The UK Jurisdiction Taskforce (UKJT) has now published the UK’s first Digital Dispute Resolution Rules (DDRR). The DDRR give legal effect to automatic dispute resolution processes built into digital asset systems. They also create a streamlined arbitral process for resolving disputes arising out of new digital technologies.
Aim and scope
The aim of the DDRR is to ensure the rapid, cost-effective resolution of disputes arising out of new digital technologies (e.g. cryptoassets, cryptocurrencies, smart contracts, distributed ledger technologies and fintech applications). They create a dispute resolution process which is intended to be flexible enough to resolve “traditional” disputes relating to conventional written contracts, as well as “novel” disputes relating to the use of digital assets (including where the parties are unknown to one another and have transacted anonymously on a blockchain).
The DDRR can be incorporated into any relevant contract, digital asset or digital asset system using, at a minimum, the following text: “Any dispute shall be resolved in accordance with the UKJT Digital Dispute Resolution Rules” (the incorporation text). This text can be in electronic or encoded form.
Dispute resolution mechanism
The DDRR create the following dispute resolution mechanism:
Automatic dispute resolution – The result of any automatic dispute resolution process built into a digital asset system will bind the parties.
Arbitration or expert determination – Absent an automatic dispute resolution process, disputes will be submitted to arbitration (save that any expert issue will be determined by an appointed expert). These arbitrations will be governed by English and Welsh law and the judicial seat will be in England and Wales.
Starting proceedings – A claimant will start proceedings by giving a notice of claim to the respondent(s) and the Society for Computers and Law (the SCL). This notice will, inter alia, provide electronic contact details for the parties, details of the claim and remedy sought and proposals for paying or securing the fees of the SCL and the tribunal (see below). It may also include supporting documents and proposals about how the dispute should be managed.
Responding to proceedings – A respondent will have three days to send the claimant and the SCL an initial response to a notice of claim. The initial response will confirm the respondent’s identity and electronic contact details. It may also include a response to the claim, supporting documents and comments on the claimant’s proposals for managing the dispute and for paying or securing the necessary fees.
Appointment of arbitrators or experts – The SCL will appoint a tribunal of arbitrators and any experts once it has received the initial response(s). The SCL will have regard to whether the incorporation text was modified to specify any preferences as to the number, identities, or qualifications of the arbitrators or experts to be appointed; it will also consider whether the parties have expressed any preferences. However, the SCL will not ultimately be bound by what has been specified or is preferred. The SCL and the tribunal will not be obliged to act until reasonable arrangements have been made to pay or secure their fees. We are making enquiries with the SCL to find out details of the relevant fees.
Procedure – The tribunal will have absolute discretion as to what procedure is adopted, although it may have regard to any preferences specified in the incorporation text or by the parties. This includes absolute discretion as to what evidence and arguments it receives, which it is likely to request in electronic form. No party will have the right to an oral hearing.
Anonymity – The tribunal will not disclose the names of the claimant and respondent(s) if the incorporation text specifies that the parties will remain anonymous, or if the parties have agreed that they will. This is unless disclosure is necessary for the fair resolution of the dispute, for the enforcement of any order or award, for the protection of the tribunal’s own interest, or if required by any law, regulation or court order.
Powers regarding digital assets – The tribunal will have the power to operate, modify, sign or cancel any digital assets relevant to a dispute using any digital signature, cryptographic key, password or other control mechanism available to it, or to direct any party to do so.
Outcome – The tribunal will use its best endeavours to determine the dispute within any time period specified or agreed by the parties or, if no period has been specified, within 30 days. Its decision will be in writing and will be final: there will no right of appeal save in limited circumstances set out in the Arbitration Act 1996.
Consolidation – Tribunals appointed in different arbitrations under the DDRR can agree to consolidate those arbitrations and deal with them by way of a consolidated tribunal.
We will be interested to see the levels of engagement and take up of the DDRR. We expect they could be high: the DDRR should provide welcome legal security to those operating in the digital sector, the sector is usually quick to embrace change, and disputes and access to resolution via existing routes is known to be time-consuming and expensive.
We can see the potential for teething issues with the DDRR. For example, we can see scope for a test court case arising from a situation where a party has not explicitly adopted the DDRR. We can also see scope for court cases arising from parties refusing to comply with tribunals’ decisions. However, provided incorporation of the DDRR becomes widespread and the courts are supportive of tribunals’ decisions, we expect these teething issues will be resolved in relatively short order. We anticipate the longer-term effectiveness of the DDRR will then depend on how effectively the SCL performs its role, the quality of the arbitrators and experts appointed to disputes and whether their decisions inspire confidence in the system.
Provided there is confidence in the system, we think the DDRR are a positive step along the UK’s journey to build a framework that supports the use of novel digital technologies. The DDRR deal quickly and concisely with many of the issues that have troubled the courts, such as what to do when parties are now known to one another, have transacted anonymously or there is an automatic dispute resolution process in place. The DDRR show that the UK is committed to supporting the efficient resolution of digital disputes and to supporting the digital sector.
Co-authored by Georgina Morris, Trainee Solicitor.