Arbitration and ODR to settle smart contract disputes

Vos: UK legal system well placed to deal with smart contracts

Arbitration and online dispute resolution (ODR) should be used when there are disputes about smart contracts, the Chancellor of the High Court has said.

Sir Geoffrey Vos said a special dispute resolution clause should be created to ensure there was no confusion when smart contracts “take off”.

He chaired the UK jurisdiction taskforce of the LawTech Delivery Panel, which declared in a statement last month that cryptoassets should be treated as property and smart contracts could create legal relationships just as effectively as traditional ones.

“To allow smart contracts to take off, there is one further piece of the jigsaw and that is to crack the way in which disputes about them are going to be resolved.

“My vision is that we should now create an English and UK law dispute resolution clause which developers could include in smart financial services contracts.”

Speaking at yesterday’s Westminster Legal Policy Forum on legal technology in London, he said the clause, which would “allow for arbitration or for streamlined, probably online dispute resolution” was crucial because smart contracts would be borderless and “it would be very difficult on normal private law principles to identify the proper law for the appropriate jurisdiction”.

Sir Geoffrey said the tech community regarded “lawyers and no doubt judges as a part of the problem” and the “imaginative creators of these contracts” needed to be persuaded that there must always be a clear method of dispute resolution.

“That is not because we are expecting things to go wrong. It is likely that they very rarely will.

“But it’s because in some, no doubt very few cases, things will go wrong and investors will only have the confidence to move the dial on the use of smart contracts if disputes can be resolved at proportionate cost.”

Sir Geoffrey said the UK legal system was “well placed to provide the standard dispute mechanisms” for smart contracts.

“We need to take advantage of early opportunities in the UK, which is why I was so keen to get the legal position clarified as quickly as possible.

“Whilst other jurisdictions are concerning themselves only about regulation, we have reached a stage where we can say that we have recognised the legal status of certain kinds of cryptoassets and smart contracts. This definitely puts us ahead.”

He added: “We are already seeing in the business and property courts where I preside a significant increase in litigation about cryptoassets and I think smart contracts will follow shortly.

“Lawyers will then need to seize the initiative, working very closely alongside the technological community of programmers and computer scientists.

“Together they should be able to create a dependable safe and crypto world where efficient contractual relationships, indelibly recorded on chain, become the investment method of choice for mainstream financial institutions and retail investors alike.”

Responding to a question about the benefits of smart contracts, Sir Geoffrey highlighted more automation, less paper and everything being recorded indelibly on some mechanism – “the blockchain at the moment looks like an extremely good method of producing irreversible, indelible recordings of transactions”.

He continued: “Of course one of the main advantages is that there will never be another factual dispute because everything will be recorded and clear and the execution of the transaction will also be recorded and clear.

“I say that slightly tongue in cheek because where there are contracts there are often people, and where there are people there are likely to be conversations, and where there are conversations there are likely to be representations, and where there are representations there are likely to be misrepresentations.

“Do remember I am a judge and I need to stay in business.”

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