On 30 July, the UK Law Commission published a supplementary report and draft Bill which would legislate a third category of personal property, which digital assets such as cryptocurrencies and non-fungible tokens (NFTs) could fall into. If taken up by Parliament, the new legislation would pave the way for courts to definitively treat digital assets as personal property, ending a longstanding debate in the UK. The issue of whether digital assets are a type of personal property has repeatedly been argued by litigating parties and discussed in UK courts and beyond. This debate is largely due to attributes of digital currencies that do not neatly fit into either traditional category of personal property, being:
a chose in possession which is a tangible thing over which the owner has actual enjoyment (e.g. cars or jewelleries), or
a chose in action which is an intangible thing of which a person lacks present enjoyment, but has a right to sue to recover it (e.g. debts or financial securities).
The Commission, in its June 2023 report, concluded that certain digital assets are capable of being personal property. However, because they are fundamentally different from both traditional categories, the Commission suggested the existence of a “third” category of personal property called "digital objects". The report has been cited by subsequent UK higher court decisions, which has further influenced other common law jurisdictions such as Australia, New Zealand and Singapore.
Extrajudicially, Justice Jackman of the Federal Court has commented that recognition of a third category of property is not necessary for recognition of digital assets as property under Australian law. The judge's comments were endorsed in a recent Federal Court decision regarding a freezing order sought by the Australian Securities and Investment Commission, which found that cryptocurrency is capable of being "property" for the purposes of granting an interlocutory injunction.
The Commission recommends that the law not define the boundaries of this third category, rather that legislation should confirm its existence and keep the boundaries open to accomodate the recognition of new forms of property.
The draft Bill makes clear that a thing is not prevented from being the object of personal property rights merely because it is neither a thing in action nor a thing in possession. This reflects the trajectory of recent case law, but removes the lingering uncertainty that remains in the absence of a definitive statement from the appellate courts.
If the draft Bill becomes law, it will pave the way for digital assets to be definitively recognised as personal property, which may also influence other common law jurisdictions. The proposed Bill and the Commission's report last month on Decentralised Autonomous Organisations show that the UK Law Commission remains at the forefront of legal reform with respect to digital assets.
Written by J Huang and S Pettigrove