Crypto assets as personal property: neither a thing in action, nor a thing in possession

Cryptocurrencies and blockchain technology have become increasingly commonly used in recent years. The more widespread their appearance, use and accessibility, the more there inevitably have been and will be disputes arising relating to various aspects of this technology and the associated asset types.

The English courts have in recent years had to consider a number of fundamental legal issues concerning how these products, systems and technologies can be categorised and fit within established legal principles and frameworks, including, importantly, whether crypto assets can be considered to be property.

The position in law as to whether crypto assets have property rights and, if so, of what nature, is essential as a starting point for determining access to causes of action and a host of other consequential legal issues,  because property rights can be recognised against any third parties, whereas other types of rights are more limited in nature, for instance contractual rights which can only be recognised against a party who has assumed a relevant legal obligation.

We provide a short summary here of how the law on property has developed and is developing in relation to crypto assets, with a focus on Mr Justice Bryan’s reasoning in AA v Persons Unknown [2020] 4 W.L.R. 35 and the draft Bill proposed by the Law Commission in its consultation paper published in February 2024.

Traditionally on the question of property, the courts followed Fry LJ’s dictum in Colonial Bank v Whinney [1885] 30 Ch.D 261, who held that “All personal things are either in possession or action”. Further to this, it was generally understood that a thing was only considered to be “personal property” in English law if it was a thing (or chose) in possession (being tangible, movable and visible) or a thing in action (being capable of being claimed or enforced through legal action or proceedings). These two categories were considered to be exhaustive, such that if a thing did not fall into either of these categories, the view was that it could not be an object of personal property rights.

The common law in England and Wales has developed on from this in the last ten years towards recognising a third category of things to which personal property rights attach, but which do not easily fit into the two traditionally recognised categories of property. The case law on this issue extends beyond questions of property concerning digital assets, also to for instance, carbon emissions allowances, export quotas and waste management licences.

The consideration of this question by the courts regarding digital assets has been alongside careful consideration, including in industry consultation, also by others, in particular, for present purposes, the UK Jurisdictional Task Force (“UKJT”) and the Law Commission.

In AA v Persons Unknown, Mr Justice Bryan recognised that treating Bitcoin and other cryptocurrencies as a form of property would be challenging prima facie, because of the traditional approach in common law. He noted that cryptocurrencies are not things in possession because they are not tangible, they are virtual and they cannot be physically possessed. He said that cryptocurrencies are not things in action because they do not embody any right capable of being enforced by action.

However, he went on to say that it would be “fallacious to proceed on the basis that the English law of property recognises no forms of property other than choses in possession and choses in action”. The judge's reasoning for this was based in particular on sections of the legal statement on Crypto assets and Smart contracts (the “Legal Statement”) published by the UKJT in November 2019 (i.e. only a short while before the judge's decision that was given in December 2019).

The Legal Statement considered the general legal principles which applied to novel aspects of crypto assets, including whether crypto assets fit within the scope of things which could be considered to be property in law. It noted that Colonial Bank should not be treated as limiting the scope of the types of things which are property. Indeed, that case was not about the definition of property in general but about whether shares which had been deposited as security for a loan were “things in action” within the meaning of a specific bankruptcy statute. The Legal Statement highlighted that in several cases the courts had not found any difficulty in treating new types of intangible assets (such as a milk quota in Swift v Dairywise (No 1) [2000] 1 W.L.R. 1177 and an EU carbon emissions allowance in Armstrong DLW GmbH v Winnington Networks Ltd [2012] EWHC 10 (Ch)) as a form of property. It concluded that although a crypto asset may not be a thing in action or a thing in possession, that does not mean it cannot be treated as property.

Mr Justice Bryan also noted that cryptocurrencies met Lord Wilberforce’s criteria of property included in National Provincial Bank v Ainsworth [1965] 1 AC 1175, because cryptocurrencies are (i) definable; (ii) identifiable by third parties; (iii) capable in their nature of assumption by third parties; and (iv) have some degree of permanence.

In Tulip Trading Ltd v Bitcoin Association for BSV [2023] 4 W.L.R. 16 [24] the Court of Appeal endorsed the position as set out in Mr Justice Bryan's judgment in AA v Persons Unknown and confirmed that a crypto asset such as Bitcoin is property. 

The Ministry of Justice in March 2020 requested the Law Commission to review the law on this topic, further to which the Law Commission published its final report regarding digital assets on 28 June 2023. This report noted the position reached in common law in England and Wales as set out above, but also that, because of the evolving nature of the technology and the digital asset market, there remains some complexity and legal uncertainty. Therefore, the Law Commission recommended a tripartite approach to law reform:

• Firstly, it concluded that common law in this area is relatively certain, and it recommended prioritising common law development.
• Secondly, it suggested targeted statutory law reform to confirm and support the existing common law position regarding a third category of personal property.
• Thirdly, although common law would be better able to keep up with changes and increasingly advanced technology than statutory law reform, it recommended that arrangements are made for the provision of further guidance from industry experts to support both the common law and statute.

Further to the Law Commission’s recommendation of targeted statutory law reform, it published the Digital Assets as Personal Property: Short Consultation on Draft Clauses in February 2024. The consultation paper recognises that most investors assume that when they buy crypto assets, they acquire property rights in these assets, however, this is not necessarily the case as the law currently stands. Furthermore, although the common law has answered some questions in relation to some types of digital assets, it notes that this is vulnerable to future changes in judicial approaches. The consultation paper included a draft Bill which is drafted with a view to confirming that things “including a thing that is digital or electronic in nature” (being an undefined category which extends beyond crypto tokens to a range of other assets, including, for example, voluntary carbon credits) are capable of being recognised by the law as having personal property rights, even though they are not things in possession or things in action. The deadline for responses to the draft Bill was 22 March 2024. We await the response to the draft Bill and further developments.

English common law has proven itself time and again capable of adapting rapidly to industry changes. The flexibility and adaptability it shows assists in allowing disputes to be resolved in a commercially sensible manner.