Interpretation and Balance of Power

Abstract

Interpretation of a legal agreement can be done by taking the internal and actual intention of the parties as a starting point (objective), or by taking the expression of those parties as a starting point (subjective). The legal systems under consideration here all pay attention to both objective and subjective criteria, yet differ in their details and nuances. In light of the fact that smart contracts might result in binding legal agreements, the impact of the technology on such interpretation regimes must be considered. First the nature of smart contracts must be considered. Smart contracts provide a take-it-or-leave-it offer to an offeree. Combined with the fact that the platform on which such smart contracts exist are pseudonymous, this means that the offeree is not a position to negotiate. For this reason, strong parallels can be drawn with standard form agreements. Standard form agreements are regulated on a European level in all legal systems in scope through the Unfair Contract Terms Directive. It is argued that the instruments contained in this Directive should be applied to smart contracts in situations in which a potential for a power discrepancy between the offeror and the offeree exists. In situations in which no such power discrepancy exists, the national rules on interpretation should apply. Whilst the previous chapter has shown that smart contracts might contain an expression of intent, and therefore might result in a binding legal agreement, this does create problems of interpretation. Unclear might be, for example, whether (and how) such regimes of interpretation should be applied to code, to natural language, or perhaps to both. Moreover, relevant questions are whether additional circumstances that are relevant in the interpretation of an agreement might surface on a smart contract platform and whether such circumstances can be considered when interpreting an agreement. This chapter presents a taxonomy of smart contracts that consists of four scenarios. In the first scenario the smart contract in and of itself is the legal agreement. In the second scenario there is a smart contract, but there is no accompanying legal agreement; the smart contract is mere code and the transfer is a mere transaction. The second scenario is unique in that there is no legal agreement whatsoever. In the third scenario the smart contract is accompanied by a legal agreement, but is separate thereof. In that case the smart contract is a tool to execute the legal agreement. Lastly, in the fourth scenario the smart contract and the accompanying legal agreement are merged.