Global law firm Norton Rose Fulbright and technology innovation firm R3 have issued a white paper that explores whether smart contracts have legally binding contractual effect and the related issue of their legal enforceability.
Smart contracts and distributed ledgers, and the possibilities presented by the combination of the two, have garnered much attention recently, particularly from financial institutions. Distributed ledgers, together with smart contracts, have the ability to automate processes, improve certainty and achieve cost savings and also give scope for reducing legal and regulatory risk.
Norton Rose Fulbright has undertaken global research into the question of whether, or in what circumstances, smart contacts have legally binding contractual effect, are enforceable and whether – and to what degree – disputes arising from smart contracts can be resolved by an automated dispute resolution process built into a smart contract.
In association with R3, Norton Rose Fulbright has published a White Paper, Can Smart Contracts be Legally Binding Contracts?, that addresses these issues.
The findings, across key contracting jurisdictions globally, cover the following:
- Does the model of smart contract deployed affect whether it gives rise to a legally binding contract?
- Are there other variables that determine the legally binding nature and enforceability of such agreements?
- Does the answer vary country by country, or are there some common principles?
- Can a dispute resolution mechanism address enforceability and country variations and, if so, how would it work?
Sean Murphy, global head of blockchain and distributed ledgers at Norton Rose Fulbright commented: “The industry has been grappling with the issue of whether or in what circumstances a smart contract gives rise to a legally binding contract. Through our research and analysis, we have concluded that the answer can vary according to, among other things, the smart contract model used. The answer can also vary by country because of differences in local law. Inserting a dispute resolution mechanism into a smart contract could provide a potential solution to the question of enforceability, and in the paper we examine how such a mechanism would operate.”
Todd McDonald, co-founder and COO of R3, added: “The past few years have seen a great deal of talk about distributed ledger technologies given the profound impact they will have on the future of financial services. In order to fully realize the benefits of the technology, it is essential that we design smart contracts that are legally enforceable. Working with our partners at Norton Rose Fulbright, we're exploring various ways to ensure smart contracts meet that threshold.”
For further information please contact:
Louise Nelson, Senior PR Manager
Tel: +44 20 7444 5086; Mob: +44 (0)7909 684 893
Notes for editors:
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