New bill to recognise digital assets as “property” will help victims of cryptocurrency scams

Roman Kubiak TEP, Partner and Head of Private Wealth Disputes, discusses the Property (Digital Assets etc) Bill recently introduced by the Government.

Introduction

On 11 September 2024, a new bill was introduced to the House of Lords; the Property (Digital Assets etc) Bill (‘the Bill’).

The primary purpose of the Bill is to provide clarity regarding the status of digital assets as “property” under English law.

It was first proposed following the Law Commission’s consultation on digital assets and report in July 2023, which was then followed up by a supplemental report and draft bill on 30 July 2024.

Background and purpose

The Bill aims to remove the doubts regarding the status of “personal property” and the legal rights attached to them, particularly in the context of digital assets. The 19th century case of Colonial Bank v Whinney first categorised personal property as falling into one of two categories, either a “thing in possession” (i.e. something tangible you hold or own) or a “thing in action” (i.e. a legal right or claim to something).

In the modern age with digital assets or, as one judge described them, “streams of electrons”, which now hold financial value, it is clear that this binary description is no longer fit for purpose, particularly to aid those who need to take legal steps to protect, pursue and recover these assets.

The Law Commission considered that there ought to be a “third category” of personal property to accommodate digital assets. While not explicitly defined in the Bill, the explanatory notes and Law Commission reports provide examples of what might be considered “digital assets”. These include crypto-tokens, Non-Fungible Tokens (aka NFTs), digital files, digital records, email accounts, domain names, in-game digital assets, and digital carbon credits.

The Bill’s purpose is to sit alongside and help develop common law (i.e. the laws developed through cases decided by the courts).

The courts of England and Wales have been at the forefront of legal developments in this area in recent years. Recent cases including AA v Persons Unknown [2019] EWHC 3556 (Comm), Jones v. Persons Unknown [2022] EWHC 2543 (Comm), and Tulip Trading Limited v Bitcoin Association for BSV & Ors [2023] EWCA Civ 83 have seen the courts recognise cryptocurrencies as a form of property, albeit by acknowledging that these assets fall outside the traditional categories. Crucially, this has allowed victims of fraud and hacks to take proactive steps to try to recover their stolen cryptoassets.

Nonetheless, this approach lacked the definitive authority of statutory law and most of the court decisions have dealt with interim relief only, rather than addressing the substantive matter of the actual recovery of these assets.

Conclusion

The proposed Bill represents a significant step in aligning the legal treatment of assets with the realities of the digital age. By providing a clear legal basis for recognising digital assets as property, the hope is that this will encourage innovation, protect asset holders and maintain the UK’s competitive edge in the global digital economy.

Assuming the Bill makes its passage through the House of Lords and Parliament relatively unscathed, it will provide further legal and pragmatic clarity for those of us advising and helping clients faced with having to pursue legal avenues to recover stolen crypto-tokens and digital assets.