Flexibility of the common law can accommodate Smart Legal Contracts

On 25 November 2021, the UK Law Commission published an announcement, together with its paper titled “Smart legal contracts – Advice to Government”, confirming that the flexibility of the common law can accommodate and apply to smart contracts, in particular, “smart legal contracts”, without the need for statutory law reform. The analysis in the report may be of value to the businesses and legal practitioners in Hong Kong, which retains its common law system under the Basic Law.

As explained in the report, a smart legal contract is a legally binding contract, in which some or all of the contractual obligations are defined in and/or performed automatically by a computer programme. There are two main features of a smart legal contract, namely, (i) some or all of the contractual obligations under the contract are performed automatically by a computer programme, and (ii) the contract is legally enforceable.

The use of smart legal contracts is expected to help business increase the speed of contractual performance, reduce the costs of contract management via automation, achieve faster contract execution, etc. While there is a growing interest in smart legal contracts, there are legal questions relating to how current legal principles can apply to them, and the report provides an analysis of the current law in the UK as it applies to smart legal contract in respect of formation and enforceability, interpretation, remedies, vitiating factors, etc. Among other things, a number of issues were also identified for contracting parties to address in the terms of their smart legal contracts in order to reduce uncertainties and potential dispute.

For further details, please refer to UK Law Commission paper on smart legal contracts here.

2 December 2021
Key Contact(s):