Smart Contracts: the way of the future for New Zealand business?

March, 2018

Smart contracts are a logical next step for business. Low-cost, transparent, efficient, and automatic? Why wouldn’t you sign up?

But as with any new technological development, it’s about using it wisely, so you or your business can reap the benefits—and avoid any speed bumps.

Smart contracts: the way of the future for New Zealand businesses?Think about how you carry out your business, and your personal finances. It’s probably a bit different from ten years ago, right? Even more so than 20 years ago.

Lots of things change, but the thing that’s probably had the biggest impact on the way you work is technology. The internet came along, and suddenly there was a world of information available at your fingertips, and new ways to do things faster and better. Email made written communication a lot easier and a lot faster (and began to take over our lives!). Smartphones were once a dream, then a novelty, and are now ubiquitous. Maybe you’re looking at one right now.

As with smartphones, the contracts of the future will be smart as well. Contracts that you can enter into that are transparent, conflict-free and guaranteed to be executed by all parties, with fewer middle persons.

It’s something you’re probably going to want to jump on at some point–or need to jump on. But it’s also important to understand the best way to use them, so you’re getting the best deal for you, and the deal you expect.

We’re afraid the dream of lawyer-free contracts isn’t coming true… at least not yet. But with a bit of expert guidance to get them going, and the peace-of-mind of having support there if they go wrong, you can enjoy a contract which is a lot more certain, and mostly manages to take care of itself.

What are smart contracts? How do smart contracts work?

Smart contracts are self-executing pieces of computer code that monitor and carry out the terms of a contract, agreed to by the parties to the contract.

They’re particularly useful when they involve digital assets, or real-world events that you can track automatically. Basically, it comes down to an “if-then” premise: if A happens, then do B. Or any combination thereof, to however many number of steps you like.

But unlike most traditional contracts, it’s entirely automatic. Each step is recorded on, and then the next step triggered by, a blockchain.

Because smart contracts, as they’re generally thought of today, are not-so-distant cousins of cryptocurrency. You’ve probably heard a lot about that recently–we even talked about cryptocurrency and Bitcoin.

Like Bitcoin transactions, smart contracts exist on a blockchain, such as one called Ethereum. Unlike Bitcoin, which is all about currency, Ethereum allows you to put any sort of agreement or code on the blockchain.

  1. The parties to the smart contract agree on the terms.
  2. The parties write the agreement into computer code.
  3. The parties put the code on the blockchain. Everyone can see the contract, but the parties’ identities are anonymous.
  4. When conditions prescribed by the parties are met, the smart contract carries itself out.

Those conditions in (4) could be a wide variety of things. For example, it could be as simple as a payment of money: once the money arrives in an account, the next step in the contract is automatically carried out without need for human intervention. Or maybe the contract only executes when a stock price rises above a certain amount. Or when cargo reaches a destination.

Benefits of smart contracts

Smart contracts are not suited for every transaction. But when they are right, they come with a number of benefits. The biggest benefits are their efficiency, certainty and transparency.

  • Immutability: Nobody can change a smart contract once the parties add it to the blockchain. This guarantees performance. Fraud is pretty much impossible.
  • Efficiency: Each step in the contract is triggered automatically. No human intervention required.
  • Transparency: Anybody can look at an agreement’s code. People can spot any errors, and there’s no way to hide anything not agreed to by the parties.

Potential smart contract examples

Property transactions

All information about a particular property that you wish to purchase could be stored on a blockchain as its digital identity. As this data cannot be changed, you, as well as your bank can rely on such information for your due diligence investigation and assessment of the property.

You yourself will have a digital identity on a blockchain that would be used by your bank to access your ability to borrow. Your whole financial history would be recorded there, and nobody can alter it. Your bank will know if you had defaulted on previous bank payments.

Smart Contract One: Once the bank approves your loan, you can enter into a smart contract with them for the loan.

Smart Contract Two: Once you suss out the terms of the purchase, you and the seller enter into a smart contract whereby once you pay the purchase price, the contract transfers the land title into your name.

Smart Contract Three: The seller could enter into another smart contract with his or her real estate agent, whereby as soon as you pay the seller the purchase price, the seller will pay to the broker his or her commission.

One action will set off a chain of actions which nothing can stop. Thus, the smart contract delivers the desired outcomes to all parties.

Automated orders and shipping

Smart Contract One: You enter into a contract with an Australian company to ship you goods every time your inventory (tracked electronically) falls below a certain number. The contract triggers a new order every time inventory hits that point. Your payment automatically goes into escrow. It only exits escrow and goes to the seller once the goods arrive on your property (either as reported by the shipping company, or a beacon attached to the container).

Smart Contract Two: The Australian seller enters into a contract with their shipping company. As soon as the goods arrive at your property, the shipping company receives their payment from the seller.

In both these cases, payment is guaranteed when the contract is fulfilled by each party. There’s no risk of you paying for goods that don’t arrive, or the seller not receiving payment for goods that do arrive.

Smart contracts: more efficient, but still need lawyers

Do smart contracts need lawyers?

Early on, a lot of the commentary about smart contracts was that they spelled an end to contract lawyers. That the automation meant people could just set up the contracts and then the blockchain would do the rest.

Now, this probably isn’t surprising coming from lawyers, but it is true: most smart contracts will still need a smart lawyer.

Smart contracts need to have the right terms

Just because it’s called “smart”, doesn’t make it so. The contract’s terms need to provide for what you want the contract to do. You need to account for any unforeseen implications. And you need to figure out how to handle any disputes.

Because one of the big benefits of smart contracts is also one of its weaknesses: once a smart contract starts, there’s no stopping it, and there’s no changing it. You need to make sure it’s absolutely perfect for your purposes before you commit to it.

Smart contracts need to be legal

And just because it’s called a “contract”, doesn’t make it so. Some things you might want to put into a contract simply aren’t legal, or can’t be enforced. That could get you into trouble later on (remember: the contract is public!), or you might not end up with what you want.

Smart contracts may still give rise to disputes

Smart contracts definitely cut down the risk of non-performance. But there’s still always the possibility something will go wrong along the way. Ideally, you’d have something written into the contract to account for that, and having an expert do that is the best way of ensuring things will work in your favour.

Smart contracts: the way of the future… but not for every transaction

Smart contracts still aren’t perfect for every kind of contract.

  • You can’t modify them once you commit to them. So if changing conditions require a change to your contract, you’ll have to end the existing one and create an entirely new one. If that’s likely to happen, and likely to happen often, smart contracts might not be right for you.
  • Smart contracts are based on clear transactions. That’s great for anything that can be measured or tracked precisely. But if it’s, say, a contract for services, it’s not so easy for a smart contract to monitor that. What if it’s based on work being done to a certain standard? In many cases, that’s a determination that can only be made by a human.

Smart contracts: the bottom line

We think there’s a lot of potential for smart contracts. They can make things more efficient, transparent and certain.

They’ll certainly become more and more prevalent. It’s not a matter of if, but a matter of when. Just as we saw phones become smart very quickly, we won’t have to wait long before smart contracts become a normal part of our lives.

But as with most things, they still require a measure of caution. And we’re making sure we’re up with the latest, so we can provide you the advice you need when deciding whether to enter one.

Of course, you might think, “I don’t need smart contracts”, or “they’re not for me”. With all the jargon, and the fact they’re still reasonably rare, that’s understandable.

Yet maybe one day long ago, you thought the same thing about a mobile phone.

And now you can’t live without the smart phone there in your pocket.

Get advice about how you can use smart contracts: talk with us today

90 trial changes and New Zealand employment law changes

90-day trial periods remaining for small businesses; but other parts of employment law changing

January, 2018

90-day trial changes are afoot, along with other changes to employment law. Here’s a run down of what might affect your business.

The Government has proposed changes to the Employment Relations Act 2000. This will see a number of changes to employment law, chief amongst them the restriction of 90-day trial periods to only businesses with less than 20 employees.

The Employment Relations Amendment Bill, introduced Monday, aims to “restore key minimum standards and protections for employees, and to implement a suite of changes to promote and strengthen collective bargaining and union rights in the workplace”.

Parliament is expected to hold the Bill’s first reading in early February.

90 day trial changes: the interview becomes even more important

The major changes for employees and employers

Per the Beehive summary:

Rights for employees

  • Restoration of statutory rest and meal breaks. These will be subject to a very limited exception for workers in essential services who cannot be replaced (such as air traffic controllers).
  • Restriction of 90-day trial periods to SME employers (less than 20 employees).
  • Reinstatement will be restored as the primary remedy to unfair dismissal.
  • Further protections for employees in the “vulnerable industries” (Part 6A).

Collective bargaining and union rights

Most of these modifications are roll-backs of the previous Government’s changes:

  • Restoration of the duty to conclude bargaining unless there is a good reason not to. This is complemented by repeal of the process to have bargaining declared over.
  • Restoration of the earlier initiation timeframes for unions in collective bargaining.
  • Removal of the MECA opt out where employers can refuse to bargain for a multi-employer collective agreement.
  • Restoration of the 30 day rule where for the first 30 days new employees must be employed under terms consistent with the collective agreement.
  • Repeal of partial strike pay deductions where employers can garnish wages for low-level industrial action. Employers have deducted pay for actions such as wearing t-shirts instead of uniforms.
  • Restoration of union access without prior employer consent. Union access will still be subject to requirements to access at reasonable times, and places having regarding to business continuity, health and safety.

New proposals

  • A requirement to include pay rates in collective agreements. This is based on recent case law. Pay rates may include pay ranges or methods of calculation.
  • A requirement for employers to provide reasonable paid time for union delegates to represent other workers (for example in collective bargaining)
  • A requirement for employers to pass on information about unions in the workplace to prospective employees along with a form for the employee to indicate whether they want to be a member.
  • Greater protections against discrimination for union members including an extension of the 12 month threshold to 18 months relating to discrimination based on union activities and new protections against discrimination on the basis of being a union member.

90 trial changes and New Zealand employment law changes

What this means for employers

  • Higher wages as a result of the increase to the minimum wage to $16.50 this year and then incremental increases to reach $20.00 by April 2021. This will inevitably result in relativity adjustments for other employees.
  • Pay equity data publication will be required by all businesses to prove that there is no gender or other discrimination.
  • Increased employee rights with regard to rest and meal breaks, minimum redundancy payouts, parental leave and including a requirement to adequately compensate employees working more than 40 hours per week for the extra hours worked.
  • Contractor rights including job security and other employment rights, which signals a shift from their present distinct position to something more in line with employee rights.
  • Strong unions with extended powers in collective bargaining, collective agreements, access to workplaces and payment to union delegates for the time they spend discharging their union role.

At this stage, all changes are proposed, and it may be that not all will happen in this exact form. But if you’d like guidance about how your business may be affected, or how you could prepare, chat with our Litigation & Dispute Resolution team: Sydney Austin and Holly Weston.

Litigation: an electronic future?

September, 2016

The Higher Courts have recently introduced a Civil Electronic Document Protocol (12 April 2016) as a guide to Counsel and the Courts. The Protocol is intended to encourage and facilitate the use of electronic documents for civil cases in the High Court, Court of Appeal and Supreme Court.

The Protocol is perhaps the first steps in moving towards an electronic future where all filing an case preparation is done electronically. Under the Protocol parties are expected to prepare an electronic case book that is consistent with the Protocol’s format requirements.

The protocol will allow counsel to file electronic submissions and authorities that are hyperlinked to the record. This will result in an expedient and straight-forward exchange of information between the parties and the Court. We see this as a positive step for our clients as it is expected to decrease the costs involved in litigation in the Higher Courts.

As a technologically advanced firm we are ready to embrace the new protocol and are taking all the steps available to educate ourselves. For more information on the Protocol please contact Sydney Austin and Holly Weston at Canterbury Legal.

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