The International Institute for the Unification of Private Law (UNIDROIT) has published its draft principles and commentary on Digital Assets and Private Law.
The Principles were designed to facilitate transactions in digital assets often used in commerce and provide guidance to principals in the transactions covered by these Principle, their advisors and the courts that will consider the legal effects of these transactions. Given the intangible nature of digital assets and the transactions involving proprietary rights which may occur; and taking into account the need for certainty in determining the applicant law, the Principles aim to provide significant party autonomy in this regard.
Principle 5- “Conflict of laws”- Principle 5 of the Draft UNIDROIT Principles on digital assets and private law, deals with the Conflict of laws and addresses the applicable law for proprietary issues associated with Digital Assets[1]. Principle 5 recognises that the common “choice of law” factors namely location of persons, activities, and assets, are not particularly relevant in the context of Digital Assets due to their intangible nature with no physical situs. Instead, the approach adopted in the Principles aim to provide an incentive for digital asset creators to specify the applicable law with the digital asset itself or in the relevant platform.
Proprietary issues are defined in Principle 5(2) as follows: (a) proprietary issues in respect of digital assets, and in particular their acquisition and disposition, are always a matter of law. The term encompasses the existence and transfer of ownership as well as other rights in rem. The Principles treat digital assets as being susceptible to being the subject of proprietary rights, without addressing whether these are considered ‘property’ under the other law of a State.
Principle 5(1)(a) provides that proprietary issues in respect of digital assets are governed by 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. Principle 2(5) defines the following: (5) In relation to a transfer of a digital asset:
“(a) ‘transfer’ of a digital asset means the change of a proprietary right in the digital asset from one person to another person; (b) the term ‘transfer’ includes the acquisition of a proprietary right in a resulting digital asset.”
Principle 5(1)(b) provides that if 5(1)(a) does not apply, any proprietary issues in respect of digital assets are governed by 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.
In the absence of a specification made in the digital asset or the system or platform as contemplated by Principle 5(1)(a) and Principle 5(1)(b), Principle 5(1)(c) provides a state with a considerable degree of freedom to choose the appropriate rules for a forum sitting in that state. Principle 5(1)(c)- provides two options in cases where the governing law hasn’t been chosen., Principle 5(1)(c) provides a state with a considerable degree of freedom to choose the appropriate rules for a forum sitting in that state. If neither sub-paragraph (a) and (b) apply, the following options may be applied:
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.
What can be observed is that Option A recognises that if a state considers it appropriate it may apply domestic laws that deal specifically with proprietary issues relating to digital assets. Option B refers to those cases where the state has not adopted laws dealing with proprietary issues relating to digital assets and therefore determines that proprietary issues should be determined only by the Principles or some sections thereof, without any reference to substantive domestic laws.
UNIDROIT X HCCH
The Hague Conference on Private International Law (HCCH) has published a Proposal for Joint Work between HCCH-UNIDROIT entitled: “Project on Law Applicable to Cross-Border Holdings and Transfers of Digital Assets and Tokens”( Prel. Doc. No 3C of January 2023), which exclusively deals with general issues regarding Principle 5 of the UNIDROIT draft and the Conflict of Laws on digital assets. The objective of the Paper is to seek a mandate for joint work between HCCH and UNIDROIT in order to examine the desirability of developing coordinated guidance and the feasibility of a normative framework on the law applicable to cross-border holdings and transfers of digital assets and tokens, covering relevant private law aspects.
To learn more, see here.
By Michaelina Koutsofta
For more information, please visit our microsite on Blockchain, Digital Assets & Crypto Currencies or send your queries to This email address is being protected from spambots. You need JavaScript enabled to view it.
[1] According to Principles 2(2): “ ‘Digital asset’ means an electronic record which is capable of being subject to control.”, which includes cryptocurrencies and tokens.”
Back to News
