“Supranational Approach” to the Conflict of Laws in England and Wales: A Workable Solution for Digital Assets?
This post was written by Burcu Yüksel Ripley, Professor at the University of Aberdeen School of Law. It is the second 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.
The views expressed in the post are solely the author’s and do not represent the views of any advisory, working or expert groups she is part of on digital assets and related subject matters.
Background
The Law Commission of England and Wales (“LCEW”) has been conducting an important and timely law reform project on digital assets and electronic trade documents in private international law. It published its consultation paper with proposals for law reform on 5 June 2025, focusing mainly on wholly decentralised applications of distributed ledger technology (“DLT”).
Chapters 5 and 6 of the consultation paper deal with the applicable law (or the conflict of laws) issues. Chapter 5 gives an overview of the current approach to the conflict of laws and challenges posed by DLT. Chapter 6 identifies an alternative approach and makes a provisional proposal for law reform, the so-called “supranational approach”.
Current Approach to the Conflict of Laws and Challenges Posed by DLT
In its consultation paper, the LCEW refers to three distinct approaches to the conflict of laws, namely the “supranational” approach, the “unilateralist” or “statutist” approach, and the “multilateralist” approach, and it provides definitions and examples for each of them (paragraphs 5.5-5.12).
The LCEW notes that the multilateralist approach is the prevailing approach across jurisdictions in private international law today (paragraph 5.10). The LCEW provisionally proposes to move away from the multilateralist approach in cases concerning wholly decentralised application of DLT. This is because it considers that in such cases “omniterritorial transactions, acts, or objects … exhibit too many genuine connections to too many territories” and this challenges the core premise of the multilateralist approach that “every legal issue has a single objective seat in one legal system, which is identified through a connecting factor” (paragraphs 5.48-5.50).
To illustrate the difficulties with the multilateralist approach, the LCEW provides two case-studies concerning wholly decentralised applications of DLT and concludes that the existing rules result in being unable to identify the applicable law in those cases.
- Contracts (purportedly) concluded by smart contracts in wholly decentralised finance (“DeFi”) applications (paragraphs 5.62-5.113):
Regarding the existence and validity of such contracts, the consultation paper looks at Article 10(1) of the assimilated Rome I Regulation and, directed by that, Articles 3 and 4.
The consultation paper suggests that if there is a valid choice of law, the courts are likely to uphold the choice under Article 3 (paragraph 5.83).
If there is no choice of law, the consultation paper considers that the relevant provision in Article 4 for such contracts would be Article 4(4) which provides that the contract is governed by “the law of the country with which it is most closely connected” (paragraph 5.90). It then discusses some suggestions made for the identification of that law for Bitcoin transactions based on various connections, including the concentration of mining activity (paragraph 5.95-5.108). The consultation paper considers those connections tenuous and concludes that “an applicable law rule formulated on the basis of ‘the least tenuous’ connection that did not take legitimate expectations into account would be arbitrary and artificial, causing unfairness to the parties” (paragraphs 5.109-5.110).
Those connections, examined in the consultation paper, indeed seem to be rather tenuous and coincidental. However, if all the connections are tenuous as such, what are the “genuine connections” that the LCEW refers to in its starting point cited above that “omniterritorial transactions, acts, or objects … exhibit too many genuine connections to too many territories”?
The consultation paper does not consider other suggestions made based on the location of the transacting parties, to the extent that these are known or identifiable, or the technique of the “accessory connection” by making the transaction subject to the law of the underlying relationship between the transacting parties as the main connection (see further B. Yüksel Ripley, ‘The Law Applicable to (Digital) Transfer of Digital Assets: The Transfer of Cryptocurrencies via Blockchains’ in M. Fogt (ed) Private International Law in an Era of Change (Edward Elgar, 2024) 123, pp.148-151).
- Property relationships in respect of crypto-tokens held directly (paragraphs 5.114-5.155):
Regarding property issues arising in wholly decentralised DLT systems, the consultation paper examines the challenges in the application of the lex situs (the law of the place where the property object is situated) rule to crypto-tokens. It is indeed difficult to identify the location of an asset with no physical existence in a decentralised and digital context.
The consultation paper considers various possible “locations” for cryptoassets, including (paragraphs 5.146-5.154):
- the place of domicile or residence of the owner (referring to “the party in possession of the private encryption key giving access to the cryptocurrency at the time of the relevant transaction” in Lord Collins of Mapesbury and Jonathan Harris (gen eds), Dicey, Morris & Collins on the Conflict of Laws, 16th edn (Sweet & Maxwell, 2022), paragraph 23-050);
- the place where the original coder has their primary residence (suggested by the Financial Markets Law Committee (FMLC));
- the location of the relevant participant, or the residence or domicile of the person in control of the crypto-token (suggested by some of the call for evidence respondents).
The consultation paper does not consider “the place of habitual residence or business of the last known holder of the cryptoasset” (see B. Yüksel Ripley, A. Macpherson and L. Carey, ‘Digital Assets in Scots Private Law: Innovating for the Future’ (2025) 29 Edinburgh Law Review 175, pp.207 and 210).
The LCEW provisionally concludes that the existing lex situs rule does not give a satisfactory answer in this context and that an alternative approach is required (paragraph 5.155).
It is interesting to note that the LCEW examines the situs question for the purposes of jurisdiction too but reaches a different conclusion that it is “the place where the crypto-token can be controlled” (paragraphs 4.134-4.143 and 4.171). It is not entirely clear, in the consultation paper (paragraphs 5.146-5.147), why a crypto-token, which is deemed for the purposes of jurisdiction to be located in the place where it can be controlled, is considered to have no location (or be “nowhere and everywhere at the same time”), in determining the applicable law.
LCEW’s Proposal for Law Reform: “Supranational Approach”
In an attempt to develop an alternative solution, the LCEW provisionally proposes a “supranational approach” (chapter 6 of the consultation paper).
This is explained in the consultation paper as “developing a set of special rules that would apply in the event that a court in England and Wales is faced with a case with an omniterritorial element” (paragraph 6.59). The consultation paper continues that:
… 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 (paragraph 6.60).
The consultation paper further explains that “the overall objective of the courts in these cases should be the just disposal of the proceedings” and to achieve this “the courts should take into account a wide range of factors”. This would include, in particular, “the legitimate expectations of the parties which, in these circumstances, are likely to consider elements of the basis on which the participants have interacted with the relevant system, such as the terms of the protocol”. It is also proposed that “the outcomes of the case will remain subject to the public policy and overriding mandatory rules of England and Wales” (paragraph 6.128).
The proposal seems to be based on a substantive law solution, rather than a private international law solution. However, what is being proposed is rather confusing and heavily reliant on a substantial number of relevant cases being brought before the courts of England and Wales, in order to develop a special set of substantive rules. Further, no one would be able to know what the applicable law is (or which relevant legal rules will be applied) until a dispute arises, is brought before a court in England and Wales, and the court determines on this. This would bring significant uncertainty and offer no legal foreseeability and predictability on the applicable law (or the relevant legal rules to be applied), which could create concerns for relevant stakeholders given that legal certainty and predictability are crucial for commercial transactions (see further B. Yüksel Ripley and A. MacPherson, ‘Response to Law Commission of England and Wales Consultation on Digital Assets and (Electronic) Trade Documents in Private International Law including Section 72 of the Bills of Exchange Act 1882’, paragraphs 28 and 34; the Consultation Response by the Law Society of Scotland, pp.8-10).
Concerning the objective of the “just disposal of the proceedings”, the proposal is unclear regarding what criteria the court would decide are “just” in the disposal of the proceedings. Similarly, in a case before a court, “the legitimate expectations of the parties” would be inevitably different, which is why there is a dispute between them (see further B. Yüksel Ripley and A. MacPherson, ‘Response to Law Commission of England and Wales Consultation on Digital Assets and (Electronic) Trade Documents in Private International Law including Section 72 of the Bills of Exchange Act 1882’, paragraph 31).
Implementation Mechanism for the LCEW’s Proposal
The LCEW considers that it is too early to propose statutory reform in relation to conflict of laws matters concerning digital assets. It seems to suggest “the common law method of case-by-case development” as these issues begin to come before the courts (paragraphs 6.129-6.130). The LCEW further considers that a statutory rule might not necessarily be the most appropriate method of implementation for its proposal at any stage (paragraph 6.131).
It remains unclear though on what legal ground a court could possibly not apply (or could disapply) the relevant existing conflict of laws rules in legislation (such as the Rome I Regulation) and instead apply the proposed supranational approach (see U. Grušić, ‘Law Commission’s Consultation Paper on Digital Assets/ETDs and PIL: An Outline’; B. Yüksel Ripley and A. MacPherson, ‘Response to Law Commission of England and Wales Consultation on Digital Assets and (Electronic) Trade Documents in Private International Law including Section 72 of the Bills of Exchange Act 1882’, paragraph 33).
Final Remarks
Digital assets in decentralised and digital contexts raise difficult conflict of laws questions. The LCEW’s attempt to provide solutions to these difficult questions is valuable. However, the proposed supranational approach is ambiguous and confusing in some respects and brings uncertainty and unpredictability.
Given the growing support for party autonomy in this area, as seen in Principle 5 of the UNIDROIT Principles on Digital Assets and Private Law and the FMLC’s proposals in Digital Assets: Governing Law and Jurisdiction, it would be desirable if the LCEW further considers party autonomy and related issues in this law reform project. Such issues include the operation of party autonomy among pseudonymous participants, the extent it can apply to property law matters, the impact of weaker party protection in this context, and the effect of choice of law on third parties. It is true that there might be typically no choice of law clauses in permissionless systems, but there is no reason to exclude this possibility altogether from the future developments in the area (B. Yüksel Ripley and A. MacPherson, ‘Response to Law Commission of England and Wales Consultation on Digital Assets and (Electronic) Trade Documents in Private International Law including Section 72 of the Bills of Exchange Act 1882’, paragraphs 4 and 32).
It is also useful to emphasise that the relevant projects and work of various international organisations, particularly the HCCH, UNIDROIT, and UNCITRAL, are valuable and important for the development of widely accepted and internationally agreed conflict of laws rules as well as substantive law rules.
Many thanks for this very interesting analysis.
It is remarkable to see how quickly lawyers conclude that old rules cannot be applied to new technologies. As you subtly point out, the Law Commission failed to consider the most obvious connecting factor for digital transactions: the residence of the parties. While a digital transaction might be difficult to locate, it will always involve parties, and these parties are located somewhere.
The habitual residence of the service provider or of the seller is a weak connecting factor, which does not locate well a contract. But, for all its sins, this connecting factor does not, in principle, raise any issue for digital transactions, and is thus well suited for them.
Dear Gilles, many thanks for your helpful comment.
Indeed, there are some existing PIL rules which will not pose much difficulty when they are applied to digital asset transactions. In some cases, it may be the case that existing rules may need a different interpretation or may benefit from an alternative way of thinking by analogy to similar concepts to work satisfactorily in this context.
I think pseudonymity poses certain challenges in the context of digital assets in identifying parties and their location in some cases. However, if a dispute reaches the level of litigation, it indicates that there are at least some parties already identified in some way.
So, I don’t think that this is an area where PIL does not work at all and needs to be replaced by an entirely different approach as suggested by the Law Commission of England and Wales.
Thank you for this additional perspective into the Law Commission Consultation Paper on Digital assets and (electronic) trade documents in private international law. I was wondering what, according to Prof. Burcu Yüksel Ripley, would be the better approach that the Law Commission could follow instead of the proposed “supranational approach” in determining the applicable law for decentralised digital asset transactions. Would it be following the habitual residence/business of the last known holder, using the location of the transacting parties or linking it to underlying relationships?
And is there a specific reason the author is aware of as to why the Law Commission proposal ignores the option of the habitual residence/business of the last known holder as a criterion in the proposal?
Dear Alina, many thanks for this very interesting question.
I am also wondering why the Law Commission of England and Wales’s consultation paper does not consider the place of habitual residence or business of the last known holder as a possibility in interpreting the traditional lex situs rule. There is some academic support for that connecting factor. The Financial Markets Law Committee’s proposals also include (a version of) that connecting factor in its proposed waterfall of rules (i.e. ‘the law of the country which was the location of the person last known to have controlled the relevant private key or (if that person cannot be ascertained) where the last known transferor of the relevant digital asset was located’). As the project progresses, the Law Commission may perhaps wish to give consideration to it.
In terms of Article 4(4) of the Rome I Regulation, I think the location of the parties or the connection with the underlying relationship are worth considering as possible factors that can be taken into account in determining the applicable law, depending on the circumstances of the case.
For finding solutions to PIL questions raised by digital assets, I think we inevitably need to refer to PIL, rather than replacing it with the proposed supranational approach.