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LEGAL TECH & SMART CONTRACTS: A Forte Markets event

June, 02,2019

By Davide Paoli

LEGAL TECH & SMART CONTRACTS: A Forte Markets event.


Technology remains an emphasis for corporate and public sector bodies alike, promising to aid innovation whilst increasing operational efficiency.

 

The legal sector is not immune to such shifts, with the notion of blockchain and smart contracts already taking shape in advanced economies.  To further explore this concept across the UAE market, Senior Associate, Davide Paoli, joined a panel of experts to explore the subject matter further, which also included Mark Beer OBE, and previous Chief Executive of the DIFC Dispute Resolution Authority.

 

During the panel, we explored whether smart contracts served a real purpose and to what extend they were revolutionary.  Whilst smart contracts theoretically will be able to:

·         Enforce contracts automatically in a trustworthy and impartial manner;

·         Alleviates the need for a middleman in contract construction, execution and enforcement;

·         (By implication) to remove lawyers.

 

The enthusiasm of smart contracts has led to an element of distortion in respect of its practical application. 

 

The key feature of a smart contract is that it has trustless execution, in that you do not need to rely on a third party to execute various conditions.  Instead of relying on third parties and other external sources such as lawyers or the legal system when things go wrong, the smart contract executes what it believes should happen in a timely and objective sense, thereby missing opportunities to provide accurate remedies in unusual cases or circumstances.

 

A truly intelligent contract considers all the extenuating circumstances, looks at the spirit of the contract and makes rulings that are fair and even in the most challenging of circumstances. In other words, a truly smart contract would act as an effective and good judge. Instead, smart contracts are very rule-based, inflexible and do not take secondary considerations or the ‘spirit of the law into account.

 

To further add to the challenges of embracing smart contracts is the application for dispute resolution.  There is an obstinate issue in linking a digital to a physical asset in a decentralized context. Physical assets are regulated by the jurisdiction you happen to be in, thereby trusting something in addition to the smart contract you’ve created. This means that possession in a smart contract doesn’t necessarily mean possession in the real world and hence suffers from the same trust problem as normal contracts. A smart contract that trusts a third party removes the crucial feature of trustlessness.

 

Considering this, it appears that ‘Oracles’ are filtered down versions of judges. Instead of getting machine-only execution and simplified enforcement, what you get is the complexity of having to encode all possible outcomes with the subjectivity and risk of human judgment. In other words, by making a contract “smart”, you’ve drastically made it more complex to write, while still having to trust someone.

 

Some "Arbitration on blockchain platforms" are extending this concept to embrace different layers of dispute resolution, one in the hands of the crowds, the other in that of specifically selected arbitrators and experts. This concept captivated the participants to join a Galadari roundtable, during which Alessandro Palumbo, CEO and founder of JUR, spoke about ADR challenges and the answers of blockchain based arbitration.

 

In conclusion, it seems that although during the conference it did emerge that smart contracts are simply too easy to get things wrong, too difficult to secure, too rigid to make trustless and have too many external dependencies to work for most things, the only real place where smart contracts actually add trustlessness is with digital bearer instruments on decentralized platforms such as Bitcoin.

 

To explore the debate of legal-tech further, contact us.