find the latest legal job
Corporate/Commercial Lawyers (2-5 years PAE)
Category: Corporate and Commercial Law | Location: Adelaide SA 5000
· Specialist commercial law firm · Long-term career progression
View details
Graduate Lawyer / Up to 1.5 yr PAE Lawyer
Category: Personal Injury Law | Location: Brisbane CBD & Inner Suburbs Brisbane QLD
· Mentoring Opportunity in Regional QLD · Personal Injury Law
View details
Corporate and Commercial Partner
Category: Corporate and Commercial Law | Location: Adelaide SA 5000
· Full time · Join a leading Adelaide commercial law firm
View details
In-house Legal Counsel & Commercial Lawyers
Category: Corporate and Commercial Law | Location: All Sydney NSW
· Providing lawyers with flexibility and control over when they work, how they work and who they work for.
View details
In-house Legal Counsel & Commercial Lawyers
Category: Corporate and Commercial Law | Location: All Melbourne VIC
· Providing lawyers with flexibility and control over when they work, how they work and who they work for.
View details
'Who can we go after?': Lawyers explore implications of smart contracts

'Who can we go after?': Lawyers explore implications of smart contracts

Binary

Lawyers and tech thought leaders met to discuss the implications of smart contracts for the legal profession at the 2017 Blockchain Summit in Sydney.

The summit, hosted by Ashurst late last week, explored a broad range of issues related to blockchain technology. In the panel discussion Smart Contracts: From Theory to Application, senior lawyers and fintech leaders shared their insights on smart contracts and what they mean for the profession.

The panel consisted of Ashurst partners Tim Brookes (TMT, IT and privacy) and Philip Trinca (financial regulation and licensing), PwC director and Vulcan lead Robert Allen, and R3 associate director, APAC, Niki Ariyasinghe.

Mr Brookes opened the discussion by criticising the scope of the public debate on smart contracts that had taken place so far.

“One of the key problems, at least from a lawyer’s perspective, about smart contracts is actually the title, because what it’s done has actually framed the debate between the technology industry and the legal profession [around] whether a smart contract is a contract or not, and that’s actually led to a fairly sterile, binary type of debate,” he said.

Smart contracts are not necessarily meant to be legally enforceable, and their formation varies depending on the nature of the agreement between the parties, Mr Trinca added.

“The point about smart contracts is that they’re not actually ‘smart’ because they just do what they’re programmed to do, and not necessarily ‘contracts’ because people may not intend them to be legally enforceable in court,” he said.

“So if you’re just using a program, you may not want that to be legally binding. You may want it to be anonymous. You may want it just to be part of something that’s a contract that’s binding.”

However, in the event that a smart contract does result in a party taking legal action, the dichotomy between programming language and legal language can raise issues relating to interpretation.

“If a court was confronted with just what they call ‘programming language’, as opposed to an actual language, and [the applicant] said, ‘Here’s an arrangement between two parties, all the other requirements of the contract were satisfied’. Would a court actually accept that the programming language constituted some form of contract between the parties?” asked Mr Brookes.

“Our view is that it probably would. There’s no reason a programming language, which is logic-driven, can’t be interpreted.”

Arguably, the most notable smart contract dispute to date was last year’s controversy over the DAO, which raised significant questions about the legal ramifications of blockchain. The DAO was a distributed autonomous organisation (or decentralised autonomous organisation) on the Ethereum blockchain that raised US$150 million in crowdfunding to invest in various projects, until hackers found a loophole in the code and exploited it to siphon millions of dollars into another account.

Mr Allen attributed the hack to the “laws of unintended consequences”. He said the blockchain community split over whether the exploitation of the unintentional loophole in the code should be upheld as a legitimate outcome.

“Because one of the core principles of blockchain is that it cannot be changed – a huge debate raged about whether or not [the] blockchain should be reset to the point before this happened,” he said.

Mr Brookes noted the similarity between smart contracts and traditional contracts in terms of unintended consequences.

“It’s an interesting point that everything that happened in the DAO [with the code] was exactly what can and does happen with legal contracts, and in fact it probably happens more often because natural language is a lot more uncertain than computer code,” he said.

“In a contract you might find that someone frankly exploits it, and there is effectively an unintended consequence, and generally the courts will uphold that unintended consequence.”

The DAO hack attributed a sense of urgency to the question of blockchain regulation. Mr Trinca said the key difference between a regulated managed investment scheme and the DAO was that the DAO was anonymous and spread around the world, making it challenging to regulate.

“So when it went wrong, lawyers started to think about, well, could we prosecute? Could we treat this as a managed investment scheme? Is it a joint venture? How can we apply legal concepts to what’s going on here in order to rethink how we might dig everybody out of the hole?” he said.

As smart contract technology is in its early stages, he added, it is crucial to consider the potential outcomes before engaging in one.

“Once you understand that a smart contract is what you want, and may only be a small part of what you want, you then have to think about how you can use it,” he said.

When asked by Mr Ariyasinghe what movement is taking place in the legislative space to address the challenges of blockchain, Mr Trinca replied that he was “not aware of any legislation or legislative efforts being moved directly to look at cryptocurrencies or smart contracts, other than perhaps taxation”. 

“A lot of legislation is written in what’s termed to be ‘technology-neutral terms’,” he said, so that it will be applicable regardless of technological developments. However, the decentralised, global nature of blockchain poses a significant difficulty in the enforcement of the relevant laws.

“It’s a great question, and one that exercised a lot of lawyers’ minds with the DAO: who can we go after? The people that set it up? The advisers, the advisory board?” Mr Trinca said.

“The answer is that each case is going to have to be looked at individually. At the end of the day, the law only works if it’s got a square block that fits into the right hole, so if someone has instructed something that doesn’t fit into a current legal concept – a contract or a statutory thing that’s been created or imagined – then the law has to become much more adaptable, and the law can adapt.”

Like this story? Read more:

QLS condemns actions of disgraced lawyer as ‘stain on the profession’

NSW proposes big justice reforms to target risk of reoffending

The legal budget breakdown 2017

'Who can we go after?': Lawyers explore implications of smart contracts
lawyersweekly logo
Promoted content
Recommended by Spike Native Network
more from lawyers weekly
Scales of Justice
Dec 15 2017
Timing ‘critical’ in unusual contempt of court ruling
A recent case could have interesting implications for contempt of court rulings, according to a Ferr...
Dec 14 2017
International arbitration and business culture
Promoted by Maxwell Chambers. This article discusses the impact of international arbitration on t...
Papua New Guinea flag
Dec 14 2017
World-first mining case launched in PNG
Citizens of Papua New Guinea have launched landmark legal proceedings against the country’s govern...
APPOINTMENTS
Allens managing partner Richard Spurio, image courtesy Allens' website
Jun 21 2017
Promo season at Allens
A group of lawyers at Allens have received promotions across its PNG and Australian offices. ...
May 11 2017
Partner exits for in-house role
A Victorian lawyer has left the partnership of a national firm to start a new gig with state governm...
Esteban Gomez
May 11 2017
National firm recruits ‘major asset’
A national law firm has announced it has appointed a new corporate partner who brings over 15 years'...
opinion
Nicole Rich
May 16 2017
Access to justice for young transgender Australians
Reform is looming for the process that young transgender Australians and their families must current...
Geoff Roberson
May 11 2017
The lighter side of the law: when law and comedy collide
On the face of it, there doesn’t seem to be much that is amusing about the law, writes Geoff Rober...
Help
May 10 2017
Advocate’s immunity – without fear or without favour but not both
On 29 March 2017, the High Court handed down its decision in David Kendirjian v Eugene Lepore & ...