"New tech" like smart contracting1 is developing rapidly and is set to disrupt the industry's approach to both contracting and dispute resolution.
Smart contracting's commercial allure was bolstered by The Law Commission's consultation on smart legal contracts and the legal statement on cryptoassets and smart contracts which recognised cryptoassets as tradable property and smart contracts as enforceable agreements under English law. Automating part or all of contract performance and using blockchain technology to secure digital information promises business certainty, reduced fraud, costs savings and greater efficiency in contract administration. Think of the disputes that could be avoided if notices, materials orders, milestones and payments were generated automatically and not reliant on human action.
Construction businesses are starting to appreciate these benefits. Some are digitalising specific elements of contracts (such as weather delay risk). However, there is still a way to go: digitalising standard forms poses challenges and platforms facilitating smart contracting are in their infancy. Further, digitalisation will not eradicate disputes: smart contracts will still require humans to input code and errors will inevitably occur. How will such disputes be resolved?
The UK Jurisdiction Taskforce (UKJT) of Lawtech UK's Digital Dispute Resolution Rules (DDRR) supply a "ground-breaking" answer. Designed to establish a speedy dispute resolution (DR) process for use with and incorporation into digital transactions and smart contracts, the DDRR give welcome clarity on important issues. They make any "automatic dispute resolution process (ADRP)" embedded in the smart contract legally binding and enable parties to agree (in writing) to resolve disputes via a new arbitration/expert determination process.
The DDRR's timescale is swift. Initial responses to a claim are made within three days. The tribunal is appointed thereafter (via The Society for Computers and Law acting as appointing body) and required to determine within 30 days based on the evidence and arguments, applying the law (of England and Wales), acting fairly and impartially and giving parties chance to make their case. The tribunal, whose award is legally binding (and confidential unless agreed otherwise), can determine compensation, require or stop party action and/or rectify, set aside or cancel deeds/documents and award arbitration costs.
There is no right to an oral hearing but the DDRR are short and provide for: wide flexibility, including on timing and party anonymity (allowing the rules to adapt to and develop alongside the tech); matching tribunal expertise to the dispute; the availability of the Arbitration Act 1996 (to address gaps in the DDRR); disputes to be consolidated (for contemporaneous resolution); and enforcement through the English and Welsh courts, or (for relevant arbitration awards) under the New York Convention.
The DDRR raise interesting issues for future partly or fully digitalised construction contracts. Smart or not, parties can adjudicate at any time under the Construction Act. As a similarly fast-tracked and flexible process, adjudication also benefits from an oral hearing option, but will it be the right process for new types of disputes arising from digital construction contracts? The DDRR might be more suited to, for example, those disputes arising from coding being inputted incorrectly and enable a suitable tribunal to rectify the code. But what if one party wants to adjudicate and the other thinks the DDRR is more suitable or issues arise from both digitalised and analogue elements of the contract? Drafters (or "legal coders"?) face some challenges but judicial guidance and, potentially, legislative tweaks lie ahead.
This article was first published in Construction Law on 3 August 2021.