The Law Commission of England and Wales has been actively attempting to address this question, taking into account the quick and ever-changing social, economic and commercial landscapes which increasingly involve things like electronic signatures, cryptography, smart contracts, distributed ledgers and tokenisation. As a result, common law legal systems must adapt to consider these changes. In the landmark case, AA v Persons Unknown, the English court stated that cryptocurrencies "are neither [things] in possession nor are they [things] in action" but nonetheless concluded that they were a form of property, leading to the Commission publishing a final report in June 2023 recommending that digital assets be recognised as property.

We previously blogged on how, in turn, jurisdictions like the BVI and Hong Kong have adopted the English position.

In July 2024, the Commission published a supplemental report and draft Bill proposing to recognise a “third category” of personal property capable of accommodating unique digital assets like cryptocurrency and digital tokens. The Commission previously concluded that certain digital assets should be considered a distinct category of personal property, separate from the two traditionally recognised categories of “things in possession” (ie tangible objects) and “things in action (ie enforceable legal claims). Recent English and common law cases have moved towards recognising a third category better suited to classify digital assets.

The draft Bill aims to confirm the existence of this third category, allowing courts to develop parameters for determining when a digital asset qualifies as personal property. This would provide legal clarity and recognition for cryptocurrencies, digital tokens and potentially other digital assets.

• enabling courts to readily exercise remedies for stolen or destroyed digital assets, including granting interim relief like proprietary injunctions over digital assets where there is an imminent risk of dissipation;
• further clarifying property rights of digital assets in insolvency situations; and
• aligning the law with the market treatment of digital assets as property.

The Commission recognises that the advancement of the law, as it has proposed, carries a potential cost and risk of uncertainty during the common law development period, which may have unintended consequences. However, tis report explains the intended narrow scope of the draft Bill: focusing on private law aspects of digital assets and its limited territorial extent to the jurisdiction of England and Wales.

The report recommends that the UK government creates a panel of industry experts who can advise and guide on technical and legal issues relating to digital assets. Moreover, the Commission recommends that market participants be provided with legal tools that do not yet exist in England and Wales, such as new ways to take security over digital tokens and tokenised securities. The Commission’s recommendations for reform and common law development seek to create a clear and consistent framework for digital assets leading to greater clarity and security for users and market participants.

Although Harneys does not advise on the law of England and Wales, the Commission’s supplemental report and draft Bill seeking statutory confirmation of a new and emergent category of property will undoubtedly be analysed and scrutinised by English and common law legal practitioners, including those of the BVI, Bermuda and Cayman Islands, whose practices involve digital assets in both corporate and contentious settings.

You can see the supplemental report and draft Bill on the Law Commission’s webpage.