Six Levels of Contract Automation: The Evolution to Smart Legal Contracts - Further Analysis

Abstract

The legal industry is undergoing digital transformation both in relation to legal processes and the form and functionality of legal instruments. Smart contracts or smart (& legal contracts), are an inevitable outcome. The purpose of this paper is to explore and clarify what is meant by ‘smart legal contracts’ (SLCs) and to orient them within the broader paradigm of digital transformation and automation of contracts, as the form and function of contracts become increasingly digitalised. In order to understand the implications of the various trends involved in digitalisation of contracts, it is important to distinguish between technology applied to different stages of the contract lifecycle. In particular, to identify at what point digitalisation of contracts begins to affect not only the form of the evidence of the contract, but also the contract’s inherent functionality. As contracts progress towards smart legal contracts, the form and functionality of a digital contract starts to depend on, and function with, the digital domain in which the contract operates, raising new legal and practical issues. Automation of contract performance is a field that is lacking in standard definitions and understanding of the incremental steps to contract digitalisation. This paper aims to provide a starting point from which to develop a framework and a taxonomy to assist discussion and development of legally enforceable automation of contract performance. This paper explores the different characteristics of contracts along a proposed spectrum of contract digitalisation by describing a conceptual model of levels of digitalisation and resulting automation of contracts. This model draws analogies with the SAE International J3016 “Levels of Automation” widely adopted for autonomous vehicles. SLCs as presented in this paper, allow parties to obtain legal certainty in the automation of contractual performance by bringing the agreed performance of formally coded contractual terms into the domain of the legally enforceable elements of the contract.