Law Commission consultation on smart legal contracts – Law Society response
The Law Commission set out the issue of smart legal contracts.
Smart contracts are computer programs which run on their own, either partly or wholly, without the need for human interference.
Smart contracts can:
- perform transactions on decentralised cryptocurrency exchanges
- facilitate games, and
- run online gambling programs
They can be used in the same way as legally binding contracts, known as a 'smart legal contract'.
Depending on the level of automation in smart contracts – different legal considerations may arise. For example, where the degree of automation means the contract is unfamiliar legally, new legal issues will emerge.
There will be further questions where the contracts are offered to consumers.
The courts will have jurisdiction to settle disputes involving smart legal contracts.
The Law Commission should adopt a broader definition of “smart contract”. We suggest that a more complete and wide-ranging debate could be developed if there was a broader view of what is constituted by a smart contract.
The use of the terms “natural language” and “code” need to be considered at a more nuanced level. Higher-order programming languages should be considered as more similar to traditional natural language contracts.
We think that traditional contract law provides an effective framework for governing smart contracts. Features of traditional contracts map across onto smart contract models.
The Law Commission should consider forming a model clause in the interest of legal certainty and:
- to enable parties to set appropriate governing law and jurisdiction, and
- so there's scope for a dispute resolution mechanism to be identified in contracts
We caution against any blanket approach to a rule of jurisdiction based on the place of contractual performance, due to the potential increase in the number of actors in different locations as technology and transactions develop.
The Law Commission published its advice to government on 25 November 2021.