According to the country's second most senior judge, Master of the Rolls Sir Geoffrey Vos, the digital revolution has arrived, and lawyers must get with the programme.
In a speech at London International Disputes Week, Sir Geoffrey Vos predicted that soon nearly all business will be conducted via electronic documentation, smart legal contracts and on-chain records; courts will be rendered redundant in the resolution of factual disputes.
As part of his wider plan to drag lawyers and judges who "have a reputation for being slow to change" into the future, Sir Geoffrey Vos spearheaded the creation of Digital Dispute Resolution Rules (the Rules) that parties to smart contracts and other technology-based agreements can use to resolve disputes out of court.
The Rules were published by the UK Jurisdiction Taskforce (UKJT), a government-backed initiative chaired by Sir Geoffrey Vos to promote the use of technology in the legal sector. They follow the UKJT's ground-breaking Legal Statement on Cryptoassets and Smart Contracts which recommended cryptoassets be treated as property at common law, a view recently endorsed by the High Court.
Who the Rules are for
The Rules are designed for agreements based on novel digital technology (e.g. blockchain) and cover a wide range of applications including smart contracts, cryptoassets, and decentralised finance projects (see our previous post on DeFi regulation).
How the Rules work
The Rules comprise a set of freestanding clauses that parties can incorporate into an agreement. They provide for three distinct processes – automatic dispute resolution, expert determination and arbitration – each of which may be applied to discrete elements of an agreement in accordance with the parties' needs.
Automatic dispute resolution
The Rules anticipate that parties will want some aspects of their agreement to be resolved automatically.
An example of this could be where the software underpinning a smart contract identifies an event that should have occurred but didn't; and sends a notification (in a form previously agreed by the parties) to the party responsible for the breach.
The Rules presume that the outcome of such a process would be binding.
Arbitration
The Rules anticipate that any dispute arising from an agreement which is not subject to automatic dispute resolution will be resolved through arbitration.
Arbitration aims to provide a fair and speedy resolution of disputes by an impartial third party. Arbitral proceedings are usually held in private and are confidential. Parties can choose which rules and law they want to apply to the arbitration, where it takes place and who determines the outcome. There is minimal recourse to challenge and the final decision, or award, is relatively easy to enforce both domestically and abroad.
The last of these may be particularly attractive to those contracting in the cryptosphere, where arguments often flare around questions of jurisdiction – that is, which national court should hear a case.
Expert determination
Expert determination is a binding, out of court process that can offer a relatively quick and cost effective means of resolving disputes of a specialist or technical nature and which are relatively narrow in scope.
The Rules provide that any "expert issue" shall be determined by an "appointed expert". Neither of these terms is defined, but the guidance to the Rules anticipates that parties will make separate arrangements, for example in rules governing participation in a private blockchain, as to how and when expert determination is used.
The process
The dispute resolution process proposed under the Rules largely follows a typical arbitration format. This involves a claimant starting proceedings by giving the respondent a notice of claim. The respondent then has three days to reply by sending an initial response.
The Rules designate an educational legal tech charity, the Society for Computers and Law, to manage appointments of arbitrators and experts under the Rules, although parties are free to designate another body.
The Rules specify that a tribunal (for arbitration or expert determination) will be appointed shortly after the submission of the notice of claim and response; and subject to the parties' confirmation of payment arrangements regarding the tribunal's fees.
The Rules give the tribunal "absolute discretion" over the procedure to be followed, and evidence to be allowed, provided that it acts fairly and impartially, adopts procedures suited to the circumstances and avoids unnecessary delay and/or expense.
Under the Rules the tribunal is empowered 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 parties can either specify a time limit by which the tribunal should reach a decision or opt for the default 30 days from appointment. As to the form of the award, the default position is that it will be in writing unless the parties decide otherwise.
Anonymity
Under the Rules parties must provide the tribunal with evidence of their identity. If they prefer that their name does not appear on procedural papers, parties can share details of their identity with the tribunal alone on a confidential basis. This will be subject to both parties' agreement and the tribunal being "reasonably satisfied" as to the parties' identities.
Jurisdiction
The Rules state that unless the parties agree otherwise, the "juridical seat" of an arbitration will be England and Wales.
The seat, which may (not must) be the physical location of the arbitration, has significant implications for which law will apply to the arbitral procedure and in what circumstances a national court can intervene. It can also impact how and where an award can be enforced.
By making England and Wales the seat, the parties are taken to have agreed that certain provisions of the English Arbitration Act 1996, which is based on principles of fairness, party autonomy and limited court intervention, will apply to the arbitration.
Mind the gaps
The Rules are vague – or altogether silent – on a number of points. For example, what constitutes the "giving" of a notice of claim or the "sending" of an initial response?
On what basis will a court decide if it is "reasonably satisfied" as to the purported identity of a party who wishes to remain anonymous?
How will parties know whether a particular arbitrator has the specific knowledge required to understand (let alone arbitrate) the issues giving rise to the dispute?
Work in progress
Some of this vagueness is deliberate. As stated in the guidance, the Rules have been designed as a highly flexible and minimalist framework which parties can adapt and extend if required to suit their needs.
Some of the gaps may be filled by national legislation, such as the Arbitration Act. Others, however, will require parties' careful consideration and air-tight legal advice if satellite litigation is to be kept to a minimum.
The UKJT says it will closely monitor the Rules to ensure they are working effectively and welcomes comments or suggestions. You may want to get yours in sooner rather than later.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
