From Code to Court: Advanced Strategies for Securing Smart Contracts in the UAE Legal System

Introduction:

Smart contract technology is one of the most prominent technological innovations that has entered various fields of legal and commercial life in the United Arab Emirates. Smart contracts allow agreements to be executed autonomously and reliably using blockchain technology, enhancing security and transparency. However, there are legal challenges concerning how to ensure the legality of these contracts within the UAE's legal system and protect them from security breaches.

Before delving into the issue of smart contracts, it is essential to distinguish them from electronic contracts, for several reasons.

1. Differences Between Smart Contracts and Electronic Contracts:

1.1. Smart Contracts:

Smart contracts are digital contracts that are automatically executed once specific conditions set by the concerned parties are met. Blockchain technology is used in these contracts, ensuring security and transparency, so that the contract cannot be altered or tampered with once executed. Smart contracts are recorded on decentralized digital ledgers, meaning there is no need for a third party to execute or monitor the contract.

Key characteristics of smart contracts include:

• Automatic execution when predefined conditions are met.
• No need for third parties (such as courts or intermediaries).
• Often utilize blockchain technology to ensure security.

Legal Challenges Related to Smart Contracts:

• Lack of Legal Framework: It is difficult to determine the position of smart contracts within existing legislation.
• Difficulty in Legal Review: Since the execution of smart contracts depends on programming, it is challenging for courts or lawyers to intervene in case of a dispute.
• Reliance on Programming Over Traditional Laws: Smart contracts focus on automatic execution rather than reliance on local laws.

1.2. Electronic Contracts:

Electronic contracts are agreements entered into via the internet or other electronic means. While these contracts use technology, they still adhere to the same legal principles as traditional contracts, such as offer and acceptance and legal intent.

Key characteristics of electronic contracts include:

• Can be executed through interaction over the internet or electronic platforms.
• Include verification and authentication via electronic signatures, which grant the contract legal validity.
• Subject to local and international laws related to electronic commerce.

Legal Challenges for Electronic Contracts:

• Authentication and Electronic Signatures: Confirming the validity of electronic contracts requires means of verifying the identity of the involved parties.
• Legality and Legal Recognition: Some jurisdictions may impose additional conditions to ensure legal recognition of electronic contracts.
• Data Protection: There is a significant need to protect the parties' data and prevent manipulation or cyberattacks.

2. Legal Legitimacy and Recognition of Smart Contracts:

Smart contracts raise several legal challenges concerning their recognition by courts. Although these contracts are executed autonomously via blockchain technologies, which reduces the need for intermediary parties, legal systems may struggle to consider them as a legal alternative to traditional contracts. In the UAE, despite the use of smart contracts in some government entities, there is a need to amend local laws to clarify the legal recognition of these contracts.

3. Privacy and Data Protection:

Blockchain technology is known for its transparency and security, but it may expose individual privacy to risks. Since data on the blockchain is permanently recorded and cannot be modified, it becomes difficult to align with data protection standards such as the General Data Protection Regulation (GDPR). Therefore, the UAE legal system may need to develop regulations to support the application of smart contracts while aligning with international standards.

References:

• General Data Protection Regulation (GDPR) (EU, 2018) – A regulation protecting personal data within the EU that significantly impacts data contracts in the digital system.
• United Arab Emirates Federal Law No. 45 of 2021 on Personal Data Protection.

4. Role of Courts in Dealing with Smart Contracts:

The role of courts in dealing with smart contracts is one of the most challenging aspects of implementing this technology within the traditional judicial system. Since smart contracts are executed autonomously through programming, courts may struggle to verify the correctness of the contract execution or determine who is responsible for any programming errors.

Challenges Courts Face:

• Recognition of Smart Contracts: Since smart contracts rely on automatic execution via programming technologies, courts may find it difficult to determine their validity or interpret their terms if a dispute arises.
• Difficulty in Legal Review: Smart contracts rely on code programming, which is hard for courts or lawyers to review. In case of a dispute, it may be difficult to verify that conditions were executed as agreed upon.
• Jurisdiction: As smart contracts often involve international parties, it can be difficult to determine which court has jurisdiction, leading to issues in cross-border disputes.

5. Legal Responsibility in Smart Contracts:

A core issue in smart contracts is determining legal responsibility in the event of a programming error or cyberattack. In such cases, it is challenging to identify who is responsible: Is it the developer who designed the smart contract? The contracting parties? Or is there a third party who exploited a security loophole? These issues need clear legal procedures to resolve.

6. Smart Contracts in the UAE – Practical Reality:

Despite the legal challenges, the UAE is one of the leading countries in implementing smart contracts. For example, the Dubai Land Department uses smart contracts to automatically transfer property ownership once payments are completed. Additionally, Dubai Smart is working toward converting all government services to blockchain-based services by 2025, reflecting efforts to implement this technology in legal activities.

7. Legal Amendments Required to Support Smart Contracts:

• Amendment to the Electronic Transactions Law: It is necessary to include a precise definition of smart contracts and outline the responsibilities of parties in case of technical failures or tampering.
• Update Data Protection Legislation: To ensure compliance with international standards such as the GDPR.
• Additional Security Measures: Although blockchain provides security, smart contracts may still be vulnerable to hacking. Strong measures must be put in place to ensure the security of smart contracts and protect them from security threats.

We affirm that smart contracts represent a significant advancement in the UAE legal system, but activating this technology on a wide scale requires legal amendments that keep pace with rapid technological development. This will enable lawyers and judges to ensure the protection of contracting parties' rights and prevent tampering or programming errors that may affect the execution of these contracts.

References:

• Blockchain Technology: A Legal Perspective (European Union Blockchain Observatory and Forum, 2020).
• International Smart Contracts and Blockchain: Legal Challenges and Framework (International Institute for the Unification of Private Law, 2019).
• Legal Aspects of Blockchain and Smart Contracts (World Economic Forum, 2018).
• General Data Protection Regulation (GDPR) (EU, 2018) – A regulation protecting personal data within the EU that significantly impacts data contracts in the digital system.
• United Arab Emirates Federal Law No. 45 of 2021 on Personal Data Protection.
• UAE Electronic Transactions Law (Federal Law No. 1 of 2006 on Electronic Transactions and Commerce).
• Federal Law No. 45 of 2021 on Personal Data Protection.