**3.6 Blockchain platform**

Smart legal contracts run on a blockchain platform. The digital platform stores information and records transactions. It drives self-execution of the blocks and the distribution of ledgers to the users. Generally, blockchain platforms fall into two types of ecosystems, (a) open (public, permission) and (b) close (private, nonpermission). Most business-to-business commercial transactions operate in a closed environment, where participants are joined using a private key 28 and all users can be identified. As in any shared access, users are operating on mutual trust and cooperative natures. It is well settled that under English law, obligations imposed by good faith are not enforceable. If the parties wish to impose such a duty, they must do so expressly [22].

To set out explicit contractual terms for the shared users of a platform, the starting point is to examine the arrangement of the organisations that develop and operate

blockchain platforms. These organisations are separate entities. They joined together and formed a blockchain consortium. Currently, there are in general 3 types of consortia models (a) contractual consortium model, (b) joint venture model, and (c) developer agreement and participant agreement models. A comprehensive discussion on the advantages and disadvantages of the different business models for forming and operating a consortium is given in the Law Society for England and Wales' guidance on blockchain [18]. It is concluded that there is no preferred model as the choice is subjective to the specific requirements and aspirations of the consortium members in a particular sector.

In using any of the models, contractual arrangements must be put in place to govern and regulate the obligations and commitment of all parties concerned in two generic groups: (a) amongst the consortium members regulating the structure and governing principles in the development and running of the platform - the consortium agreement, and (b) the participation agreement that regulates the rules of joining the platform in respect of the use of the platform.

The challenges and issues associated with the consortium governance and the participation agreements are of no difference to those that apply to a joint industry multi-stakeholder enterprise project. The current practice is that contractual arrangements are dealt with in the traditional way by a raft of natural language instruments, like formal contracts supplemented by protocols, policies, standards and regulations.

At the top level of the consortium governance, the key issues are decision-making authority, funding, costs, income allocation, legal entity structures, risk allocation, and identification and ownership of intellectual property. At the day-to-day operation level, issues of the duties and the identity of the information manager, the agreement with the software providers or developers regarding their obligations, the performance level, and availability of the network, and specification of the intellectual property ownership.

The participant agreement sets out the rules for joining the platform. Attention should be given to the allocation of responsibility for the operation of the platform and coordination of the data, allocation of liability, risk and responsibility for errors, access to data in the system, data privacy and cybersecurity.

#### **3.7 Jurisdiction and governing law**

The law that governs a contract determines its validity, effect and discharge, directly affecting the rights and obligations of the parties. As explained in Section 2.3 above, a country's legal system is unique. The applicable law that governs a contract formed and performed in one country is not necessarily to be the same as that in another country.

Jurisdiction refers to the legal authority of a court or tribunal to exercise justice in matters. In other words, which court or tribunal has the power to hear and resolve disputes arising between the parties. Jurisdiction and governing law are usually discussed together in the context of cross-border transactions. They are related but governing law is not the same as jurisdiction. The legal system of a country (i.e., a jurisdiction) can apply the governing law of a different country.

In the absence of explicit provisions in a contract that stipulate the governing law and jurisdiction, the issues arising from the choice of law and jurisdiction are dealt with in accordance with the principles developed under the practice area of private international law. In the context of the smart legal contract, can the same principles apply to the traditional natural language contracts apply?

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

The Law Commission [14] identified certain jurisdictional issues unique to smart legal contracts, like the physical location of the defendant, the contract's place of formation, the third-party coders who concluded the contracts on behalf of the parties, the facts need to be examined when determining the most significantly connected legal system, difficulty in locating the exact location where the breach concerning a digital asset rather than a physical asset in the real-world location. Further work is being commissioned by the Law Commission.

But one thing for sure is that the court will follow the explicit agreement between parties. To avoid future controversy, parties are well advised to include a governing law clause stating expressly the parties' choice of law that applies. Likewise, the contract should contain a jurisdiction clause stating that the parties have agreed to the courts/tribunals of a named country taking jurisdiction over any disputes that may arise. However, parties must be careful in specifying which law of the country will apply with due consideration of the fact that the extent of recognition of smart legal contracts is not uniformly recognised in different jurisdictions.

### **3.8 Insurance**

Parties can manage risk by seeking appropriate insurance to cover the possible consequences of the risks identified, including service interruption, loss of income, hardware damages, and reputational damage. The novel nature of legal risks emerging from smart legal contracts calls for specialised coverage to complement the traditional insurance policies. Many unusual or specialised threats are included as optional cover and parties must ensure they understand the insurance plan. Rather than relying on the insurance policy to cover all conceivable losses, parties should have their systems in place to mitigate risks to avoid monetary burden of premium.
