The Law Commission has published a paper which confirms that English law can accommodate smart legal contracts without the need for statutory reform.
Smart legal contracts are legally binding contracts in which some or all obligations are performed automatically by a computer program that is usually run on a blockchain network. They are touted as being able to generate efficiencies in the contract management process, while lowering costs, minimising the risk of human error and reducing instances of non-performance.
Unlike traditional legal contracts, they can be written entirely in computer code, entirely in natural language (with computer code separated from the contract), or in a combination of the two.
The Law Commission has concluded that English law is flexible enough to allow current legal principles for traditional analogue contracts to apply to smart legal contracts. While the use of computer code may give rise to novel legal issues and factual scenarios, existing legal principles can accommodate them.
The Law Commission acknowledges, however, that there are potential uncertainties in the legal treatment of smart legal contracts. For example, there may be difficulties in establishing a contract has been validly formed where it is created through interactions using distributed ledger technology and not by express agreement between parties.
For further information, see this discussion by our digital law team.
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