Authored By: Tala Bafawi
Abstract
This article examines the growing integration of smart contracts and artificial intelligence (AI) in the legal industry especially in the field of contract law, focusing on the main legal challenges they pose and the preparedness of existing legal systems to address them. Smart contracts, which are self-executing agreements based on blockchain technology, and AI-driven contract tools offer significant benefits in terms of efficiency, automation, and accuracy. However, they raise critical legal questions concerning enforceability, interpretation, liability, and jurisdiction. These challenges are especially pronounced in civil law jurisdictions like Lebanon, where current legislation lacks clear provisions for digital or autonomous contracts. By analyzing comparative legal developments in countries such as the UK, the US, and the EU, the article highlights the regulatory gaps in Lebanese law and proposes a framework for legal reform.
The discussion concludes that proactive legislative and judicial engagement is essential to ensure legal certainty, protect parties’ rights, and support innovation in the age of digital contracting.
Introduction
The legal world is rapidly with no second thoughts adapting to the digital revolution, with smart contracts and artificial intelligence at the forefront of this transformation. These innovations challenge the foundations of traditional contract law by introducing automation, algorithm-based decision-making, and decentralized enforcement mechanisms. This article investigates the nature of smart contracts and the role of AI in contract formation and management. The question is are the current legal systems prepared to handle these technologies and proposes a roadmap for reform?? Are the current legal systems ready to get rid of all old fashion school structure and welcome the new era?? The article is structured into three main sections: an explanation of the technologies, an analysis of legal challenges, and a discussion of comparative approaches and future reform.
Background
Smart contracts are self-executing agreements coded on block chain platforms as we all know, the Block chain is a decentralized digital ledger that records transactions across multiple computers in a way that ensures the data cannot be altered retroactively. The block chain’s key features- transparency, immutability and security, make it a powerful tool for automating agreements. When a smart contract is deployed on a block chain platform like Ethereum, it automatically executes predefined terms once specific conditions are met. Where each term is directly written into code. First proposed by Nick Szabo in the 1990s, they aim to remove the need for intermediaries. Meanwhile, AI is increasingly used in the legal domain for contract drafting, review, negotiation and even closing deals. These tools rely on natural language processing, predictive analytics, and machine learning to assist in legal processes. However, traditional legal requirements—offer, acceptance, consent, and intent—were not built for such technologies. Lebanese law, like many civil law systems, lacks specific provisions addressing smart contracts or AI-driven legal actions, raising urgent questions about legal recognition, enforceability, and liability.
Main Body
Section 1: The Functionality and Benefits of Smart Contracts and AI
Smart contracts execute themselves once pre-defined conditions are met, typically using blockchain platforms like Ethereum. Smart contracts pros lies in reducing transaction costs, saves time, enhance security, eliminate trust issues between parties, and decrease the conflicts between parties. AI complements this by improving contract quality, automating repetitive tasks, and minimizing human error. Legal tech tools such as Luminance and Kira Systems are being widely adopted in corporate environments to review thousands of contracts quickly. These technologies promise a more efficient future but demand a legal framework that can accommodate their unique characteristics.
Section 2: Legal Challenges and Gaps
Despite their benefits, smart contracts and AI present several legal challenges:
– Enforceability: Courts may struggle and find it hard to recognize coded agreements as valid contracts, especially when lacking clear human intent.
– Interpretation: Unlike traditional contracts, code is inflexible and often difficult to interpret judicially, which will put a lot of effort on the judges to learn how these contracts work and how to deal with it in courts.
– Liability: And here comes the big question that should be taken into consideration in a very serious way, If an AI tool drafts a flawed agreement, who is liable—the developer, the user, or the AI?
– Jurisdiction: Smart contracts executed on decentralized platforms complicate determining applicable law, and this might be a big challenge for the judicial system.
These challenges are particularly significant in Lebanon, where the Civil Code requires elements like will, consent, and lawful cause—all of which are difficult to apply to automated systems.
Section 3: Comparative Perspectives and Future Outlook
Countries like the UK have begun recognizing smart contracts in their legal system, supported by the Law Commission. Some US states (e.g., Arizona, Vermont) have enacted laws validating blockchain-based contracts. The EU, via its AI Act, is regulating AI in legal contexts to ensure accountability. Lebanon, however, lacks any such legal clarity. For Lebanon to keep pace, reforms must include:
– Legal recognition of digital contracts and e-signatures.
– AI accountability frameworks.
– Judicial training on tech-based disputes.
– Legislative dialogue with tech and legal experts.
Discussion
Opponents argue that relying on AI and code removes the human element of justice, which is a very wrong idea, everything changes from time to time and societies update themselves to keep up with the recent changes, and it’s time for the legal industry to be simplified, accessible and understandable for everyone. Legal industry has been monopolistic for lawyers and legal professions for a long time, so, it’s time to be accessible for everyone.AI came to help humans in completing their jobs in much less time, so, the human can focus on duties that needs his presence while the AI completes all the detailed work that consumes a lot of time in seconds. Critics also worry about errors and the unpredictability of AI behavior. Yet, with the right safeguards, these concerns can be managed. Legal reform should not resist innovation but guide it responsibly. Lebanese law must move from silence to strategy—by proactively regulating how tech integrates into law, and must take real actions towards this change. Lebanon cannot be at the bottom while the other side of the world is changing and adapting to these new technologies and updating their system according to this new era we are entering.
Conclusion
The convergence of smart contracts and artificial intelligence represents a huge shift in the way legal agreements are created, interpreted, and enforced. These technologies promise faster, more efficient, and more accurate contractual processes in the legal industry—but on the other hand they also raise complex legal issues that cannot be ignored, and must be taken into consideration in a very professional way to be able to flow with the new updates, such as enforceability, liability, jurisdiction, and the role of human intent in AI-generated contracts are all areas demanding urgent legal attention.
As global jurisdictions begin to recognize and regulate these innovations, Lebanon must also take proactive steps to modernize its legal framework, Lebanon must be a part of this change. This involves not only acknowledging the legitimacy of digital and smart contracts but also establishing clear rules for the use of AI in legal practice. Such reforms will ensure that Lebanese law remains relevant, adaptable, and capable of supporting both technological progress and the rule of law.
In the face of rapid digital transformation, the legal profession must act as both guardian and guide—balancing innovation with accountability, and automation with justice. The future of contractual agreements is unfolding now, and the legal system must be ready to meet it.
Reference(S):
- Nick Szabo, ‘Smart Contracts: Building Blocks for Digital Markets’ (1996) <http://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart_contracts_2.html> accessed 10 May 2025.
- Daniel J Gervais, ‘The Machine as Author’ (2020) 105 Iowa L Rev 2053.
- European Commission, Proposal for a Regulation of the European Parliament and of the Council Laying Down Harmonised Rules on Artificial Intelligence (Artificial Intelligence Act) COM(2021) 206 final.
- Law Commission of England and Wales, ‘Smart Legal Contracts’ (Law Com No 401, 2021) <https://www.lawcom.gov.uk/project/smart-contracts/> accessed 10 May 2025.
- UK Jurisdiction Taskforce, ‘Legal Statement on Cryptoassets and Smart Contracts’ (November 2019).
