According to a legal expert, smart contracts are subject to private international Contract law.
The opinion, which was published on Oxford University’s Business Law Blog on January 23rd, belongs to Giesela Rühl, professor of Private International Law and co-director of the Centre for European Studies at the Friedrich Schiller University in Jena, Germany.
The Smart Contracts Contract Law Report
After analyzing cryptocurrency smart contracts, Rühl published a report entitled “The Law Applicable to Smart Contracts, or Much Ado About Nothing?” In it, she argues that any conflicts between smart contracts and existing legal precedent may be overstated.
“[T]he initial hopes that smart contracts will free the exchange of goods and services from national laws do not seem to come true,” she says. “Indeed, the classic questions of contract law arise also when parties enter into a smart contract. And just like all other contracts, smart contracts demand that the law answers them. The decisive question, therefore, is not whether smart contracts are subject to the law, but rather to which law they are subject.”
Professor Rühl’s analysis focuses on European Smart Contracts Contract law. She argues “there can be little doubt” that legislation regarding civil and commercial contractual obligations, including the 2008 Rome I Regulation, extends to smart contracts.
Interestingly, Rühl did note that the Rome I Regulation applies to contracts in a legal context, while the term “smart contract” is usually applied in a technological sense.
Smart Contracts Only Clarify Contracts That Occur Elsewhere
Smart contracts, she writes, are “merely a piece of software or [program] code that controls, monitors, or documents the execution of a contract that has been concluded elsewhere.”
Instead of applying to the software or code, Rühl argues, Rome I would apply to the contract it facilitates.
Rome I would apply, however, to smart contracts that have been hard-coded to be legally binding. This would mean that “the contract is comprehensively and exclusively embodied in a software code.”
Professor Rühl also referenced the principle of party autonomy, a main provision under Rome I. According to Rühl, the principle allows parties to select the laws under which a contract is to be governed.
This principle, says Rühl, provides “much needed legal certainty” for smart contracts, which are often decentralized in nature.Professor Rühl’s analysis supports statements made by her counterparts in the United States. According to Brian Quintenz, commissioner of the Commodity Futures Trading Commission (CFTC), though the use of smart contracts will surely raise many legal questions, they are still subject to the law.