The Legal Practicalities Of The Use Of Blockchain As A Form Of Online Dispute Resolution (Part 1) | T. Koroye

INTRODUCTION

Conflict is an integral part
of society and in all facets of human interactions and relations, prompting the
development of means and avenues for the resolution of those conflicts, either
through exaggerated violence, or other peaceful means.^[1]
These avenues of dispute resolution have evolved over the centuries, from
settlement by the elderly, to royal or religious institutions, to the
institutions set up and recognised by the State.^[2] Most
developed and developing societies have adopted the State’s means of dispute
resolution, which is the recognition of the Court system to resolve issues
ranging from personal grievances to complex contractual matters.^[3]

The increasing complex
nature of disputed issues and industry, the number of contracting parties
involved, and the increasing strain on the court system due to the number of
issues to be resolved with limited resources, necessitated the rise of Alternative Dispute Resolution systems
(hereinafter ADR).^[4]
ADR comprises of, but is not limited to, mediation, negotiation and
arbitration. With growing interest from contracting parties, both national and
international, on the inclusion of an arbitration clause in their commercial
agreements as the first form of resolution on instance of a dispute, States and
the international community have developed robust regulatory regimes for the
recognition and enforcement of arbitral awards.^[5] The United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention)^[6]
is the foremost international treaty for the standardisation of arbitration by
States, regardless of their internal theory of recognition, such as the
jurisdictional, hybrid and autonomous theories.^[7]

In recent decades, the
nature of commercial transactions have evolved, due to the rise of
globalisation and digitalised platforms, prompting the emergence of a new
medium of dispute resolution referred to as Online Dispute Resolution (ODR), revolutionising dispute settlement
through its prompt and cost effective process.^[8] The
existence of ODR relies on the
virtual prowess of Information and
Communication Technology (ICT), which constantly evolves with innovations.
The emergence of Blockchain as a disruptive technology on not just the
commercial industry, but including real estate, health-care, content
distribution, etc., has drawn an enquiry on the applicability of the technology
as a means of dispute resolution.^[9]
This work will explore the nature of online dispute resolution and blockchain
as a disruptive technology, and the legal practicalities of adopting same as a
form of ADR for international commercial transactions.

With the aim of analysing
theoretical and practical aspects of the central theme, this work is so
structured to highlight the necessity for the emergence of ODR, as well as the
different outlooks at its definition. This work also addresses Online
Arbitration as a concept, the practicalities and challenges in today’s
commercial society (if any) and the modes the practice is effected. This
analysis also addresses the Blockchain technology, its operations and
applicability in conducting online arbitration. In conclusion, this writer will
give his researched recommendations on the legal practicality of using
Blockchain as a form of dispute resolution. 

EMERGENCE
OF ONLINE DISPUTE RESOLUTION (AN OVERVIEW)

Through the medium of the
internet and ICTs, contracting parties from different nations are able to
conduct and conclude commercial transactions (e-commerce)^[10],
with little or no human contact. This interconnected nature of e-commerce has
made dispute resolution complex, as the transactions can involve multiple
jurisdictions.^[11]  With the astronomical growth of commercial
activities in the Cyberspace (e-commerce transactions accounted for $1,856
billion of manufacturing shipments in the United States in 2008^[12]),
the necessity of a viable dispute resolution system was recognised.^[13]
As aforementioned, there are already established mechanisms to recognise and
enforce the rights of parties, from the traditional adjudication procedures, to
the erstwhile Alternative Dispute Resolution systems, which are inundated with
documented challenges.^[14] 

With the advancements made
in information technology law, and the growing need of an expedient and cheaper
method of dispute resolution,  the  Centre de recherche en droit public
(CRDP) at the University of Montréal started the project known as ‘CyberTribunal’ in 1996, which offered
customers online mediation and arbitration services in resolving disputes
arising with traders online.^[15]
The CRDP project presented the necessary research on the practicability of
conducting computer based disputes resolution with advantageous convenience.^[16]

In January 2000, an
international legal dispute on domain name was completely resolved online by
parties and an arbitrator, all located in different States, birthing the first
use of the internet as a means of dispute resolution. This led to the
formulation of the Internet Corporation
for Assigned Names and Numbers (ICANN ^[17])
administered by eResolution, an organisation set up to resolve domain name
disputes.^[18]
This promoted the emergence of SquareTrade,
which offers online mediation services for disputes arising out of eBay
transactions.^[19]
The successes of these systems in administering ADR for online disputes
stimulated the recognition of ODR by legal practitioners and technology
enthusiasts.

ODR is defined as the
‘practice of resolving disputes via the Internet or digital applications.’^[20]
Legal scholars postulate that ODR is mainly another aspect of, or is
synonymous, to ADR, but enabled through the internet and ICT services.^[21]  This theory argues that ODR employs the
traditional means of mediation, arbitration and negotiation in settling
disputes virtually, with a ‘Fourth
Party’ being the technological platform used, and the ‘Fifth party’ being the provider of 
the service.^[22]

There is the argument that
ODR is not the simple adoption of virtual services in resolving a dispute, as
it also acts as a medium of prevention of commercial disputes that occur within
and outside the internet.^[23]
This school of thought proposes that, as all novel systems, ODR involves new
tools/skills, techniques and assumptions for its effective applicability,
hence, making it distinct from the traditional ADR.^[24]
Some examples of the distinctive features of ODR from ADR is the lack of
face-to-face interaction between parties and the automatic record of all
dispute data.^[25]
ODR platforms also have fully automated dispute resolution processes which
makes use of developed algorithms in resolving disputes.^[26]

ADR, although developed as a
private-sector based regulatory regime, currently has governance introduced for
certification and ethical behavior models.^[27]
Proponents of this theory propose that ODR should have organic emergence of its
own regulations and governance.^[28]
It is proposed by jurists of this school of thought that ODR can generate its
own internal system of governance, with premise on both I.T. law and ADR. This
is has been coined as Legal Darwinism.^[29]  This writer finds this school of thought on
the nature of ODR more persuasive, as the system, although adopts the
traditional forms of ADR, exists on a distinct medium which requires its
individualistic set of rules, skills and governance.^[30]

ODR has grown over the past
decade to be a recognised form of dispute settlement by States and
international bodies. The European
Commission initiated the Electronic
Consumer Dispute Resolution (ECODIR)^[31]
project for the virtual resolution of disputes between Europeans and
cybersellers.^[32]
The United Nations Commission on
International Trade Law (UNCITRAL) has also adopted its Technical Notes on Online Dispute
Resolution^[33]
in recognition of ODR. The World
Intellectual Property Organisation (WIPO) is another international entity
that has also adopted ODR through the Uniform
Dispute Resolution Policy.^[34]

Although States such as the
United Kingdom (UK),^[35]  and the United States of America (U.S.) are
keen on the adoption of ODR as part of their multi-door courtroom system, ODR
is mainly employed by the private sector, with institutions such as eBay
setting up comprehensive ODR mechanism to resolve disputes arising out their
transactions.^[36]
There are other ODR platform service providers, who use specific dispute
resolution applications, such as Benoam^[37] and
the Mediation Room.^[38]
This work will limit itself to the use of ODR by the private sector for
commercial transactions dispute resolution.

As aforementioned, ODR makes
use of ADR such as mediation, arbitration and negotiation. This work however,
will limit itself to Online Arbitration, in consideration of the implication
and legal feasibility of the novel Blockchain technology in settling arbitarble
disputes online. To understand this, an analysis of the nature of Online
Arbitration is expedient.

ONLINE
ARBITRATION.

Online arbitration, also
referred to as electronic-arbitration (e-arbitration), is one of the foremost
aspects of ODR in resolution of cross-border e-commerce disputes through an
asynchronous process,^[39]
although it is not rampantly in use as online-mediation.^[40]
E-arbitration is currently used mostly in the resolution of conflict arising
from domain names.^[41]
A claimant, who intends to settle the dispute through e-arbitration, initiates
the process by submitting statement of claim, indicating relevant facts and
remedies, to the ODR platform.^[42]
Examples of ODR platforms that render such services are WIPO Arbitration and Mediation Centre,^[43] internet-ARBitration (net-ARB)^[44]
and eQuibbly.^[45]  The arbitration agreement is concluded with
the arbitral process conducted virtually, as parties (claimant and respondent)
virtually select an arbitrator from the list of accredited arbitrators
registered with the ODR platform.^[46]
Either parties are entitled to raise objections as to the arbitrator.

E-arbitration can be
conducted through e-mail, as all the documents for filing, as well as evidence
and written submissions are filled through e-mail. This also includes the
interaction between the arbitrator and the participating parties.^[47]  Online arbitration also uses the mode of
video-conferencing, by virtue of the ODR service provider.^[48] The
first award settled under the online-arbitration platform of WIPO on a dispute
on domain name was the case of World Wrestling Federation Entertainment,
Inc, v. Michael Bosman^[49].

The
New York Convention stipulates, through Article II Clause 1, that for an arbitration award to be validly
recognised internationally, there must be a written form of agreement on the
instance of a dispute in an international trade.^[50] The
term ‘written’ is described by the Convention to include the “exchange of
letters or telegrams”,^[51]
which provides a liberalized interpretation of the term by State signatories
indicating minimum requirements.^[52]
Article IV(I) makes provisions that
an arbitral award should be in writing, signed by the arbitrator(s) on the
original or certified copy of the award.^[53] The
UNCITRAL Model law on International Arbitration has broadened
this position, by providing that an arbitration agreement can be documented via
telex, telegram or other means of telecommunication, which records the
agreement.^[54]
This position is indicative of the recognition of the online arbitration by
States that have adopted the UNCITRAL model law interpretation as well.

Hence, on the premise of the
interpretation by the UNCITRAL Model law, online-arbitration fulfills the
necessary requirements of a valid arbitration agreement by the New York
Convention, as it involves written agreements of parties to submit the dispute
to an arbitral panel either, as provided by the ODR platform.^[55]
Legal jurists, who claim the use of ODR excludes parties from voluntarily
submitting to the arbitration panel, have challenged this position using the
WIPO model as a case study as that of mandatory arbitration.^[56]

Scholars have also argued
that on the instance of both parties failing to agree on the lex
situs, the ODR platform will have to select the jurisdiction where the
arbitration will be conducted.^[57]
The lex
situs is an essential part of an arbitration proceeding as it dictates
the procedural law that is applicable to the arbitral panel, and possibly
influence and determine the outcome of the case.^[58]
Enforcement of the award however, is not as straight forward, as legal scholars
have raised arguments against the governing laws of the arbitration, as
e-commerce transactions involve multiple jurisdictions.^[59]
These arguments will be succinctly addressed subsequently in relation to
e-arbitration and blockchain.

Although e-arbitration is
not fashionably applicable to offline commercial disputes (as most of the
disputes that occur with this medium relate to conflict on domain name) due to
the legal uncertainties,^[60]
parties however make use this ODR service due to its convenience. Parties can
conclude dispute resolution processes through a virtual medium unlike in
traditional ADR.^[61]
This makes online arbitration more cost effective and cheaper that other ADR
means.

THE
TECHNOLOGY KNOWN AS BLOCKCHAIN

The phrase, ‘one size fits
all’ very much applies to the description of Blockchain, as it is one of
the  21^st century trending
subjects due to its diversity and transformative potential in application in
most aspects of human interaction.^[62]
Regulators, academics, legal practitioners and technology enthusiasts all are
promoting the inclusion of the blockchain into various industries, with
arguments of numerous advantages.^[63]
Blockchain is the foremost Decentralised
Ledger Technology (DLT) that allows network members to share, store and
transmit information in a continuous manner in the form of ‘blocks’.^[64]
These blocks contain series of data from past transactions accessible to
participants of the network with either a private or public key.

Satoshi Nakamoto introduced
the concept of Blockchain in 2008 in his paper on bitcoin and the great
financial revolution introduced by cryptocurrencies.^[65]
However, this sparked interest into the technology itself and stretched beyond
financial activities to include governance, real estate, entertainment and
voting, etc.^[66]

The types of blockchain
depends mainly on the members of the network with access to the block, as there
are permissioned and permissionless blockchains, which can be sub-divided into
four categories: the public and private permissionless, as well as the
private  and public permissioned.^[67]
Blockchain performs on two principal mechanisms, which are a decentralised and distributed network (which ensures that the
technology can survive data breaches and other malevolent attacks as there is
no regulatory central authority),^[68]
and consensus approval (where new
blocks are added on validated approval by members of the network).^[69]
These two mechanisms make blockchain a well-secure technology for sensitive
data storage and protection.^[70]
 

It is imperative to state
that Smart Contracts are an essential aspect of blockchain, as they possess the
computerized transaction protocol that executes the terms agreed on by
participating parties in the network.^[71]  Legal scholars, who hold more traditional
views, have postulated that Smart Contracts can never be legal contracts as
they lack the foundations of a contract, such as consensus ad idem, offer,
acceptance and intention to enter into legal agreement, and thus fails to
qualify under the provisions of the New York Convention.^[72]
This writer humbly disagrees with this position, as the UNICTRAL model law has made profound interpretation of Article II, to include any form of
communication. The communication carried out through blockchain is through
algorithms, and the subsequent signing in by parties with their private keys
can transcribe the intentions of parties to be subjected to same, and can be
interpreted to cover the legal concepts of offer and acceptance.^[73]

Consequently, Developed
States are on the verve of incorporating blockchain into the State recognised
ODR platforms. An example of this is the application of blockchain technology
by the Chinese government to the Hangzhou
Westlake Court with a planned cooperation by the Hangzhou Blockchain Technology Research Institute to use blockchain
technology to prevent tampering with digital evidence. In addition, the
Guangzhou Arbitration Commission has issued the first arbitral award based on
the ‘Arbitration Chain’.^[74]

How
is Blockchain applicable to online arbitration?

As aforementioned,
blockchain is a buzzing topic in today’s legal sphere, as legal practitioners
and technology enthusiasts deliberate on the nexus between the two spheres,
especially concerning international commercial arbitration. Arbitration
practitioners have argued that blockchain is not a suitable platform to conduct
arbitral proceedings, stating that the technology is “quite slow and expensive
to store massive volumes of data.”^[75]  This writer humbly disagrees with this
position, as, although, the use of a public permissionless blockchain might be
slow to store such data, private permissioned blockchain is the best suited for
online-arbitration, as it has the potential to process thousands of
transactions per second with low costs.^[76] 

Within the bitcoin system,
users have formulated a private adjudication system that works essentially with
two digital keys (public or private), as parties can have access to the coins
without dispute.  However, on an instance
of a conflict, parties can contact a private adjudicator, who will have a third
access key into the network to assess the facts through the blocks and trace
the origination of the dispute, to determine the case.^[77]  Blockchain as a form of transnational
arbitration uses ‘multi-signature address’ system, which is highly
self-sufficient and operates outside the influence of the State.^[78]
A multi-signature address allows private parties to set up a dispute resolution
procedure that is effectively able to enforce its own outcomes.^[79]
Due to its technical and decentralised attributes, blockchain is argued to be
the most practical and advanced form of online-arbitration.^[80]

As Smart Contracts are self-executing,
it raises the question of the possibility of the necessity of third party
enforcement, as dispute resolution is considered to be rendered obsolete.^[81]
This writer humbly disagrees with this position, as there is the necessity for
a third party adjudicator (as Smart Contracts are liable to disputes due to a
number of issues such as human error in coding).^[82]