The Law Commission & smart contracts
The issue
Emerging technologies such as distributed ledgers are being promoted as a way to create “smart contracts”: computer programs which run automatically, in whole or in part, without the need for human intervention. Smart contracts can perform transactions on decentralised cryptocurrency exchanges, facilitate games and the exchange of collectibles between participants on a distributed ledger, and run online gambling programs. They can also be used to record and perform the obligations of a legally binding contract. It is this second category of smart contracts (sometimes referred to as smart legal contracts) which is relevant to our work. When we talk about smart contracts in this project we are therefore talking about legally binding contracts in which some or all of the terms are recorded in or performed by a computer program deployed on a distributed ledger. Smart contracts may take the form of a natural language contract where performance is automated by computer code, a hybrid contract consisting of natural language and coded terms or a contract which is written wholly in code. Smart contracts are expected to increase efficiency and certainty in business and reduce the need for contracting parties to have to trust each other; the trust resides instead in the code.
To ensure that the jurisdiction of England and Wales remains a competitive choice for business, there is a compelling case for reviewing the current legal framework in England and Wales to ensure that it facilitates the use of smart contracts. There are questions about the circumstances in which a smart contract will be legally binding, how smart contracts are to be interpreted, how vitiating factors such as mistake can apply to smart contracts, and the remedies available where the smart contract does not perform as intended. The nascent state of the technology means that there are few, if any, tested solutions to the legal issues to which smart contracts give rise.
