The Law Commission of England and Wales (Law Commission) has been commissioned by the Government to conduct a new law reform project Digital assets: which law, which court. This new project will review how the rules of applicable law and jurisdiction can apply to emerging technologies involving a range of non-centralised digital assets and services using distributed ledger technology (DLT) such as blockchain. This is part of a broader policy initiative from the Government to ensure the UK’s rules appropriately accommodate an increasingly digitalised world, including the rapid expansion of digital assets and electronic trade documents, such as those involving cryptoassets, cryptocurrencies and NFTs.

The scope of the project includes considering the private international law challenges arising in international disputes relating to these emerging DLT-driven non-centralised digital assets and services. The Law Commission explains that the rapid rise of these technologies, often being intangible and distributed, has generated fundamental conflict of laws issues particularly in the context of disputes, creating legal uncertainty for users, organisations and governments in and outside of the UK.

Most disputes relating to DLT-driven digital assets to date so far typically involve the claimant allegedly losing access to, or being defrauded of, their cryptoassets by adverse actors due to hacking or a DLT code exploit, often involving one or more crypto-fiat exchange service providers. In many of these disputes to date, the Law Commission says, a fundamental source of legal uncertainty has been the question of which courts have the requisite power or jurisdiction to hear the dispute, and even which law should be applied. This uncertainty is partly driven by challenges with determining the location of the relevant digital asset, service or party responsible for it. DLT-driven assets and services are, by definition, everywhere all at once with no central location, not to mention that every DLT architecture and protocol is unique, making it difficult to create rules to determine their geographical location or applicable legal framework.

This isn’t to say that the common law system hasn’t already been adapting to these emerging technologies to meet the needs of litigants. English courts have already handed down many leading judgments in disputes relating to DLT-driven digital assets. English courts have so far held that territorial jurisdiction is determined by the location where the cryptoasset owner is domiciled, but this has so far been applied in the limited context of UK-domiciled litigants seeking freezing orders against crypto exchanges to preserve their stolen cryptocurrency.[1]

The Law Commission says that conflict of laws issues have been identified in previous Law Commission projects over recent years on digital assets and electronic trade documents. This new project, sponsored by the Ministry of Justice, will build on this work, seeking to provide clarity in these areas of legal uncertainty.

The Law Commission will develop reform proposals in a public consultation paper, due to be published in the second half of 2023. For further information, click here.

[1] Ion Science Ltd v Persons Unknown and others (unreported, 21 December 2020); Fetch.ai Ltd and anr v Persons Unknown Category A and ors [2021] EWHC 2254 (Comm).