Canadian Lawyer

64 J A N U A R Y 2 0 1 9 w w w . c a n a d i a n l a w y e r m a g . c o m out intermediaries and slash costs while rendering transactions traceable, transparent and irreversible. The moniker smart contracts, however, is a bit of misnomer. Contracts are only legally binding if they meet certain elements: There must be an offer and acceptance as well as adequate con- sideration from both parties who have an intention to create legal relations — and that's where complications may arise. "If we are trying to use the code as a contract, how are we going to be able to demonstrate that factors such as multiple parties, adequate considera- tion and the governing law are met so that they can actually be called a contract?" asks Ahmad. "And if it is a contract that mentions governing law, which law would have precedence?" Since blockchains are decentralized across a network of unrelated computers, servers and devices — called nodes — located anywhere in the world, that can lead to complex jurisdictional issues. In a party-to-party transaction, any law in the world can govern the transaction, says Ahmad. But if consumers are part of the picture, then issues related to public policy governing law may come to the fore. Even though the inclusion of an exclusive governing law and jurisdiction clause in a block-enabled smart contract is not always enforceable, it is none- theless advisable to insert such clauses, says Thomas. "One of the issues that comes up with smart contracts and distributed applications is that no one necessarily puts written terms and conditions around their use," he says. "If there is a dispute, that puts the court in a position of having to imply what those terms are — and that's a whole world of uncertainty." There's more. Linked with the knotty problem of juris- diction are the related issues of liability and enforcement, concerns that touch on all blockchain applications and not just crypto-currencies or blockchain-based smart contracts. If something goes awry, such as code errors, data errors and just plain glitches, it can prove to be a real headache for the courts to establish liability as nodes are decentralized, with copies of transactions stored on a blockchain that does not have a sin- gle physical location. What's more, transactions recorded on blockchain are technically immutable because they cannot be deleted or changed. Pinpointing, therefore, where a breach or failure occurred can be complicated and lead to jurisdictional confusion. This all prompts Quebec City lawyer Jean-François De Rico, who practises information technology, intellectual property and privacy at Langlois Lawyers LLP, to assert that legislators and regulators will have to eventually figure out how to provide adequate legal protection to litigants. "Who should we point to?" De Rico asks rhetorically. "In the case of the internet, we pointed towards internet access providers. In the case of blockchains, we still rely on the network infra- structure, but the nodes are so numerous that I don't see how network operators could be [held accountable]. So, will it be developers? This is something that needs to be reflected on because, ultimately, being able to execute judgments is a real, big difficulty." The courts will also have to consider how evidence will be handled in blockchain-related cases. In 2016, the state of Vermont passed a bill allowing a "digital record electronically registered in a blockchain" to be admissible in a court of law under its rules of evidence. More recently, in September 2018, China's Supreme People's Court allowed evidence stored and verified on block- chain platforms to be used in legal disputes, making it the first time blockchain technology has been recog- nized as an admitted means of evidence in a civil law case. Canadian courts will "need a pathway to address and consider the probative value of blockchain records," says De Rico. It may turn out to be a war between expert wit- ness testimony, says Ahmad. "Depending on the issue the court is going to be asked to judge on, if it is going to be very technical, it it's code-based, then I think it's going to be a battle of the experts and the judge is going to have to make some decision on that," says Ahmad. Privacy is yet another conundrum that will have to be dealt with. Blockchains are inherently designed to be immutable and transparent. Information is also shared among every participant and node. If information in a ledger transaction or block contains private information, it will be visible to every user of every node. That appears to run in conflict with privacy laws such as the European Union's General Data Protection Regula- tion, which has been enforced as of May 2018. The GDPR strengthened the rights of individuals to digital privacy and enshrined the notion of the "right to be forgotten." France's data protection authority became the first regulatory agency to weigh on the issue by offering some tentative solutions that would allow blockchain to exist under GDPR, and the Euro- pean Parliament recently adopted a resolution to explore the potential regulation of distributed ledger technologies such as blockchain. Elsewhere, there is radio silence. "Many of our systems of laws don't necessarily mesh well with the idea of a system that can't be turned off or can't be altered," says Thomas. "A blockchain database poses a potential challenge to the right to be forgotten in that there is no central authority who can take down or delete a piece of information." Kris Klein, a privacy expert with nNovation LLP, has a slightly different take. "The issue is too new and it's not clear how the technology is going to be deployed to know for certain if it will be a curse or a blessing to privacy," says Klein. "Many L E G A L R E P O R T "If we are trying to use the code as a contract, how are we going to be able to demonstrate that factors such as multiple parties, adequate consideration and the governing law are met so that they can actually be called a contract?" Imran Ahmad, Miller Thomson LLP

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