New dispute rules envisage direct-to-blockchain enforcement of arbitral decisions

Out-Law News | 29 Apr 2021 | 9:08 am | 1 min. read

A new digital dispute resolution procedure allows businesses around the world entering into cryptoasset transactions or smart contracts to empower arbitrators to directly apply legal remedies to the underlying blockchain in the event of a dispute in relation to those digital assets.

David McIlwaine of Pinsent Masons, the law firm behind Out-Law, who specialises in technology disputes resolution, said the procedure “offers businesses a cost-effective and certain route through which to ensure the outcome of disputes over digital assets is enforced”.

McIlwaine was part of the sub-committee of LawTech Delivery Panel's UK Jurisdiction Taskforce to have drawn up the new digital dispute resolution rules. The panel was set up in 2018 by the then justice secretary for England and Wales to facilitate the digital transformation of the UK legal sector.

“The new rules are not mandatory for businesses to adopt, but there are clear advantages to doing so when putting in place agreements concerning digital assets, whether those assets constitute cryptoassets, digital tokens, smart contracts or other another form of coded representation of an asset or transaction,” McIlwaine said.

“One of the biggest challenges businesses face when entering into agreements concerning digital assets is that they are dealing with parties based all around the world, so when a dispute arises it can be difficult and expensive to pursue litigation or go through a normal arbitration process to achieve desired remedies,” he said. “Even when rulings are issued, further challenges can arise around the foreign enforcement of those decisions.”

“The new rules make it possible for parties to agree at the outset that disputes arising will be handled under the fast-track process the rules envisage. That entails the parties agreeing to provide the arbitral tribunal with a form of digital access, or power to direct blockchain operators, to ‘operate, modify, sign or cancel any digital asset relevant to the dispute’ – thus enabling direct-to-blockchain enforcement of their decision,” McIlwaine said.

Mastane Williamson, also of Pinsent Masons, said that it is easy for businesses to adopt the new rules in the text of their contracts or in electronic code, and that while a degree of trust in the process is required, the process promises to deliver legal certainty and the practical implementation of decisions in accordance with the law of England and Wales.

Williamson said: “The rules are future-proof in that the dispute resolution and enforcement procedure would be able to be applied to digital technologies not yet envisaged. In the shorter term, the legal certainty and cost-effectiveness of these new rules will be an enabler for the adoption of smart contracts and distributed ledger technology.”