Automated contract, negotiation and dispute resolution

04/12/2022

Automated contract, negotiation and dispute resolution

Assignment

Technology changed our interactions with each other; for a few years we noticed how it is changing the way we resolve our disputes, our contracts and negotiations. With the emergence of technology in our daily life, it was more than expected to modify our practice of the law; We had a strong example during the Covid-19, everything possible on an online platform, is now automated thanks to the technology.                                                                    Until then, traditional contracting was predominant in law firms, but it encountered many difficulties, mainly the latency, high costs and human errors.

Thereby, contracts evolved, it is possible today to have automated contracts or smart contracts. They are defined as agreements with automated execution, usually by computers. Such contracts are designed to work without having to go to the courts.                               This concept of smart contracts was first described by Nick Szabo in 1996. According to him, smart contracts are ‘’digital protocols for information transfer to automatically execute a transaction once the established conditions are met and that fully control the process’’. Nowadays, contracts are fundamental to every deal, whether you are focused on companies or protecting trade secrets. Originally, a contract can take weeks, even months or in the worst case, years to negotiate. However, rapidity and efficiency are everything today, placing a pressure on the legal departments to speed up the review and negotiation process.

It is important to understand if negotiation works online with smart contracts. First, we need to define the term negotiation, it describes any communication process between individuals that is intended to reach an agreement to the satisfaction of both parties. It involves examining the facts of a situation, exposing both the common and opposing interests of the parties involved, and bargaining to resolve as many issues as possible. If it takes place in our daily life for a few years it has become an important aspect online.                                                     But can we really negotiate online ? Does this notion fully exist concerning Smart contracts in our daily life?                                                                                                                     Unfortunately it is possible for the smart contracts and the negotiation to fail, therefore, it is possible to see a dispute appear, in this case, technology is also efficient, specially with the Online dispute resolution ( ODR).

Online dispute resolution allows the use of technology to help parties resolve their disputes. ODR today is a part of  the courts, it allows to expand access to justice and reduce costs. Some people believe that the ODR can become the new default in order to resolve disputes in a faster and fairest way; however we still have to be careful especially because we don’t know the potential pourcentage possible of fraud and abuse.

Through this we can ask ourselves how the appearance of these more or less recent techniques have changed the accessibility to law?                                                                  

In order to answer this question, we need to understand the importance of this evolution in terms of contracts, negotiation and dispute resolution. On one hand, we need to understand how smart contracts work and their advantages and disadvantages (I). On the other hand, we need to understand how online dispute resolution is a breakthrough for the traditional justice court and their users.

I) Advantages and disadvantages of smart contracts ( automated contracts)

In order to determine the advantages and disadvantages of a smart contract, we need to understand how a smart contract works.  

1. How a Smart contract works

Smart contracts are computer code,it is used to enter all the terms of the contract concluded between the parties. The parties obligations are given in the smart contract in “if-then” form, for example, one party needs to pay a given amount, to receive something from the other. Once the given conditions have been met, the smart contract executes the transaction by ensuring first that the agreement responds to the given conditions, then it can allow the exchange of money, goods, real estate and/ or securities. Normally the contract is stored and a replicate is created ensuring that it can’t be falsified or deleted, it also ensures the anonymity of the parties to the agreement. Nowadays it seems necessary to have automated contracts especially for law firms. The automated contract allows an effortless management of a huge number of contracts on a single platform, it also eliminates human errors possible in a traditional contract.

Therefore, it is possible to imagine smart contracts dominating  the traditional contracts process. However we need to study the advantages as much as the disadvantages and the possible danger of such contracts.  

1. Are smart contracts really useful and safe

 The concept of smart contracts entered the legal discourse only a few years ago and is still lacking in some aspects in certain countries for example, smart contracts are considerably more difficult to modify than traditional contracts and they are limited by the fact that the encoding of contracts requires an increased formalization of the contractual terms , which can lead to danger for the users. On the other hand, this system can be very important for self-help, people can without a long processus make contracts.

Even if its use is sometimes criticized, we need to understand the advantages of smart contracts in order to acknowledge its danger and limitations.  

Smart contracts are an advantage concerning the rapidity, the speed of processing documents, it assumes an automated process and it doesn’t require any human, personal involvement. It is also independent, it doesn’t have any interference of a third party, it only includes the parties reaching for the agreement; Moreover, it is reliable, the data can’t be destroyed, if one party doesn’t respect the terms the other is automatically protected, because no errors or almost are possible, the system ensure high accuracy when executing contracts.                                         Finally, smart contracts are less expensive, there is a reduction of  operational costs.

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