The legal enforceability of smart contracts under Maltese law

Abstract

‘Smart contracts’ form part of a new and emerging technological field. The word ‘smart’ denotes that these agreements are innovative, in that they are executed automatically through computer code. What makes smart contracts unique, distinguishing them from any other contract, is the fact that they are automatable, self-enforcing and immutable. This dissertation examines smart contracts and whether they are legally enforceable under Maltese law. It will focus on the new legislation enacted in 2018 with regards to these innovative technologies, namely the Virtual Financial Assets Act, the Malta Digital Innovation Authority Act and the Innovative Technology and Services Act. Upon analysing the definitions and stance taken by the legislator, the difference between smart contracts and electronic contracts is brought out. The research methodology includes interviews with three experts in the field, two lawyers who have been at the forefront, also playing a role in the enactment of such laws, and a key individual from the MDIA. In examining whether smart contracts can be considered legally valid contracts, the dissertation will provide with analyses of the elements of contract law, identifying the pillars and origins of traditional contracts and what makes them legal. Through these analyses and interviews, the study will identify the pertinent issues regarding smart contracts, particularly the fact that currently, blockchain does not have a legal personality, resulting in instances arising where there is no counterparty to a smart contract. This dissertation concludes that smart contracts do not produce obstacles to the principles of contract law, and therefore cannot be excluded from being legally enforceable contracts.