Linklaters assists the UK Jurisdiction Taskforce on its Digital Dispute Resolution Rules

Linklaters has assisted the UK Jurisdiction Taskforce (UKJT) on its Digital Dispute Resolution Rules that were published on 22 April 2021. The rules, which can be used in the context of on-chain digital relationships and smart contracts, establish a new arbitration procedure aimed at facilitating the rapid and cost-effective resolution of disputes arising out of the use of digital assets, smart contracts, blockchain and fintech.

The rules follow the publication of the UKJT’s landmark Legal Statement on Cryptoassets and Smart Contracts in November 2019, which recognised cryptoassets as property and smart contracts as enforceable under English law. The UKJT’s statement provided certainty in the industry and has been recently endorsed by the English courts, most notably in AA v Persons Unknown [2019] EWHC 3556 (Comm) and Ion Science Ltd v Persons Unknown and others (unreported) 21 December 2020 (Commercial Court).

The Digital Dispute Resolution Rules were published following an open consultation that took place on a draft set of rules earlier this year. David Quest QC and Lawrence Akka QC led the drafting committee, supported by other committee members, including Linklaters UK Head of Fintech Richard Hay and dispute resolution partner Rory Conway. As well as playing a role in the development of the rules, Linklaters was heavily involved in the UKJT’s legal statement and associated public consultation.

The rules can be accessed here.

Overview of the rules

The rules are a set of English law governed dispute resolution provisions aimed at incorporation into commercial contracts implementing novel digital technology such as crypto assets, cryptocurrency, smart contracts, distributed ledger technology and fintech applications. They provide for English seated arbitration pursuant to the Arbitration Act 1996, which gives parties and arbitrators a great deal of autonomy in how their dispute should be resolved. The rules also contain a default choice of law over the parties’ substantive relationship in favour of English law (although this can be modified by agreement of the parties).

A key objective of the rules is to allow those involved to take full advantage of the flexibility offered by UK arbitration to tailor dispute resolution to the distinctive features of smart contracts and digital assets, and to ensure that disputes will be resolved quickly by arbitrators with appropriate expertise.

The rules are tailored to digital disputes and seek to accommodate their distinctive features. The rules are ground-breaking in that they provide for:

  • arbitral or expert dispute resolution in very short periods. The default arbitral timetable of 30 days from the tribunal’s appointment is much shorter than the default timetables in other arbitral rules and even quicker than the expedited arbitral procedures of many arbitral institutions.
  • arbitrators to implement decisions directly on-chain using a private key where the digital asset system provides for it.
  • recognition of automatic dispute resolution processes built into digital asset systems (sometimes known as “on chain” resolution). This is relevant for example where a participant can trigger a decision or vote on the outcome, which is then automatically reflected in the system.
  • optional anonymity of the parties by enabling a party, where the parties agree, to provide identity details confidentially to the tribunal alone. In that case, the tribunal shall not disclose them unless disclosure is necessary for limited purposes, such as where required by law.
  • selection of suitably experienced arbitrators. The rules provide that the Society for Computers and Law (SCL) shall serve as the default appointment body for arbitrators. The SCL will maintain a list of suitable persons (legally and/or technologically) who could be appointed in digital disputes at short notice.

Comment

The rules are a novel development and the establishment a bespoke arbitral procedure tailored to digital disputes is welcomed. While the degree of uptake of the rules and their associated usefulness in resolving digital disputes remains to be seen, the rules are likely to be well-received:

  • The rules have been drafted on a simple basis to be intelligible to the non-legal community, with the aim of encouraging uptake.
  • Their inherent flexibility should accommodate a wide range of technological disputes and give arbitrators maximum discretion in setting appropriate procedures for the relevant dispute.
  • The rules have been drafted so at to be compatible with the Arbitration Act 1996, which not only provides a great deal of autonomy as to how disputes are resolved but also provides for limited grounds to challenge the arbitrator’s decision and the available support from the English courts.
  • The rules encourage certainty by providing that English law applies to the substance of the parties’ relationship, which, in the UKJT’s view, provides an established and familiar framework by reference to which rights in respect of digital technologies can be effectively enforced.

Read More

See our other related coverage on this topic, including:

Linklaters assists UK Jurisdiction Taskforce in clarifying legal status of cryptoassets and smart contracts (2019)

UK confirms legal status of cryptoassets and smart contracts (2019)

English High Court endorses UKJT Legal Statement and proprietary status of cryptoassets (2020)

In Ion Sciences, the English courts take a traditional approach to determining governing law and jurisdiction in a dispute relating to cryptoassets (2021)