Smart contracts are computer codes that automate the execution of programmed tasks, and their efficiency has been widely reported in Brazil.
These contracts can bring many benefits to contractual relationships, but some precautions are essential for their proper functioning considering the Brazilian reality.
We highlight 5 key points of attention in the implementation of smart contracts, justifying the need for planning and synergy verification between the technological solution and the reality of each operation:
1. Hybrid Contracts: The implementation of smart contracts within an operational framework does not obviate the necessity for an entity to negotiate and execute ‘traditional’ contractual agreements. Such traditional contracts will require drafting or revision to be rendered hybrid instruments, thereby encompassing both the governing legal provisions and their corresponding automation mechanisms.
2. Negotiation with New Vendors: An interdisciplinary team is indispensable for the successful deployment of smart contracts. Accordingly, it is paramount that the selection of technology vendors and the subsequent negotiation of contractual terms therewith are conducted with the oversight and involvement of other pertinent departments, including the legal team and any engaged external consultants.
3. Structuring Automated Remedies: Absent the meticulous structuring of the triggers they are designed to activate, smart contracts may prove to be an ineffectual, or potentially problematic, instrument. This structuring encompasses, inter alia, the development of template documents for extrajudicial notices of default and the withholding of payments, as well as the implementation of internal corporate procedures supported by requisite legal counsel.
4. Monitoring Triggered Events: Technology, irrespective of the proficiency of its implementation, remains susceptible to operational failures. Continuous monitoring of the execution of contracts incorporating automation via smart contracts, undertaken by dedicated contract management teams, is crucial to safeguard the company’s interests and ensure the sustained effectiveness of said smart contracts.
5. Conflict Resolution: An insufficient understanding of the contextual framework surrounding the integration of smart contracts into an entity’s routine operations will significantly exacerbate the challenges associated with dispute resolution, whether pursued through judicial or extrajudicial channels. A robust synergy between the personnel responsible for smart contract implementation and their comprehensive knowledge of the company’s operational processes is paramount to ensure that, in the event of litigation, the technology serves as a more efficacious ally.
The integration of technologies into the execution of a contract is still a challenge in Brazil, so those intending to begin using these technologies – and enjoy their benefits – should seek support from an interdisciplinary team, including legal, information technology, and technical experts. This team should master these topics and be willing to learn the company’s routines so that the process of implementing smart contracts is feasible and successful, achieving its main objective, which is to execute contracts automatically.
