DLT Law / Articles mensuels  / The drafting of smart contract’s clause for dispute resolution mechanism

The drafting of smart contract’s clause for dispute resolution mechanism

Smart contracts are self-executing programs coded on a blockchain. Most of the times, legal scholars focus on smart contracts as constituting smart legal contracts, which can be defined as computer programs that represents actual legal agreements.

The use of smart legal contracts is especially promising where international legal relationships and important sum are at stake. For instance, the use of smart legal contracts could soon become mainstream in international trading transactions.

The creation of smart legal contract enables many advantages. However, the use of « coded law » or « coded clause » as the language for a legal contract raises a number of important questions in the legal field. In particular, this is the case when a bug occurs or a dispute between the Parties takes place. In those hypothesis, and in order to keep a high level of efficiency, it might be interesting for the Parties to foresee some dispute resolution mechanisms. In this optic, jurists might be able to play an important role as “legal oracle”, that is an external actor furnishing an input to the smart contract, which may resolve a litigious situation.

In order to be efficient, those mechanisms should be set especially cautiously. Notably, with regards to choice of jurisdiction and choice of law, or in the writing of the arbitration clause. The first hypothesis would be that this type of clause takes place within the smart contract’s computer code. In those cases, the drafting of such a clause in computer code might bear the risk that it is non-understandable or non-recognizable for Parties. Consequently, the best legal practices would be to set it in human readable form. Another hypothesis would be that Parties executes their smart contracts via a common platform or an application of a third-party (so-called “blockchain as a service”), hence such a clause might be written into the terms of use of the service. In any case, and even if the clauses are correctly drafted, mandatory rules apply, e.g if they are consumers, and can render the clauses legally inefficient.

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