**2.4 Smart contracts and civil code**

The above-mentioned reports and statements represent the current status of legal opinion and practices in England and Wales. The Law Commission report [14] reveals that in the United States of America, which is common law jurisdiction, several states, including Arizona, Nevada, Ohio, and Tennessee have provided legislation to protect the legal effects of smart legal contracts. The report also shows that smart legal contracts are recognised, with or without legislation, in Australia, China, Dubai, Estonia, India, New Zealand, Sweden, and Switzerland. These jurisdictions include both common law and civil codes countries. On this basis, it appears that it does not matter whether the jurisdiction is based on common law or the civil codes insofar as the smart legal contracts are concerned. Indeed, the issues in implementing smart contracts in any legal system should be the same irrespective of the structure, practice, and overarching principles of the legal system. However, there is not enough evidence to draw any conclusion that it is no difference in the application of smart legal contracts given that there are some fundamental differences between common law and civil code jurisdictions in the context of contract law, including the requirement and consideration in the formation and conceptual interpretation.

#### **2.5 Forms of smart legal contracts**

Based on the degree of automation in a given contract, the Law Commission characterises smart legal contracts in three forms as follows:

Form 1 - Natural language contract with automated performance: a contract in natural language but includes agreement from certain aspects of the contract to be performed using a computer program designed for this purpose. In Form 1, the role of the code is limited to performing obligations, and the parties' obligations are defined in the natural language contract. This is currently the most common form of smart legal contract being used.

Form 2 - Hybrid contract: In a hybrid contract, the contractual terms are defined both in natural language and code. The code defines contractual obligations as well as performing them. This leads to the situation where some or all of the contractual obligations are performed automatically as per the code written.

Form 3 - Solely coded contract. In this form, all the contractual obligations between parties are defined and performed automatically by computer code. e. This represents a total replacement of the natural language contract. As explained above, the current technology behind the smart contract does not reach this stage. The Law Commission classifies that this form represents the extreme of the spectrum and considers the use of solely coded contract as "low".

The subsequent discussions will follow the three forms as characterised by the Law Commission.

### **2.6 Case law**

The development of smart legal contracts in the common law jurisdictions will be influenced and steered by court decisions on any cases that come to light. Quoine Pte Ltd. v B2C2 Ltd. [20] is the first significant case that concerns cryptocurrency trading and has implications for the interpretation of smart contracts. The decisions of the Singapore High Court and Court of Appeal have been widely reported and analysed in various jurisdictions across the globe.

The case concerns contracts made by two computer programs using deterministic algorithms that are executed automatically. In a trading of cryptocurrency, B2C2 traded Ethereum in exchange for Bitcoin with Quoine on Quoine's automated trading platform. B2C2's computer program initiated the trade and made an offer to sell in

#### *Blockchain-Enabled Smart Legal Contracts DOI: http://dx.doi.org/10.5772/intechopen.109041*

Ethereum and the automatic function of Quoine's platform accepted that offer, leading to an exchange of cryptocurrency. It credited B2C2's account with the proceeds of the trades without human intervention. However, caused by an error in the automated contracting system, the exchange rate calculated by the algorithm was 250 times higher than the true value of the currency. When the technical officer later manually reviewed the trades, he discovered the error and reversed the trade. B2C2 disagreed and claimed that Quoine was in breach of the contract between the parties. Quoine's position was that if there was a contract, such contract was vitiated because of the mistake.

In its judgement, the Singaporean court confirmed that the automation process gives rise to a binding contract for the sale of cryptocurrency. The parties held their programs as a mechanism for reaching an agreement and were bound by the agreements that were entered into by those programs. This part of the decision confirmed the contracts entered automatically by computer codes, like the smart legal contracts, create legal effects and are enforceable.

In considering the unilateral mistake made by Quoine's computer program, the courts concluded that the intention of the party should be assessed at the time when the computer code was written, and what is relevant is the state of the mind of the programmer. Applying the principles developed by the successive cases based on traditional natural language contracts, the courts found, in the instant case, that unilateral mistake did not vitiate the contract as it did not go to the terms of the contract.

In assessing the remedy of the breach of contracts, considering the automatic selfexecution of the trading system and the cryptocurrency volatility of the market in which the system operated; the court decided that a remedy mechanism of reversing the trades at prevailing rates was not appropriate. This approach was the same to that of the breach of traditional natural language contracts when operating in a volatile environment. Given the common feature of computer programs, like smart contracts, for being self-execution, automotive and, high-speed that by the time when a breach occurred in a specific transaction is discovered, many other subsequent transactions would be completed, it is envisaged that the application of specific performance as a remedy will be limited.

Quoine v B2C2 is the leading case to date concerning contracts entered by computer programs without human intervention. It showed how the courts apply wellestablished legal principles to deal with novel issues arising from the use of emerging technologies. No doubt, as the adoption of smart legal contracts becomes more and more common, further court decisions will provide further and better guidance by the legal precedents. This is how the contract law in the natural language has been developing since ancient times and the experiences and wisdom generated by the case law will guide and steer the maturity of the law of smart contracts.
