Following recent developments in the law relating to digital assets across the globe, the UK Jurisdiction Taskforce released its Digital Dispute Resolution Rules on 22 April 2021. The publication of the Rules follows the launch of the Taskforce’s Legal Statement on cryptoassets and smart contracts. The UKJT Rules build on the conclusion of the Jurisdiction Taskforce’s Legal Statement that a smart contract can be binding under English law and they aim to deliver streamlined dispute resolution to blockchain users. The Rules are characterised by three features:
1. streamlined procedure,
2.direct implementation of decisions, and
3. optional party anonymity.
Whilst English in origin, like other institutional rules these may be adopted and utilised by parties around the globe. It remains to be seen whether these Rules measure up to the goal of delivering a universal dispute resolution process for on-chain smart contracts and cryptoassets.
A March 2021 forecast estimates the global smart contracts market size will reach USD 345.4 Million by 2026. The UKJT, chaired by Sir Geoffrey Vos, Master of the Rolls, has been working to ensure that English law keeps pace with this fast-growing market.
The UKJT’s Legal Statement on the Status of Cryptoassets and Smart Contracts (November 2019) (the “Legal Statement”) concluded that cryptoassets were property and smart contracts could be valid contracts under English law. This provided “much needed market confidence and a degree of legal certainty as regards English common law” (Sir Vos, speaking at the Launch of the Legal Statement).
The Rules are part of this same agenda to promote the jurisdiction of England and Wales as the natural choice for digital dispute resolution.
The Rules are drafted in a technology-neutral way, capable of accommodating the use of a wide range of technologies. This approach is evident throughout the Rules, exemplified by the use of generic terms, such as “digital asset” and “digital asset systems”. Remaining technology-neutral is a central plank of the UKJT Rules, given their objective of providing a universal digital dispute resolution process.
Structure of the Rules
The Rules are drafted to allow arbitration to complement the emerging variety of automatic dispute resolution mechanisms (dispute resolution by one of a variety of either crowd-sourced consensus-based, or AI-based processes): Rules 4 and 5 provide for arbitration and expert determination mechanisms, should automatic dispute resolution fail to resolve a particular dispute. Equally, the Rules can be incorporated and enforced separately from automatic arbitration, if the parties so wish.
Default rules, short time limits and arbitrator discretion are used to maximum effect to deliver relatively rapid dispute resolution under the Rules.
Rule 3 recommends that the incorporating text specify “any modifications to the application or operation of the rules” and encourages that parties specify any preferred number, identity and qualifications of experts or arbitrators, as well as modifications to default time limits.
Rule 6 provides that the default appointment body is the Society for Computers and Law, but the parties can choose a different means of appointing a tribunal: in line with Rule 3, the parties may agree that another body should manage the appointment of arbitrators or experts.
Short time limits
Once a party has commenced proceedings (in accordance with Rule 6) by giving a notice of claim to the other party and the appointment body, by Rule 7 each respondent has three days in which to return an initial response to the opposing parties and the appointment body, consisting only of the respondent’s identity details and electronic contact details, and optionally including a comment on the claim, the respondent’s proposals for the procedure, for paying or securing the fees of the appointment body and the tribunal, and any other material relevant to the claim.
The appointment body must appoint a tribunal “as soon as practicable” and once appointed, the tribunal must administer the procedure having regard to “the need for expedition,” and “avoiding unnecessary delay” according to Rule 9. Rule 12 demands that the tribunal must use its best endeavours to elicit any further evidence and argument and to issue an award within thirty days, unless a different time period has been agreed.
Rule 10 gives the tribunal “absolute discretion” to determine the nature, volume and form of evidence and argument it receives. The tribunal may opt to determine the dispute on the basis of written submissions only.
The English Arbitration Act 1996 (the “Arbitration Act”) in section 34 gives the tribunal broad discretion as to procedural and evidential matters. This must be reconciled with section 33, which requires that the tribunal give “each party a reasonable opportunity of putting his case and dealing with that of his opponent”. In practice, a tribunal constituted under the Rules will have to exercise its discretion with regard for procedural fairness and party equality.
Direct Implementation of decisions
Rule 11 gives the tribunal power to implement decisions directly on the relevant digital asset system using any digital access or control mechanism available to it. This is consistent with section 48(1) of the Arbitration Act which permits the parties to agree on the powers exercisable by the arbitral tribunal as regards remedies. However, under these rules this direct enforcement is placed front and centre. For the award beneficiary, near instantaneous recovery of the award debt is a key feature, even if automaticity is increasingly expected in a fully digital environment.
Optional party anonymity
If the parties agree, an arbitration under the Rules can be conducted without either party ever discovering the identity of the other, according to Rule 13. To the extent that a dispute can be resolved and the remedies directly applied within a digital asset platform, there is no need for the parties, who will have interacted pseudonymously up to that point (at least in the cryptocurrency context) to know each other’s legal name, or other identifying information.
In a speech delivered during this year’s London International Disputes Week, Sir Geoffrey Vos lauded the Rules – less than a month after their publication – saying: “These Digital Dispute Resolution Rules have been very well received internationally and I am excited about the prospect of their being taken up enthusiastically.”
Whilst the Rules are less likely to assist with fraud and hacking cases, they are clearly drafted to reduce complexity, and simplify arbitral procedure. Under the Rules arbitration is proposed to complement the on-platform automatic dispute resolution processes which may themselves resolve the vast majority of disputes in practice. Parties finding themselves on the cusp of an arbitration taking place under the Rules will, at least under the default rules, have a relatively uncomplicated and user-friendly procedure available to them, albeit by default having to be alert to and ready to comply with ultra-strict time limits.
There is certainly scope for the Rules to be developed further. For example, in the digital context, multi-party proceedings seem likely, yet the Rules do not seem to cater for class actions proper, though a nod is given to multi-party proceedings in Rule 14, which allows for consolidation of proceedings where suitable.
As with other specialised types of arbitration, such as construction arbitration or maritime arbitration, the procedure plays second fiddle to the expertise of available arbitrators (the real selling point), an expertise which is growing rapidly in the English legal profession.
Though an emphasis on speed at all stages in the Rules implies relatively low cost, the fees charged by the tribunal, and by the Society for Computers and Law remain unclear. It also remains to be seen whether arbitrators themselves will take payment in fiat or in cryptocurrency.
The particularly short period for the initial response specified in Rule 7 may be seen as disadvantaging a respondent, who may not have the time to prepare an adequate preliminary response containing anything beyond the minimum requirements. If the arbitrators fail to address this potential disadvantage by providing adequate opportunity for the respondent to put its case later on in proceedings, it is easy to see how awards issued under the Rules might become vulnerable to challenge under section 68 of the Arbitration Act.
The maximisation of tribunal discretion in Rule 10 as to what evidence and argument it receives may prove to be at odds with the peer-to-peer ethos of the digital community, which favours placing control in the users’ hands, rather than entrusting an unfamiliar outsider with the final say. A core assumption of the Rules is that speed and low cost are all-important. However, in high-value cases, this assumption may not apply any more than it does to parties engaged in high-value disputes over more traditional assets.
Given the confidential nature of commercial arbitration, and the short span of time which has passed since the Rules were published, it remains to be seen what take up rates the rules will see, how parties choose to tailor the rules, and how their application will play out in practice.
* This is a modified version of an article by Paul and Jason which first appeared on 20 September 2021 on the Jus Mundi international law and arbitration blog, as part of London VYAP’s publishing partnership.