With robots replacing workers in manufacturing lines across the globe and Artificial Intelligence (AI) programs growing so sophisticated they are challenging the world's chess champions, the advent of AI, smart software and IT in the legal profession comes as no surprise.

Top firms may not be offering robotic counsels, but innovations such as "smart contracts" are making life easier for both lawyers and clients, and revealing that law is not immune to high-tech progress.

Smart contracts

One of the most important innovations in the legal profession is the blockchain smart contract. What makes these contracts "smart" from an AI perspective is that their legal terms and conditions are written into the code in the form of algorithms.

When such a contract is concluded, signed and ultimately fulfilled, payments – which are also written into the code – are self-executed by the software, creating actions that are irrevocable. For many, smart contracts represent the perfect solution to avoid fraud.

As some might have predicted, however, smart contracts bring with them their own problems. Like any computer program, they are vulnerable to hacking and at this stage of their development smart contracts are difficult to change. According to one expert, "the tiniest mistake can be so costly."

Smart contracts, nevertheless, remain useful tools for digital identification, particularly for registration and avoiding counterfeiting in the supply chain. Blockchain technology is already being used for consent and liability management, and it is being implemented in the insurance industry as well.

But the big question is: Can technology replace traditional legal work? More precisely, can smart contracts be employed without the contribution of attorneys, judges and other members of the legal industry? According to experts, the answer is no. (Or at least, not yet).

Why are the lawyers still needed?

Despite their uses and allure, smart contracts are technologically not ready for general use. The most basic reason for this is a lack of expertise. Creating a smart contract requires serious software development and IT skills, and thus far, this expertise is so specialised, there are only a few lawyers with this kind of knowledge.

Why aren't there more lawyers with AI expertise? For the present, the reason seems to be that law – until recently – remained rooted in relatively old-fashioned and traditional legal provisions: agreements and legal statements with mandatory countersigning and identification overseen by an attorney at law or a notary public.

In Hungary, new legislation on money laundering stipulates that attorneys are obliged to make physical copies of the ID cards of contractual parties, a requirement that is a great distance from smart contracts and automated self-executing code.

The other problem with blockchain smart contracts is that the right for entering into a contract cannot be controlled. Smart contracts are not connected to authenticated registries of personal data, which identify parties. Because anonymity can be granted to parties in such agreements, the process is vulnerable to fraud.

As stated above, at this stage of their development, smart contracts are inflexible, which means that modifications of contracts are difficult, if not possible. A blockchain contract cannot be withdrawn or terminated, although the technology may be able to allow for a given block in the chain to be rendered inactive. Nevertheless, this inflexibility does not serve the client well, since it denies him the right to warranty and the requesting of changes. Also, self-executing codes currently do not contain algorithms for every possible situation related to the rights of contractual parties.

Codes and algorithms are also not able to handle subjective legal elements or conditions such as liability for damages, negligence, and deliberate actions. At this stage of legal AI, principles such as fairness, good faith, bad faith, reasonableness, and justified actions cannot be programmed into code, and expert advice and external data requests are also difficult to input.

Unsolved liability issues

There are also plenty of unsolved questions of liability related to smart contracts. What happens if a smart contract is concluded, but there is a bug in the code? Who is responsible? What if the contractual fee is automatically transferred to the wrong person in an irrevocable transaction? What can the parties do if the internet connection is interrupted in the middle of a transaction? And last but not least, who is responsible for ensuring GDPR-compliant data security?

For the present, AI may replace your chess partner, but it can't replace your lawyer. For the foreseeable future, lawyers will still be necessary in the forging of contractual relationships.

But the advent of AI and smart contracts may already have left its mark on the legal profession. In the not too distance future, programming skills may be as important in the legal profession as public speaking and logical thinking.