The UK is at the forefront of developing dispute resolution processes for digital transactions including smart contracts and blockchain engagement. [1]
In this article we highlight the new Digital Dispute Resolution Rules (the Rules)[2] which were published by the UK Jurisdiction Taskforce (the UKJT) in late April 2021 following a consultation process. The Rules are intended to be used for and incorporated into on-chain digital relationships and smart contracts[3] – they are described as "ground-breaking".
The UKJT is one of six taskforces of the Law Society's "LawTech Delivery Panel" and is chaired by Sir Geoffrey Vos, Master of the Rolls. Its objective is to demonstrate that English law and the jurisdiction of England and Wales together provide a state of the art foundation for the development of distributed ledger technology (DLT), smart contracts and associated technologies.
The Rules also reflect the UKJT's ongoing work in this area, including its Legal Statement on the Status of Cryptoassets and Smart Contracts (the Legal Statement)[4]. The Legal Statement expressed the view that cryptoassets were property and smart contracts were contracts under English law (and has been cited with approval in the English courts[5] and in many foreign jurisdictions[6]).
Novel features of the Rules
The Rules provide for an automatic dispute resolution process, in recognition that in the digital asset sphere there is scope and appetite for such dispute resolution processes including those that provide for resolution by an automatically selected artificial intelligence agent. The Rules state that the outcome of any automatic dispute resolution process shall be legally binding[7].
Otherwise, any dispute between parties arising out of the relevant contract or digital asset shall be submitted to arbitration or expert determination for resolution in very short periods (see below) in accordance with the Rules[8]. Unless otherwise agreed by the parties, the Society for Computers and Law (the SCL)[9] will appoint the arbitrator or expert.
The Rules provide an option for anonymity but each party must provide details and evidence of their identity to the reasonable satisfaction of the tribunal[10]. The Rules also envisage the possibility of arbitrators/experts being able to implement decisions directly on a blockchain or within a digital asset system[11].
Arbitration or Expert Determination under the Rules
The Rules provide parties with the option of arbitration or expert determination. Where parties select arbitration, it will be an ad hoc arbitration[12] seated in England and Wales[13]. This means that any arbitration will, in addition to the Rules, be governed by the (English) Arbitration Act 1996.
Whatever the choice, proceedings are commenced by a party (a claimant) giving a notice of claim to each party against whom a claim is made (a respondent) and to the SCL[14]. Within three days of receipt of the notice of claim, each respondent shall send an initial response to the claimant, each other respondent and the SCL[15]. The SCL will then appoint a tribunal as soon as practicable after receipt of the initial responses[16]. The Rules state that the SCL shall have regard to any preferences specified or agreed as to the number, identity or qualifications of arbitrators or experts but shall not be bound by them.
The tribunal shall have absolute discretion on procedure, but must act fairly and impartially as between the parties[17]. Similarly, and following consultation with the parties, the tribunal has absolute discretion on evidence and submissions, and no party shall have the right to an oral hearing (i.e. the dispute may be determined on the basis of written submissions only)[18].
The tribunal shall use its best endeavours to determine the dispute within any time period specified or agreed by the parties. Where no time period is specified or agreed, the tribunal should determine the dispute within 30 days from its appointment [19].
Comment
The Rules represent an innovative and novel dispute resolution scheme that looks to the future of digital technology disputes.
The UKJT's provision of an automatic dispute resolution procedure clearly aligns with the distributed ledger technology at the heart of many digital transactions and assets. The alternative procedures of arbitration and expert determination also reflect the nature and character of digital transactions and their users' anticipated priorities of flexibility, confidentiality, speed and wide enforceability when choosing their preferred dispute resolution procedure.
Nevertheless, the extent to which the Rules will be incorporated into contracts as their preferred dispute resolution clause remains to be seen. The UKJT has stated that it will monitor and may publish user statistics in due course. This is a welcome approach given it will inform parties of the extent to which the Rules are adopted going forward and perhaps encourage confidence and take up over time.
What is coming up in this area?
We also look forward to reviewing and commenting on the UKJT's wide ranging scoping study on smart contracts due later this year, following the UKJT's call for evidence that closed on 31 March 2021.
Please do contact us should you have any questions or wish to discuss this topic.
