Yesterday on 20 March 2023, the European Association of Private International Law published its Working Group’s Position Paper. This paper commented on the private international law aspect, particularly the Law Application to Digital Assets of the UNIDROIT’s Draft Principles and Commentary on Digital Assets and Private Law in January 2023.
Feasibility of this legal instrument
To recall, the Principle 5(1)(c) provided that without further specification of applicable law in either the digital asset or the system/ platform on which the digital asset is recorded, the Principles apply in whole or in part. This proposition raised three major issues:
- At the present, there is no general acceptance of the power of courts to apply non-state law as the rules governing a given legal issue.
- Even in the context of arbitration, in practice, it only widely recognises the power of arbitrators to apply non-state law where the parties have actually chosen “rules of law”.
- The subject matter of the Draft Principles concerns proprietary issues where the parties’ power to provide for the applicable law is not widely acceptable.
Choice of the applicable law
Principle 5(1)(a), (b) provides the open option to specify the applicable law governing proprietary matters of digital assets. Therefore, it is not at the discretion of the parties to choose the applicable law. Third parties thus are able to ascertain the law governing the proprietary matters of the assets in the application of lex situs in this sector. The Working Group suggested clarifying whether the parties may change the applicable law to a digital asset or system or platform, and how such change would interact with the Principles 5(2)(d) and (e).
In case of absence of choice
The Draft Principles leave a reference to the “law applicable by virtue of the rules of private international law of the forum”. This seems to be a failure of the Draft Principles which are supposed to be a guidance rather than to leave such a gaping hole for the member states to decide in their national legislation. In the following, the Draft Principles suggest the connecting factor chosen without any intention to create a hierarchy amongst them. Accordingly, the paper used the examples to demonstrate that:
- It is not impossible to provide connecting factors.
- This does not result in a “one size fits all approach”.
- Even though it does not cover all digital assets, such a rule could have a significant harmonising effect.
While Bitcon has suddenly risen 21% this month and seems to be promising, the lack of the regulations governing this matter remains a great question. FTX lawsuit is also an awaiting subject. It’ll take more time to constitute a complete legislation.
To read more about the Draft Principles: https://www.astraiagear.com/2023/01/15/unidroit-principles-on-digital-assets-and-private-law/