The Contents of Commercial Contracts: Smart Contracts

Abstract

The technology that makes smart contracts possible was developed with a view to enabling transactions to be made end-to-end without the intervention of third parties, intermediaries, adjudicators or courts. In this sense, it achieves in principle complete freedom of interaction. Whether this is the same thing as freedom of contract, however, remains to be seen. It is not yet clear, for example, which smart contracts will be legally enforceable, either because the parties do not want them to be, and/or because the courts do not recognise them as being so. What seems inevitable at this stage in the development of smart contract technology is that conventional contract law in its current form is unlikely to be the most effective way of adjudicating smart contract disputes. One reason for this is that securing performance will be far less of a problem under smart contracts than it is in relation to conventional contracts: the automated nature of the former means that actions are far more likely to be executed than those promised in the traditional way, albeit that their results might not accord with the parties’ expectations. Any issues are therefore far more likely to arise (or at least to be brought to a court’s attention) after a transaction has occurred. Automated execution means that parties are free to determine the contents of their agreements, and that machines will abide by those agreed instructions. The way in which smart contracts operate, therefore, means that any adjudication of them is likely to need to emphasise restorative rather than enforcement remedies. The extent to which the law chooses to do this will effectively determine how free smart technology users are to make legally recognised contracts.