Dr. Eliza Mik teaches Contract Law and Legal Technologies at The Chinese University of Hong Kong. Before joining academia, she has worked in multiple software companies, tech start-ups and telecommunication providers in Australia, Malaysia, Poland and the United Arab Emirates advising on e-commerce, payment systems, software licensing and technology procurement. Throughout her academic career, Eliza maintained a consistent focus has been on the legal implications of transaction automation, including blockchains and Artificial Intelligence, as well as broader issues surrounding the Digital Economy and the proliferation of ubiquitous computing in retail environments. Adopting a practical, commerce-oriented approach, Eliza has published in prominent journals the areas of contract, e-commerce and cyberlaw. Her current research centers on the legal issues relating to the implementation of smart contracts.
Pacta sunt servanda and smart contracts
Smart contracts, agreements expressed in code and enforced by a distributed network of computer nodes, seem to present the perfect tool of ensuing commercial certainty. Agreements become set in computer code – code that cannot be changed or stopped, code that will execute irrespective of what happens in the real world. Implicit in the somewhat vague term “self-enforcement,” which underpins the very idea of smart contracts, is the promise of perfect performance – and a world where judges are obsolete because breach of contract becomes impossible. One might be tempted to welcome smart contracts as a technology ensuring pacta sunt servanda: agreements must be kept. The famous Latin maxim does not, however, assume that “servanda” is unqualified. The need to keep one’s promises and the need to perform one’s obligations is not absolute. Regard is to be had, even if to a limited extent, to changes in external circumstances. The pacta must not only be clear but also sufficiently comprehensive to address the unexpected and to cater to the multitude of events that might affect contractual performance. Although, at present, smart contracts are technically capable of expressing only a limited type of pacta, we can envisage a future where more contracts will be delegated to computers and where commerce becomes a conversation between machines. A technophiles dream come true: pacta become code, code becomes law and there is no choice but to perform strictly in accordance with the agreement. Perfect certainty comes, however, at the cost of rigidity. Perfect performance comes at the cost of the human element – smart contracts are devoid of discretion, judgement and compassion. Against this complex and over-idealized background, the paper addresses the technical prerequisites and legal consequences of technologically guaranteed performance. We must not forget that perfect performance is premised on the possibility of ensuring perfect code – code that accurately represents the agreement and code that is free of errors.