Who bears final responsibility/liability in case something goes wrong? The party using the smart contract? The party that wrote the smart contract? Or the blockchain platform?

There are three ways to solve a problem:

The most widely used case in Russian legal practice is option 1. 1. The parties will have to negotiate, and the result of their negotiation will determine a law applicable to their legal relations (paragraph 1, article 1210 of the Civil Code of the Russian Federation). In this case, such a choice of applicable law should be either directly expressed in the contract or clearly follow from the terms of the contract (paragraph 2, article 1210 of the Civil Code of the Russian Federation). That is, in order for the court to recognize the validity of such an agreement, the parties must have written confirmation of this agreement. In our case, this record can be displayed in a part with non-operational terms of the contract.

The whole Article 1211, The Law Governing a Contract in the Case of Lack of Parties’ Agreement on Applicable Law, describes all possible situations if there is an issue between parties and no agreement on the applicable law.

Citing the Article 1211. The Law Governing a Contract in the Case of Lack of Parties’ Agreement on Applicable Law:

“1. Where there is no agreement of parties on applicable law, the contract shall be subject to the law of the country with which the contract has the closest relation.

1. The law of the country with which a contract has the closest relation shall be deemed the law of the country where the party responsible for the performance under the contract of crucial significance for the content of the contract has its place of residence or main place of business, except as otherwise ensuing from the law, the terms or substance of the contract or the group of circumstances of the case in question.

2. A party responsible for the performance under a contract of crucial significance for the content of the contract shall be a party which, in particular, is the following, except as otherwise ensuing from law, the terms or substance of the contract or the group of circumstances of the case in question:

1) a seller - in a sales contract;

…

5) a contractor - in a contract;

…

7) a forwarding agent - in a forwarding contract;

8) a lender (a creditor) - in a loan (credit) contract;

9) a financial agent - in a case in action assignment financing contract;

10) a bank - in a bank deposit contract and bank account contract;

…

12) an insurer - in an insurance policy;

13) an agent - in a contract of agency;

14) a commission agent - in a contract of commission agency;

15) an agent - in a contract of agency service;

…

Also,

1. The law of the country with which the contract has the closest relation shall be as follows, except as otherwise ensuing from law, the terms or substance of the contract or the complex of circumstances of the case:

• for a contract of independent building contractor work and a contract of independent design and prospecting contractor work - the law of the country where on the whole the results stipulated by the contract are created;

• for a contract of general partnership - the law of the country where on the whole the activity of the partnership is pursued;

• for a contract concluded by auction, tender or commodity market - the law of the country where the auction, tender is held or the commodity market is situated.

1. A contract that has features of various types of contract shall be subject to the law of the country with which this contract as a whole has the closest relation, except as otherwise ensuing from law, the terms or substance of the contract or the group of circumstances of the case in question.

2. If internationally accepted trading terms are used in a contract it shall be deemed, unless there are directions to the contrary in the contract, that the parties have agreed on their application to their relations of business transaction usage designated by relevant trading terms.”

Citing the Article 1212. The Law Governing a Contract with Participation of a Consumer:

“1. Selection of the law governing a contract whereto a party is a natural person using, acquiring or ordering or intending to use, acquire or order movable things (works, services) for personal, family, household or other purposes and not connected with the pursuance of entrepreneurial activity shall not cause deprivation of the natural person (consumer) of remedies relating to his/her rights which are provided by imperative norms of the law of the country where the consumer has place of residence if any of the below circumstances have occurred:

• in that country the conclusion of the contract had been preceded by an offer addressed to the consumer or an advertisement and the consumer has committed in the same country actions required for the purpose of entering into the contract;

• a contract partner of the consumer or a representative of such a partner has received an order from the consumer in that country;

• an order for acquisition of movable things, performance of works or provision of services has been made by the consumer in another country visited on the initiative of a contract partner of the consumer, if such an initiative was aimed at encouraging the consumer to enter into the contract.

1. If there is no agreement of the parties as to applicable law and if there are the circumstances specified in Item 1 of the present article the law of the country where the consumer has place of residence shall govern the contract with the participation of a consumer.”

According to the Article 1214, The Law Governing Contracts for the Formation of a Legal Entity with Foreign Interest,

“A contract for the formation of a legal entity with foreign interest shall be subject to the law of the country in which the legal entity is to be founded.”

Therefore, the second option to answer this question is that the parties will not themselves determine the applicable law, but for them it will be done by a computer network, which, depending on their provisions (by IP address), will be found an applicable law. Such legal relations will comply with the rules of international law (including international treaties), but there is an obstacle related with VPN and IP address different to the real location of computer/user.

The third option for solving the issue may be using the registered online platforms for concluding smart contracts. At the same time on these online platforms/online sites, the terms of smart contracts will be checked automatically for compliance with the rules of trade. Also, these rules can be unified at the international level. However, there are no regulations in Russian legal systems yet.

Sources

• The Civil Code of the the Russian Federation, Articles 1210, 1211, 1212, 1214