The Legal Schema (“UKLS”) is an open source initiative to develop a universally structured data format for the creation and interactivity of digital documents (including smart contracts) to enable documents to be read by computers and humans. This is an important step to overcoming one of the impediments faced to widespread use of smart contracts.
Issues with contracts and smart contracts
Currently, most legal documents are written in natural language text and stored as such or as photographic images (PDF etc.). These cannot be read by computers and so require human review. Further, many documents exist primarily in physical form or as a computer file that does not interact with the wider digital community.
In contrast, there are smart contracts - a legally binding contract in which some or all of the contractual obligations are recorded in or performed automatically by a computer program deployed on a distributed ledger (e.g. Blockchain).
Sir Geoffrey Vos, Master of the Rolls, observes:
There are or were four impediments to the ubiquitous usage of on-chain smart contracts.
A clearer understanding of the legal status of cryptoassets and smart contracts has been provided by the UKJT’s Legal Statement at the end of 2019. (and see the Law Commission's consultation on smart contracts)
One or more dependable Central Bank Digital Currencies will hopefully emerge soon.
The UKJT’s Digital Dispute Resolution Rules are to be published in April 2021. (see our article here)
The fourth impediment is the absence, thus far, of a universally accepted method of digitising commercial and legal documentation. The existing options are not uniform.
The UKLS, however, addresses that fourth impediment by providing a structured data format for digital contracts. This in turn provides a foundation to support the mainstream adoption of digital documents, including smart contracts.
The UK Legal Schema
The UKLS is an open source initiative through LawTech UK that consists of three main components (see the UKLS White Paper):
- Legal Schema Language (LSL): a language to build legal schemas and embed LSL defined schema data into the marked-up document text to create digital contracts and other structured legal documents.
- Conversion Framework: a code library that transforms template documents using the LSL into other document formats, including PDF, HTML and DOC.
- Schemas: an initial set of readily defined schemas developed using LSL to build digital contracts and other documents.
As the White paper notes: "In the same way that schemas underpin and enable web development, the UKLS not only supports the development of individual digital contracts but, importantly, it enables them to interact with each other (and existing technologies)."
Some of the benefits of a legal schema include:
- turning documents into data - current documents are effectively digital paper; there to be read by humans and not machines. The legal schema means that both machines and humans can read the contracts;
- when documents are machine-readable that opens up new forms of functionality - "(i) search and analysis of data within contracts; (ii) integration of contract data with external systems; and (iii) the creation of “smart legal contracts” and integration with cryptoasset systems".
- encouraging a universal approach encourages adoption - different approaches to structuring data in digital documents jeopardises the chances of digital documents being used effectively and widely. Encouraging a universal approach provides certainty to developers and contracting parties that their documents can be used as intended, or even for new opportunities previously unknown, even when technology systems that integrate with digital documents evolve.
This article was written by Martin Cook, Tom Whittaker and Aaron Lee.
Sarah Green, Law Commissioner, comments: “The digitisation of both documentation and assets is inevitable and critical in maintaining a jurisdictional regime that is internationally competitive and fit for today’s commercial purposes. The work of the Law Commission and the UKJT is concerned with the legal response to these emerging technologies, and this groundbreaking Legal Schema initiative sets an excellent example for technological development in the field.”