Advertisement

Smart Contract This! An Assessment of the Contractual Landscape and the Herculean Challenges it Currently Presents for “Self-executing” Contracts

  • Rory UnsworthEmail author
Chapter
Part of the Perspectives in Law, Business and Innovation book series (PLBI)

Abstract

The widespread use of “self-executing” contracts is now only a question of time. For certain standard contract types with simple and well understood provisions, little international variation, no intermediation and short execution periods, that time is now as the change is already happening (examples are digital rights management and various banking applications.). It is the other more complex, more entrenched, and less agile sectors of the global economy which are the focus of this paper. Here there will be hurdles to overcome and more time needed for implementation—it will be a difficult task. The arrival of this new technology presents important questions about the future of contracting, as well as about traditional legal practice within both legal departments and law firms, calling for a new quality of cooperation between business and their lawyers. Given that the natural reaction to change is resistance, that companies are having ever-greater challenges navigating international regulation and that as a result legal department within companies tend to exert a strong influence out of line with the number of employees they include, the power of institutional resistance to delay adoption of the change will be considerable. This chapter will seek to add a dose of realism to the techno-optimists in the late adolescence of the 21st century for whom the change is so far advanced it is practically finished. In this chapter it is largely assumed that readers understand how Distributed Ledger Technology works, and the principal focus will be on the contractual challenges standing in the way of the implementation of “self-executing contracts,” to which it will also offer some solutions. The original idea contained in this chapter is to embark on a well-planned Digital Contract Optimization journey, supported by new technologies, as a means to manage various risks associated with algorithmically driven processes. This chapter will address the question of the institutional legal mindset as a potential delaying factor and will present a Darwinian argument to explain that change is inevitable and will be radical in terms of the new demands on lawyers.

Keywords

Smart contracts Law Legal practice Technology 

Notes

Acknowledgements

This chapter is dedicated to the memory of the late Thomas Tschopp, an innovative computer scientist who helped me work through many of the challenges encountered during my first Digital Contract Optimization. Thanks to Helena Haapio for honoring me with the commission to write this—her trust in others and her collaborative spirit make her a true Flexpert; to Müge Cöteli, who kindly proof-read the manuscript but, more importantly, broadened and modernized my legal horizons, introduced me to this theme and stimulated me with creative ideas and encouragement during the writing process; to Paul Meeusen, Gerhard Lohmann and John Carolin, CEO, Chairman and CFO respectively of B3i for allowing me privileged access to a pioneering DLT Consortium in a complex segment, the former providing a very close reading of this chapter, and some telling insights, examples and clarifications; to Tim Cummins and Sally Hughes and their team at the IACCM for inspiring me over the years with their rare ability to nourish thousands of minds, starting with just a handful of bread and a basket of fish.

References

  1. Adams-Schoen S-J (2014) Of old dogs and new tricks—can law schools really fix students’ fixed mindsets? Leg Writ J Legal Writ Inst 19(3); Touro Law Center Legal Studies Research Paper Series No. 15-20. http://works.bepress.com/sarah_adams-schoen/1/. Accessed 21 July 2018
  2. Allen & Overy (2014) Unbundling a market: the appetite for new legal services models. http://www.allenovery.com/SiteCollectionDocuments/Unbundling_a_market.PDF. Accessed 18 July 2018
  3. Arkes H, Blumer C (1985) The psychology of sunk cost. Org Behav Hum Decis Process 35:124–140CrossRefGoogle Scholar
  4. Brown R, Carlyle J, Grigg I, Hearn M (2016) Corda, An introduction. https://docs.corda.net/_static/corda-introductory-whitepaper.pdf. Accessed 11 August 2018
  5. Bain A-D (1999) Insurance spirals and the London Market, University of Glasgow in The Geneva Papers on risk and insurance, issues and practice. Issues Risk Manag Insurance 24(2):228–242Google Scholar
  6. Bjørnstad H-W (2007) “Entire agreement clauses,” in English translation. https://www.jus.uio.no/ifp/english/research/projects/anglo/essays/bjornstad_abstract.pdf. Accessed 18 July 2018
  7. Cap Gemini (2016) Smart contracts in financial services: getting from hype to reality. https://www.capgemini.com/consulting-de/wp-content/uploads/sites/32/2017/08/smart_contracts_paper_long_0.pdf. Accessed 16 July 2018
  8. Catford J (1965) A linguistic theory of translation. Oxford University Press, LondonGoogle Scholar
  9. Coleman M-D (2010) Sunk cost, emotion and commitment to education. Curr Psychol 346.  https://doi.org/10.1007/s12144-010-9094-6. Accessed 14 July 2018CrossRefGoogle Scholar
  10. Cordero-Moss G (2011) International commercial contracts and the applicable law. Cambridge University Press, pp 1–6Google Scholar
  11. Cummins T (2016) Commercial agility and creativity through contract simplification. In: Presentation at first international conference on contract simplification, Rüschlikon, 29 March 2016. http://media.swissre.com/documents/Presentation_Tim_Cummins.pdf. Accessed 24 July 2018
  12. Darwin C (1872) The origin of the species, 6th ednGoogle Scholar
  13. Deloitte (2017) Banding together for blockchain: does it make sense for your company to join a blockchain consortium? https://www2.deloitte.com/insights/us/en/focus/signals-for-strategists/emergence-of-blockchain-consortia.html. Accessed 16 July 2018
  14. Dweck C-S (2007) Mindset: the new psychology of success, updated edition. Ballantine Books, New YorkGoogle Scholar
  15. Gilson R-J, Sabel C-F, Scott R-E (2013) Text and context: contract interpretation as contract design. Cornell L Rev 100(23). https://scholarship.law.cornell.edu/clr/vol100/iss1/1. Accessed 28 July 2018
  16. Gilson R-J, Sabel C-F, Scott R-E (2013) Contract and innovation: the limited role of generalist courts in the evolution of novel contractual forms. NYU Law Rev 88(1). http://www.nyulawreview.org/sites/default/files/pdf/NYULawReview-88-1-Gilson-Sabel-Scott.pdf. Accessed 21 July 2018
  17. Grigg I (2015) On the intersection of Ricardian and smart contracts. http://iang.org/papers/intersection_ricardian_smart.html#ref_Szabo. Accessed 24 July 2018
  18. Grigg I (2004) The Ricardian contract. In: Proceedings of the first IEEE international workshop on electronic contracting, pp 25–31Google Scholar
  19. Haapio H (2013) Next generation contracts: a paradigm shift. Lexpert, HelsinkiGoogle Scholar
  20. Hart O, Moore J (1988) incomplete contracts and renegotiation. Econometrica 56(4):755–785CrossRefGoogle Scholar
  21. Hazard J, Haapio H (2017) Wise contracts: smart contracts that work for people and machines. In: Schweighofer et al (eds) Trends and communities of legal informatics. Proceedings of the 20th international legal informatics symposium IRIS 2017. Österreichische Computer Gesellschaft/ books@ocg.at, WienGoogle Scholar
  22. Hofstadter D (1999) Gödel, Escher, Bach: An eternal golden braid, 20th anniversary ed. New YorkGoogle Scholar
  23. Iansiti M, Lakhani K-R (2017) The truth about blockchain. Harvard Business Review. https://hbr.org/2017/01/the-truth-about-blockchain. Accessed 29 July 2018
  24. Insurance Information Institute (2016) Facts and statistics; commercial lines. https://www.iii.org/fact-statistic/facts-statistics-commercial-lines. Accessed 11 July 2018
  25. Kronblad C, Haapio H (2018) Smart contracts—not so smart legal professionals? In: Schweighofer E et al (eds) Data protection/LegalTech. Proceedings of the 21th international legal informatics symposium IRIS 2018. Editions Weblaw, Bern 2018 and in Jusletter ITGoogle Scholar
  26. Lundmark T (2001) Verbose contracts. Am J Comp Law 49(1):121–131CrossRefGoogle Scholar
  27. Maury M-F (1855) The physical geography of the sea and its meteorology, in a re-publication by Forgotten Books in 2012, LondonGoogle Scholar
  28. Mellinkof D (1963) The language of the law. Little Brown & Company, BostonGoogle Scholar
  29. Moore G (1965) Cramming more components onto integrated circuits. Electronics 38(8)Google Scholar
  30. Norton Rose Fulbright (2016) Smart contracts—coding the fine print. http://www.nortonrosefulbright.com/files/smart-contracts-137872.pdf. Accessed 11 June 2018
  31. Norton Rose Fulbright (2017) arbitrating smart contract disputes from international arbitration report, pp 21–24. http://www.nortonrosefulbright.com/knowledge/publications/157162/arbitrating-smart-contract-disputes. Accessed 11 June 2018
  32. Nida E (1964) Toward a science of translating. EJ Brill, LeidenGoogle Scholar
  33. Prosci (2018) An introduction to change management. https://www.prosci.com/resources/articles/what-is-change-management. Accessed 5 August 2018
  34. Pseudo-Appolodorus (1st or 2nd Century AD) Bibliotheca of Pseudo-Apollodorus. Translated by Sir James George Frazer. Loeb Classical Library Volumes 121 & 122. Harvard University Press, LondonGoogle Scholar
  35. Santander Bank (2015) The Fintech 2.0 paper: rebooting financial services. http://santanderinnoventures.com/wp-content/uploads/2015/06/The-Fintech-2-0-Paper.pdf. Accessed 20 July 2018
  36. Smith T-F, Waterman M-S (1981) Identification of common molecular subsequences. J Mol Biol 147:195–197CrossRefGoogle Scholar
  37. Sperling C, Shapcott S (2012) Fixing students’ fixed mindsets: paving the way for meaningful assessment. Leg Writ 18(39):1–48Google Scholar
  38. Susskind R-E (1990) Artificial intelligence, expert systems and law. Denning Law J 5(1):105–116Google Scholar
  39. Susskind R-E (1998) The future of law. Facing the challenges of information technology, revised paperback edition. Oxford University Press, New YorkGoogle Scholar
  40. Swiss Re (2017) The China growth engine steams ahead. In: World Insurance in 2016. Sigma 03/2017:17–19Google Scholar
  41. Swiss Re (2018) Constructing the future: recent developments in engineering insurance. http://media.swissre.com/documents/sigma2_2018_en.pdf. Accessed 12 July 2018
  42. Szabo N (1997) Formalizing and securing relationships on public networks. First Monday 2(9). http://firstmonday.org/ojs/index.php/fm/article/view/548/469-publisher=First. Accessed 24 Sept 2018
  43. Tapscott D, Tapscott A (2016) Blockchain revolution. Penguin Random House, LondonGoogle Scholar
  44. Trounson A (2018) Speeding natural selection in the name of conservation. https://pursuit.unimelb.edu.au/articles/speeding-natural-selection-in-the-name-of-conservation. Accessed 14 June 2018
  45. Unsworth R (2016) “Meet the Flexperts!” How to bring in expert contributions around the contract in support of commercial interests. J Strateg Contract Negot 1–18Google Scholar
  46. Vitasek K, Ledyard M, Manrodt K (2010) Vested outsourcing, 2nd edn: Five rules that will transform outsourcing. Palgrave MacMillan, New YorkCrossRefGoogle Scholar
  47. Waddington C-H (1977) Tools for thought. Paladin, St. AlbansGoogle Scholar
  48. World Economic Forum (2016) The future of financial infrastructure: an ambitious look at how blockchain can reshape financial services, White Paper, Aug 2016. http://www3.weforum.org/docs/WEF_The_future_of_financial_infrastructure.pdf. Accessed 1 Aug 2018
  49. World Economic Forum (2018) Blockchain—beyond the hype, White Paper. http://www3.weforum.org/docs/48423_Whether_Blockchain_WP.pdf. Accessed 2 June 2018

Copyright information

© Springer Nature Singapore Pte Ltd. 2019

Authors and Affiliations

  1. 1.Swiss Re, Head Contracts Centre and Smart Contracts CounselZurichSwitzerland

Personalised recommendations