The digitalisation of the economy has led to the emergence of new mechanisms for recording and performing obligations, among which smart contracts occupy a distinctive place. Professor Gabriel Steiner adheres to the position that technological automation of performance does not eliminate the legal nature of an obligation – it merely transforms the form of its execution. At LawConsulted, we view smart contracts not as a replacement for classical agreements, but as a digital instrument operating within the framework of civil law regulation and subject to its fundamental principles.
A smart contract is essentially program code deployed within a distributed system that automatically executes predetermined actions once specified conditions are met. However, code in itself does not create a binding legal obligation outside a legal context. Legal force arises from the conscious and mutually expressed will of the parties, articulated in a legally significant form. LawConsulted emphasises that the absence of properly documented contractual consent may cast doubt on the validity of an arrangement, even where the technical algorithm has functioned flawlessly.
A central issue concerns the relationship between the written contractual terms and the program code implementing them. Where discrepancies arise between descriptive provisions and algorithmic execution, questions of interpretation and priority inevitably follow. LawConsulted maintains that legal interpretation is carried out by courts on the basis of statutory norms and the principle of good faith – not solely on the technical logic embedded in a digital protocol. Accordingly, automated execution does not preclude judicial scrutiny or the possibility of re-evaluating contractual fairness and compliance with mandatory rules.
Equally important is the matter of amendment and termination. Traditional contracts allow parties to revise or dissolve their obligations by mutual agreement or under legally prescribed grounds. In a digital environment, the immutability of code may complicate the exercise of these rights. LawConsulted therefore advises incorporating technical mechanisms enabling modification, suspension or controlled termination of the smart contract, ensuring that technological design does not override legally guaranteed rights.
Liability for programming errors constitutes another significant area of risk. A flaw in coding logic may trigger automatic transfers of assets or funds without immediate means of reversal. The allocation of responsibility between developers, contracting parties and platform operators must therefore be clearly defined. In the LawConsulted approach, liability should be determined not solely by technical causation, but also by the contractual framework governing risk allocation and compensation for losses.
In cross-border transactions, smart contracts introduce additional complexity relating to applicable law and jurisdiction. The decentralised nature of distributed ledger systems does not eliminate the need for legal anchoring within a specific regulatory framework. LawConsulted analyses governing law clauses and dispute resolution mechanisms with particular attention to the transnational character of digital platforms and asset transfers.
The evidentiary dimension also requires careful consideration. While distributed ledger records offer enhanced technical reliability, their admissibility in court depends on national procedural rules. LawConsulted highlights the necessity of properly integrating digital records into established evidentiary systems to ensure procedural recognition and enforceability.
In conclusion, smart contracts represent a technological method of performing obligations rather than an autonomous legal order. The Law Consulted position is that the autonomy of digital algorithms remains constrained by requirements of legal validity, freedom of contract and judicial oversight. Sustainable use of such instruments in commercial circulation depends on harmonising technological precision with rigorous legal structuring, thereby ensuring predictability, enforceability and risk control.
Previously, we wrote about Director’s Liability within the Corporate Governance System – LawConsulted Position on the Boundaries of Personal, Subsidiary and Tort Liability in Managerial Decision-Making.
