Fintech law - a review of smart contracts in Ireland

After the publication of a legal statement on crypto assets and smart contracts by the UK Jurisdiction Taskforce, the UK Government requested that the Law Commission of England and Wales carried out a scoping study into smart contracts and the law. The Law Commission recently issued a call for evidence about smart contracts and how they can be accommodated by English law.

Being such a near neighbour of the UK, it’s important for Ireland to also consider this matter. In this blog, we look at smart contracts and consider how they fit into Irish law.

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Fintech and the law

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What are smart contracts?

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A smart contract is a legally binding contract that automatically executes some or all of its obligations via a computer program. There are generally considered to be three types of smart contract:

• Contracts in natural language where obligations are executed via code
• Hybrid contracts consisting of both natural language and code
• Contracts in code only

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Smart contracts and the law

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As in English law, Irish law does not require a particular format for contracts. Whilst certain requirements must exist regarding offer, acceptance and consideration, a contract in Ireland does not necessarily need to be written down to be legally enforceable.

A verbal agreement is likely before a smart contract is established. This could help with verifying acceptance of the contract. With smart contracts that include some level of natural language, it should also be straightforward to prove that the parties intended to establish the contract. However, it is much harder to confirm agreement of a smart contract without natural language communication.

With regard to signing smart contracts, natural language contracts could be signed in the usual way. The UK Jurisdiction Taskforce acknowledged that smart contracts written in code could be signed electronically. Since 2000, Irish law has accommodated the use of electronic signatures, so signing smart contracts of any type should not pose an issue.

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Fintech law

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Issues around interpretation

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A benefit of smart contracts is a lack of ambiguity compared to traditional contracts. In a dispute involving a natural language smart contract, less interpretation would be required. However, that’s not the case for contracts in code only. Coding experts will likely be required to decipher the code’s meaning. With hybrid contracts, there’s also the risk of discrepancies between code and natural language, which could be challenging to make a judgement on.

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Smart contracts and Ireland

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It is worth keeping in mind that smart contracts can bring many potential benefits. By automatically executing obligations, transaction and enforcement costs can be reduced. Automation also leads to streamlining and increased efficiency. Mechanisms within smart contracts also reduce the risk of fraud.

Whilst there are clear benefits, there are clearly risks attached too. Ireland needs to be mindful of this when considering the position of smart contracts. As of yet, no review has been formally carried out in Ireland to scope how the law can accommodate smart contracts.

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Please check out our other blog on fintech law and everything you need to know about hiring Fintech law firms. If you need any advice on the issues mentioned above please contact a solicitor in Ireland or a Dublin solicitor.