UK Law Commission: Smart Contract Research

By Jonathan Lawrence

Published on 19 July, the UK Law Commission’s 2017-2018 Annual Report includes a section dedicated to a research project into smart contracts. The Commission is a statutory independent body. Its aims include the conduct of research and consultations in order to make systematic recommendations for consideration by the UK Parliament. The Commission defines “smart contracts” as the technology which runs on blockchain and by which legal contracts may be executed automatically, at least in part. The body says there is a compelling case for a Law Commission scoping study to review the current English legal framework as it applies to smart contracts. The project’s purpose would be to ensure that English law is sufficiently certain and flexible to apply in a global, digital context and to highlight any topics which lack clarity or certainty. The body has started its initial research and its main work will begin in summer 2018.

The development of smart contracts will challenge some established legal rules and practices including, for example, contractual interpretation.  Currently, when the meaning of a contract is disputed by the parties to it, a court will consider what that agreement would mean to a reasonable human observer.  Where that agreement is written in computer code and intended for communication to an artificial intelligence, the significance of a reasonable human observer’s interpretation is a matter of contention.  The court can enlist the evidence of a professional coder to translate the code into human language; however the process of interpretation remains the responsibility of the judge.

The aim is for smart contracts to be relied upon even in the absence of trust between the parties concerned.  This is because they facilitate a complete symmetry of information, and a completely transparent process. This will lead to situations where contracting parties have no reason to trust each other and will therefore have no history or incentive to be co-operative. These technological developments are likely to have a disruptive effect on private law, both conceptually and practically.  If the law is to remain relevant to commercial dispute resolution on a global scale, it needs to review its tools and concepts. This Law Commission research project will hopefully address some of these issues.

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