Smart contracts providing security and performance across transnational agreements between multiple parties presents both their greatest advantage and disadvantage.
If coded under agreed legal conditions, a specified jurisdiction and with no human error during its writing, smart contracts have a place in creating performance across borders, time-zones and businesses. Conversely, contracting across parties in multiple continents can require lengthy negotiation when discussing chosen jurisdictions, coding mechanisms and any required formalities beyond Blockchain. Certain industries, such as conveyancing and construction, have areas that could be receptive to the advantages and have mechanisms to overcome the disadvantages.
With contracts effectively invisible, contained only in the ether of Blockchain, witnessing and attesting to contractual agreements becomes problematic. This raises concerns, particularly in regards to deeds and parts of private international law where certain formalities have to be complied with, above and beyond mere coded performance. Heightened by the capacity for contracts to be solely automated, or only partly embedded in Blockchain alongside more traditional methods, pinpointing performance of each element becomes more complex. Questions as to how any type of statute can be applied to a computer code have arisen. Despite an integrated system of presumed, pre-existing statute application alongside incremental changes via the common law being suggested by Sir Geoffrey Vos, certainty is not fostered and uniformity across jurisdictions becomes difficult to attain.
Areas for reform
Whilst the World Economic Forum predicts 10% of global gross domestic product will be stored in the blockchain by 2027 and the market will reach $300 million by 2023, knowledge and skill surrounding smart contracts are lacking throughout legal, and wider, industries.
The complexity and newness in moving all commercial, technical and legal issues from traditional negotiation and paper drafting to smart contracts means the law has a place in making business and personal contracting transform. This decentralisation and impending automated revolution has undoubtedly been slowed by Covid-19 and may continue to stall in light of the current UK recession and the cost of living crisis. With smart contracts failing to be discussed as quickly and cogently as previously expected due to global health and economic crises, their integration has been slower than expected. This could be seen as a paradoxical disadvantage because smart contracts could have already established their place in the NHS, for example in automated performance for equipment supply chains.
Other jurisdictions, such as Arizona, Illinois and Tennessee in the United States, have developed statute law that defines smart contracts and ensures they have legal standing despite their automated Blockchain nature. Due to the cross-border character of many transactions where smart contracts are most useful and likely to be used, it is, and will become, increasingly important that there is broad compatibility between international legislation.
There has been continued uncertainty because of sporadic change in, and within, different jurisdictions, with case law yielding few answers. It would benefit all parties to set out express jurisdiction and choice of law so they know under what rules they are contracting. Again, reforming English and Welsh statute law to reflect that these decisions should be made at the beginning of a smart contracting relationship alongside provisions for when the parties can utilise English law. This could include, for example, one of the parties having headquarters or a certain percentage of either their business, manufacturing or sales within England and Wales.
Shortcomings which must be recognised
Importantly, with reform beneficial in some ways, the disadvantages of smart contracts have to be recognised to put in a framework to reduce or eradicate their shortcomings. Whilst smart contracts are automated and easily thought of as error proof, humans are still behind the original coding, meaning inaccuracy is possible. The trust placed in the intentions and abilities of coders would benefit from also being enshrined in statute. If viewed as a tort, any coding mistakes leading to non-performance of a contract could lead to a claim in negligence or malicious dishonesty. This way, the parties expecting performance have protection from a contract that can only have an automatic capability under correct human instruction. To reduce confusion, such provisions should be consecrated into law so that the application of tort principles are explicitly endorsed in relation to smart contracts.
The prematurity in regards to smart contracts being an immediately pending revolution becomes even less viable when the human advantage of understanding and utilising the English Language and its many nuances are considered. Coding does not necessarily perpetuate linguistic imprecision, but it eliminates any context sensitive elements promoted by human drafting.
Arguably, smart contracts only have a place in simplistic trading transactions and currently lack the capacity to provide flexible, necessarily ambiguous and occupationally learned language. Smart contracts undoubtedly have a place in some legal practices if their introduction is widespread and supported by statute, but the uprising of computerised contracting seems far from imminent.
