Last month, the UK Law Commission, whose remit is to promote the reform of UK law, published its Annual Report for 2017/18. Its provisions included a serious intent to take forward reform in the area of smart contracts.
Interestingly, 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”, rather than seeing them as separate legal contracts. We broadly agree with this definition, though it should be noted that smart contracts may constitute separate legal contracts, depending on the jurisdiction. For the UK this would generally require the existence of: (i) an offer; (ii) acceptance of the offer; and (iii) consideration. For this reason, in our work with FinTech startups we usually refer to smart contracts as “smart protocols”, as the term “smart contract” is often applied synonymously with protocol.
The Commission expects that the use of smart contracts will increase efficiency in business transactions, and that the use of blockchain technology will increase trust and certainty in transactions more generally. This view is in line with the World Economic Forum’s vision of blockchain technology becoming the “‘Beating Heart’ of the Global Financial System”.
We also concur with the Commission’s view that a study of the applicability of the current English framework to smart contracts should be undertaken. This will ensure the competitiveness and flexibility of English courts and law, and tap into exciting opportunities for increased efficiency, trust and certainty in digital international trade.
The Commission notes that initial research on smart contracts has started, and we will monitor the Commission’s research.
The UK Law Commission’s full Annual Report is available from here.
Our FinTech Task Force across our offices monitors the global FinTech and RegTech developments. Get in touch if we can be of any assistance.
