Understanding smart contracts : an analysis of their nature, effects and enforcement in terms of the Maltese civil code

Abstract

Distributed Ledger Technology has generated plenty of excitement for the potential it has to enrich our lives. But it has also brought legal uncertainty as it fits either uneasily with established law or does not fit at all. Even worse is the use of terminology which brings confusion to the debate. One such artefact of DLT is the smart contract, and perhaps nothing else in the field has muddied the waters as much as this term. A 'smart contract' is really a software program that runs on a DLT. But its very designation confuses it with the more traditional legal contract. In consequence, perhaps the most common question that perplexes practitioners today is whether smart contracts can qualify as a valid contract in terms of the Maltese Civil Code. Analysis of the matter indicates that if a smart contract does meet the essential elements prescribed by law, then it can be deemed to qualify as a valid contract in terms of the Maltese Civil Code. However, legislative intervention may be necessary. At the end of the day, the words ‘code is law’ refer more to the way that software executes than a statement of fact about the legal nature of the smart contract.