Aug 19, 2022

Adapting the law for a digital future: new 'Digital Dispute Resolution Rules'

On 22 April 2021, the UKJT published the new “Digital Dispute Resolution Rules” (the “Rules”). Their purpose is to provide a swift and cost-effective resolution to disputes arising out of novel digital technologies, particularly those related to: digital assets, smart contracts, distributed ledger technologies, and fintech applications by way of arbitration (Rule 1).

The Rules constitute a significant step for England and Wales towards the creation of a harmonised legal framework for digital assets and related transactions. They grant more certainty for traders and further consolidate the idea that blockchain technology and crypto assets don’t fall outside the law.

The Rules provide for the likelihood that traders may operate under arrangements that allow for disputes to be resolved by a community voting system.  The Rules have recognised such arrangements as legally binding and have been drafted to work alongside such provisions, but they can also apply alone.

What are the key features?

Submission to arbitration (or expert determination): The Rules do not apply automatically. For the Rules to apply, they should be agreed to in writing, before or after a dispute has arisen, on whether they want to implement them (Rule 3). If the parties opt-in, any dispute that is not subject to an automatic dispute resolution process must be submitted to the arbitration process (Rule 5).

Expert determination is also available to the parties under the Rules, but it is advised that using this method may be more appropriate for disputes on simple factual issues. Especially considering that arbitrators’ awards are generally enforceable worldwide through the New York Convention, and although not impossible, it is not as clear on whether an expert determination would also be enforceable under the same Convention.

Swift proceedings: Proceedings commence by notice from the claimant. The notice must include: details of the claim, an explanation of why the rules apply, the preferred procedure and the identity of the arbitrators. The defendant has 3 days to reply addressing the same points (Rules 6 and 7).

Once the tribunal is appointed, they have a duty to use their best endeavours to deliver a decision in writing within the period specified by the parties or a maximum of 30 days from the appointment (Rule 12).

Under the Rules, disputes are intended to be resolved (at the arbitrator’s discretion) without the need for an oral hearing and parties will have a very limited right to appeal (Rules 10 and 16).

Appointment of tribunal: The Rules provides that an arbitrator or an expert must be appointed as soon as practicable after the receipt of the initial response from the defendant. The parties must be promptly notified of the identity and contact details of the person appointed. Any preferences expressed by the parties in their submissions will be considered.

Parties must make reasonable proposals and reach an agreement on how the fees of the arbitrator and of the appointment body are to be paid. Failure to reach an agreement, means the arbitrator and appointment body are not obliged to act and will delay any resolution (Rule 8).

Option for anonymity: The parties are required to provide their identity and contact details in their submissions. However, if the contract in place is provided accordingly, the parties may provide their identity details in confidence to the tribunal only (Rule 13).

This is particularly appealing for those operating on the blockchain who prefer not to disclose their identity. The Rules therefore aim to ensure that, irrespective of the identity of the parties, disputes can be resolved pursuant to the law and proper remedies are available.

On-chain enforcement: After delivering the award, arbitrators have the power to enforce remedies including: (1) ordering a party to compensate the other, (2) ordering a party to refrain from doing a particular act, or (3) ordering a party to rectify, set aside or cancel documents.

Finally, the Rules make it clear that arbitrators can, where they are given technical power and access (e.g., digital key) to do so, operate changes directly on the blockchain, by modifying, signing or cancelling any relevant digital asset subject to the dispute.

Blockchain and digital assets form part of the most rapidly growing industry today. Clarity on the provisions of the applicable law and the establishment of new methods to resolve disputes in this expanding market is essential.

For all questions regarding the topics raised in this blog, please contact a member of our team of digital asset legal experts.

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