Governing law and jurisdiction in the Metaverse under Law Commission review

Do “traditional” geographic boundaries mean anything in the Metaverse? Under what law should international parties dealing in intangible assets, recorded only on decentralised, unregulated, global ledgers transact?

The Law Commission of England and Wales is reviewing applicable law in the context of emerging technology, such as digital assets (e.g. NFTs, cryptocurrency) and electronic trade documents. This review is directly relevant to transactions and asset ownership in the Metaverse (because cryptocurrencies are used to purchase goods and services, and NFTs are bought and sold and used to record ownership of digital assets).

In a world of constantly evolving and emerging digital technologies, which are often dependent upon blockchain technology, conflict of law issues regularly arise, and important questions remain open and unanswered.

In particular, at the heart of disputes involving such digital technologies are the questions of (i) which court (and in which jurisdiction) is the appropriate forum to hear the dispute, and (ii) which laws apply.

These questions arise due to the nature of blockchain being decentralised, meaning there is no central governance (at present) and, in virtual worlds (e.g. the Metaverse), users are often anonymous and data is encrypted. Parties do not have to identify their geographic location, nor is their location necessarily relevant to the transaction. As such, it is very difficult to tie events or assets to one particular set of laws or legal system. This may be different where parties to a contract have agreed to applicable laws and jurisdiction, but what happens if they have not?

For example, if a Sandbox metaverse user based in the UK enters into a transaction using SAND tokens to acquire a piece of land from a non-UK user, and a dispute later arises in respect of that transaction, should UK courts have jurisdiction over the dispute? If they should, which law should they apply? In the absence of a separate agreement between the parties, this is unclear.

In this new Law Commission project, aptly titled “Digital assets: which law, which court?“, these questions will be considered with the aim of providing some guidance on the legal uncertainty and reform proposals will be developed. The Law Commission’s consultation paper will be published in mid to late 2023.

This project is the latest in a series of reviews conducted by the Law Commission concerning emerging technologies, including in relation to smart contracts (where guidance was issued that the current legal framework in England and Wales is capable to facilitate and support the use of smart legal contracts, without the need for statutory law reform).