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By Richard Stobbe

The idea of a ‘smart contract’ has been a lot of things: it’s upheld as the next big thing, a beacon of change for society, a nail in the coffin of an inefficient legal services profession, and it’s criticized as a misnomer for ‘dumb code’.  Our review of smart contracts continues with this question:  Are ‘smart contracts’ in need of specific laws and regulations in Canada?

In other words, is ‘smart contract’ law broken and in need of fixing?

(Need a quick primer on smart contracts? Can Smart Contracts Really be Smart?)

For those who may recall, the advent of other technologies has caused similar hand-wringing. For example the courts have, over the years, dealt with contract formation involving the telephone, radio, telex and fax … and email … yes, and the formation of contracts by tapping “I accept” on a screen.

There is a very good argument that the existing electronic transactions laws in Canada adequately cover the most common situations where so-called ‘smart contracts’ would be used in commercial relationships. For example, the Alberta Electronic Transactions Act (a piece of legislation that was introduced almost 20 years ago, when people talked about the “information superhighway”), was intentionally designed to be technology neutral.

The term “electronic signature” is defined in that law as “electronic information that a person creates or adopts in order to sign a record and that is in, attached to or associated with the record”. It’s so broad that the term can arguably apply to any number of possible applications, including situations where someone approves a transactional step within a smart contract work flow. Of course, this still has to be tested in court, where a judge would apply the law in an assessment of the specific facts of a particular dispute.

Does that create uncertainty? Yes, to a degree.

But the risks associated with that approach are preferable to the alternative. The alternative is to go the way of Arkansas, or other jurisdictions who have decided to wade in by prescriptively defining “smart contracts”.   For example, a 2019 law in Arkansas – “An Act Concerning Blockchain Technology” HB 1944 – amends that state’s electronic transactions law by defining “blockchain distributed ledger technology,” “blockchain technology” and “smart contract.”  By imposing specific definitions, these laws may have the unintended effect of excluding certain technologies that should be included, or catching use cases that were not intended to be caught.  This would be the equivalent of trying, in 2001, to define an electronic transaction by looking at  Amazon’s 1-click checkout. Sure, it was innovative at that time, but to peg a legal definition to that technology would have been short-sighted and unnecessarily constraining.

A second problem is a lack of standardization or uniformity in how different jurisdictions are choosing to define these technologies. This creates more uncertainty than a reliance on existing electronic transactions laws.

As blockchain and smart contract technology develops, the rush to have legal definitions cast in stone is premature and unwarranted.

Related Reading:

Blockchain Legislation – Too Soon?

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