Smart contracts

Current project status

• Initiation: Could include discussing scope and terms of reference with lead Government Department
• Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
• Consultation: Likely to include consultation events and paper, making provisional proposals for comment
• Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
• Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations

We published our advice to Government on 25 November 2021, concluding that the current legal framework in England and Wales is clearly able to facilitate and support the use of smart legal contracts.

Download the paper on smart legal contracts here

Download the summary of the paper on smart legal contracts here

The issue

Emerging technologies, such as distributed ledgers, are increasingly used 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.

Smart contracts can also be used to define and perform the obligations of a legally binding contract. It is this specific type of smart contract – a “smart legal contract” – that is the object of our analysis.

Smart legal contracts can take a variety of forms with varying degrees of automation; different forms of smart legal contract give rise to different legal considerations. Where the degree of automation in question takes the smart legal contract out of the realm of legal familiarity, novel legal issues may arise for consideration, particularly in the context of contract formation, interpretation and remedies. Additional questions may arise where smart legal contracts are offered to consumers, and in determining whether the courts of England and Wales have jurisdiction to adjudicate disputes involving smart legal contracts.

Our project

The Law Commission was asked by the Lord Chancellor to include work on smart legal contracts as part of our Thirteenth Programme of Law Reform. In November 2019, the UK Jurisdiction Taskforce (“UKJT”) published its legal statement on cryptoassets and smart contracts. The UKJT Legal Statement concluded that, in principle, smart contracts are capable of giving rise to binding legal obligations, enforceable in accordance with their terms.

Following this, the Ministry of Justice asked us to undertake a detailed analysis of the current law as it applies to smart legal contracts, highlighting any uncertainties or gaps, and identifying such further work as may be required now or in the future.

Advice to Government

We published our advice to Government on smart legal contracts on 25 November 2021. It was informed by the detailed responses we received to the call for evidence, published in December 2020.

We have concluded that the current legal framework in England and Wales is clearly able to facilitate and support the use of smart legal contracts, without the need for statutory law reform. The flexibility of our common law ensures that the jurisdiction of England and Wales provides an ideal platform for business and innovation. Current legal principles can apply to smart legal contracts in much the same way as they do to traditional contracts, albeit with an incremental and principled development of the common law in specific contexts. Although some types of smart legal contract may give rise to novel legal issues and factual scenarios, existing legal principles can accommodate them.

We also consider separate, related areas of law, such as the law of deeds and the rules on jurisdiction. Deeds and private international law are the two areas where we think further work is required to support the use of smart contract technology in appropriate circumstances.

Related work

You may also be interested in our work on cryptoassets and other digital assets. More information is available here.

The Law Commission will be starting a project on conflict of laws and emerging technology in the course of 2022. More information is available here.

Contact

To contact us, please email smart-contracts@lawcommission.gov.uk