This month, November 2024, the Fifth Circuit Court of Appeals ruled on the exemplar contract matter
that needlessly wasted the financial resources of the litigants. In Ultra Deep Picasso Pte.
Limited v. Dynamic Industries Saudia Arabia Ltd. and Riyad Bank, the Circuit was tasked
with the interpretation of Supplemental Rule B of the Federal Rules of Cicil Procedure.
Particularly, whether Supplemental Rule B requires attached property to be found within
the federal district or whether that property is required to be simply in the hands of
garnishees over which the district court has jurisdiction. Additionally, the court was required
to determine when a bank account found within the district was of such character that a
valid Rule B attachment was proper.
The litigation here, although interesting as a novel case, does little more than give
emphasis to the need for contracting entities to mitigate the risk of non-compliance by the
contracting parties. Naturally, all parties contracting in good faith, can scarcely be imagined
would enter into a contractual agreement knowing that litigation will be the inevitable
product of the relationship. No reasonable party acting in good faith would commit to such
an endeavor.
A relatively new component of risk mitigation is what is colloquially termed the
“smart contract.” A smart contract is not a contract in legal parlance but rather a form of
performance insurance. In other words, a smart contract (properly considered) functions as
the mechanism by which the terms of the may be satisfied when certain milestones have been
satisfied.
For Ultra Deep, the satisfaction of payment for services rendered was a singular goal.
In Ultra Deep, that entity envisioned its most practical solution to having the debt satisfied
was to ask for an attachment of assets it believed were held by Riyadh Bank. Since Texas
was the sole location available in the United States, it chose that jurisdiction in which to
bring its claim.
For the purposes of this note, Dynamic’s reason for its failure to pay the debt owed
Ultra Deep is unknown and not a subject of the litigation and is immaterial. However, Ultra
Deep serves as an exemplar of the usefulness of smart contracts. In its simplest terms, a well-
written smart contract could have made the payment by bank transfer automatic upon
completion. Thus, a bank transfer could have been irrevocably made upon completion of the
terms. This is, of course, because a smart contract is incapable of post hoc modification and
thus the transfer is assured. In fact, the solutions for change in the effect of a smart contract
are the formation of a contravening contract altering the necessary issues in the initial
contract (in other words another contract) or preferably, the establishment of agreed upon
milestones set into the initial block chain contract.
The benefit here is time, the assurance of performance and automatic payment upon
completion of the delivery of services. For Ultra Deep, the use of such a smart contract,
properly crafted, would most assuredly avoid the cost of litigation and assured payment for
its performance.