In the first two instalments of our series we examined the progress of English law to provide a secure and certain legal infrastructure for cryptoasset investment and management. In particular, we looked at how recent English case law has addressed the following questions:

(1) Are cryptoassets property and (2) Can cryptoassets be held on trust? (see Part 1 here)  (3) Where are cryptoassets located for the purposes of securing jurisdiction over claims and remedies? (see Part 2 here).

To recap, a line of recent cases has now made clear that English law recognises cryptocurrencies as property. Although there is no direct English decision on this point yet, there appears to be no reason why cryptocurrencies could not be held on trust. In terms of the location of cryptocurrencies, and therefore securing jurisdiction of the English courts, whether that is the place where the person or company who owns them is domiciled, or where they are resident probably remains open for debate.

In this third (and final) part of the series, we preview potential legal initiatives which are designed to continue building the legal infrastructure for digital assets in the UK, including initiatives such as the UK Law Commission’s Digital Assets Project and the UK Jurisdictional Taskforce’s (UKJT) Digital Dispute Resolution Rules.

In the first part of this series of articles, we examined the progress of English law to shape and build an infrastructure to support the development of a secure and certain environment for investment in digital assets. We considered how recent English case law has addressed the questions of whether cryptoassets are property, and whether they can be held on trust.

In this second instalment, we review jurisdictional issues relating to digital assets.

Where are cryptoassets located?

Where assets are located in the eyes of the law is relevant to questions of what governing law applies to them, the Court’s determination of its own jurisdiction (including the appropriate forum for a claim to be resolved) and questions of service of court documents outside the jurisdiction. Crypto-disputes raise questions of where cryptocurrency exchanges are located, the identification and location of defendants, and where cryptoassets (which have no traditional physical form) are situated.

The law of the jurisdiction in which property which is subject to litigation is located is referred to as the lex situs of the property. In general terms, Courts determine the lex situs of land and chattels based on their (physical) location, and in respect of enforceable personal rights over property (known as choses in action) where they are recoverable or can be enforced. Given their intangible nature, determining the lex situs of cryptoassets is a question the English Courts have needed to grapple with sooner or later.

The Ion Science Ltd v Persons Unknown (unreported, 21 December 2020) case presented an opportunity to do so. It suggested that for the purposes of English law the lex situs of cryptocurrency is the place where the person or company who owns it is domiciled.[1] This approach was followed in Ltd and another v Persons Unknown Category A and others[2] as part of the Court’s consideration of whether to grant permission for the claimants to serve proceedings outside the jurisdiction. (In that case, the claimants were then able to obtain a worldwide freezing order and proprietary injunctive relief against unknown fraudsters, among other orders.)

Sir Geoffrey Vos, the Master of the Rolls, wants English law to be at the forefront of developments relating to cryptoassets and smart contracts. In his thought-provoking foreword to the government-backed UK Jurisdictional Taskforce’s (UKJT) Legal Statement on Cryptoassets and Smart Contracts, he explained that English law should aim to provide “much needed market confidence, legal certainty and predictability in areas that are of great importance to the technological and legal communities and to the global financial services industry” as well as to “demonstrate the ability of the common law in general, and English law in particular, to respond consistently and flexibly to new commercial mechanisms.” He returned to the same theme in a speech on 24 February 2022 at the launch of the Smarter Contracts report by the UKJT in which he said “[m]y hope is that English law will prove to be the law of choice for borderless blockchain technology as its take up grows exponentially in the months and years to come”.

The law defines whether and how an owner can find and recover a stolen asset, whether a contract about an asset can be enforced and whether rights are owed between parties in relation to an asset.  English law has traditionally been very flexible in fashioning remedies to uphold contracts and to allow parties to preserve and follow (trace) assets – by interim protective relief in the form of injunctions, disclosure orders against third parties (Banker’s Trust orders), by recognising trusts over assets and by the English Courts accepting jurisdiction over claims in the first place.  If English law allows owners of cryptoassets to access these remedies, it should provide the “market confidence, legal certainty and predictability” described by Sir Geoffrey Vos. In this article, we explore the extent to which recent developments in English law have furthered these objectives and address in turn:

  • Are cryptoassets property?
  • Can cryptoassets be held on trust?

In the second part of this series, we will review recent developments concerning jurisdictional issues relating to digital assets and in the third part we will preview key legal and policy developments which are in the pipeline.