Smart Legal Contract: validity of smart contracts in Andorra.

We already discussed in 2019 and 2020 the concept, functioning, advantages, and disadvantages of Smart Contracts (revisit our articles linked at the end of this post). Following today’s publication and entry into force (October 20) of the Law on the digital representation of assets through cryptography and distributed ledger and Blockchain technology, we return to Smart Legal Contracts, their legal validity, and the new challenges they pose.

• What is a Smart Legal Contract (SLC)?

Recall that an SLC is defined by the law as a computational protocol, algorithm, or code written in a programming language, where the contract terms represent an agreement of wills among parties on the same network, each fully legally capable, based on a valid cause. It allows articulating, verifying, executing, enforcing, or controlling the fulfillment of its instructions, actions, or data—automatically or in an automated manner—via a decentralized distributed ledger protocol or as part of an application running on such a ledger.

From these defining elements, an SLC today is understood as a set of programmed promises within a module of contiguous lines of virtual code forming an autonomous unit, with a timestamp or timestamp, which once implemented on the blockchain can process information, interact with its environment (Oracle), respond to internal or external instructions, and automatically execute pre-programmed actions or tasks.

Among the main platforms used to create SLCs, Ethereum remains the most popular, enabling peer-to-peer (P2P) execution of SLCs on the Ethereum Virtual Machine (EVM), a decentralized virtual machine.

• Are Smart Legal Contracts valid under our legal system? Where are they regulated?

Smart Legal Contracts are regulated under Andorran law in Chapter Nine of the Law on the digital representation of assets through cryptography and distributed ledger and Blockchain technology. Article 27 specifies the conditions SLCs must meet to have legal validity in Andorra and among the contracting parties:

• a) It must be autonomous from its software developer, meaning it does not require the developer’s active maintenance, monitoring, or involvement while operational.
• b) It must include a resilient timestamp and be immutable. This prevents block duplication later, since the timestamp also stores its creation date, making hash repetition impossible.
• c) It must guarantee the integrity and execution of the programmed transaction conditions once they have been met.
• d) It must be signed using a digital method provided for by the Law on Certification and Electronic Trust, ensuring signature validity, attribution to a specific individual, and that the signer has authority. Certification requests go through the National Accreditation Commission (CNAC), and currently the only legally recognized e-signature in Andorra is that used by the Government, certified by the Spanish company CIA.
• e) The object of the transaction must be articulated, verified, executed, controlled, or fulfilled in the Principality of Andorra.
• f) The transaction object must be articulated, verified, executed, controlled, or fulfilled between nationals or residents of Andorra, or between nationals or residents of Andorra and foreign nationals. At least one party must be a national or resident.
• g) It must clearly identify the signatures on which the transaction confirmation is based.
• h) The nodes that articulate, verify, execute, control, or on which the enforcement of the SLC depends must be located and registered in Andorra, or the entity managing them must be registered in Andorra. Nodes refer to all computers interconnected on the blockchain network running the software that ensures its operation.
  If these requirements are met, SLCs are valid under Andorran law and have full legal effect.

• New legal challenges

Where do Smart Legal Contracts have legal effect?

SLCs face several legal challenges due to differing legal frameworks in each country. Both national and international laws must therefore be considered.
According to Andorran law, SLCs have legal effect in:

• SLCs articulated, verified, executed, or controlled by nodes located in Andorra with intended effect in Andorran jurisdiction will be governed by Andorran law.
• SLCs articulated, verified, executed, or controlled by nodes in Andorra with effects outside Andorran jurisdiction will be governed by the law chosen by the parties. In absence of choice, they will be governed by the law of the place where the main damage arises, the law of the service provider’s statutory or personal domicile, or the law of the injured party’s tax residence, at the injured party’s choice.
• If SLCs cannot be executed and perfected because no node exists in Andorra, they will have no legal validity or effect in Andorra.

Conclusions

SLCs are fully valid under Andorran law provided they meet the requirements set out in Article 27 of the Law on the digital representation of assets through cryptography and distributed ledger and Blockchain technology.
We will closely monitor these developments to advise our clients in this exciting field.

Related links

• Contractus, econtract and smart contract: how new technologies offer new contracting possibilities (December 2020)
• Revolution of contractual relationships or smart contracts (April 2019)

Our team can assist you with any doubts regarding the application of the Law and its Regulations to your mining project, as well as expanding or modifying your activity. If you have any questions or need clarification, do not hesitate to contact us.

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