Netherlands Commercial Court holds that digital data cannot be subject to ownership - What does this mean for insolvency practitioners?
By Jung Sangbum (INSOL Asia Hub)
Introduction
An insolvency practitioners’ role includes, inter alia, identifying the company’s properties which are available for sale and distribution to creditors, and in the process, clawing back properties where necessary. In this respect, the rise of technology, specifically digital assets, has posed a question for insolvency practitioners around the globe – “Do digital assets constitute property”?
Many jurisdictions, such as the United Kingdom, Singapore, Canada, New Zealand, and Hong Kong, have leaned towards the affirmative stance, holding that the modern crypto-assets do constitute property.
However, the recent decision of the Netherlands Commercial Court (“NCC”) hints at a deviating stance, with the NCC holding that digital data cannot be subject to ownership as it does not constitute a corporeal object that is subject to human control.[1]
Against this backdrop, this article explores the NCC decision, as well as its impact on insolvency practitioners.
Background facts
The claimant, Diamedica Therapeutics, Inc (“Diamedica”), is a biopharmaceutical company based in the US. It had developed medicine for the treatment of neurological or kidney disorders, and contracted the defendant, Pharmaceutical Research Associates Group B.V. (“PRA”), based in the Netherlands, to conduct clinical trials regarding the efficacy of the medicine. The judgment here arose as Diamedica claimed, inter alia, for the revindication of the clinical trials documents and data held by PRA.
The decision
The NCC held that Diamedica is the owner of the physical documents, but not the digital clinical trials data. The NCC began by noting that Dutch law (the lex rei sitae) governs the issue of whether property right can be vested in digital data. It then referenced Articles 5:1 and 3:1 of the Dutch Civil Code (“DCC”). These provisions, when read together, state that ownership can only be vested in corporeal objects that are subject to human control. Finally, after considering both legal literature and case law, the NCC held that digital data does not qualify as such and hence, there is no ownership of digital data in Dutch law.
Importance of context – extending the decision to modern digital assets?
Before diving into the implications of the decision, it is imperative to first understand the context underlying the judgment. Specifically, it is noteworthy that the Dutch decision here was dealing with digital information. It has been well recognised that the more recent digital assets such as crypto assets are to be distinguished from the more traditional digital information, with the former functioning much similarly to a “property”, as compared to the latter.
In this vein, data law expert Wouter Seinen of Pinsent Masons has noted, with respect to the Dutch case, that “it is a pity that the court did not discuss potential exceptions on this general rule, as certain digital assets pretty much have the same function as tangible goods. But that's probably too nuanced or distracting to cover in this case, because there are other decisions that do suggest that such exemptions exist.” Indeed, Dutch criminal courts have confirmed that digital assets can be subject to "theft" and seizure.[2] Therefore, there lies an argument that should the subject matter of the dispute be a crypto asset, the NCC will be more willing to create an exception to the general rule, and find that property rights can be vested in crypto assets.
However, this article posits that it would be difficult for the NCC to create such exceptions towards digital assets. In the decision, the NCC had acknowledged the desirability of applying the concept of ownership analogously to digital data in this digital day and age. It then highlighted that this would be contrary to the “closed” system of Dutch property law and encroach on the domain and prerogatives of the legislative branch. Hence, it is argued that NCC would be unwilling to create exceptions even where the subject matter involves the more modern digital assets such as crypto assets.
Conclusion – implication of the decision
While it was previously unclear as to how digital assets located in the Netherlands are to be treated in insolvency, the global trend of treating them as property brought some level predictability for insolvency practitioners. However, with the recent decision signalling that digital assets, possibly including crypto assets, are not to be granted property rights, insolvency practitioners now face great uncertainty and complexities in carrying out their role. After all, it is now more unclear than ever whether these digital assets located in the Netherlands could constitute the insolvency companies’ asset or be clawed back through transaction avoidance provisions.
Fortunately, various publications and international initiatives, such as the UNIDROIT Principles on Digital Assets and Private Law, are expected to provide a greater level of harmonisation in the treatment of digital assets across jurisdictions.
* This article was prepared with the sponsorship of INSOL International (Asia) Ltd.
[1] Diamedica Therapeutics, Inc v Pharmaceutical Research Associates Group B.V. ECLI:NL:RBAMS:2023:2540
[2] ECLI:NL:GHDHA:2018:2821