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Establishing jurisdiction in the context of smart legal contracts – the English Law Commission’s Advice to Government
On 25th November 2021, the English Law Commission published its Advice to Government on smart legal contracts. While the English Law Commission is anticipating launching in mid-2022 a project to review conflict of law rules to emerging technology, in Chapter 7 of this Advice, it discusses issues relevant to the jurisdiction of English courts concerning smart legal contracts. The term ‘smart legal contracts’ is explained at paragraph 2.11 of the Advice as: “legally binding contracts in which some or all of the contractual obligations are defined in and/or performed automatically by a computer program”.
In England, whether a court will have jurisdiction over a contractual dispute depends on either a party’s presence or domicile or by how or where a contract is formed. The English Law Commission found that identifying a party’s identity, presence, or domicile in the context of smart legal contracts can be problematic because parties can use pseudonyms in transactions on a distributed ledger. Concerning the place where the contract is formed, this depends upon the type of smart legal contracts in question. For smart legal contracts agreed upon in natural language but with automated performance, the place of formation can be determined by the normal rules of contract formation with reference to the natural language negotiations. For solely code smart legal contracts, a further distinction needs to be made between a unilateral one (whereby a party uses code on a distributed ledger and the other party acts upon) and a bilateral one (whereby a party uses a computer program on a distributed ledger to make an offer which is then accepts by a computer program deployed by the counter party). In case of a unilateral one, uncertainty exists because the place can be either a place where the other party performs the act pursuant to the deployed code or a place where acceptance is communicated to the offeror or there may be other potential places. For a bilateral one, the place can be either the place where the offeree is when his computer program accepts the offer, or it might be where the offeree is when the acceptance is communicated to the offeror. Or such place may be where the offeror is when the acceptance takes place or where the offeror is when the acceptance is communicated. Alternatively, the place of formation may be determined by the location of certain numbers of participating nodes. For hybrid smart legal contracts where terms are defined in natural language as well as defined in code, if such contracts are taken to be formed when the parties sign natural language terms, then there is no new complexity. On the other hand, if they are taken to be formed when coded terms are deployed, then same complexity in the context of solely code smart legal contracts arises. On either form, there will be more complexity due to multi-party arrangements as well as due to the nature of the distributed ledger technology itself. The English Law Commission ultimately was of the view that a bespoke principle to identify the place of formation of smart legal contracts should be developed. Parties are also encouraged to embed a jurisdiction clause in their smart legal contract. A possibility that the jurisdiction may be based upon the location of an agent was also considered. On this, a computer coder engaged to produce coded terms for a smart legal contract is taken to be an agent.
At times, an applicable law to contract may constitute a basis for establishing the court’s jurisdiction. On this, the English Law Commission pointed out that parties cannot choose a platform protocol as a governing law since this is not a “law” of a particular country as in Article 3(1) of the Rome I Regulation, which the English choice of law rules are still based upon. Nevertheless, the parties can incorporate the platform protocol as terms in their contract. While it will be difficult for parties to include a coded choice of law clause in their contract, the parties are advised to include a comment or other natural language provision so to stipulate the choice of law. In the absence of the express choice, Article 4(1) of the Rome I Regulation set out rules to determine the applicable law in certain types of contracts. The English Law Commission did not view these connecting factors to create any novel problem. Yet, the difficulty lies in identifying counter parties. In the absence of specific rules in Article 4(1), in Article 4(2), the applicable law is determined by the place of characteristic performance. In this context the characteristic performer is “the person that, but for the automation, would have performed the obligation that is characteristic of that type of contract, even if the actual performance of that duty is automated”. Failing this, the closest connection as per Article 4(3) and (4), this can be drawn from several connecting factors (no.7.92):
“(1) The identities, habitual residences, and domiciles of the parties (and/or of their agents).
(2) The place where any real-world performance takes place.
(3) The location of the nodes running the smart legal contract…
(4) The location of the party who instigates the creation of the smart legal contract.
(5) The place where the relevant smart legal contract platform is based.
(6) The domicile of the ledger’s gatekeeper/controller, if the relevant ledger is permissioned.
(7) The law governing any closely related contracts.
(8) The location of the private key…
(9) The location of any real-world assets to which the smart legal contract relates;
(10) The location of any cryptoasset to which the smart legal contract relates…”
Similar connecting factors are also applicable in the context of forum (non) conveniens consideration.
For full access of the Advice: https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2021/11/Smart-legal-contracts-accessible.pdf
Dr Poomintr Sooksripaisarnkit is Lecturer in Maritime Law, Australian Maritime College, University of Tasmania and Senior Research Fellow, Research Centre for Private International Law in Emerging Countries, University of Johannesburg
On Digitalisation of Judicial Cooperation and Access to Justice: The Commission Proposal
Dr. Lenka Valkova, Researcher at the University of Milan, offers a description of the Proposal for a Regulation on the digitalisation of judicial cooperation and access to justice in cross-border civil, commercial and criminal matters, and amending certain acts in the judicial cooperation, COM(2021) 759 final, issued on 1 December 2021.
Although a comprehensive set of instruments were designed to enhance judicial cooperation and access to justice in cross-border civil, commercial and criminal cases at EU level, most of them do not provide for engaging in communication between authorities and individuals or legal entities through digital means.
During the COVID-19 pandemic, in many instances national courts have been unable to maintain normal operations and were forced to switch to the use of digital technologies (e.g. email, videoconference, etc.). However, many of the technical solutions employed were developed in an ad hoc manner. Against this background, in December 2020 the Commission adopted a Communication on the digitalisation of justice in the EU proposing a set of measures to bring forward digitalisation at both the national and EU level in line with the ‘digital by default’ principle. Such principle should be understood as a way to improve the efficiency and resilience of communication, reduce costs and administrative burden, by making the digital channel of communication the preferred one to be used (on the Communication see here and Commission Staff Working Document Accompanying the Communication see here).
In this framework, and following the publication of The Roadmap and Public consultation, the Proposal for a Regulation on the digitalisation of judicial cooperation and access to justice in cross-border civil, commercial and criminal matters, and amending certain acts in the judicial cooperation, was issued on 1 December 2021 (on the Proposal and also on the Impact Assessment see here). According to the Proposal, the Regulation shall apply to electronic communication between competent authorities and between natural or legal persons and competent authorities, and videoconferencing in proceedings falling under the scope of the legal acts listed in Annex I, and notably the Brussels Ibis Regulation, the Regulation on European Order for Payment Procedure, the Regulation on European Enforcement Order for Uncontested Claims, the Regulation on European Small Claims Procedure, the Regulation on European Account Preservation Order, the Regulation on Insolvency Proceedings, the Brussels IIter Regulation, the Maintenance Regulation, the Regulations on Matrimonial Property Regimes and on the Property Consequences of Registered Partnerships (on complete list of the legal instruments in Annex I see here).
To guarantee a common approach towards the use of modern technologies in cross-border judicial cooperation and access to justice, this initiative aims to make using digital communication compulsory for communication between courts and competent authorities through a decentralised IT system, subject to justified exceptions in case of disruption of the system or in other specific circumstances. Moreover, the Regulation should provide a legal basis for the electronic communication between courts and natural and legal persons and for the use of videoconferencing or other distance communication technology for oral hearings in cross-border cases. To this end, the European electronic access point, located on the European e-Justice Portal, which may be used by natural and legal persons for electronic communication with the courts and competent authorities in civil and commercial matters with cross-border implications, will be established. While the courts and competent authorities will be required to accept electronic communication from natural and legal persons, the use of the digital channel will be voluntary for the natural and legal persons. In fact, to respect the needs of disadvantaged groups and vulnerable people and to ensure that citizens who lack digital skills, who live in remote areas or whose personal capacity does not allow them a seamless access to the digital tools, the paper-based communication will be maintained as an option.
This Proposal and other EU initiatives concerning cross-border civil, commercial and family law in the digital world will be discussed on 8 December 2021 during the event PhD Book Club – EU PIL in Digital World. The event is organized under the auspices of the Digital in Law project, co-funded by the Erasmus+ Programme of the European Union.
A quarterly on civil procedure (“Polish Civil Procedure”) publishes a special issue on international family law with a particular focus on the Regulation 2019/1111
The quarterly “Polish Civil Procedure” (“Polski Proces Cywilny”) just published a special issue on international procedural law and private international law. The issue is entirely devoted to international family law. Under the common title “New efforts in judicial cooperation in European child abduction cases”, it gathers contributions drafted in English and coming from authors representing several jurisdictions.
A special attention is being given to the Regulation 2019/1111. In fact, as Editor-in-Chief of the quarterly, Karol Weitz, and his colleagues clarify in the Editorial, it is the upcoming entry intro application of the Regulation that has prompted them to “invite distinguished and well-known academics from all over Europe to share their ideas [in particular on] the practical problems of its application by national courts and predicted impacts of amendments introduced pursuant to the [Regulation] as well as the outlook for the future developments in the field of European private international and procedural law, with a particular emphasis on cross-border family law matters”.
In addition to the print, the contributions contained in this issue are available online. The texts themselves as well as the table of content with abstracts can be consulted here.
Single-click shortcut for our readers:
Dieter Martiny
New efforts in judicial cooperation in European child abduction cases
Burkhard Hess
Michele Angelo Lupoi
Maciej Szpunar, Krzysztof Pacula
Forum of necessity in family law matters within the framework of EU and international law
Olga Bobrzynska
Fernando Gascón Inchausti, Pilar Peiteado Mariscal
Zofia Kubicka-Grupa