Smart contracts

Current project status

  • Initiation: Could include discussing scope and terms of reference with lead Government Department
  • Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
  • Consultation: Likely to include consultation events and paper, making provisional proposals for comment
  • Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
  • Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations

Our call for evidence on smart contracts was published on 17 December 2020, and closed on 31 March 2021. We are now analysing the responses received from consultees and will use these to inform our scoping study, which we intend to publish later on in the year.

Download the call for evidence here.

Download the summary of the call for evidence here.

Watch a short video introduction to the call for evidence.

The issue

Emerging technologies such as distributed ledgers are being promoted as a way to create “smart contracts”: computer programs which run automatically, in whole or in part, without the need for human intervention. Smart contracts can perform transactions on decentralised cryptocurrency exchanges, facilitate games and the exchange of collectibles between participants on a distributed ledger, and run online gambling programs. They can also be used to record and perform the obligations of a legally binding contract. It is this second category of smart contracts (sometimes referred to as smart legal contracts) which is relevant to our work. When we talk about smart contracts in this project we are therefore talking about legally binding contracts in which some or all of the terms are recorded in or performed by a computer program deployed on a distributed ledger. Smart contracts may take the form of a natural language contract where performance is automated by computer code, a hybrid contract consisting of natural language and coded terms or a contract which is written wholly in code. Smart contracts are expected to increase efficiency and certainty in business and reduce the need for contracting parties to have to trust each other; the trust resides instead in the code.

To ensure that the jurisdiction of England and Wales remains a competitive choice for business, there is a compelling case for reviewing the current legal framework in England and Wales to ensure that it facilitates the use of smart contracts. There are questions about the circumstances in which a smart contract will be legally binding, how smart contracts are to be interpreted, how vitiating factors such as mistake can apply to smart contracts, and the remedies available where the smart contract does not perform as intended. The nascent state of the technology means that there are few, if any, tested solutions to the legal issues to which smart contracts give rise.

Our project

The Law Commission was asked by the Lord Chancellor to include work on smart contracts as part of our Thirteenth Programme of law Reform, agreed in December 2017.

During the initial phases of our work in 2018, the LawTech Delivery Panel was created, and its UK Jurisdiction Taskforce (“UKJT”) undertook to prepare a Legal Statement on the status of cryptoassets and smart contracts under English law. In those circumstances, we agreed to pause our work on smart contracts until such time as the conclusions of the UKJT were known.

Following the publication of the UKJT’s Legal Statement on cryptoassets and smart contracts in November 2019, the Government asked the Law Commission to undertake a scoping study into the law on smart contracts. Under the terms of reference agreed between the Law Commission and the Government, the scoping study will analyse the current law as it applies to smart contracts, identify areas in which further work or reform may be required, and provide such advice as the Law Commission considers appropriate on options for reform.

Stakeholders interested in this project may also be interested in our work on digital assets.

Call for evidence

Our call for evidence on smart contracts was published on 17 December 2020, and closed on 31 March 2021.

The call for evidence was the first step in the smart contracts scoping study. Its primary function was to seek views about, and evidence of, the ways in which smart contracts are being used, and the extent to which the existing law can accommodate them.

The call for evidence covered the following topics:

  • What is a smart contract?
  • Formation of smart contracts
  • Interpretation of smart contracts
  • Remedies and smart contracts
  • Consumers and smart contracts
  • Jurisdiction

For each topic, we set out our current understanding of the law and practice, and asked consultees for their views. We did not make any proposals for law reform.

Next steps

As part of the next phase of the project, we are analysing the responses received to the call for evidence. We will use these to inform our scoping study, which we intend to publish later on in the year.

Contact

If you have any questions or want to be added to our mailing list to receive updates about this project, please contact us by email: smart-contracts@lawcommission.gov.uk

Documents and downloads

Project details

Area of law

Commercial and common law

Commissioner

Professor Sarah Green