New Approaches to Arbitration Proposed for Smart Contracts

Introduction

The use of blockchain technology in the creation of so-called “smart contracts” is growing, with proponents touting the efficiencies that blockchain may afford commercial parties. Simply put, smart contracts are agreements between parties written in computer code, in contrast to conventional contracts written in natural language (Japanese, English, etc.). While perhaps best known as a platform for cryptocurrency transactions, blockchain technology has broader utility as a decentralized public ledger on which smart contracts may be created and performed based on computer coded terms and conditions agreed by the parties, and where parties’ automated performance transactions are verified and recorded by a consensus of users on the blockchain network. The rise in smart contracts is necessarily affecting how parties’ contractual obligations are performed. It also is generating new proposals about how to conduct dispute resolution processes, particularly arbitration, which are being suggested by legal and technical practitioners alike.

This article will discuss several proposed approaches to arbitration for smart contracts. These approaches vary in the degree to which they correspond to traditional arbitration practice as conducted under the rules of established arbitral institutions, national arbitration laws, and Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). The new approaches, however, have certain features that are a significant departure from traditional international arbitration: they provide for a highly accelerated procedure that, among other things, raises questions about due process and the efficacy of proceedings to annul and enforce arbitral awards.  

From the perspective of established arbitration practice, such features are, at minimum, concerning. But it is another question whether, or to what extent, parties that are eager to take advantage of the perceived efficiencies of smart contracts and blockchain also may view these features so skeptically.  

Reminder About Arbitration Award Enforcement

In most cases, parties voluntarily comply with arbitration awards and there is no issue of enforcement. This issue arises if a losing party seeks to annul the award in the arbitral seat or if that party fails to comply with the award and the winning party commences an enforcement proceeding outside the seat under the New York Convention.

As discussed previously (https://zelojapan.com/en/4816; https://zelojapan.com/en/4944), since 1958 when the New York Convention was adopted, the key criteria used by courts around the world to determine the enforceability of arbitral awards mostly concern fundamental requirements of due process (and not a review of the substantive merits of the decision as when an appeals court considers a lower court’s judgment in litigation). For example, courts will work to ensure that parties consented to arbitration in a valid arbitration agreement and had an adequate opportunity to present their case.

Such criteria were set out in the New York Convention, which provides the framework for enforcement of foreign arbitral awards, that is, for enforcement of an award made in a country (i.e., the seat) other than the country where the enforcement is sought. Many countries have incorporated these same or similar standards in their national arbitration legislation that courts of the arbitral seat use to determine whether awards should be annulled.

Because these criteria mostly concern fundamental requirements of due process, the party seeking annulment or resisting enforcement of an award typically has a heavy burden to prove that any of the criteria are applicable. Thus, while losing parties sometimes do try to annul or resist enforcement of arbitral awards, usually they lose and the awards are enforced.

Arbitration and Smart Contracts

In recent years, various proposed approaches to adapting traditional arbitration practices for blockchain-based smart contracts have emerged. Below are three such approaches that have been offered as alternatives to established arbitration rules (e.g., the rules of the International Chamber of Commerce or Singapore International Arbitral Centre). Using these established arbitration rules as a baseline, the new approaches range from somewhat familiar to virtually unrecognizable.

JAMS Smart Contract Rules

JAMS is a US-based organization that has long provided services for alternative dispute resolution such as arbitration and mediation. In 2018, JAMS issued draft “Rules Governing Disputes Arising Out of Smart Contracts” (“JAMS Rules,” at https://www.jamsadr.com/rules-smart-contracts; JAMS was known formerly as Judicial Arbitration and Mediation Services, Inc.). While these rules envision the possibility that parties may use natural language contracts in conjunction with their smart contracts, the latter’s coded terms prevail and an arbitrator is to consider the former only if there is any ambiguity in the smart contract’s code. (JAMS Rules, Rule 13(c).) JAMS also offer a model dispute resolution clause in English whereby parties agree to arbitration under the JAMS Rules, specify an arbitral seat, and designate English as the arbitration language. (See https://www.jamsadr.com/rules-smart-contracts.) In this regard, the JAMS Rules track the recommended model clauses of many established arbitral institutions.

In terms of procedure, the JAMS Rules provide that a party may commence arbitration electronically via JAMS’s website by filing an arbitration demand and submitting a statement setting out the legal and factual issues and any data in connection with the relevant smart contract within 10 days after the demand. (JAMS Rules, Rule 5(a).) The parties are to appoint an arbitrator from a JAMS panel within 72 hours after the arbitration statement is submitted, failing which JAMS will make such appointment. (Id., Rule 5(b).) In turn, the arbitrator is to issue a final and binding arbitral award in writing within 30 calendar days after the arbitrator’s appointment or such later date as the parties agree. (Id., Rules 13(a), 14(a).) The JAMS Rules also provide that the arbitrator may extend the 30-day period, but only for an additional 14 days if a party has not paid JAMS the requisite arbitration fees or expenses. (Id., Rule 13(a).) Parties may request clarification of the award within 120 hours after the award is issued. (Id., Rule 13(b).) Otherwise, parties are to carry out the award, presumably including through implementation in the smart contract itself, although the JAMS Rules acknowledge the possibility of challenges to awards and enforcement proceedings and in this respect reference the US national arbitration law and New York Convention. (Id., Rules 14(b), 14(e).)

The JAMS Rules thus envision the entire arbitration being completed within some 45 days (including any requests for award clarification), with the actual adjudicative process involving the arbitrator scheduled for just 30 days. While the JAMS Rules allow parties to extend this 30-day period, the targeted time frame nonetheless is meant to be extremely quick as compared with established institutional arbitral rules and even these institutions’ expedited procedure rules, which, as their name suggests, have been developed for speedier resolution of certain arbitration disputes (typically cases that are less complex and with lower amounts in dispute).[1]

Lastly, the JAMS Rules do not address the issue of party anonymity, but blockchain transactions often are performed by entities or individuals anonymously, or that may know each other’s identity but are anonymous to third parties. If such entities or individuals begin a dispute over their smart contract under the JAMS Rules, would they need to disclose their identities to each other or the arbitrator? Even if they are able to maintain anonymity during the arbitration, it is unlikely that they could request court assistance (as parties in arbitration sometimes do, for instance, to request interim injunctive relief) or later engage in any arbitral award annulment or enforcement proceedings in court without having to reveal their identities publicly.

[1] Under the expedited procedure rules of established arbitration institutions the targeted time frame for issuance of an arbitral award often is about six months after the tribunal is constituted. See, e.g., Rules of Arbitration of the International Chamber of Commerce (ICC), Appendix VI Expedited Procedure Rules, Article 4(1) (in expedited proceedings tribunal is to render award within six months of case management conference); Arbitration Rules of the Singapore International Arbitration Centre (SIAC), Rule 5(2)(d) (award to be rendered within six months of the tribunal’s constitution in expedited proceedings); Administered Arbitration Rules of the Hong Kong International Arbitration Centre (HKIAC), Article 42(2)(f) (in expedited proceedings arbitral award shall be made within six months from the date when tribunal received case file); Commercial Arbitration Rules of the Japan Commercial Arbitration Association (JCAA), Part 2 Expedited Arbitration Procedures, Article 88(1) (in expedited proceedings tribunal to make reasonable efforts to render arbitral award within six months from the date when tribunal is constituted).

Digital Dispute Resolution Rules

In 2021, the UK Jurisdiction Taskforce of LawtechUK (a government-backed initiative in the United Kingdom that promotes technological innovation in the legal sector) published the Digital Dispute Resolution Rules (“DDRR”). The arbitral seat is England and Wales under the DDRR, which provide that any challenge to an arbitral award is subject to the English arbitration law. (DDRR, at https://resources.lawtechuk.io/files/2.%20UKJT%20Digital%20Disupte%20Rules.pdf, Rule 16.）

Like the JAMS Rules, the DDRR envision the possibility that parties may use natural language contracts along with their smart contracts, although the DDRR also say that the rules may be agreed and incorporated in smart contracts by including in encoded form the text “Any dispute shall be resolved in accordance with the UKJT Digital Dispute Resolution Rules.”[2] (DDRR, Rule 3.) Also similar to the JAMS Rules, the DDRR provide that the arbitral tribunal (which may be one or more arbitrators appointed by the England-based Society for Computers and Law) is to issue a written award within 30 days of the tribunal’s appointment unless the parties agree otherwise. (Id., Rule 12.) So here, too, the anticipated process is extremely fast.

The DDRR, however, differ from the JAMS Rules in a number of ways. For example, under the DDRR parties have the option of disclosing their identities only to the tribunal and not to each other (although, again, it is unlikely they could remain anonymous if they wished to appear in court for some reason). (DDRR, Rule 13.) Also in contrast to the JAMS Rules, the DDRR permit parties to offer input about the arbitral process. At the outset, when filing its notice to commence the arbitration, a party may, in addition to setting out the details of its claim, indicate any preferences or proposals it has concerning the arbitral procedure or schedule. (Id., Rules 3(c), 6(e).) The party receiving this notice may do likewise in its initial response. (Id., Rule 7.) The tribunal is to consult with the parties in this respect, although it has complete discretion as to the evidence and argument that the parties submit and the form in which they do so. (Id., Rule 10.) In addition, the DDRR state that, after the initial filings, parties are to be given a reasonable opportunity to set forth their case and to deal with that of their counterparties. (Id., Rule 9.)

Also in contrast to the JAMS Rules, the DDRR provide for an “automatic dispute resolution process” whereby an arbitral tribunal is empowered “at any time” to implement decisions directly in the smart contract’s blockchain-based computer code, including to operate, modify, or cancel the smart contract (such a process is known generally as “on-chain” dispute resolution). (DDRR, Rules 2(c), 11.) In order to effectuate such a decision in a smart contract, for example, to transfer assets or modify the code, the tribunal would need a cryptographic key, password, or other means of digital access, which presumes that the parties would voluntarily share this mechanism with the arbitral tribunal (although the DDRR appear to acknowledge parties might not do so as they say the tribunal also may order a losing party to implement the award decision in a smart contract). (Id., Rule 11.) The DDRR further state that the outcome of any such automatic dispute resolution process is legally binding on the parties. (Id., Rule 4.) In other words, assuming it is provided with digital access to the parties’ smart contract, a tribunal may execute (and thus effectively enforce) its own arbitral award even before a losing party has had the opportunity to challenge, or a court has been able to review, the award in any annulment proceeding.

[2] Some commentators have questioned whether an arbitration agreement encoded only in a smart contract satisfies the New York Convention’s Article II requirement that such agreement be “in writing.” See, e.g., K. Szczudlik, “On-chain” and “off-chain” arbitration: Using smart contracts to amicably resolve disputes,” June 4, 2019, at https://newtech.law/en/on-chain-and-off-chain-arbitration-using-smart-contracts-to-amicably-resolve-disputes/. See also New York Convention, Art. II(1) and (2) (“The term ‘agreement in writing’ shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.”). Other analysts, however, contend that computer code in smart contracts should be deemed to be “in writing.” See, e.g., UK Jurisdiction Taskforce, Legal statement on cryptoassets and smart contracts, November 2019, paras. 161-65. See also Recommendation regarding the interpretation of Article II, paragraph 2, and Article VII, paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, General Assembly resolution 61/33 of 4 December 2006 (Article II’s description of what constitutes an “agreement in writing” is “not exhaustive”). At any rate, parties that may be concerned about this issue presumably could address it by memorializing at least their arbitration agreement in natural language.

Kleros

As mentioned above, because an arbitral tribunal may automatically execute an award directly in a blockchain-based smart contract, the DDRR’s automatic dispute resolution process is an example of “on-chain” arbitration. Various other on-chain smart contract dispute resolution initiatives also have been proposed in recent years that differ significantly from the DDRR’s approach. One such initiative that has been receiving attention is Kleros, which its developers say already has been used in over 100 disputes. (See Kleros One Pager, at https://kleros.io/static/onepager_en-3165e4676c4ed1529064608a83967c23.pdf).[3]

Kleros is built on the Ethereum blockchain platform and uses a cryptocurrency (the Kleros token) as payment for the performance and enforcement of smart contracts. Kleros describes itself as a fully automated “decentralized third party to arbitrate disputes in every kind of contract." (Kleros Short Paper v1.0.7 (“Kleros White Paper”), September 2019, p. 1, at https://kleros.io/static/whitepaper_en-8bd3a0480b45c39899787e17049ded26.pdf.) “Existing dispute resolution technologies are too slow, too expensive and too unreliable for a decentralized global economy operating in real time,” Kleros says. “A fast, inexpensive, transparent, reliable and decentralized dispute resolution mechanism that renders ultimate judgments about the enforceability of smart contracts is a key institution for the blockchain era.” (Id.) 

In terms of its own procedure, Kleros says that parties need to specify Kleros as the “arbitrator” in their smart contracts. (Kleros White Paper, p. 3.) Actually, however, Kleros functions more as a kind of decentralized arbitral institution rather than a decision-making arbitrator. Once a party gives Kleros notice of a claim, individuals across the Kleros network around the world who are interested in serving as “jurors” may “stake” – that is deposit – their Kleros tokens in order to be selected, with individuals who stake a greater quantity of tokens being more likely to be chosen as a juror. Several jurors who do not know each other’s identities are selected randomly and will receive information, including any evidence, about the dispute. The jurors are then to “vote” on options provided in the smart contract to determine which party should prevail, whereupon the final decision, based on which option receives the most votes, will be executed automatically in the smart contract. This entire process is envisioned to take just several days. (For information in this paragraph, see id., pp. 2-3, 6.)

Jurors are expected to vote their decision in a “coherent” manner, meaning they should strive to align their votes with what they think will be the appropriate decision that a majority of jurors will choose. (Kleros White Paper, pp. 2, 7.) Jurors who have voted coherently in this sense will be paid fees from one or more of the parties. Jurors who have not will be penalized; the tokens that the latter staked will be distributed among the “coherent” jurors. (Id., pp. 6-8.) Parties may appeal an unfavorable decision “and have the dispute ruled again," but each new appeal will involve the selection of an increasing number of jurors and “exponentially” rising arbitration fees. (Id. p.7.) Kleros thus aims to discourage parties from making appeals in order to ensure that the dispute is resolved as quickly as possible.

[3] See also Michael Buchwald, Smart Contract Dispute Resolution: The Inescapable Flaws of Blockchain-based Arbitration, Comment, University of Pennsylvania Law Review, Vol. 168, 2020, footnote 86 (noting that among its on-chain dispute protocol competitors Kleros “seems to have amassed an early lead”).

Issues from the Conventional Arbitration Perspective

Party autonomy is regarded as one of the cornerstones of international arbitration, and parties value the relative procedural flexibility that arbitration affords in comparison with litigation and which allows them an opportunity along with tribunals to shape arbitral process to the needs of their particular case. (G. Born, International Arbitration: Law and Practice (3^rd ed. 2021), p. 14.) The scope of this flexibility is broad; one US court has explained that “‘parties are as free to specify idiosyncratic terms of arbitration as they are to specify any other terms of their contract.’” (Id., p. 382, citing Baravati v. Josephthal, Lyon & Ross, 28 F.3d 704, 709 (7^th Cir. 1994).)

As noted earlier, a party’s inability to present its case is one of the grounds on which an arbitral award may be annulled under national arbitration law or enforcement of the award may be refused under the New York Convention. Certain basic procedural requirements are widely considered mandatory, including the rights to equal treatment, to a sufficient opportunity to present one’s case, and to nonarbitrary procedures. (Born, International Arbitration, p. 382.) These requirements, however, are construed narrowly, and, one commentator observes, courts have “very frequently rejected efforts . . . by parties to challenge the fairness of arbitral procedures to which they had agreed[.]” (Id., pp. 180-81,  468.) This same commentator quotes a United States Supreme Court opinion that, "[b]y agreeing to arbitrate, a party ‘trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.’” (Id., p. 469, citing Mitsubishi Motor Corps. v. Soler Chrysler-Plymouth, Inc., 473 U.S.614, 628 (U.S. S.Ct. 1985).)  

Nonetheless, from the perspective of practitioners familiar with established arbitration procedure, various aspects of the highly, and in Kleros’s case extraordinarily, accelerated arbitration processes described above raise issues as to whether parties would have sufficient opportunity to present their case, as well about parties’ ability to challenge or enforce arbitral awards otherwise. Even if these issues would not necessarily persuade a court to annul an award, they bear scrutinizing and invite consideration of whether certain aspects of these novel approaches may be too “simpl[e], informal[], and expeditio[us]” even by arbitration’s traditional standards of procedural flexibility.   

For instance, the JAMS Rules do not say that an arbitrator is to hold an oral hearing if a party so requests, as do many established arbitration institutional rules.[4] The DDRR state expressly that parties have no right to an oral hearing and also that the tribunal may issue an award without holding a hearing (apparently even if the parties might request one). (DDRR, Rule 10. In this regard, the DDRR may be contrasted with the rules of the London Court of International Arbitration (LCIA). While the LCIA rules provide that an arbitrator may dispense with a hearing, this discretion is “subject always” to the requirement that “[a]ny party has the right to a hearing before the Arbitral Tribunal[.]” LCIA Arbitration Rules, Article 14.6(v), Article 19.1.) Kleros does not even mention the possibility of an oral hearing. Generally, failure to hold an oral hearing in arbitration when requested by a party poses a risk that, if challenged, an arbitral award might be annulled in the court of the seat. “Oral hearings are mandatory in virtually all international arbitrations (save where the parties agree otherwise). . . . A tribunal’s failure to hear oral evidence, when requested by a party to do so, would invite annulment of the award for failure to afford an opportunity to be heard. Consequently, if a party requests a hearing, it will almost invariably be granted.” (Born, International Arbitration, p. 200.)

It is true that the expedited procedure rules of major arbitral institutions, which are perhaps a better analogue to the JAMS Rules, the DDRR and Kleros, allow for the possibility that the arbitrator may decide a dispute without an oral hearing solely on the basis of the documents that the parties submit. These expedited procedure rules, however, usually stipulate that the arbitrator will hold an oral hearing if appropriate and often say an arbitrator will determine whether to hold a hearing after consulting with the parties (with some expedited procedure rules requiring that a hearing be held upon party request).[5] In all likelihood, an arbitrator in expedited proceedings under the rules of established arbitral institutions would accommodate a request for an oral hearing by one or more parties.[6] It is unclear whether the same could be said of the JAMS Rules or the DDRR.

In addition, questions arise about the extent to which parties are able to submit factual and legal arguments under the very tight schedules of the JAMS Rules, the DDRR, and especially Kleros, as well as the scope of documentary and other evidence the arbitrator is to review. The JAMS Rules, for example, say that the party commencing the arbitration is to submit a statement setting out its claims, but nothing in these rules provides that the responding party has a comparable opportunity to present its defense or any counterclaims. Nor do the JAMS Rules address party input about what factual or legal submissions may be needed, leaving it to the arbitrator’s sole discretion whether to ask parties to make any such submissions. (JAMS Rules, Rule 12(a).) While it is common for arbitration rules to state that the tribunal ultimately controls the arbitration process, it is unusual to omit any reference to party input, for example, consultation between the tribunal and parties on the arbitration schedule, procedure, etc.. In this regard, the DDRR, which provide that parties and the tribunal are to consult about procedural issues, tracks established arbitral rules more closely. Still, the accelerated time frame under the DDRR raises questions as to how meaningful such input actually could be.

Moreover, certain provisions of the DDRR, in particular the automatic dispute resolution process whereby an arbitral tribunal may implement decisions directly in the smart contract’s computer code, could have a pronounced practical impact on the efficacy of proceedings to annul arbitral awards. While the DDRR’s automated decision-making procedure would not necessarily prevent a losing party later from bringing an annulment action in English court, it would mean, as one commentator observes, that the winning party which obtained the award “holds far more cards than they otherwise would” and, indeed, would be “in a stronger tactical position than a successful party under other arbitration rules.” (J. Schaffer-Goddard, “Digital Dispute Resolution Rules: Challenging awards under the Arbitration Act 1996,” at https://www.scl.org/articles/12544-digital-dispute-resolution-rules-challenging-awards-under-the-arbitration-act-1996.) Thus, to raise one obvious question, might a losing party be discouraged from seeking annulment if the arbitral award has already been executed and effectively enforced? Also, might a winning party that already has obtained the financial benefit of an arbitral award pursuant to the tribunal’s automatic decision-making be reluctant to return those proceeds to the other party if a court subsequently annuls the award?

These same questions apply to the Kleros procedure, although unlike the DDRR it does not seem that Kleros’s developers even have considered the possibility of a party seeking to annul the jurors’ decision in an actual court. At any rate, Kleros’s extraordinarily rapid approach to dispute resolution has drawn additional criticism from the traditional arbitration perspective for other reasons, including that Kleros offers parties minimal opportunity to set out their arguments, little if any meaningful ability to engage with each other in terms of rebuttals or clarifications, no legal analytic framework (much less any particular jurisdiction’s laws) that jurors may use when rendering their decision, and no possibility of an oral hearing. (See Buchwald, Smart Contract Dispute Resolution, pp. 1388-91, 1406-07, 1417-19. See also G. Benton, “Beyond the Bubble,” The Resolver: Quarterly Magazine of the Chartered Institute of Arbitrators, Volume 2018, Issue 2 (2018), p. 14 (noting “one of the greatest risks with smart contracts: the coding cannot provide the flexibility offered by a judge or an arbitrator who can assess an unexpected scenario and apply legal principles to effect a fair and reasonable solution”).) Critics have further questioned what they see as Kleros’s arbitrary mechanism that incentivizes jurors to participate and to align their decision with a majority of jurors. (See Buchwald, Smart Contract Dispute Resolution, pp. 1407-08.)

[4] See, e.g., SIAC Arbitration Rules, Rule 24(1) (“[u]nless the parties have agreed on a documents-only arbitration or as otherwise provided in these Rules, the Tribunal shall, if either party so requests or the Tribunal so decides, hold a hearing[.]”); HKIAC Administered Arbitration Rules, Article 22.4 ( “[t]he arbitral tribunal shall hold [oral] hearings at an appropriate stage of the arbitration, if so requested by a party or if it considers fit”); London Court of International Arbitration (LCIA) Arbitration Rules, Article 19.1 (“[a]ny party has the right to a hearing before the Arbitral Tribunal[.]”). The JAMS Rules say that if a party receives notice that an arbitration has been commenced but fails to participate, the arbitrator is to proceed with the arbitration, including scheduling a hearing or other opportunity for the party that brought the arbitration to present its case. JAMS Rules, Rule 5(d). The JAMS Rules reference but do not specifically provide for an oral hearing where all parties participate in the arbitration; rather, they state that the arbitrator may interview important witnesses after notifying the parties and providing them an opportunity to attend the interview. Id., Rules 12(a), 15(a), 18(b).

[5] See, e.g., ICC Rules, Appendix VI Expedited Procedure Rules, Article 3(5) (arbitral tribunal may, after consulting the parties, decide the dispute solely on the basis of the documents submitted by the parties with no hearing); SIAC Rules, Rule 5(2)(c) (in expedited proceedings tribunal may, in consultation with the parties, determine if dispute is to be decided based on documentary evidence only or if a hearing is required for examination of any witness and any oral argument); HKIAC Rules, Article 42(2)(e) (in expedited proceedings tribunal shall decide dispute based on documentary evidence only unless it determines that it is appropriate to a hearing); JCAA Rules, Article 87(1) (in expedited proceedings tribunal shall conduct the arbitral proceedings on a documents-only basis except when tribunal considers it necessary to conduct a hearing after consulting with the parties, and tribunal shall conduct a hearing where all parties agree).  

[6] A. Uff, “ Expedited arbitration, autonomy and due process (part two),” September 13, 2021, at http://arbitrationblog.practicallaw.com/expedited-arbitration-autonomy-and-due-process-part-two/ (“As a practical matter, arbitrators may be inclined to play safe, and with the recent growth of virtual hearings, there is greater scope to comply with a request for a hearing while maintaining an expedited schedule.”).

Concluding Thoughts

The questions and concerns outlined above from the viewpoint of conventional arbitration practice perhaps give a skeptical impression of the JAMS Rules, the DDRR, and Kleros.[7] Nonetheless, it bears recalling the comments earlier regarding parties’ autonomy to agree the arbitral rules and processes they wish, as well as the broad discretion parties and tribunals have to fashion arbitration procedures.

In addition, it is important to keep in mind the perspective of parties that enthusiastically advocate for and use blockchain technology and smart contracts. It may well be that such parties will accept the significant departures from established arbitration practice in the new dispute resolution mechanisms for the sake of perceived or actual efficiency gains which these mechanisms are meant to provide. After all, parties that actively pursue more efficient arrangement of their commercial relations through smart contracts could be expected to want the same for their dispute resolution process. Such parties may be prepared to consent to markedly truncated procedures that may not necessarily accord with basic due process requirements. Such parties may be willing to limit their ability to challenge an arbitral award in court (or perhaps forego making a challenge altogether) even if they believe the award had been wrongly decided, particularly if they would have to sacrifice their blockchain anonymity to do so. In terms of the balance between fairness and efficiency, such parties might agree to shift away from the former and more towards the latter.  

On the other hand, parties do not like to lose disputes, especially if the amounts involved are nontrivial, and they (and their counsel) tend to look for ways to undo a negative outcome where possible. It will be interesting in this respect to see how readily parties using the DDRR will share digital access to their smart contracts with tribunals, and the extent to which they are comfortable with the DDRR’s automatic dispute resolution process when the consequences of this procedure are not in their favor. Further, and more generally, it will be interesting over time to see whether parties begin to chafe under the accelerated schedules and constrained opportunity for making factual and legal submissions under the JAMS Rules, the DDRR, and Kleros.

Nevertheless, as some commentators suggest, given that use of blockchain and smart contracts seems likely to expand in the future, cooperative efforts between developers of these technologies and conventional arbitration practitioners may grow and generate “innovative dispute resolution solutions that meet the requirements of the blockchain sector but are fair and effective.” (Benton, “Beyond the Bubble,” p. 15.) While this collaboration may not be easy or smooth, it will be worthwhile and important to watch developments and trends in this area in the future.

[7] Commentators also have raised concerns about the possibility of technical problems such as computer coding errors affecting the dispute resolution process. See, e.g., Schaffer-Goddard, “Digital Dispute Resolution Rules: Challenging awards under the Arbitration Act 1996,” and Benton, “Beyond the Bubble,” p. 14. These issues are beyond the scope of this article.  

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The information provided in this article does not, and is not intended to, constitute legal advice and is for general informational purposes only. Readers of this article should contact an attorney to obtain advice with respect to any particular legal matter.