Can your lawyer code? Change is on the way and hybrid legal advisers are a must

There has been a lot of talk about how ‘blockchain’, ‘machine learning’, and ‘Internet of Things’ (IoT) will ‘disrupt’ everything. How it will automate jobs, challenge existing business models, and overhaul the legal industry. But there haven’t been a lot of tangible examples of how this will occur.

This article aims to provide a snapshot of some of the technologies that are being developed, their practical applications, and the implications for businesses and legal advisers.

Automating Contract Administration

At a recent BIM (Building Information Modelling) seminar for Engineers Australia, Daniel Kalnins of Ridley demonstrated the fruits of a hackathon between Ridley and Google company Flux. The system allowed users to document the progress of work on site with mobile phones and tablets. This was then automatically processed and presented for project controls staff in an easy to follow dashboard.

This technology has tremendous promise, automating the leg work of reporting and allowing for tighter management of projects. Building on this functionality, additional capabilities could be readily added, such as:

Automatically generating chronologies of the actual progress of the project, which would link to the data used to produce the chronologies (to assist with continual improvement and dispute resolution);

Use of algorithms to detect when the risk of schedule slip reaches a certain level, and automatically identify the source of those risks;

Faster generation of payment claims and payment schedules;

Cutting the cost and delay of dispute resolution by functioning as an automatically generated ‘agreed bundle’ for the mediator/arbitrator/judge;

Automatically alerting users when notification requirements are triggered by events in the project. This would be assisted if these requirements were written in pseudo code in the contract, which would allow a computer to reliably scan contracts and automatically set up the alerts;

Electronic scoring of work by site inspectors where payments are a function of factors such as quality of materials and workmanship.

Automating Copyright Infringement Detection

Samuel Brooks of Sydney-based company, Veredictum, is solving the problem of copyright infringement where videos are copied without consent and shared on social media.

The service embeds an artist’s video with a unique marker which Veredictum searches for when users pay it to look for any infringing copies of the video. The task of searching such a large space is divided up by Veredictum and automatically outsourced to private computers. Veredictum then uses the Ethereum blockchain to record and verify the correctness of the search results. When infringements are detected the system generates infringement notices which can then be sent to the owner of the site that is hosting the infringing copies of the videos. It also employs a ‘Minority Report’ style procedure to resolve disputes – for example, when three computers search the same block of data but only one asserts that it detected an infringement.

Veredictum demonstrates how decentralised computing can be used to tackle huge repetitive tasks that are simply too time-consuming and expensive to do manually. Services like this are critical for maintaining the value copyrighted works in the social media age.

This technology could also potentially be employed to search social media sites for any comments made by a claimant relevant to their claim – a useful tool for plaintiff and defendant firms alike.

Property and Security Registries

The core function of blockchain technology is to serve as a reliable registry to record changes in the state of something (e.g. ownership of property). for instance, the Bitcoin blockchain records the changes in ownership, and issuing, of bitcoins.

The Ethereum blockchain is the next generation, it allows users to write ‘smart contracts’ so that more sophisticated transactions can be recorded on a blockchain. Smart contracts allow us to customise the attributes of the object to be tracked on the blockchain, the conditions and constraints on who can make changes to the attributes of that object, and what the effect of those changes will be. For example, smart contracts can be used to record interests in property, establish private carbon trading schemes, or issue vouchers and gift cards for retailers.

solidity
The Solidity smart contract programming language

The problem that blockchain solves can be explained by reference to the old system for tracking ownership and interests in land. The risks of fraud, lost records, and subsequent discovery of third-party interests led to the necessity of establishing the Torrens system. Similarly, blockchain performs this roll of a common registry that can reliably track the changing ownership and interests in an object. However, the cost is reduced by having computers administrate the registry, and data preservation is improved by decentralised storage of the registry.

Another use of blockchain functionality is to incorporate it as part of a decentralised application (Dapp). Truffle and Embark are two popular development frameworks for creating decentralised applications. For example, Embark provides the framework for combining the capabilities of an Ethereum smart contract written in Solidity, decentralised storage using IPFS, JavaScript, and a user interface that will open in your web browser.

Self-Executing Contracts

The next step is the development of contracts that are increasingly self-executing. For example, sensors (e.g. temperature, accelerometers, humidity etc) can be installed to measure the status of freight or buildings, that data can be transmitted to the cloud using low-power wide-area (LPWA) IoT communications technology, then fed into a smart contract via Oracalize or processed on an IoT platform like IBM Watson IoT. Australian businesses like Wisen are already offering IoT solutions that could be integrated with smart contracts.

We are also seeing other Australian IoT businesses, such as Wirefree and Blue IoT, offering IoT solutions for homes and offices. This makes the ‘infrastructure as a service’ business model available to the commercial and residential market, and in turn enables payment to be a function of on-going performance (e.g. running costs, maintenance costs,  air temperature and humidity thresholds etc etc).

As the sophistication of these business models develops, it will become necessary to express the basis for calculating performance payments in code and demonstrate it to avoid disagreements (starting out, this could be done in an Excel document, or a smart contract stored on the blockchain).

Another foreseeable application would be in the construction industry. Project bank accounts might be administered using smart contracts. Or sub-contractors could receive an alert if the head contractor or employer’s account drops below a certain level, they might then be entitled to stop work until there are sufficient funds in the account to cover the rest of the work.

Wills as Smart Contracts

Imagine a world where wills were self-interpreting (i.e. enter in the facts and it tells you the division of assets and interests) and could not be misplaced?

It is foreseeable that a will could be converted into a smart contract and stored on the blockchain. Converting a will into code would also allow for it to be tested in advance to ensure that it divided up the assets as intended. This would allow lawyers to demonstrate the will for their clients, applying the various scenarios, and to confirm that it functions in accordance with their wishes. Concerns over bugs etc could be addressed with proper commenting of the code, and storage of the final version of the code using IPFS.

Machine Learning as an Assistant

The other major area of change will be where services and systems employ machine learning to cut down the leg work of traditionally time-intensive activities such as tender evaluations, contract analysis, discovery, and progress reporting. Computers can be trained to do a first pass over a large volume of documents and flag parts of those documents for risks, relevance, or general importance to the decisions the user needs to make.

This could also be applied in personal injury matters to reduce the work of evidence gathering. For example, the client enters in the details of their health care providers and the program automatically fills out the record requests to be sent out.

The future is uncertain, but that just makes it interesting

What all this means is that the game is changing:

Advisers need to be able to understand how these innovations work so that they can anticipate and deal with the issues that will arise, as established business models are threatened and legislators struggle to keep up. (i.e. ‘you can’t manage what you don’t understand’).

Some lawyers will need to develop a working knowledge of programming languages (e.g. Solidity, JavaScript, and Python are heavily used in Daaps and IoT systems) in order to draft and advise on hybrid legal instruments (i.e. agreements that are partly self-executing or self-interpreting).

And the role of computer scientists and engineers as expert witnesses will likely increase, where questions arise as to the cause of unexpected results from autonomous systems and smart contracts.

If you’re working with smart contracts, IoT, or autonomous systems, Contact Us, we want to work with you. We can help with advice, dispute resolution, and assist with the development of hybrid legal instruments.

See also:

Securing the value of your business by protecting your IP

Internet of Things

Outline of the Building and Construction Industry Security of Payment Act

Regular cash flow is the lifeblood of any business. This is particularly so for those in the construction industry, which has led to the Building and Construction Industry Security of Payment Act 1999 (NSW). Similar legislation exists in most Australian jurisdictions:

  • Building and Construction Industry Payments Act 2004 (QLD)
  • Building and Construction Industry Security of Payment Act 2002 (VIC)
  • Building and Construction Industry Payments Act 2004 (WA)
  • Building and Construction Industry Security of Payment Act 2009 (TAS)
  • Building and Construction Industry Security of Payment Act 2009 (SA)
  • Building and Construction Industry (Security of Payment) Act 2009 (ACT)
  • Construction Contracts (Security of Payments) Act (NT)

The main purpose of these Acts is to ensure that progress payments on construction projects don’t get held up by disputes, which can easily lead to contractors going under. Litigation can quickly become a war of attrition, and meanwhile people have businesses to run and bills to pay.

The graphic below provides a general outline of the process of enforcing progress payments. The process is comparable in most jurisdictions, and the courts generally seek to interpret these Acts consistently with each other.

Due to the very limited scope for challenging an adjudicator’s determination, it is strongly recommended that you have the assistance of a lawyer throughout this process – as the saying goes ‘measure twice, cut once’ prevention is always less expensive than cure.

It is also good practice to seek legal advice on how to comply with the procedural requirements of the Security of Payment process for your particular project. This advice will be a very valuable addition to your contract management plan.

outline-of-building-and-construction-industry-security-of-payment-actNotes:

  • ‘Construction Work’ includes the supply of goods or services related to the completion of construction work.
  • ‘Reference Dates’ are the dates or events (or milestones) in the contract that trigger progress payments. If the contract does not specify these triggers then the reference date is the last day of each month, starting with the last date of the month in which the construction work was first carried out.
  • ‘Respondent’ is the party to the contract with the Claimant who has undertaken to pay for the Construction Work.
  • ‘Payment Claim’ is a claim for payment for Construction Work carried out on or before the Reference Date. (Note: there can only be one Payment Claim served per Reference Date, but you can claim for work that was included in a previous Payment Claim that the Respondent has not yet paid for).
  • ‘Payment Schedule’ sets out the amount that the Respondent considers is due and owing to the Claimant, and the reasons for withholding payment for work claimed by the Claimant in the Payment Claim.

AustraLaw can assist with all payment claim issues, including:

  • Advice on complying with the procedural requirements to enforce or respond to payment claims;
  • Preparation of Payment Claims and Payment Schedules;
  • Preparation of Adjudication Applications and Adjudication Responses;
  • Enforcement or challenging of Adjudicator Determinations.

See our services page, or contact us to find out what Australaw can do for you.

Employee or Contractor – What’s in a Name?

construction-worker

The signed contract clearly states that the person you hired is an independent contractor, so that makes them an independent contractor…right? Ahh…if only it were that simple.

Establishing whether the legal relationship created under contract is that of employer/employee or principal/contractor isn’t always straightforward, and if you get it wrong it could end up costing you a lot of money.

Simply including a clause in the contract labelling a person as a contractor will not be sufficient to create that type of arrangement. If a dispute arises, a court will look beyond this label and examine the terms of the contract and the relationship as a whole.

An employer who deliberately or recklessly misrepresents an employee as an independent contractor will find themselves in hot water with the Fair Work Commission.

Additionally, a contract of employment can entitle an employee to numerous rights including:

  • Minimum wage and modern awards
  • Working conditions
  • Leave entitlements
  • Occupational health and safety protections
  • Workers Compensation
  • Superannuation contributions
  • Withholding of income tax
  • Protections against unfair dismissal
  • Reimbursement for work-related expenses; and
  • Union membership and industrial action

Failing to meet employer obligations exposes individuals and companies to a wide range of liabilities under civil and criminal law. This can all be avoided by getting the right legal advice before hiring.

Every case has its own peculiarities- see our engineering and construction page, or contact us to find out what Australaw can do for you.

The Contract as a Project Planning Tool

contract-planning-toolAs a lawyer I’ve found that people tend to see contracts as a boring formality in the path of getting to the result (e.g. getting the settlement funds, starting the project, starting the case etc etc). The contract is often read with about the same enthusiasm and focus as a child reading a card at Christmas before pocketing the money.

In some situations such absence of alacrity for this stage of the transaction may be warranted, particularly in the case of a standard form contract for a small value transaction of a routine nature. However, in engineering work the contract is a core planning tool for the parties. As the saying goes, proper preparation prevents poor performance.

As observed in ‘Managing Risk in Construction Projects’ (Smith et al, 2nd ed, pp. 41-42, 142) The core functions of a construction contract are to:

  1. Identify and allocate responsibility for risks
  2. Identify and allocate responsibility for work
  3. Align motives of the contractor with the objectives of the client

In this way, the contract serves as a planning tool. Through drafting and negotiation the parties consciously identify the project outcomes (and corresponding risks). They can then assess what they involve, plan how to address them, and allocate responsibility.

Obviously then, time spent on this stage can make a strong contribution to project success.

  1. There will be fewer unknown unknowns. Meaning fewer claims for variations and time extensions, and therefore fewer disputes.
  2. The responsibility (and liability) for the known unknowns will be allocated to the parties best able to control impact or likelihood, or to absorb the impact of the risk materialising. Reduced cost of risk management (e.g. Contingencies and insurance policies) allows for leaner pricing of the work.
  3. Better selection of motive alignment mechanisms will incentivise the resolution of disputes through collaboration rather than litigation.

This coupled with some of the early engagement practices being experimented with in the area of collaborative contracting (e.g. The new suite of prototype Defence estate management contracts) goes along way to de-risking the project.

This corresponds with my experience on the other side of the fence as a project manager. My roles in the Department of Defence seemed to always morph in to that of ‘the fixer’. A project would have gone off track, progress had ground to a halt, motivation between the parties had gone stale, and then it would land on my desk.

Rarely was the heart of the problem a technical hurdle, almost always it was due to cutting corners at the planning phase or ineffective communication practices between the stakeholders. Of course, technical issues were often involved, but it was generally poor planning or ineffective communication between the parties that was preventing these issues being solved.

What was required was a process of revisiting and clarifying the project outcomes, and then addressing the tangible issues by establishing effective methods of collaboration between the parties. Typically this meant arranging a stakeholder meeting, identifying what each party needed and why they needed it, and work-shopping our way to a solution. Sometimes this could be resolved with minor concessions, other times entire elements of the agreement would have to be re-written (typically the scope, as this was often unhelpfully vague and yet at the same time unworkably inflexible).

Ultimately everyone really just wants to get the job done, get paid, and go home. However, foregoing the proper advice and time required to consider the contract could see you accepting more risk than you bargained for.

Contact AustraLaw today.

By Ashley Kelso