Portugal: Who Bears Final Responsibility and Liability

For EU regulation, please visit Europe: Who Bears Final Responsibility and Liability.

In May 2018, the Portuguese Parliament debated cryptocurrency payment regulations, with the aim of adopting a new legal framework for cryptocurrency payment services. The new Portuguese regulatory framework is configured to apply “new rules for accessing payment accounts” in order to avoid unjustified setbacks and ensure that payments are secure. The official document and regulation has yet to be released.

There is existing literature on smart contracts, in general, however. A strict ‘the code is the contract’ view would see the contract’s code as sole evidence of intention; where the contract and its outcome are the same. In this environment, any parties wanting to enter into a smart contract should seek comprehensive advice as to what will actually happen when the program is run.

Due diligence in this regard will require a range of expertise. The contract might include complex programming and be difficult for anyone who is not an expert in the field to understand. Indeed, it is possible that no one party (ie the contracting party, the lawyers, nor the developers of a smart contract) will have a full understanding of the contract on their own, and there will be a need for strong communication between groups.

On the other hand, adjudicators may adopt a softer interpretation and consider, for example, wider intentions and business common sense. This is the usual approach to contract disputes and there is a large body of law relating to contractual interpretation. Put simply, the main focus here is the parties’ intentions — what would a reasonable person with the same background knowledge understand the contract language to mean?

Evaluated in this way, it seems unlikely that a technical error in a smart contract or an unexpected outcome from an automated contracting process would be within the intention of contracting parties. However, it is unclear the extent to which courts will be willing to apply this traditional approach to smart contracts. There is a good argument that, as a matter of policy, smart contracts should be applied strictly, and any party to a smart contract intends for this to occur.

In this uncertain area, developers will need to carefully consider their risk profile. Small mistakes or misunderstandings in a smart contract might have huge and scalable consequences — and corresponding liability for negligence.


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