Digital Assets and PIL: What is “Supranational” in the “Supranational Approach” of the Law Commission?
This post was written by Matthias Lehmann, Professor at the University of Vienna. It is the third contribution to the EAPIL online symposium on the Law Commission of England and Wales’s Consultation Paper on Digital Assets and Electronic Trade Documents in Private International Law. Readers are encouraged to participate in the discussion by commenting on the posts.
Depending on who you ask, PIL problems raised by digital assets are a nightmare or a delight for conflicts lawyers. The Law Commission for England and Wales’ recent consultation paper dated 5 June 2025 makes a new and particularly interesting proposal. Without any exaggeration, it can be called groundbreaking.
What is Omniterritoriality? An Explanation
At the bottom of the proposal is the idea that blockchains, the distributed registers on which digital assets are recorded, are “omniterritorial”. The term signifies that blockchains have, in principle, equally important connections to every state on the planet. This is because the nodes (computers) recording the blockchain are distributed around the world and keep an identical register of all previous transfers (hence the term “distributed ledger technology”, or DLT). This design was chosen intentionally to avoid a significant connection to a specific state, which could allow the latter to gain control over the blockchain (for more details, see here Part 1).
I am pleased to see that the expression “omniterritorial”, which I have coined (see here Chapter 24), is increasingly adopted. I had suggested it to argue that any state has the power to regulate blockchains under Public International Law. My point was to demonstrate that the application of national regulatory rules to the blockchain would not be a suspicious case of “extraterritoriality”, because the blockchain itself is “omniterritorial”, i.e. present in every state. Any state can claim legislative jurisdiction (i.e. “jurisdiction to prescribe”) under Public International Law because it has a genuine connection to blockchains and the assets recorded on them.
PIL as Inadequate for Blockchains and the New “Supranational” Approach
The Law Commission now uses this term for an entirely different purpose: to discredit the whole edifice of Private International Law (PIL). The Consultation Paper denounces the “multilaterialist rules” of PIL, which could only lead to the application of a specific national private law with a tenuous connection to the case. It also discards the application of the lex fori for being inapposite as a default rule.
Instead, the Law Commission tables a new “supranational” approach to completely overcome PIL. It suggests that the courts of England and Wales, when facing conflict-of-laws issues related to digital assets (widely understood as cryptocurrencies and tokens), should instead apply a new body of substantive rules. This body of rules should be developed incrementally on a case-by-case basis in line with the Common law method (Consultation Paper, para 6.75). While rejecting the simplistic slogan “code is law”, the Law Commission thinks that blockchain protocols (i.e. the software underpinning distributed ledger technology) and “any relevant blockchain conventions” (without any further specification), should, over time, be included in this body of rules (Consultation Paper, para 6.96-6.97). This approach would accommodate the parties’ legitimate and reasonable expectations much more than the application of a specific national law identified as applicable under PIL.
Assessment
Burcu Yüksel has already criticised in her post to this symposium the supranational approach as “rather confusing” and “heavily reliant on a substantial number of relevant cases being brought before the courts of England and Wales”. She has also criticised the significant uncertainty that would exist until a legal issue has actually been decided by a court.
To this justified criticism, I want to add another, more general point. The supranational approach is, in fact, not what its name suggests. The Law Commission does not propose international substantive law harmonisation, as it is done by international organisations (see e.g. the UNIDROIT Principles on Digital Assets and Private Law). What it proposes instead is judicial law-making with a transnational view, taking into account the special nature of the blockchain and the expectations of the parties.
The problem with judicial lawmaking, however, is that it tends to yield very divergent results. This is even true on the national level, where these differences have to be ironed out by an apex court, e.g the UK Supreme Court. But on the international level, such a court is lacking. It will be impossible to harmonise the different judicial rules of, say, the UK and France or China and the US absent a supranational body. But the Consultation Paper does not suggest or envisage creating such a body. This may be beyond its remit, but is indispensable for a “supranational” approach.
Eventually, one must therefore fear that the purported “supranational approach” will result in highly divergent substantive rules. The differences will be exacerbated by the fact that there will be no PIL mechanism to determine which national law applies. Each court will apply its own rules (which it may call “supranational”) to any dispute that comes before it. The determination of jurisdiction will thus coincide with that of the applicable law. Since jurisdiction rules often point to different courts, and the claimant can choose between them, this would inevitably cause surprises for defendants and uncertainty about the applicable law.
Outlook
The name “supranational approach” is misleading. In reality, what the Law Commission suggests is decentralised substantive law harmonisation through national courts. Experience suggests being sceptical about the success of this experiment, especially in such a new and contentious field as digital assets. Even within the UK, differences loom, as the Scottish Law Commission has issued a separate paper on digital assets, which suggests that “Scotland develops its own legislation to clarify the status of digital assets as property in Scots private law”. The paper suggests treating digital assets as a “kind of incorporeal moveable property”. It cannot be excluded that this will result in substantively different rules than those which the Law Commission for England and Wales has suggested for the “third category” of personal property rights.
On the truly supranational level, things are not exactly reassuring. UNIDROIT’s Principles on Private Law and Digital Assets are a milestone, yet they address merely a few issues such as good faith acquisition, custody and insolvency protection. They leave open other salient questions, such as the conditions, timing and effects of digital asset transfers or the treatment of “linked assets”, such as tokenised shares, bonds, and other movables or immovable things.
Hence, national substantive laws (including case law) will continue to diverge for the foreseeable future. In this diverse environment, the best tool to ensure legal certainty and predictability of the applicable rules for the parties is for courts to identify the applicable law in the same manner. This is the objective and the aspiration of PIL, and it works particularly well where the conflicts rules are harmonised, as suggested by UNIDROIT’s Principle 5 (see here) and currently explored by the HCCH Working Group on Digital Tokens. Despite the omniterritorial nature of the blockchain, it has been shown that an appropriate law can be identified, e.g. by referring to the choice of the parties, to the place of incorporation of a token issuer, the place of a custodian, or the place of habitual residence of the person in control of the digital asset (for more details see here, here and here). There is no need to spill out the baby with the bathwater and rely exclusively on the hope for a full harmonisation of substantive rules.
Many thanks Matthias for this very clear presentation of the ‘supranational’ dimension of the Law Commission’s proposal. I have a naive question for you, and maybe also for Burcu: why?
Why is the Law Commission making this proposal to regulate digital assets on a case-by-case basis, relying on blockchain protocols and conventions? Is it, for example, a question of bringing disputes before the English courts, given that ‘substantive party autonomy’ is appealing for the parties? What other policy reasons could underlie this proposal? What do you think? Thanks!
Dear Marion, Many thanks for the intriguing question. One reason for the so-called supranational approach that surfaces in the consultation paper is the special functioning of the blockchain, which calls for uniform rules. Another reason certainly is the difficulty to determine an applicable national law to virtual assets. Perhaps there is also a genuine wish to reach globally uniform rules, but I would also not exclude the motive of the UK to position itself as a hub for crypto litigation. Still, I find the hostility to private International law that the paper exudes rather surprising. One would only have to imagine a dispute over bitcoins that have been transferred between two UK residents. If the courts of another country were seized – for whatever reason – of such a dispute and would apply their own substantive rules, there would probably be some astonishment in the UK.
The French have long applied this kind of “supranational” approach to international commercial arbitration, on the ground that arbitration is delocalised. As a result, the French supreme court has developed so called “international substantive rules of international commercial arbitration”, and ruled that an arbitral agreement is not governed by any national law.
Of course, the French supreme court cannot decide for the world whether arbitration agreements are governed by no law at all. When it says that, it develops French rules, that French courts will apply systematically to any arbitration agreement or award. The result is divergence between French law and the laws of most other jurisdictions that most non French arbitration specialists criticise.
I guess the French will be truly delighted to see that shift in paradigm.
Dear Gilles, The comparison you draw to the “règles matérielles de dip” is enlightening. The idea behind this approach (to overcome parochial national rules) is laudable, and certainly has contributed to France’s success as an arbitration centre. However, almost no country followed suit. This goes a long way to show how difficult an uncoordinated supranational or international approach is.
It is depressing to see the Law Commission drawing the conclusion – and in this I agree with the evaluation made by Professor Lehmann – that private international law is to be undermined or prevented from finding its own solutions for an area of legal (or so we must assume) enterprise which only now has come to pass. But if there really is a problem created by this new stuff, the solution is not to create a world without the rules of the conflict of laws. Better, surely, to allocate all such cases – and yes, we will need rules to determine when this is to happen – to a specialist court within the High Court, which should be able to publish its own procedural and substantive rules for matters brought to it. That would allow expertise to develop expert rules, and prevent the spread of pernicious arguments of the type which might contend that if this area has been freed from the discipline of the conflict of laws, so should this next area be.
Dear Prof. Lehmann, many thanks for your insightful observations. To add to the discussion above, I would have two questions.
The first concerns the UNIDROIT Principles on Digital Assets and Private Law, which in Principle 5(1)(d) Option A(i) allow the forum State to apply specifically designated rules of its domestic law to property issues of digital assets. Could this not justify States envisaging (even if only residually) a unilateral material approach? The circumstances in which this option would apply may well correspond to what the Law Commission’s consultation paper describes as “omniterritorial” situations. So far as I am aware, however, this connection with the UNIDROIT Principles does not seem to be addressed in the consultation paper.
That said, the “supranational” approach promoted by the Law Commission lacks specific substantive rules and appears to rely on pure casuistry. A genuine international material approach (as règles matérielles de droit international privé) would need to rest on at least some fundamental principles and presumptions. In this respect, the draft Property (Digital Assets etc) Bill is not particularly helpful, as it merely introduces the possibility of third-category things without clarifying their property-law regime. As Prof. Burcu Yüksel Ripley noted in her post, greater clarity will have to wait until a sufficiently solid body of case law develops.
My second question relates more generally to the evident reluctance to rely on statutory provisions. Are the reasons set out in the consultation paper—namely the common law’s case-by-case methodology and the supposed unsuitability (or even uselessness) of statutory provisions for “open-textured” rules—really convincing?