A guide to Non-Fungible Tokens (NFTs), 2023 - Flipbook - Page 27
Typically, smart contracts will be hybrid, as there will be some terms between
the parties in addition to the code itself. Alternatively, smart contracts may
have natural language terms in the metadata or a link to terms and conditions
stored off the blockchain incorporating written terms, also making them hybrid
contracts. While performance-focused terms, such as payment of funds or
transfer of assets, can be dealt with through a smart contract, other key terms
that define the scope of the contract, such as governing law and jurisdiction,
will likely be lost. As a result, any fully smart contract is likely to be limited in the
contractual protections that it offers.
In many cases with higher value NFTs, bespoke contracts will be used. These
bespoke contracts allow control over the distribution of coded and written terms
and, as detailed below, this mix is likely necessary to ensure the contracts are
effective under English law and properly support the interests of the contracting
parties. In addition, it is likely that many bespoke hybrid contracts will be largely
natural language focused, with only some key actions effected by code, in order
to maintain contractual efficacy.
Any level of hybrid contract is likely to be undertaken either through close
collaboration across disciplines between lawyers and software developers in
order for the coded aspects to effectively reflect and undertake the intention
of the contract, or by specialist tech lawyers able to undertake construction of
both the natural and coded language aspects of a smart contract.
Contractual efficacy
The Law Commission has published Smart legal contracts: Advice
to Government, with guidance on the legality of smart contracts and
the applicability of English law contractual principles to them. For a
summary of the Law Commission advice.
In short, the guidance concludes that the current legal framework of England and
Wales is able to support the use of smart legal contracts as binding contracts.
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