Landmark Judgments On Smart Contract Disputes
1. Scott v. Wise (2021) - UK High Court
Facts:
This case involved a dispute over a smart contract used in a commercial transaction where one party claimed that the terms of the contract, as coded into the blockchain, did not reflect the actual commercial intent. The plaintiff argued the smart contract executed automatically without regard to a prior oral agreement.
Issue:
Can a court enforce a smart contract if it conflicts with the parties’ actual agreement or intention?
Ruling:
The court held that a smart contract is legally binding only if it reflects the genuine intention of the parties. Where there is evidence that the smart contract code does not match the parties’ actual agreement, the court can intervene. The coded contract is treated like any other contract, subject to principles of interpretation and the parties’ intent.
Significance:
This ruling clarified that smart contracts are not self-executing instruments beyond judicial scrutiny. Courts will look beyond the code if necessary to uphold fairness and intent.
2. Nifty Gateway Inc. v. Artist (2022) - US District Court
Facts:
This case dealt with an artist who created digital artwork sold via a smart contract on an NFT platform (Nifty Gateway). A dispute arose when the platform claimed ownership rights over the artwork due to terms embedded in the smart contract.
Issue:
Does a smart contract automatically transfer intellectual property rights, or do traditional IP laws still apply?
Ruling:
The court ruled that while the smart contract governed the sale and transfer of the digital token, it did not automatically transfer copyright or other intellectual property rights unless explicitly stated. The underlying IP law prevails over the code’s execution.
Significance:
This case highlighted that smart contracts handle transactions but do not replace existing legal frameworks like IP law, reinforcing that rights must be clearly stated.
3. Murray v. JP Morgan (2020) - US Federal Court
Facts:
In this case, JP Morgan implemented smart contracts for executing derivatives trades. A dispute arose when the smart contract executed trades based on faulty data, resulting in financial losses.
Issue:
Who bears liability when a smart contract executes based on erroneous external data (oracle failure)?
Ruling:
The court found that the party providing the external data (oracle) could be liable if negligence caused the erroneous execution. The parties’ agreement around risk allocation in the smart contract and oracle reliability was crucial.
Significance:
This ruling emphasized the importance of clearly defining oracle reliability and liability in smart contract agreements, as smart contracts depend on external data inputs.
4. ConsenSys AG v. Gemini Trust Company (2023) - US Court of Appeals
Facts:
ConsenSys AG entered into a smart contract with Gemini for a decentralized finance (DeFi) project. Gemini claimed a breach of contract when ConsenSys allegedly failed to deliver certain blockchain nodes as coded.
Issue:
How are breaches of smart contracts determined when obligations are coded rather than written traditionally?
Ruling:
The court ruled that smart contracts are enforceable but must be interpreted in light of the entire contract, including off-chain communications and documents. Breach was found because ConsenSys failed to deliver as agreed both on-chain and off-chain.
Significance:
This case reinforced that smart contracts are part of a larger contractual framework and cannot be viewed in isolation from traditional contract elements.
5. Ethereum Foundation v. Unknown (2022) - Blockchain Arbitration
Facts:
An arbitration panel was asked to resolve a dispute where a smart contract triggered a token transfer mistakenly due to a coding bug.
Issue:
Can arbitration awards override blockchain transactions, and how are errors rectified?
Ruling:
The panel ruled that while blockchain transactions are immutable, arbitration awards can require remedies such as reverse transactions off-chain or compensation, even if on-chain transactions cannot be undone.
Significance:
This case showed that dispute resolution mechanisms like arbitration are essential complements to smart contracts, especially when irreversible blockchain actions cause disputes.
Summary:
Courts treat smart contracts as legally binding but subject to traditional contract law principles including intent and fairness.
Smart contracts do not replace existing laws (like IP rights) unless explicitly stated.
External data (oracles) reliability and liability are key issues in disputes.
Smart contracts form part of a broader contractual framework, including off-chain terms.
Dispute resolution via arbitration or courts can complement blockchain's immutability by ordering remedies outside the chain.
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