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ISDA® Publishes Whitepaper Analyzing Smart Contract Cross-Border Legal Issues
Practical Law Legal Update w-023-7346 (Approx. 4 pages)
ISDA® Publishes Whitepaper Analyzing Smart Contract Cross-Border Legal Issues
by Practical Law Finance
| Published on 23 Jan 2020 • International |
ISDA, Clifford Chance, R3, and the Singapore Academy of Law published a whitepaper entitled Private International Law Aspects of Smart Derivatives Contracts Utilizing DLT, which analyzes the conflict-of-law issues surrounding smart contracts using distributed ledger technology (DLT) governed by the laws of England/Wales and Singapore.
On January 13, 2020, ISDA®, the law firm Clifford Chance, blockchain consortium R3, and the Singapore Academy of Law published a whitepaper entitled Private International Law Aspects of Smart Derivatives Contracts Utilizing DLT, which analyzes the conflict-of-law issues surrounding smart contracts using distributed ledger technology (DLT) governed by the laws of England/Wales and Singapore.
The issues are broken down into those relating to uncollateralized and collateralized DLT transactions. Uncollateralized DLT transaction issues include:
- How a court determines governing law.
- How a court determines appropriate jurisdiction.
- Admissibility of electronic evidence.
- Disputes involving parties to uncollateralized DLT transactions.
- Disputes involving parties to uncollateralized DLT transactions and the platform provider.
Collateralized DLT transaction issues include:
- Property interests in securities.
- Conflict-of-law rules relating to collateralized DLT transactions.
Most notably, the whitepaper's discussion of how a court determines governing law includes an analysis of both England/Wales and Singapore. In general, parties in England/Wales may choose the law that will govern their contract, and that choice may be implied or expressed. When the choice of law is neither implied nor expressed in a contract, the law is determined according to such factors as:
- Where the seller or service provider resides, if the contract is for a sale of goods or services;
- Where the party required to effect the characteristic performance of the contract has its habitual residence; or
- Where a contract is determined to be most closely connected.
By contrast, parties in Singapore, when determining a contract's governing law, will go through the following steps:
- Examine whether the contract expressly states the governing law;
- In the absence of an express statement, infer from the circumstances what the governing law was intended to be; or
- Determine which system of law the contract is most closely connected to.
The whitepaper concludes by stating that when considering the most straightforward implementations of both uncollateralized and collateralized DLT transactions, it is unlikely that either would result in a court disapplying an express choice of law. In order to provide greater clarity, the whitepaper recommends that parties agree on a common "law of the platform," "law of the system," or elective situs (where a property belongs for legal purposes), which would act as a uniform choice of law that the parties agree will govern all DLT transactions.
ISDA also issued a press release on the publication of the whitepaper.
"ISDA" is a registered trademark of the International Swaps and Derivatives Association, Inc. (ISDA). ISDA is not a sponsor of Practical Law and had no part in the development of this Update.