E-transactions and smart contracts feature in new Libyan law

The Libyan government has taken a significant step towards facilitating smoother and easier business transactions in the country.

In October 2022, Parliament issued Law No 6 of 2022 on Electronic Transactions (the “e-Transactions Law”). The law both acknowledges and regulates the legal validity of transactions concluded by electronic means, such as electronic contracts of sale.

Broadly speaking, the e-Transactions Law was enacted to regulate electronic transactions, as well as to promote public trust in the soundness and safety of such transactions.

Among its provisions, the law covers electronic signatures, electronic documents, legalisation of electronic documents, general electronic transactions, smart contracts (which we discuss further below) and banking transactions.

Although the applicability of the e-Transactions Law appears fairly broad on a prima facie reading, we are also awaiting an executive regulation which will provide clarificatory details on its scope. For example, we expect the executive regulation to set out further categories of contracts that will not be recognised as valid if concluded by electronic means.

Applicability of the e-Transactions Law

The e-Transactions Law applies to all transactions conducted electronically, between persons who agree to the use of electronic means to conduct that transaction. A person’s consent can be implied from their actions. However, where the Government is a party to the contract, its consent must be explicit in order to be valid. (The e-Transactions Law defines Government as a unit of the State’s administrative apparatus.)

The e-Transactions Law explicitly states that certain types of contracts may not be concluded by electronic means. This includes long-term lease contracts, certain contract termination notices, and documents that must be notarised. The forthcoming executive regulation is expected to provide further clarification on specific types of contracts that fall in or outside of the law’s scope, and to what degree.

Smart Contracts

The e-Transactions Law effectively includes “smart contracts” within its scope, opening the doors to the wider use of blockchain in the Libyan economy.

Smart contracts are agreements between parties in the form of computer code (usually using blockchain). Typically, they are used to automate the performance of obligations in the agreement, once certain pre-conditions have been met. They can take the form of code-only contracts or can also be hybrid natural language-code language contracts. 

Through its definition of “self-transacting electronic transactions”, the e-Transactions Law brings such smart contracts within its scope. 

“Self-transacting electronic transactions” are defined in the law as transactions that are concluded or performed in full or in part via electronic means and whose performance is not subject to oversight or review by any natural persons. Given the nature of smart contracts, they will tend to fall within this scope.

Importantly, the law only covers smart contracts that meet the criteria for valid and legally binding contracts under Libyan law.

The law also affirms that such smart contracts are valid and enforceable. Article 46 of the e-Transactions Law explicitly states that contracts entered into by electronic means that are programmed to perform in the ways described are valid and enforceable. This is notwithstanding the absence of natural persons at the point of entering into the contract.

Furthermore, the e-Transactions Law states that the smart contracts shall have the same legal effects as traditional contracts, particularly with respect to principles of proof, validity and enforceability. 

Dispute Resolution for Smart Contracts

While the legalisation of smart contracts has the potential to reduce administrative costs and improve efficiency and confidence in business processes, the change may also cause a rise in disputes. We anticipate that issues could arise on, inter alia, the following topics:

Contract interpretation and common intention between the parties. Code-only smart contracts will rely heavily on programmers’ technical ability to draft computer code that accurately identifies the parties’ intentions and accurately defines breaches of legal obligations. Where ambiguity or failure in the coding leads to a dispute, judges will have to rely on experts to establish and interpret the meaning of the coded terms.

Post-annulment contract execution. Contracts that have been annulled by the parties may continue to be executed unless there is a programming mechanism in place to stop the automatic performance of the contract. Where no such mechanism exists, or fails, this is likely to give rise to disputes on restitution, such as unjust enrichment claims.

Inability to amend terms after execution. Smart contracts containing coding errors that are only discovered after their execution may be incapable of being revised, depending on the platform that is used. For example, distributed ledgers which are decentralised (like blockchain) are impossible to amend. Parties may therefore have to seek recourse in the courts to rectify such errors. Examples of court orders that could be made in such instances include specific performance orders, which could obligate the other party to issue new coding to rectify or counteract the defective code.

In the absence of the executive regulation to the e-Transactions Law, there is some ambiguity on potential remedial measures for the points discussed above. 

Conclusion

The e-Transactions law is a significant step forward in regulating electronic transactions and ensuring online commercial safety and security.

The introduction of provisions regulating smart contracts is a positive development that demonstrates Libya’s motivation to support business and inward investment. Yet the applicability and impact of the law is still ambiguous, particularly given that the executive regulation to the e-Transaction Law is yet to be issued.

We will continue to keep track of developments in this area and will provide updates on our blog and LinkedIn page.

In the meantime, if you would like to learn more about how we can support your business in relation to the new e-Transactions law, or on any other corporate matter, please reach out to us via the contact page on our website.

Our team at Eltumi & Co specialise in energy and infrastructure projects. We track developments in these sectors in order to provide commercial legal support to businesses operating in the sector. Follow our LinkedIn page for ongoing updates and insight.