26/05/21 – The UK Jurisdiction Taskforce (UKJT) received extensive and overwhelmingly positive publicity for the Legal Statement on the Status of Cryptoassets and Smart Contracts that it published in December 2019 – you can read more about the Legal Statement here.
On 22nd April 2021 the UKJT published its Digital Dispute Resolution Rules (Rules) which:
- Give legal effect to automatic dispute resolution processes incorporated into digital asset systems, and
- Create a streamlined arbitration process to ensure prompt and cost-effective resolution of disputes arising out of digital technologies such as smart contracts, cryptoassets and cryptocurrencies, as well as DLT-based contracts (think blockchain) where there the parties in dispute may have transacted anonymously.
Key features of the Rules:
- Automatic dispute resolution processes: If a digital asset system includes an automatic dispute resolution process (aka ‘on chain’ resolution), then incorporating the Rules into the system will result in an outcome of the automatic dispute resolution being legally binding on the parties.
- Incorporation: The parties can agree that the Rules will apply either before or after a dispute has arisen. The Rules can be incorporated (including in electronic or encoded form) into any relevant contract or digital asset/system by using the following text: ‘Any dispute shall be resolved in accordance with the UKJT Digital Dispute Resolution Rules’. The parties can also include their preferences, including arbitration or expert determination, procedure to be adopted, and identity (or key characteristics) of the arbitrators and/or experts.
- Starting proceedings: The claimant starts proceedings by giving a notice of claim to the respondent and the Society for Computers and Law (‘SCL‘). The notice may, among other things, include a proposal regarding the way the dispute should be managed.
- Responding to proceedings: The respondent then has three days to send an initial response to the notice of claim. Among other things the initial response may include comments on the claimant’s proposal for managing the dispute.
- Arbitrators and experts: On receipt of the initial response, the SCL appoints the tribunal of arbitrators and any experts. Although the SCL will have regard to the parties’ preferences regarding procedure and identity of the arbitrators etc, it is not bound by those preferences. Similarly, although the tribunal of arbitrators has regard to the parties’ preferences regarding procedure, it is not bound by those preferences, and is free to adopt whatever procedure it considers appropriate, without any requirement for disclosure, witness evidence, expert evidence, or even an oral hearing.
- Anonymity: Unless the tribunal considers that disclosure of the parties’ names is necessary for fair resolution of the dispute or effective enforcement of any order, or disclosure is required by law, the tribunal will respect any agreement of the parties that they are to remain anonymous to each other (but not to the tribunal).
- Determination of dispute: Unless a different period has been agreed, the tribunal will use best endeavours to determine the dispute within 30 days. Yes, 30 days. Except in the limited circumstances set out in the Arbitration Act 1996, the tribunal’s decision is final and binding, i.e. there is no automatic right to appeal.
- Digital assets: To help it to implement or enforce its decision, the tribunal has the right to operate, modify, sign or cancel any digital assets relevant to the dispute using any digital signature, cryptographic key, password or other control mechanism available to it, or to order a party to the dispute to do so.
Since their publication a few weeks ago, the reaction has been largely favourable, with praise for the simplicity, flexibility, speed and certainty of the Rules. Whether the positive initial reaction now translates into broad uptake by participants in the new digital technologies remains to be seen.