It will mean that, if passed, UK digital assets will be considered as personal property in law.

The Bill states:

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 — (a) a thing in possession, nor (b) a thing in action.

Digital assets can include cryptocurrencies, non-fungible tokens, and carbon credits.

Law Commission 2023 Digital Asset Report

The Bill follows on from the Law Commission 2023 Digital Asset Report (“the Report”), the Ministry of Justice commissioned the Report to look into the lack of recognition and rights surrounding digital assets. We first discussed the Law Commission’s proposals for reform and the need for the Courts to be better equipped to tackle the specific challenges of digital assets back in August 2022.

The Report confirmed that despite the common law being ‘sufficiently resilient and flexible’ in its recognition of digital assets, it was clear that some digital assets did not easily fall into the existing common law categories of personal property rights. Before the Bill was introduced, categories meant things in action, and things in possession. Things in action means things such as shares or debt, these things do not physically exist outside of their legal status, and things in possession means things such as cars and paintings i.e. tangible property that can be physically owned. Digital assets were not explicitly included in the law, and it was never clear how to properly categorise them, which resulted in a lack of clarity for digital asset holders. The Report shone a light on this gap and recommended the need for the law to confirm the position on digital assets, and to ultimately afford legal protection to owners of such assets.

Why is the Bill needed

As set out in Colonial Bank v Winney [1885] 30 Ch D 261 the traditional definition of property is that there are only two classes of personal property – things in possession, and things in action. Digital assets have elements of both of these classes but ultimately do not squarely fall into either. This issue has arisen frequently in English Courts, and recent decisions have highlighted the issue and the need for certainty on the legal status of digital assets.

Vorotyntseva v Money-4 Ltd (t/a Nebeus.Com) and others [2018] EWHC 2596 (Ch) saw Mr Justice Birss state that there was nothing to suggest ‘that cryptocurrency cannot be a form of property’ and he awarded a worldwide freezing order to avoid the cryptocurrency being dissipated. However, the decision in Robertson v Persons Unknown (unreported) 2019 pointed to the need for greater clarity, Mr Justice Moulder declined to make a worldwide freezing order but granted an asset preservation order in relation to stolen Bitcoins and agreed that cryptocurrency could be personal property but noted that cryptocurrency assets are not a ‘chose in possession’ or ‘chose in action’. The recent decision in D’Aloia v Persons Unknown & Ors [2024] EWHC 2342 (Ch) saw the issue of whether digital assets constitute property discussed at extensive length, it was held that the cryptocurrency stablecoin did constitute property but that it is also possible for digital assets to be the subject of tracing and that digital assets could be trust property in the same way as other property.

What does the Bill do for the legal status of Digital Assets?

The Bill introduces a third category of personal property, a new “thing”. Despite the wording of the Bill being short and to the point, the language used is very effective. By referring to this third category of property rights as a “thing,” it does not provide a precise definition but creates an opportunity for the common law to define what does and does not fall within this new category of personal property rights.

The Bill therefore enables the common law to build and develop in tandem with digital assets, and allows the law to respond to fast paced developments in the technology industry.

The Bill will ensure increased legal protection and establish clear guidelines and clarity for owners of digital assets. This will be crucial in Court cases where digital assets are in dispute.

Important Takeaways

The intentions of the Bill can be highlighted by Justice Minister Heidi Alexander’s “Our world-leading legal services form a vital part of our economy, helping to drive forward growth and keep Britain at the heart of the international legal industry. 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.”

Both the words of Justice Minister Alexander, and the goals of the Bill, demonstrate the UK’s commitment to ensuring the legal profession is equipped to deal with digital assets and their position in society. The introduction of the Bill ensures that Britain remains at the forefront of technological innovation. Maintaining the law and establishing a legal framework for digital assets is crucial to ensuring the UK legal sector remains a leader in the global fintech and legal industry.

As the Bill is still in its initial stages, it could face amendments, and these amendments could potentially stem from the worldwide effort to clarify and create regulations surrounding digital assets.

The proposed new third category of personal property should instil confidence in digital asset holders. The Bill provides them with greater protection and clarity and helps to equip them with legal remedies in cases such as ownership disputes, divorce settlements, and inheritance matters.

For further information regarding this topic please contact Nick Phillips or any member of our Intellectual Property team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

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