legal

Smart contracts are legally sound, Law Commission confirms



The existing law of England and Wales is able to accommodate and apply to self-executing ‘smart’ legal contracts without the need for statutory law reform, the Law Commission reports today. In a conclusion likely to be welcomed by the government, it suggests that ‘an incremental development of the common law is all that is required to facilitate the use of smart legal contracts within the existing legal framework’.

A smart legal contract is a legally binding contract in which some or all of the contractual obligations are defined in and/or performed automatically by a computer program. They are usually secured by blockchain encryption. 

The commission’s findings generally echo the conclusions reached by the UK Jurisdiction Taskforce, chaired by the master of the rolls. 

In its report, the commission encourages the market to anticipate and cater for potential uncertainties in the legal treatment of smart legal contracts by encouraging parties to include express terms aimed at addressing them. Examples of such provisions include clauses allocating risk in relation to the performance of the code, and setting out clearly the relationship between any natural language and coded components. 

Professor Sarah Green, Law Commissioner for the commercial and common law team, said: ‘Smart legal contracts could revolutionise the way we do business, particularly by increasing efficiency and transparency in transactions.

‘We have concluded that the current legal framework is clearly able to facilitate and support the use of smart legal contracts; an important step in ensuring increased recognition and facilitation of these agreements.

‘Our related work on digital assets and conflict of laws will further establish England and Wales as a global leader for technological innovations in the digital sphere.’



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