There needs to be work to ensure the underlying legal system for smart contracts is English or UK law as part of efforts to Brexit-proof the UK legal system, the Chancellor of the High Court said last week.
In the latest speech by a senior judge to highlight the importance of protecting English law’s global standing, Sir Geoffrey Vos said: “It remains crucial that we lead the world in legal services post-Brexit.”
As well as highlighting the independence of the judiciary and “our broad compliance with the rule of law” as selling points, the one-time Bar Council chairman said: “There is much to play for in the modern digital world of fintech: information technology in the world of financial services.”
In a lecture to the Faculty of Advocates – the Scottish Bar – he said: “I was told two weeks ago at an event in London that, within five years, distributed ledger technology (DLT) and smart contracts would be ubiquitous in the financial markets.”
DLT is better known as blockchain technology, where ledger records are no longer kept in one place but distributed over numerous data holders, so that the risks of data protection are spread across the internet.
Smart contracts are contracts that are written in code rather than in any specific language, so that they execute automatically and are not supposedly subject to any law or even legal dispute.
Sir Geoffrey said: “The race is on to identify the code in which these contracts will be written, since they are bound to have some linguistic connection, even if written in computer code.
Even post-Brexit, there must be a fair chance that that language will be English, but there is no guarantee that the underlying legal system for smart contracts will be English or UK law.
“There is, therefore, much to play for in the accelerating digital age. I may be old-fashioned, but I continue to believe that however code-based financial contracts may be, they will always need some legal base by which disputes can be resolved.
“There are a series of possible adverse consequences of Brexit, but they are all no doubt capable of satisfactory solutions: whether we are talking about Euro clearing, passporting, or the future of the UK financial services sector. But even if bad things happen, it will be important to make sure that that international financial smart contracts are governed by UK-based law.
“There are similar issues that arise in other crucial commercial sectors such as insurance and reinsurance, corporate acquisitions, energy, shipping and construction.”
Sir Geoffrey stressed that the UK “punches far above its weight” in terms of commercial legal services.
“Moreover, once a UK lawyer is instructed on an international project, there is a significantly greater chance that UK accountants, engineers, architects, and actuaries will also be instructed.
“In short, UK legal services drive the success of UK professional services generally. It remains crucial that we lead the world in legal services post-Brexit. Professional services are another USP for the UK and we will undervalue that USP at our peril.”