The UK Government-backed Jurisdiction Taskforce of LawtechUK (UKJT), chaired by Sir Geoffrey Vos, Master of the Rolls, recently published its Digital Dispute Resolution Rules (the Rules), following consultation with legal and industry stakeholders.
The Rules, which can be incorporated into on-chain digital relationships and smart contracts, are designed to enable rapid, innovative and cost-effective resolution of legal disputes concerning novel digital technology, such as cryptoassets, cryptocurrency, smart contracts, distributed ledger technology, and fintech applications. In this article, we consider the Rules' key features.
The Rules in context
In recognition of the need to embrace novel digital technologies, the English legal system has taken a number of steps towards developing a world-leading dispute resolution framework for such technologies.
First, in November 2019, the UKJT published its “Legal Statement on Crypto Assets and Smart Contracts” which analysed the legal status of crypto assets and smart contracts within the existing framework of English law. Subsequently in September 2020, the Law Society of England & Wales published “Blockchain: Legal & Regulatory Guidance”, aimed at providing technical guidance and suggestions on practice for legal practitioners dealing with blockchain and distributed ledger technology (see our article analysing the Guidance's recommendations here).
The Law Commission of England and Wales is also currently running two consultations on (i) smart contracts, and (ii) digital assets.
The Rules represent a further step towards establishing England and Wales as a preferred jurisdiction for disputes relating to smart contracts, distributed ledger technology and other digital assets.
How do the Rules work in practice?
The Rules provide for a legally binding arbitration or expert determination of disputes, with the option for arbitrators to implement their decisions directly on-chain using a private key. The intention being to provide a framework for the swift resolution of disputes, give flexibility so that the procedure can be tailored to the distinctive features of the relevant digital technology, and ensure disputes are resolved by those with appropriate legal and technical expertise.
The key features of the Rules are:
- Scope - designed to be incorporated into on-chain digital relationships, the Rules will govern disputes relating to digital assets (including cryptoassets, digital tokens and smart contracts).
- Incorporation - the UKJT suggests that the Rules are written into contracts by inserting the following provision: “Any dispute shall be resolved in accordance with UKJT Digital Dispute Resolution Rules”. Additional wording can be included to specify the parties' preferences as to: (i) whether a particular type of dispute is to be resolved by expert determination instead of arbitration; (ii) the procedure to be adopted, including as to both the number, and preferences for qualification, of arbitrators or experts: and (iii) the form and timing of any decision, recoverability of legal costs, and party anonymity. Similar to a standard arbitration clause, parties are also free to agree that a dispute be resolved in accordance with the Rules even after a dispute has arisen.
- Applicable law - the juridical seat of any arbitration under the Rules is England and Wales and the law applicable to the Rules is that of England and Wales. Unless the parties agree otherwise, disputes shall be resolved in accordance with the law of England and Wales. The Rules must also be read in conjunction with the Arbitration Act 1996, which, it is envisaged, will "plug the gaps" in the deliberately concise Rules (which are only five pages in length, excluding the guidance section).
- Commencement - a claimant commences proceedings under the Rules by giving a notice of claim to each respondent and to the appointment body, the Society for Computers and Law, in compliance with certain formalities set out in the Rules.
- Optional anonymity of the parties - the parties must provide details and evidence of their identity to the reasonable satisfaction of the tribunal. However, if agreed between the parties, either party may provide its identity details confidentially to the tribunal and need not include them in a notice of claim or initial response.
- Timing - the Rules specify a rapid procedure by default. Once a party submits a claim, the respondent has only three days to submit its initial response. The arbitral tribunal or expert (as the case may be) will then be appointed by the Society for Computers and Law as soon as practicable and will be required to use best endeavours to determine the dispute within 30 days.
- Procedure - the tribunal shall, in consultation with the parties, have absolute discretion as to what procedure is adopted for the resolution of the dispute. There is no right to an oral hearing and the tribunal may determine the dispute on the basis of written submissions. As far as practicable, parties are permitted to submit evidence and argument electronically. The arbitrator's award or decision is entirely confidential (albeit the Rules allow for an anonymised version to be published, unless a party objects).
- Remedies - the tribunal may be given the power to implement its decisions directly on-chain using a private key, for instance, by operating, modifying or cancelling any digital asset relevant to the dispute. The decision or award of the tribunal is final and binding and there is no right to appeal on a point of law and no other right of appeal or challenge save as permitted under the Arbitration Act 1996.
- Enforcement - an arbitral award or expert determination produced under the Rules can be enforced through court proceedings in England and Wales. Arbitral awards made pursuant to the Rules are also enforceable in other jurisdictions in accordance with the New York Convention (the signatories to which have agreed to uphold arbitration agreements and enforce foreign arbitral awards, subject to very limited exceptions).1 This is especially important and attractive in circumstances where services are decentralised and users and their assets are situated across multiple jurisdictions.
The Rules provide an innovative dispute resolution procedure for disputes involving novel digital technology and are likely to be of particular interest to administrators of permissioned distributed ledger technology who may be able to market the incorporation of the Rules as an attractive feature of their systems.
It remains to be seen whether the Rules will be adopted wholesale into on-chain digital legal relationships in the UK, particularly between sophisticated commercial parties. However, the Rules serve to demonstrate that the UK's legal system is taking steps to keep pace with technological change and is serious about setting out its stall as a world-leading venue for the resolution of disputes involving novel digital technology.
Lord Denning once said that if the law stands still while the rest of the world goes on, it would be bad for both. The English legal market appears determined to avoid making that mistake.