While arbitration seems to be the most suited mechanism for resolution of disputes arising out of Smart Contracts, blockchain technology also provides the world of arbitration with the opportunity of further decentralization, and perhaps to move towards a digital dispute resolution forum. The interaction between blockchain and arbitration could help both the mechanisms grow and become more convenient for their users.

While critics may say that technology in today’s world changes at the drop of the hat and blockchains and Smart Contracts are buzzwords that would vanish as soon as they become viral; there is some merit in believing that decentralized ledger technology in the form of a blockchain is here to stay. Hence, it is beneficial if we tailor a dispute resolution mechanism to tackle disputes arising form the same. Introducing and pushing for arbitration in Smart Contracts, and adapting arbitration to the needs of disputes arising out of Smart Contracts, will be beneficial in the long run for both the world of blockchain and the world of arbitration.

a. Traditional Clauses in Smart Contracts
Simply because Smart Contracts are self-executory in nature and based on codes, does not mean that disputes will not arise. It is not enough for parties to enter into Smart Contracts containing instructions on taking a designated action on the happening of a certain event. It is also important for parties to link these Smart Contracts to traditional agreements, in the sense that parties must agree on a dispute resolution mechanism, an institution for resolution of the dispute, the law governing their obligations, etc. Although Smart Contracts might be the modern technology for doing business, including some of these traditional non-self-executing clauses in will help the parties in case a dispute arises. Without such clauses, parties will be met with uncertainty, and this uncertainty will go against their intention of implementing convenient ways of carrying out transactions. The parties would be in the dark with respect to the laws governing them, the forum to which the dispute has to be submitted, and they might even be dragged to national courts of one of the parties. To avoid these situations, it makes sense for the parties to include certain traditional clauses to ensure smooth functioning of their transactions in case a dispute arises. Such a mechanism will ensure that the operational clauses of a Smart Contract continue to function, and the instantaneous execution and convenience that Smart Contracts come with is not compromised; and at the same time, in case of a dispute, the parties are not left in the dark and they have a fixed dispute resolution mechanism/institution in place.

However, in case of Smart Contracts, it is not simply two parties entering into a contract and performing their parts. These contracts are self-executory and rely on blockchains. For instance, if A and B have a Smart Contract whereby A supplies goods to B, the host management arrangement or the administrator will operate through computers physically located in one country to trigger payments (determinative action) from B to A, on supply of the goods (happening of the certain event). If the Smart Contract between A and B provides for arbitration in London, and the agreements entered into between the parties and the administrator (A and the administrator, B and the administrator) provide for litigation/arbitration in Singapore, it could lead to certain complications. Disputes could arise due to various reasons such as non-delivery of goods, non-payment or a failure in the software to carry out the self-executing part of the Smart Contract, etc. One party could move against the other in London, and one party could move against the administrator in Singapore. Similarly, one proceeding could result in arbitral proceedings, and the other in litigation proceedings. This would only cause confusion and lead to multiple proceedings in different jurisdiction, which might even lead to conflicting awards/judgments.

Therefore, each blockchain can consider specifying certain standard traditional clauses for all Smart Contracts entered into by relying on that particular chain.

In order to avoid this, the solution of an umbrella dispute resolution clause has been proposed by Mr. Lee Bacon of Clyde & Co. One umbrella clause providing for the governing law and dispute resolution mechanism throughout the chain will avoid multiple proceedings and multiple awards. It will provide for uniformity in resolution of all the disputes arising from that particular blockchain.

In fact, such an umbrella clause will cut the time and costs parties would incur for entering into individual dispute resolution and governing law clauses. Assuming that for parties entering into Smart Contracts, convenience and speed of transactions is a priority, pre-decided traditional arbitration and governing law clauses which will help the parties get speedier and enforceable awards in case of a dispute, will only further this intention.

However, one of the very basis of arbitration is party autonomy. This party autonomy gives the users of arbitration the freedom to chose what law to apply to their transaction, the freedom to choose the seat for the arbitration, etc. By providing for a standard umbrella clause all across the blockchain, we might be attacking the autonomy of the parties trading over that blockchain. The questions whether it is fair to almost force parties to accept a certain seat or a certain governing law chosen by the blockchain for all its participants will have to be considered. However, the contrary, where all parties are free to choose their own specifications (considering that millions of people would trade by relying on one blockchain), leading to multiple proceedings for the same cause of action over differing jurisdictions is also not desirable. In fact, such a scenario will make using blockchains and Smart Contracts excessively inconvenient for its users. One way of finding an equilibrium can be that there can be a few variations in these traditional clauses to give options to entities trading on that blockchain in order to give them a certain degree of flexibility. For instance, it can be considered to give options between a few different institutions, that parties may opt for depending on locational convenience. A balance will have to be struck between absolute flexibility given to parties and the uniformity required through the blockchain with respect to disputes related to Smart Contracts on that blockchain.

b. Dispute Resolution Platforms on Blockchain
In recent times there have been many attempts to create platforms for dispute resolution in cases involving smart contracts on blockchains.

CodeLegit is one such platforms that conducted its first blockchain based smart contract arbitration in 2017. As per its website, its mission is to “…bridge the gap between technology and law by auditing the compliance of software code.” Among other things it provides for a blockchain arbitration library providing ready made smart contracts which include the Codelegit Arbitration Certificate. It provides for an appointing authority which will appoint the arbitrators and all communication for the proceedings occurs via email or through videoconferencing for the oral hearings. Disputes are referred to the arbitrator and during this the execution of the smart contract is paused. Once the decision is rendered the smart contract continues its execution as per that decision.

Kleros, is another platform and it titled itself as the “Blockchain Dispute Resolution Layer”. It purports to connect the parties requiring dispute resolution to skilled jurors. The smart contract must choose Kleros as the dispute resolution platform, and on the occurrence of a dispute, the dispute is submitted to Kleros that draws a Tribunal from the crowd. These jurors eventually cast their vote and the decision is enforced by the smart contract.

An example of how end-to-end blockchain based arbitration will work in its practicality has been presented by OpenLaw. A party can sell its product on a marketplace and it will create a legally complaint bill of sale that incorporates OpenCourt arbitration system. After the agreement is signed, any payments by the buyer are placed in an virtual escrow account. The smart contract enables either of the parties to trigger online arbitration. Once certain formalities are completed OpenCourt will send a smart contract notice of a confirmed dispute and then it will transfer all the digital assets to a virtual escrow account, thus, locking them until the arbitral tribunal renders a decision. The interface allows the party to submit a statement of facts, agree on the blockchain address of who they choose as the arbitrator, etc. The interface allows the arbitrator to review the statement of facts, render a decision which is automatically transferred through from the assets locked in the escrow.

Even though these and many more platforms provide for a simplified view of how dispute resolution in case of smart contracts might work, it is a start that will lead us to a more convenient process of resolving disputes involving smart contracts.