Are Smart Contracts Subject To Traditional Contract Law? German Professor Says Yes

As per a new post in the Oxford University Business Law Blog, blockchain smart contracts are automatically subject to jurisdiction of international law concerning traditional contracts.

The arguments were made by a professor of Private International Law, Giesela Rühl. The professor is also the co-director of the Centre for European Studies in Jena’s (Germany) Friedrich Schiller University.

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Her thesis has been outlined and explained in the blog post entitled “The Law Applicable to Smart Contracts, or Much Ado About Nothing?” As the reader automatically gathers from the title, the post mainly deals with the needless emphasis on the supposed conflict that exists between blockchain smart contracts and the legal precedence in terms of how contracts are viewed.

She explains the basic premise of her argument, that smart contracts are subject to basic contract laws, by writing the following:

“[T]he initial hopes that smart contracts will free the exchange of goods and services from national laws do not seem to come true. Indeed, the classic questions of contract law arise also when parties enter into a smart contract. And just like all other contracts, smart contracts demand that the law answers them. The decisive question, therefore, is not whether smart contracts are subject to the law, but rather to which law they are subject.”

The Professor’s argument was primarily posited around the European legal context. She analysed most intently the relations between smart contracts and the Rome I Regulation of 2008. Her conclusion was that it does apply in the case of smart contracts.

Yet, she has made an exception, accepting that Rome I must apply to legally qualified contractual obligations, which smart contracts are not in each and every case.

She writes, in her concluding section:

“Smart contracts are said to change the way we trade goods and services. And they are said to pose numerous challenges for the law. As this post has demonstrated, determination of the applicable contract law is not one of them. To be sure, smart contracts, especially if they are processed via a blockchain, may have connections to a large number of jurisdictions. However, it will usually be possible to assign a smart contract to a particular legal system because the Rome I Regulation does not rely on the place of formation or the place of performance to determine the applicable law, but resorts to connecting factors, namely party choice and habitual residence, which work reasonably well in a globalised and digitalised society.”