International consultation on legal principles governing Crypto-assets is launched

On 10 January 2023, UNIDROIT, the International Institute for the Unification of Private Law, published a consultation on "Draft Principles and Commentary on Digital Assets and Private Law".

It recommends that legislation should be adopted internationally, consistent with these Principles. While individual jurisdictions including the UK have consulted on the legal approach relating to crypto-assets, these Principles are intended to apply across borders.

The Principles cover many crypto-related legal issues but, in terms of governing law in particular, it suggests that proprietary issues regarding digital assets shall be governed by:

(a) the domestic law of the State (excluding that State’s conflict of laws rules) expressly specified in the digital asset as the law applicable to such issues;

(b) if (a) does not apply, the domestic law of the State (excluding that State’s conflict of laws rules) expressly specified in the system or platform on which the digital asset is recorded as the law applicable to such issues;

(c) if neither (a) or (b) apply, it proposes 2 options:

"Option A

(i) [the forum State should specify here the relevant aspects or provisions of its law which govern proprietary issues in respect of a digital asset];

(ii) to the extent not addressed by sub-paragraph (c)(i), [the forum State should specify here either that these Principles govern proprietary issues in respect of a digital asset or should specify the relevant Principles or aspects of these Principles which govern proprietary issues in respect of a digital asset];

(iii) to the extent not addressed by sub-paragraph (i) or (ii), the law applicable by virtue of the rules of private international law of the forum.

Option B

(i) [the forum State should specify here either that these Principles govern proprietary issues in respect of a digital asset or should specify the relevant Principles or aspects of these Principles which govern proprietary issues in respect of a digital asset];

(ii) to the extent not addressed by sub-paragraph (c)(i), the law applicable by virtue of the rules of private international law of the forum."

Option A recognises that a state may determine that it is appropriate for the forum sitting in that state to apply some aspects of its own domestic laws. The second part of the waterfall, in relation to matters not addressed by paragraph (1)(c)(i) above, is comprised of either the (entire) Principles, or some Principles or some aspects of the Principles. The third part of the waterfall, which applies to the extent not addressed by other clauses, requires the forum to apply the law otherwise applicable under its private international law rules.

Option B consists of the second and third parts of the waterfall set out in Option A.

This consultation is an important new initiative. Whether it is embraced by the international community remains to be seen.