Smart contracts and digital assets are becoming increasingly common in a variety of industries. Nevertheless, is the law ready for them? Following the publication of the Legal statement on the status of cryptoassets and smart contracts by the LawTech Delivery Panel, the Law Commission has launched two projects to analyse how English law can be reformed to accommodate these emerging technologies.
English contract law has developed on the presumption that contracts are written by individuals in ordinary language. Smart contracts, on the other hand, are drafted by a computer code, without the need for human intervention. They can either be in natural language generated through computer code, a hybrid of coded terms and natural language or wholly written in code. These developments raise a number of questions and challenges for English contract law, particularly in relation to what circumstances a contract written in code would be considered legally binding and how they can be interpreted by courts.
The UK Government asked the Law Commission to undertake a study on smart contracts, which will focus on:
- Formation and enforceability;
- Performance of the contract;
- Remedies; and
- Vitiating factors
The Law Commission will also consider any areas where further work or reform may be required, and provide appropriate suggestions for improvement. The project started in August 2020 and the Law Commission will publish a call for evidence in due course.
The Law Commission has said that “smart contracts, digitised assets and electronic documents promise to revolutionise the way we do business, digitising existing processes and in some cases introducing entirely new concepts. There are, however, lingering uncertainties about whether and how English law can accommodate these.”
The UK Government asked the Law Commission to suggest reforms required to ensure the law can both accommodate cryptoassets and other digital assets in their current form, and allow such assets to flourish in the future.
In the first part of this project, the Law Commission will consider the legal issues around possession, in particular in relation to documents of title, documentary intangibles and negotiable instruments. The Law Commission aims to publish a consultation paper in the first half of 2021.
It will be interesting to see how the Law Commission recommends changes in the law to accommodate both of these rapidly-evolving areas. We will monitor these two projects and provide further updates.