Eric Tjong Tjin Tai, ‘Force Majeure and Excuses in Smart Contracts’

A classic legal problem is whether breach of contract may give rise to a remedy. Under common law this is discussed under the doctrine of excuses. Its civil law equivalent is the attributability of causes of non-performance of an obligation, and its converse, force majeure. Despite the variety of approaches in various jurisdictions, the general outlines are roughly equivalent as far as translation into smart contracts is concerned: the main issue is what is the cause of non-performance and whether this cause can be attributed.

Smart contracts can deal with the general outline of this structure, but may in practice only approximate the refinement that contract law offers. The main problems are: determining the actual cause of the non-performance by means of automated oracles or the smart contract on its own (without relying on human judgement), dealing with multiple causality and impediments due to by the creditor, determining attributability of the cause of non-performance. Smart contracts may offer no more than an approximation of the detailed rules of contract law, by hard-and-fast rules. This may suffice for certain categories of contracts, but may need additional effort to obtain a closer approximation of contract law rules where larger interests are concerned. The related doctrine of withholding performance is similarly difficult to realise appropriately in smart contracts. As regards hardship or unforeseen circumstances, it is best to disallow this in smart contracts, which leaves open the question whether parties might go to court for relief. The reliance on oracles furthermore opens a weakness to the automatic performance of smart contracts, due to possible liability of oracles for perceived incorrect assessment.

The obstacles involved with excuses point to deeper-seated problems with smart contracts: these take an ex ante view instead of the common ex post judicial assessment view of law, while actual contracts are often not intended as a full description of obligation but rather as an element of the social relation between parties. Smart contracts implement only a part of the contractual relation. In particular cases, such as long-distance single transactions of sale, the benefit of secured performance may outweigh the disadvantages of partial loss of protection due to hard-and-fast rules. Even then, anecdotal evidence with dispute resolution rules in online marketplaces shows that such an approach is not entirely satisfactory.

Tjong Tjin Tai, Eric, Force Majeure and Excuses in Smart Contracts (May 4, 2018). Tilburg Private Law Working Paper Series No 10/2018.

First posted 2018-06-09 06:37:59

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