The Law Commission’s Project 'Digital assets and ETDs in private international law: which court, which law?' (I)

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The Role of the Law Commission

The Law Commission is an independent statutory body established to keep the law of England and Wales under review and to recommend reforms. The primary role of a Law Commission project is to carry out in-depth research and consultation on specific areas of law that may be outdated, complex, or unfair and then to propose reforms to make the law clearer, more modern, and more accessible.

Key roles and activities involved in a Law Commission project include:

·?????? Identifying Issues - The Law Commission selects areas of law that may require reform. These areas can be suggested by the government, the public, or the Commission itself.

·?????? Research and Analysis - Once a project is chosen, the Law Commission conducts detailed research on the issue. This includes reviewing existing laws, comparing with laws in other jurisdictions, and analyzing how the law operates in practice.

·?????? Consultation - A crucial part of the process involves consulting with legal experts, stakeholders, and the public. The Law Commission publishes consultation papers that outline the issues and potential reforms, inviting feedback from interested parties.

·?????? Developing Recommendations - After considering the research and consultation responses, the Law Commission develops recommendations for reform. These recommendations aim to improve the legal framework, making it more efficient, just, and understandable.

·?????? Publishing a Report - The final step is the publication of a report that sets out the recommendations for reform. This report often includes draft legislation to illustrate how the recommended changes could be implemented.

·?????? Government Consideration and Implementation - The Law Commission's recommendations are then considered by the government. If accepted, the government may introduce legislation to implement the proposed reforms.

Law Commission projects play a critical role in ensuring that the legal system evolves to meet the needs of society, keeping it relevant and effective. They provide a thorough, evidence-based foundation for legal reforms, ensuring that changes are well-considered and broadly supported.

In recent years, the Law Commission’s work has focused on emerging technologies, including smart legal contracts, electronic trade documents, digital assets, and decentralized autonomous organizations (DAOs), which raise important issues in private international law.

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Digital assets and ETDs in private international law: which court, which law?

On 22 February 2024, the Law Commission initiated a call for evidence with the aim of identifying the most pressing and widespread challenges in private international law arising from digital, online, and decentralized environments where modern digital assets and electronic trade documents are utilized. The project is titled 'Digital assets and ETDs in private international law: which court, which law?' and its current status is Pre-Consultation.

The Pre-Consultation phase involves:

·?????? Initial research to understand the current law, and comparative studies from other jurisdictions;

·?????? Stakeholder engagement, which entails informal discussions with key stakeholders, including legal professionals, government departments, and interest groups. This helps in understanding the practical implications of the law;

·?????? Issue identification. Through research and stakeholder engagement, the Commission identifies key issues and potential areas for reform. This stage often involves assessing the pros and cons of different approaches to the identified legal issues.

Two documents released up until this point are the Call for Evidence and the Summary of the Call for Evidence.

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Call for Evidence

In the Call for Evidence, the Commission invites stakeholders, experts, and the general public to submit relevant information, experiences, and views on a particular legal issue under review. This process is crucial for gathering a wide range of perspectives and empirical data to inform the Commission's understanding of the issue and to shape the direction of its recommendations for law reform.

The collected evidence helps the Law Commission assess the current state of the law, identify problems, and consider the practical implications of any potential reforms. This phase is part of the Commission's commitment to ensuring that law reform proposals are grounded in real-world experience and evidence.

The call for evidence focuses on jurisdiction in private international law as it relates to digital assets and electronic trade documents (ETDs). Here are the most important ideas:

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Emerging Technologies and Jurisdiction: The increasing use of digital assets and ETDs raises significant challenges in private international law, particularly in determining which country's courts have jurisdiction and which laws apply. Traditional approaches to jurisdiction are being strained by technologies like distributed ledger technology (DLT), which do not fit neatly within the territorial confines that private international law traditionally relies on.

Core Issues in Private International Law: The document outlines three main questions that typically arise in private international law -

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·?????? Jurisdiction: Which country's courts should hear the dispute?

·?????? Applicable Law: Which country's laws should be applied to resolve the dispute?

·?????? Recognition and Enforcement: How can a judgment be recognized and enforced in another country?

Challenges with Digital Assets: Digital assets, particularly those using DLT, such as cryptocurrencies, pose unique jurisdictional challenges because they can exist in a decentralized manner, without a clear geographical location. This creates difficulties in determining which legal system is applicable.

"Omniterritoriality": The document introduces the concept of "omniterritoriality," which describes situations where a digital act, event, or object is connected to multiple jurisdictions simultaneously, or to none at all. This challenges traditional methods of resolving jurisdictional issues. The document highlights that the problem with omniterritorial phenomena is usually not their lack of connection to any territory but their equal connection to many territories. The document implies that new legal frameworks may be necessary to address these issues effectively.

Priorities for Law Reform: The document emphasizes two main priorities for law reform -

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·?????? Understanding which issues can be handled within the existing legal framework (i.e., territoriality principles and known connecting factors);

·?????? Identifying the issues that are likely to cause significant problems in practice (i.e., that cannot be resolved under the current legal framework), especially those related to the truly decentralized use of DLT.

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These points highlight the growing complexity of applying traditional legal frameworks (such as territoriality principles) to digital assets and the need for potential legal reforms to address these challenges.