Legal databases, smart contracts and smart arbitration
Retrospective view
In the recent couple decades there were several changes to the way how legal professionals do their job.
The invention of the legal databases is one of the major improvements, which comes first to my mind. The ability to quickly search the law significantly improved the quality of the legal service. It also increased the efficiency of legal professionals and allowed us to free time for more meaningful legal work.
Since then however there are no any breakthrough technologies affecting the legal profession in the same manner, and so widely adopted.
Drafting tasks, negotiations, advising of clients, litigation nowadays are performed more or less in the same way as before.
There are some improvements in litigation, so you can file an application or motion online; or negotiations, when you can sign a legally binding document with the e-signature, but I don't dare to claim such moves as revolutionary as legal databases' invention.
Smart contracts
The general trend for the economy digitalization however puts the significant pressure on the law and the lawyers. This means that more and more transactions and business activity will be undertaken online, so this requires the legal community to tailor our tools to suit the digital economy needs.
One of such efforts led to invention of the smart contracts.
In the community there are a lot of discussions about smart contracts, their benefits and possible areas of use, so I will not focus on these topics here. I will just agree that smart contracts have the significant potential to change the legal profession as legal databases did.
Understanding smart contracts
The problem a typical lawyer usually faces with a smart contract today is the following.
Smart contract is the code, which means that special knowledge of a programming language is required to understand its conditions.
So, to address this issue:
- either a lawyer needs to learn how to code, or
- a smart contract must be duplicated in the natural language.
Learning to code
Learning to code is the most straightforward solution. It requires some efforts from a legal professional. As a result, one gains the additional skills.
If the goal is to understand the code, some sort of online course in the specific programming language may be enough to give a lawyer some basic understanding of the coding concepts and techniques. If a smart contract's code is well-commented by a developer, the result may be quite satisfactory.
There are however several concerns with this approach.
The first concern is that so far in the industry there is no standard programming language for smart contracts. Solidity claims to be the tailor-made solution, however general purpose languages like Java, Go, Kotlin are also used. This leads to a tough decision in which language one needs to invest time to learn.
The second concern is that learning a programming language on top of the legal education brings us away from one of the core principles — any law, contract, or ruling must be clearly understood by a non-professional.
The normal course of business requires clarity and the same understanding.
But if the contract in the natural language, in general, may be understood by an average person (with certain exceptions, when the contract is poorly drafted), the same conditions coded into a smart contract are definitely not clear without special skills in programming languages.
Duplicating
Expressing the code in the natural language tries to provide the solution from the opposite direction. It requires the involvement of the developer into the legal drafting process. As a result, the conditions of a smart contract can be understood.
The first concern is that duplicating requires additional time for drafting, and it is difficult to perform such work concurrently.
The second concern relates to errors in duplication. In case of inconsistency in the bilingual contracts this issue is solved by indication what language prevails, which means that both parties need to understand the prevailing language.
If code is the prevailing language and you, say as a judge, don't understand the code, and the other party claims that translation is incorrect, the expertise is required.
So far there is no market of professional advising companies who can translate a smart contract from programming to the natural language.
But if you find someone, on top of that, there could be the matter of trust.
As a result, if there is no established market, and you don't trust to the existing providers, you need to learn one or several programming languages to understand the smart contracts with all potential issues as discussed above.
Fusion
One of the solutions might be moving simultaneously in two directions: from one side, let's call it the first direction, the legal natural language must tend to be plain and explicit, and from the other side, the second direction, the programming language must tend to the natural language.
Django is one of the examples of moving in the second direction. Although the current implementation is imperfect, the idea of coding in natural language is compelling.
COBOL, aka COmmon Business Oriented Language, implies the same philosophy.
On the opposite flank, i.e. in the first direction, there are however no significant results.
But, imagine, if result is achieved at both sides, i.e
- if the condition of contract, law, arbitration award is explicit and plain, and
- if the code may be successfully compiled from the natural language,
there are a lot of opportunities for the legal technology as machines will be able to
- understand such conditions,
- transform them into the code, and
- execute such code.
Smart arbitration
One of possible implementations could be the smart arbitration.
Smart arbitration is the process of granting an arbitration award by machine in case of a dispute in connection with the smart contract.
One of the smart contract features is auto fulfillment if several conditions are met. In this scenario smart arbitration is not needed.
But so far there are a lot of conditions that are difficult or even impossible to code into the smart contract.
As an example, this may be a force majeure clause triggering extension of time, but the parties of the smart contract are in the dispute whether the event meets the force majeure criteria. In this case the machine (or smart arbitrator) could evaluate the criteria and make the decision.
Or this may be the question of an expert opinion, based on the algorithm, which both sides trust.
Conclusion
In conclusion, the fusion solution doesn't seem to be perfect or easy to implement, however it opens the possibilities to push the limits in which the legal community operates.