Experts seek boost for blockchain alternatives to dispute resolution

Blockchain: Call to make on-chain dispute resolution viable alternative

Court and arbitration bodies need to make legal remedies built into blockchains a viable alternative to traditional dispute resolution options, lawyers have said.

The call, published earlier this month, came as part of detailed guidelines produced by experts to help lawyers navigate the legal and regulatory issues raised by distributed ledger and related cutting-edge technologies (DLT).

The guidelines, which included a number of recommendations on improving the legal landscape, were put together by the Tech London Advocates’ blockchain legal and regulatory group and the Law Society.

The authors, lawyers from a number of commercial law firms, offered guidelines on the role smart contracts, cryptoassets and blockchain might play in future legal practice.

They pointed out: “There are at present no recognised standards or judicial treatment which might make on-chain dispute resolution mechanisms a viable alternative to traditional dispute resolution options.

“Guidance from the judiciary and arbitrational bodies as to the effectiveness and form of on-chain dispute resolution mechanisms would be incredibly useful in improving commercial confidence in the ability to successfully seek remedies without recourse to litigation.”

So far, the main certainty provided by the world’s various legal jurisdictions has been that delivered late last year by the UK jurisdiction taskforce of the LawTech Delivery Panel, which declared that cryptoassets should be treated as property in English common law.

Among other things, the latest guidelines called for authoritative guidance providing best practice standards for digitised dispute resolution solutions, and to specify whether specialist rules were necessary or whether the current regime was sufficient – potentially, arbitrational bodies could endorse existing forms of on-chain dispute resolution, they said.

The experts suggested parties should consider entering into “a master or ‘umbrella’ dispute resolution agreement that codifies the agreed applicable law and dispute resolution procedure throughout the chain”.

They should also consider choosing a jurisdiction that had shown itself open to DLT, such as England, Singapore and Switzerland.

The section on dispute resolution, written by lawyers from Thrings, Herbert Smith Freehills and One Essex Court, observed that evolving technology also changed the traditional litigation risk factors for lawyers themselves.

One of several possible areas of dispute that might arise was difficulty faced by lawyers in understanding computer code governing a smart legal contract. Lawyers needed to be alive to these risks and be aware that the ways they interacted with clients – who the authors said were now developing into computer program or DLT platform client entities – were changing.

DLT could be used to assist in litigation as well. Examples included disclosure, with a particular benefit being that disclosure uploaded to a platform could be encrypted, preventing tampering or removal.

Equally, DLT could help litigation through the use of secure digital signatures, whereby a party engaging with the blockchain would use a private key, with each transaction recorded securely on the ledger.

“This will greatly reduce arguments of fraud or false signatures during litigation proceedings”, the section said.

Parties also needed to have confidence in the DLT-based dispute resolution framework. Whereas on-chain arbitration might be a viable solution for “small, straightforward and predictable disputes”, more complex ones involving the unexpected might therefore “require careful consideration of detailed evidence” and so need a tribunal to handle them.

Enforcement built-in to platforms currently available was another important consideration. ‘Automaticity’ – the ability for a decision to be enforced automatically – was appealing to ensure a winning party was able to obtain relief because it could do away with the cost and lengthy delays involved in enforcement proceedings.

However, the authors warned that automatic judgment was not always suitable and could prove inflexible to the detriment of justice – such as when challenging it was out of time – whereas a tribunal had the power ultimately to reverse a decision.

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