As advances in law technology revolutionise today’s legal landscape, the role of the legal professional has evolved. The automation of legal processes has prompted lawyers and other legal professionals to become proficient at an ever-increasing collection of word processing, database, presentation, and legal research software.That being said, this article will further explain the concept of technological innovation in relation to smart contracts as well as their underlying technological foundation, future applications and legal implications.
Recently, the Chancellor of the High Court, Sir Geoffrey Vos, has launched a legal statement, which addresses the legal uncertainty of digital assets and smart contracts. The statement confirmed that crypto-assets will be recognised as tradeable property while smart contracts are enforceable under current English law. Welcoming the ‘legal statement’, lawyers are convinced that it is the first step to gaining full legal status.Going forward, the Law Commission will determine whether any regulation or legislation may be ‘desirable’ in the crypto-assets sector.
The statement demonstrates the flexibility of English common law to grow and adapt and according to Simon Davis, president of the Law Society for England and Wales, “it will increase confidence amongst law firms to adopt new technologies and among investors to invest”.
At this point, it is worth noting that due to the fact that the legal system in Cyprus is based on English common law, consequently, all statutes relating to business matters and procedures are very similar to those of the English system. It is therefore no exaggeration to say that the evolution of this legal statement and any potential legislation in relation to it will eventually be applied in Cyprus.
Nevertheless, a point to note, before moving on to the role of the legal profession in the application of smart contracts, is that the legal statement states that cryptoassets cannot be the object of bailment as they cannot be physically possessed. While this is true, it is not the full picture for cryptoassets linked to underlying physical assets, as those underlying assets can be held physically, and it would have been helpful if the statement had recognised this.
Technological innovation, such as Artificial Intelligence (AI) and blockchain, promises to allow law firms to handle high volumes of administrative tasks and deliver faster service to clients. For instance, AI is being increasingly used to review non-disclosure agreements (NDAs) to deal with increasing volumes of work required. Review of NDAs is crucial to enable progress in transactions.
In other cases, parties use blockchain to create smart contracts for their transactions. A smart contract is a computer code that can automatically monitor, execute and enforce a legal agreement. Blockchain technology enables the verification of a contract’s proper execution through all participants. With a smart contract, there is only one set of trade terms, predefined as code and self-executing upon the triggering event, such as a payment being made, reducing misunderstandings on contract terms and dependencies on the other party's performance.
However, deliberate ambiguity in smart contracts is not possible. Consequently clauses involving terms like 'bona fide', 'using best efforts' or 'to the extent possible' cannot be implemented as code and cannot therefore be part of a smart contract. In any case, what smart contracts do is not replacing the lawyers but changing the skillset and knowledge required for lawyers to practice. Across firms, smart contracts and blockchain technology may be used to provide a secure and efficient platform for storing and accessing information and also to streamline various legal processes such as the discovery of documents.
Instead of replacing written contracts, it is now common for smart contracts to operate in tandem with them. This will allow contracting parties to benefit from the legal certainty of written contracts and the efficiency of smart contracts. An example of this is the Initial Coin Offerings (“ICOs”), where companies offer digital tokens for sale to the public.
A lawyer’s involvement in smart contracts is unlikely to be limited to drafting. Businesses will also need legal advice on regulatory compliance. While the global spotlight has fallen on central banks and securities law hitherto, it is a matter of time when other regulators get involved. Many smart contract projects seek to disrupt existing industries, such as real estate, e-commerce and data storage, which, to different extents, operate in existing regulatory frameworks. In order for these projects to achieve adoption, they will need to offer legally compliant products. Accordingly, these projects will need the help of legally-trained professionals to ensure that the development of their smart contracts stays within regulatory confines.
Technological developments, such as these, are often portrayed as competitors to the legal profession. However, the truth is that, even though these technological developments disrupt the way lawyers work and seem to be displacing legal professionals, they generate demand for legal services. Consequently, there is no reason why lawyers should not see smart contracts as a boon for the legal industry.