UKJT consults on new Digital Dispute Resolution Rules for FinTechs
Published on 25th Mar 2021
The UK Jurisdiction Taskforce (UKJT) has proposed a new, faster and more flexible approach to dispute resolution tailored for disputes arising from new technologies, including digital assets, FinTech, distributed ledger technology, blockchain and smart contracts.
A couple of years back, there was talk of uncertainty about the legal status of cryptoassets and the lack of a simple dispute resolution process for on-chain systems, both of which had dampened investment in the space. Certainty in those areas, so the argument went, would be transformational and give confidence to investors and other market participants. Well, in late 2019, the UKJT published its Legal Statement on Cryptoassets and Smart Contracts, which has now been quoted by courts in the UK, Singapore and New Zealand as part of the ongoing developments around the legal status of cryptoassets. The "Digital Dispute Resolution Rules" is a new proposal from the UKJT which aims to address the second of those concerns.
The draft rules
The rules have been proposed in an attempt to tackle an industry perception from FinTechs that current dispute resolution processes are too slow, expensive, paper-driven and legalistic. They offer instead a tailored process for arbitration or expert determination.
The key benefits of the proposed rules are their flexibility and speed. The relevant arbitrator(s) will have absolute discretion as to the procedure after the initial notice of claim and response, without any requirement for disclosure , witness or expert evidence, or an oral hearing. As regards speed, the rules suggest disputes should be resolved within 30 days, which is much faster than the standard rules of major arbitration institutions. The rules also provide for novel powers for the arbitrator(s) to implement their decision, since they will be permitted to operate, modify, sign or cancel digital assets using a digital signature, cryptographic key, password or other digital access or control mechanism.
The rules are designed to be incorporated simply (whether in traditional or smart contracts) by agreement between the parties. In recognition of automatic dispute resolution processes which may be built into digital asset systems (including a process which provides for resolution by an automatically selected artificial intelligence agent), the rules provide that the outcome of any such process will be legally binding upon the parties. The rules also provide for anonymous dispute resolution, which requires the parties to identify themselves to the arbitrator(s) but not to each other.
By way of an example, let's say a party enters into a smart contract for the purchase of a derivative financial product and claims there is an error in the code which does not reflect the parties' intentions. If the rules were incorporated into the purchase contract, a typical timetable might involve the buyer giving notice of the dispute to the seller and the Society for Computers and Law, the seller would then provide an initial response within three days, the arbitrator would then give directions for written submissions and evidence to be served by both parties (e.g. within 14 days) and the arbitrator could make a final determination within a month of the dispute arising and implement the required correction directly into the contract itself.
A virtual seminar was hosted by UKJT on 26 February 2020 to consult on the following key questions:
- is there a need for, or advantage in, a new arbitral process aimed at facilitating the rapid, informal and cost-effective resolution of disputes arising out of novel digital technologies?
- does the process described in the draft rules meet that need?
- if not, why?
Discussion focussed on the issues with current dispute resolution procedures and how novel ideas and technologies require a novel dispute resolution service. The overriding sense was that uptake of these alternative dispute resolution rules will need to be attractive to users: they will only gain traction if there is sufficient buy-in from the industry.
The consultation also considered the practical issues that would need to be addressed if these rules were to come into force, such as how the arbitration clause would be applied to a smart contract and how arbitral decisions would be enforced.
The window for making written submissions to the consultation closed on 5 March 2021. It is expected that the full and final set of rules will be published in the coming weeks.