Law Commission’s Consultation Paper on Digital Assets/ETDs and PIL: An Outline

The Law Commission of England and Wales is reviewing how private international law operates in the context of electronic trade documents and digital assets. As previously reported on this blog, on 5 June 2025 the Law Commission published a consultation paper (paper; summary) proposing reform to certain rules of private international law that apply in the context of digital assets and electronic trade documents. The Consultation Paper follows a call for evidence (Digital assets and ETDs in private international law: which court, which law? Call for evidence) and three FAQs documents (Digital assets in private international law: FAQs on the relationship with tax law, banking regulation, and the financial markets; Property and permissioned DLT systems in private international law: FAQ; ETDs in private international law: FAQs).

This post outlines the Consultation Paper and offer some preliminary remarks.

The Consultation Paper makes four key contributions:

(1) Proposals for a new free-standing information order, designed to assist claimants at the initial investigation stage of proceedings where the pseudo-anonymous and decentralised nature of the crypto-token environment presents significant obstacles to formulating and issuing a fully pleaded substantive claim;

(2) An analysis of the preferred interpretation of the tort and property jurisdictional gateways for service out of the jurisdiction in the context of claims relating to crypto-tokens;

(3) Proposals for a supranational approach in cases where the degree of decentralisation is such that the Rome I Regulation and the lex situs rule cannot meaningfully apply;

(4) Proposals to reform section 72 of the Bills of Exchange Act 1882 (‘1882 Act’) for all disputes, whether or not concerning electronic trading documents.

New Free-Standing Information Order

The Law Commission proposes creating a new power for the courts to grant free-standing information orders, enabling claimants who have lost crypto-tokens through fraud or hacking to obtain information about the perpetrators or the whereabouts of their tokens without having to go through the existing jurisdictional gateways.

Specifically, the Law Commission proposes that:

(1) Such a power should be grounded in the principles of access to justice, necessity and the prevention of injustice in modern digital and decentralised environments.

(2) A claimant must satisfy the following four-limb threshold test before the court’s discretion to grant an order may be exercised:

(a) A case of sufficient strength (the merits test);

(b) Necessity;

(c) Impossibility or unreasonableness;

(d) A connection to England and Wales.

Tort and Property Jurisdictional Gateways

The Law Commission suggests that, in cases involving crypto-tokens, the tort and property gateways in Civil Procedure Rules Practice Direction 6B, para 3.1(9)(a), (11), (15)(b) and (21)(a) can be applied without undue difficulty by reference to the general principles of international jurisdiction that underpin the gateway requirements.

Specifically, the Law Commission is of the view that:

(1) For the property gateways based on the location of property within the jurisdiction ((11) and (15)(b)), the appropriate court to hear a cross-border property claim concerning a crypto-token is the court of the place where the crypto-token can be controlled or otherwise dealt with effectively (for example, the place where the person who knows or has access to the private key is located or where control over the software underpinning the network is exercised) at the time proceedings are issued;

(2) For the tort gateways based on damage sustained within the jurisdiction ((9)(a) and (21)(a)):

(a) Where the tortious act involves interference with, or deprivation of, an object that can be localised (such as a private key controlling a crypto-token), the focus should be on the location of the object at the time of the interference/deprivation;

(b) In other cases where the tortious act involves interference with, or deprivation of, an object, the focus should be on the victim, that is, damage is sustained where the victim was physically present at the time of the damage;

(c) Where damage consists of being denied access to an online account that could, in principle, have been accessed from anywhere in the world and no real reason can be given for locating the damage in one place over another, the defendant should be sued in their home court, where possible;

(d) Where damage consists in the experience or consequences of being deprived of a crypto-token or access to a crypto-token, damage could be sustained in a different location from where the victim was physically present at the time of the deprivation.

Supranational Approach to Applicable Law

The Law Commission proposes moving away from the traditional multilateral or bilateral approach to determining the applicable law for issues arising in wholly decentralised applications of DLT – for example, contracts (purportedly) concluded by smart contracts in wholly decentralised finance applications and crypto-tokens held in accordance with the Bitcoin decentralised ideal. It recommends a supranational approach to the conflict of laws, that is, special substantive rules that would apply where a court is faced with an omniterritorial element.

Under this approach, the courts should take into account a range of factors to determine a ‘just disposal of the proceedings’, including the legitimate expectations and understandings of the parties. This might involve considering the terms of a coding protocol that participants have signed up to and any relevant blockchain conventions. However, the Law Commission considers it too early to propose legislative intervention on these issues, which should instead be left to judicial development.

Section 72 of the 1882 Act

The proposals to reform section 72 of the 1882 Act are of a general nature and are not confined to digital and decentralised contexts. The Law Commission proposes changes to paragraph 1, which concerns the determination of the law applicable to the formal validity of bills of exchange, paragraph 2, which concerns the determination of the law applicable to the contractual aspects of bills of exchange, namely the interpretation of the drawing, indorsement, acceptance or acceptance supra protest of the bill, and paragraph 3, which concerns the determination of the law applicable to the duties of the holder of the bill. Since section 72 also applies to cheques and promissory notes, the proposals apply mutatis mutandis to these instruments.

Regarding section 72(1), the Law Commission proposes a pro-validity rule. The proposed menu of options includes:

(1) The law governing the substance of the relevant contract;

(2) The law governing the substance of the drawer’s contract;

(3) The law governing the substance of the acceptor’s contract;

(4) The law of the place where the instrument is payable.

Regarding section 72(2), the Law Commission proposes a multi-limb structure that would use party autonomy as the default rule, followed by rules applicable where each relevant party has not made a valid choice. Specifically:

(1) The default rule for the law applicable to each contract on a bill of exchange should be the law chosen by the party incurring the relevant obligation, as indicated on the bill alongside their signature;

(2) In the absence of a valid choice by the acceptor, the applicable law should be that of the place where the instrument is payable, as interpreted consistently with the place of ‘proper presentment’ under section 45 of the 1882 Act;

(3) In the absence of a valid choice by the drawer, indorsees, and other secondary parties, the applicable law should be that of the relevant secondary party’s habitual residence;

(4) Such a multi-limb structure should not have an ‘escape clause’ or a ‘catch all’ provision;

(5) Section 72(2) should be amended to make clear that it applies to determining the law applicable to the substantive rights and obligations of the parties, material validity and not only interpretation.

Regarding section 72(3), the Law Commission proposes reform that would clearly distinguish the four sub-rules implicit in the current rule and avoid connecting factors referring to the location of the bill itself at the relevant times. Specifically:

(1) The duties of the holder with respect to presentment for acceptance should be governed by the law of the place where the drawee has their habitual residence;

(2) The necessity for, or sufficiency of, a protest or notice upon dishonour by non-acceptance should be governed by the law of the place where the drawee has their habitual residence;

(3) The duties of the holder with respect to presentment for payment should be governed by the law of the place where the bill is payable;

(4) The necessity for, or sufficiency of, a protest or notice upon dishonour by non-payment should be governed by the law of the place where the bill is payable.

 

Preliminary Thoughts

The analysis of the preferred interpretation of the tort and property gateways does not make new proposals. It merely expresses the Law Commission’s view on how the gateways should be interpreted and applied. It is sensible to highlight the difficulties with the existing case law and offer a view on how best to interpret and apply these jurisdictional gateways. There is, of course, no guarantee that the courts will not continue interpreting and applying the gateways in expansive and potentially inconsistent ways, although the discussion of the relevant issues before the courts should now be more informed.

Similarly, the ‘proposals’ for a supranational approach in cases where the Law Commission believes the degree of decentralisation is such that Rome I and the lex situs rule cannot meaningfully apply are not a call for legislative intervention in the field of choice of law, but rather amount to advice to the courts on how to approach such cases. In my view, there are two key points of criticism.

First, the Law Commission is against the application of the law of the forum where Rome I and the lex situs rule cannot meaningfully apply and sees its supranational approach as an alternative (see, eg, paras 6.32, 6.103). But it is not clear, from a legal-technical point of view, how the courts, which are supposed to apply Rome I and the lex situs rule to cases falling within their scope, can disapply these rules (especially Rome I) without a statutory instruction to do so.

Second, the Law Commission has spent several years explaining how substantive English law applies to smart contracts, electronic trade documents, decentralised autonomous organisations and digital assets. Much of its work has focused on how substantive English law applies to cases with a high degree of decentralisation. Yet now we are told that, in at least some such cases falling within the scope of Rome I and the lex situs rule, the courts should not apply English or any other domestic law, but rather nebulous ‘supranational law’ that is seemingly yet to be developed. In other words, the precise relationship between English law and the supranational approach is not defined. The following explanation of the relationship in para 6.60 is more confusing than clarifying:

In essence, the supranational approach recognises that, in cases with an omniterritorial element, it is not necessarily appropriate to apply the purely domestic private law of any one given country. Whilst any substantive rules developed and applied by the courts of England and Wales would ultimately remain a common law decision of our courts, it would not be an application of the “ordinary” law of England and Wales that would continue to apply in a purely domestic case. Rather, it would be a special body of substantive rules of decision that apply only in private law cases in which the law of no country would be appropriate to apply to resolve the issue in dispute, and the law of every country would be appropriate to apply to resolve the issue in dispute. (original emphasis)

I am sceptical that English courts, which are well-known for their legal-technical prowess, will ever be willing to adopt such an approach without a clear statutory instruction.

By contrast, the proposals for a new free-standing information order and the reform of section 72 of the 1882 Act would require, in the view of the Law Commission, legislative intervention (although the Law Commission thinks that the courts could probably develop the power to grant free-standing information at common law).

The new free-standing information order could be a useful device in cases where (1) there is no way in the country where a crypto-exchange is located to compel it to disclose information about the identity of the perpetrator of the fraud or hacking, the holder of the crypto-token or the whereabouts of the crypto-token and (2) there is some, even tenuous, link with England. Given requirement (1), the order will likely be available in cases where a crypto-exchange is located in a country with strict confidentiality laws. Yet an English order may put the crypto-exchange in the difficult situation of having to choose between complying with either the order or the law of the country in which it is located. This is something that should be taken into account when designing the new order and the test that the courts should apply before granting it.

I generally agree with the proposals to reform section 72 of the 1882 Act. However, I question whether the use of fixed connecting factors without an escape clause in the proposed paragraph 2 might be too rigid. In a consultation event following the publication of the Consultation Paper, some stakeholders expressed the view that, at least in some contexts, it may be desirable for different legal relationships arising under a bill of exchange to be governed by the same law. If the fixed connecting factors do not produce this outcome, and assuming this outcome is indeed desirable, an escape clause seems a logical solution. Any concern that an escape clause would lead to an unacceptable degree of legal uncertainty can be addressed by imposing a high threshold for its application.

The consultation period ends on 8 September 2025. Responses may be submitted to the Law Commission via an online form, by e-mail to conflictoflaws@lawcommission.gov.uk or by post.