A smart contract is essentially a set of functions or operations that are performed automatically (at least partially) and without human intervention. The terms of a smart contract are at least partially recorded in the computer code. The legally new element that distinguishes a smart contract from a conventional contract is this automation, as described in the legal statement. This unusual feature of automatic performance has led to some legal uncertainty regarding the status of smart contracts. Are smart contracts able to meet the basic requirements of a contract under English law? Can smart contracts lead to legally binding enforceable obligations? The review was announced in the Commission`s Annual Report for 2017-2018. The report follows the publication of the 13. The Law Commission`s legislative reform program, in which smart contracts have been identified as one of the 14 areas where the government recognizes that there is serious intention to reform the law. Nevertheless, the legal declaration offers a line in the sand that many (for whom it is suitable) will rely. For example, it is undoubtedly valuable for those who have already invested in these technologies, for blockchain-based companies looking for funding, and for consulting firms developing blockchain applications. The analysis provides a framework for understanding the application of existing laws and regulations, and also provides clarity as to the availability of remedies when disputes over assets or contracts arise on the basis of this technology. The Lord Chancellor has asked the Law Commission to include work on smart legal contracts in our thirteenth legal reform programme. In November 2019, the UK Jurisdiction Taskforce („UKJT”) published its legal statement on cryptoassets and smart contracts.

The UKJT`s legal statement concluded that smart contracts are in principle capable of creating binding legal obligations that are enforceable under their terms. This means that if there is a legal requirement that the contract must be in writing, it is unlikely to be fulfilled by a smart contract that is not in a form that can be read by a human. However, the requirement that a contract be in writing is quite limited in scope, so it may not be relevant depending on the context. Smart contracts are attracting considerable interest from financial services companies, regulators, the press and other business stakeholders who are grappling with the rapid evolution of technology as they explore new use cases and applications. Smart contracts can be defined as legally binding contracts where some or all of the conditions are set in a computer and/or executed automatically by a computer, usually on a blockchain. We published our recommendation to the government on smart legal contracts on November 25, 2021. He was informed by the detailed responses we received at the exploratory meeting published in December 2020. In an announcement on Thursday, the Commission said smart contracts created with distributed ledger technology are allowed under the current legal framework of England and Wales.

The Legal Affairs Commission recommended only a „progressive development of the common law” as required by existing frameworks, but also encouraged all parties to smart contracts to explain the risks associated with „compliance with the Code” and other necessary conditions. The ukjt`s second important finding is that smart contracts are able to meet the requirements of a binding contract under English law and are therefore legally enforceable. A smart contract consists of self-executing electronic instructions written in electronic code that use blockchain technology as a platform. Although the UKJT did not specify a precise definition of a smart contract, it found that the defining feature was contract automation, i.e. a smart contract is executed (at least partially) automatically and without human intervention. This feature is not a good reason to treat smart contracts differently from traditional contracts, according to UKJT. The United Kingdom is the first court to issue an authoritative statement on these issues. Although these findings do not have the force of binding law and have not yet been considered by the English courts, they are likely to be treated as a convincing authority, particularly if the courts have not yet considered the merits of these issues.

The UKJT`s legal statement is also expected to reassure stakeholders using cryptoassets and smart contracts and could well lead to an increase in their use. The Commission points out that, in most cases, whether a smart contract is legally binding depends on whether it meets the same legal/formal requirements as a traditional contract. This is perhaps not surprising given that the Commission believes that smart contracts will continue to be largely accompanied by natural language agreements (although with the emergence of technology, one may wonder how far the technology is advancing (smart contracts can become „smarter” and approach the pure code of smart legal contracts). In its current form (i.e. hybrid smart contracts), the Commission recognises that there are areas of uncertainty and potential difficulties that only arise with smart contracts. For example, identifying the place of incorporation in the context of the smart legal contract might prove more difficult, and parties would be well advised to include a jurisdiction clause in their smart legal contract. „Smart legal contracts can present unique challenges when it comes to identifying the geographic location of breaches, actions, and enrichments, especially when the obligations arising from a smart legal contract involve a digital asset rather than a physical asset with a clear real location.” Smart contracts can also be used to define and fulfil the obligations of a legally binding contract. It is this specific type of smart contract – a „smart legal contract” – that is the subject of our analysis. As the ubiquity of smart contracts and cryptocurrencies increases, so will the number of litigations arising from these emerging technologies, and the English legal system is ready and able to rise to the challenge. The announcement of the Smart Contracts project follows the first meeting of the government`s new cryptoasset working group in May 2018.

The working group explores „the potential benefits and challenges of applying distributed ledger technology to financial services.” The Commission`s report notes that the financial services sector is particularly at the heart of the growing interest in smart contracts. The Commission has started its initial research on smart contracts and will start its main work in the summer of 2018. The focus is on potential use cases for smart contract technologies, with the Commission`s plan to ensure that ENGLISH law is safe and flexible and ultimately delivers on its purpose in an era of rapid innovation. The Law Commission has also included a non-exhaustive list of issues that the parties may wish to include in their smart contract. However, the legal notice does not address the issue of applicable law and jurisdiction. For cryptoassets and smart contracts, determining applicable law and jurisdiction is often a particular area of uncertainty. Although the legal explanation is useful to the extent that the laws of England and Wales are applicable, it will always be necessary to clarify that this is the case for a particular construction. However, fundamental questions remained mostly unanswered as to how these new constructions should be classified within the meaning of property and contract law.

Are cryptoassets pure information that cannot be „owned”? Is a private key analogous to an owner`s share? Isn`t a „smart contract” smart or a contract? These are not just issues of academic interest, given the commercial need for the investment of significant effort and funds in these structures to be supported by the legal recognition of what has been created, the applicability of agreements and the availability of effective remedies. The increasing adoption of cryptocurrencies, digital assets, and smart contracts has led to the need to understand how related transactions should be legally defined and processed. To create more legal certainty in this area of growth, the UK Jurisdiction Taskforce (UKJT), made up of leading lawyers, industry experts, and members of government and justice, has created a legal statement that aims to address key questions facing key stakeholders involved in cryptoassets. The chairman of the task force, Sir Geoffrey Vos, Chancellor of the Supreme Court, described the statement as „a turning point for English law and the jurisdiction of the United Kingdom.