Out-Law News 2 min. read

Smart contract litigation only a matter of time, says judge

Computer Code

A senior judge leading the production of imminent guidance about blockchain and smart contracts has said that it is "only a matter of time" until cases involving smart contracts come before the English courts.

Sir Geoffrey Vos, who leads the LawTech Delivery Panel's UK Jurisdiction Taskforce (UKJT), made the comments in a speech given earlier this week. The UKJT is due to publish an 'authoritative legal statement' on Monday which, amongst other topics, will provide guidance on smart contracts under English private law.

Vos also expressed the view that "the real prize" will be to persuade coders to include in smart contracts provision for the English courts to resolve any disputes arising, applying principles of English law. How such provisions could be included, is currently uncertain.

Litigation expert Danielle Murphy of Pinsent Masons, the law firm behind Out-Law, said that the comments were interesting and indicate that we may soon see a new character of disputes before the English courts. 

"Developers are already looking at building dispute resolution mechanisms into smart contracts," Murphy said. "This is something the legal and tech communities should ideally work together on."

"That conversion should not only be one-way. The potential for the technology to change the way parties transact is exciting, and lawyers and judges need to be able to respond and deal effectively with these types of disputes, which will throw up new and unique questions," she said.

Some jurisdictions have even taken steps towards using blockchain and smart contracts in dispute resolution.

For example, developments in China in recent months include the establishment of new court procedure rules that require the country's 'internet courts' – courts set-up to handle cases related to online matters – to "recognise digital data as evidence if they are verified by methods including digital signatures, timestamps and blockchains", the South China Morning Post reported last autumn.

Since then, it has been reported that the internet court in Hangzhou is using blockchain technology to help writers enforce their copyrights and to provide a "digital footprint" for evidence. More recently it has been reported that the court has gone further and is using blockchain as a form of automated dispute resolution.

The Beijing internet court has also enabled automatic case filing in the enforcement of a mediation agreement, according to an article on the official Chinese court website. The automatic filing was triggered by a smart contract.

A smart contract is a form of digital programming code, which exists on a blockchain platform and which will self-execute. In simplest terms these coded obligations can operate to say 'if A occurs, B will follow'. Coded obligations or outcomes have different characteristics to those which ordinarily exist in natural language contracts containing legal rights and obligations. The courts in many jurisdictions are most familiar with natural language contracts being the way in which parties agree their legal obligations, whether oral or written.

"It is interesting to see blockchain being embraced in a disputes context," Murphy said. "The approach of the Chinese internet courts seeks to use blockchain technology to overcome issues which can be central to disputes, such as the availability and credibility of contemporaneous evidence. The approach the English courts will adopt when faced with the new questions which will inevitably arise from wider use of blockchain and particularly smart contracts remains to be seen."

The UKJT is a team of industry experts and leading figures from UK government and the judiciary. Its remit is to clarify issues of legal uncertainty regarding cryptoassets, distributed ledger technology and smart contracts. Mr Justice Vos said in his speech that the statement to be published next week will be "a definitive statement" and expressed his hope that it will "go a long way towards providing much needed market confidence, legal certainty and predictability" in these important areas.

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