The Digital Dispute Resolution Rules – How Novel Are They?
The Digital Dispute Resolution Rules (the “Rules”) were recently published in April 2021 by the UK Jurisdiction Taskforce of LawTechUK.
The Rules were preceded by an internationally well-received Legal statement on cryptoassets and smart contracts (the “Legal Statement”), published by the same UK Jurisdiction Taskforce in November 2019. The Legal Statement sought to clarify key questions regarding the legal status of, and the basic principles applicable to, cryptoassets and smart contracts under English law.
The Rules are the logical next step, creating a procedural framework that addresses the specific issues outlined in the Legal Statement. The aim of the Rules is to facilitate the rapid and cost-effective resolution of disputes arising out of novel technologies including digital assets, smart contracts, blockchain and fintech.
Set out below are key features of the Rules with analysis on key and novel aspects, as well as the benefits of providing for dispute resolution under them.
The Rules provide that the tribunal is to use its best endeavours to resolve disputes within 30 days of its appointment. This is shorter than the average arbitration procedure (the average for an LCIA arbitration, for example, is 16 months).
This is also shorter than some of the expedited procedures available at other arbitral institutions, such as the expedited procedure available under the ICC Rules, the time limit for which is 6 months.
This default position may be particularly attractive to parties in the technology sector given its fast pace.
Decision Makers with Specialised Expertise
Under the Rules, the appointing body - the Society for Computers and Law - will appoint an arbitrator with the appropriate degree of experience and technical expertise. In addition, the parties are permitted to express preferences as to the qualifications of the arbitrator and their level of experience. These preferences must be considered by the appointing body.
Expert determination is also an option under the Rules and, again, the parties may express their preferences in this regard.
This will be attractive in relation to novel technology disputes where the dispute may well raise specific and difficult technical questions.
This means that while the parties must identify themselves to the arbitral tribunal, they need not identify themselves to each other. As with most arbitrations, proceedings under the Rules are confidential.
The anonymity of the procedure may be attractive to parties that enter into smart contracts or other digital relationships anonymously and want access to dispute resolution without sacrificing their anonymity.
The Rules provide for arbitration under the English Arbitration Act 1996. Arbitral awards are enforceable across the globe pursuant to the New York Convention (there are currently 168 countries signed up to this).
Given the cross-border nature of digital transactions and potential jurisdictional issues posed by the decentralisation of blockchain, being able to rely on the New York Convention to facilitate enforcement will no doubt appeal to parties.
Enhanced Powers of the Tribunal in Relation to Digital Assets
The arbitral tribunal has the power to “at any time to operate, modify, sign or cancel any digital asset relevant to the dispute using any digital signature, cryptographic key, password or other digital access or control mechanism available to it. The tribunal shall also have the power to direct any interested party to do any of those things.”
This is important given that interim remedies may be particularly necessary in disputes involving new digital technologies, for example stopping transactions being executed on a blockchain (given the irreversible nature of these transactions).
Uniquely, the Rules also allow for arbitrators to implement decisions directly on-chain using a private key, removing the need for third-party involvement or enforcement action. This may allow parties to bypass traditional enforcement mechanisms (subject to the parties’ cooperation in providing the necessary access).
The Rules certainly have novel features that will be attractive to commercial parties in the technology sector. It may prove to be the case that, given the expedited procedure under the Rules, they will be most suited to technology disputes of lower value and less complexity. At present, the Rules are very much in their infancy and the level of uptake and their efficacy is yet to be seen.
Nevertheless, the technology sector is usually quick to embrace change. As the Rules are incorporated into contracts with increasing frequency, one would expect the industry to gain increasing confidence with the procedure. In turn, the Rules should provide welcome legal security to those operating in this sector.