Arbitration of Smart Contracts Part 1 – Introduction to Smart Contracts
Following up on a previous post, this post provides a number of recommendations for the future landscape of smart contracts.
(1) Un-Anonymizing the Identity of the Parties to Smart Contracts: From a purely legal perspective, having a contract entered into by pseudonymous parties raises more than one question. First and foremost, how would one be able to validate the capacity of such parties to the first place? Also, what if both parties wanted to amend their agreement to be in line with the new economic conditions or amend it for any reason; would the parties be able to do so if they do not even know the identity of each other. What if one of the parties thinks there is a force majeure that should allow him to terminate the smart contract? As discussed in Primavera and Wright’s Blockchain and the Law: The Rule of Code (2018), would such a party be able to proceed with such an argument if he does not even know the identity of his counter party? This party cannot even file a lawsuit; against whom will he file such a lawsuit. Even if such a party were able to obtain a default judgment (against “John Doe”), such a default judgment would not be of much use or effect as long as the identity of John Doe remains unknown.
(2) Enabling the Amendment and Termination of Smart Contracts: Public blockchains are immutable; this makes amending or terminating a smart contract on a public blockchain a far more complicated process than modifying any software code. This could result in (1) yielding higher transaction costs; and (2) increasing the margin of error for effectuating such amendments. Further, smart contracts do not yet offer analogous self-help remedies similar to those available under traditional contracts. For instance, as described here, under a traditional contract, a party can engage in the so-called “efficient breach”. This is simply not available under smart contracts. That’s why there are currently projects underway to create smart contracts that are amendable and terminable at any time.
(3) The inclusion of Oracles in Complex Smart Contracts: The promise of smart contracts as a decentralized mechanism for contracting is extremely overestimated and overhyped. This promise is true only when all the obligations resulting from the smart contract will take place on the blockchain (“on-the-chain”). If inputs are rather required from the real world (“off-the-chain”), then the promise of decentralization will completely evaporate in the air. In addition, supporting the process of completely “on-the-chain” smart contracts especially concerning dispute resolution would also require a trusted third party. Fortunately, as discussed here, there is a solution; use a trusted third party or what is commonly referred to as an “oracle.”
Oracles can be individuals or programs that store and transmit information from “off-the-chain,” thereby providing a means for blockchain platforms to interact with real-world persons and potentially react to such external events. For example, oracles can be connected to a data feed from a third party conveying the latest London Interbank Offered Rate (LIBOR). Also, as discussed by Michael del Castillo here, we can make an oracle convey the insights of human beings or support private dispute resolution and private arbitration systems. With oracles, smart contracts can respond to changing conditions in near real time. Parties to a contract can reference an oracle to modify payment flows or alter encoded rights and obligations according to newly received information.
In this regard, oracles could be used to determine or update obligations based on the subjective judgment of certain individuals. In this way, parties can rely on “the deterministic and guaranteed execution of smart contracts for objective promises that are readily translatable into code.”[6]At the same time, they can choose a human oracle to assess promises that cannot easily be encoded into a smart contract, either because they (1) are too ambiguous, or (2) require a subjective assessment of real-world events. Despite the benefit of using oracles, using them introduces a potential “point of failure.” For example, as discussed here, an oracle might provide erroneous data or simply go out of business. Therefore, parties to smart contracts should be vigilant when choosing their oracles.
Smart Contract Disputes are Inevitable? Some technologists had proclaimed that smart contracts will avoid disputes altogether on the basis that the parties’ bargain is automatically implemented in a decentralized manner, when the conditions agreed between the parties are satisfied. This view is very much overestimated; it does not take into consideration how disputes generally arise in real life. Self-executing smart contracts and blockchain applications might have the potential to increase the efficiency of dispute resolution dramatically. However, disputes will not disappear altogether. On the contrary, as Craig Tevendale and Charlie Morgan have observed here, the nature of the blockchain makes it crucial that any aspects of parties’ agreement are anchored within a valid legal framework and that the parties’ identify at the outset the applicable dispute resolution mechanism. Further, smart contracts’ disputes would most likely take the form of cross-border disputes because trade is a cross-border activity. Therefore, legal advice on the applicability and enforceability of smart contracts based on the legal framework of each participating jurisdiction will be required beforehand. In this regard, we can identify at least five main potential disputes that could arise in the realm of smart contracts as follows:
In most jurisdictions, as discussed here and here, a contract would only be valid if it is entered into by a person with legal capacity to do so. The fact that pseudonymous parties can enter into smart contracts would make it impossible to validate whether they have the capacity to perform the obligations under such contracts or not. Some civil-law jurisdictions lay down some legal requirements (i.e., writing and signing requirements) for the formation of a legally binding contract.
Is Arbitration the Favourable Dispute Resolution Mechanism for Smart Contract Disputes?
As discussed here, the key features that make arbitration the optimal dispute resolution mechanism for smart contract disputes are arguably the flexibility of arbitral proceedings and the straightforward enforcement of arbitral awards under the New York Convention:
(1) Resolving Uncertainty over Jurisdiction &Governing Law. As smart contracts operate via distributed nodes, it might be difficult to determine the applicable law and the concerned jurisdiction; especially that most of smart contract disputes will take the form of cross-border disputes.
(2) Protecting Confidential Information. Some smart contract disputes are likely to involve evidence about proprietary software and/or hardware. The fact that parties can agree to arbitration to make their disputes confidential will enable the parties to limit their exposure.
(3) Having a Tribunal with Specialist Technical Knowledge. Some smart contract disputes will be fairly vanilla contract law disputes, but others will be of a highly technical nature, for example, where the code does not operate as expected or a technical bug takes place. The courts in many jurisdictions are experienced at dealing with technical issues quickly, but the parties to a smart contract can agree to an arbitration clause which enables them to appoint someone, for example, with an understanding of coding and smart contracts on a certain blockchain.
Arbitration, and typically commercial arbitration, is an Alternative Dispute Resolution (ADR) which is agreed by parties of the dispute. Arbitration can be used to replace the traditional way of litigation in court.
Derive from arbitration’s dispute settlement principles, arbitration shows many pros and brings many benefits for parties in commercial dispute, specifically as follows:
A Polish appeals court vacated an International Chamber of Commerce (ICC) partial award for alleged irregularities in the arbitrator's appointment (for further details please see " ICC award set aside due to irregularities in arbitrator's appointment "). The sole arbitrator's final award was also successfully challenged and set aside. The first reason to vacate the final award was also the issue of the sole arbitrator's appointment.
It is normal to inspect the goods that have been lost or damaged during the performance of the sales contract and in the contract of carriage. However, improper inspection can lead to significant disputes and damages that you can refer to below.
The ten years of Law on Commercial Arbitration 2010 (LCA) are also the 10-year development period of VIAC - the first institutional arbitration organization in Vietnam, the organization that goes along with the formation and advancement of the legal framework of commercial arbitration in Vietnam.
Law on Commercial Arbitration (“LCA”) enacted in 2010 was considered a major step forward for the development of commercial arbitration in Vietnam. Compared with the previous years and with international standards, LCA has made remarkable progress, namely recognizing enterprises’ freedom of choice, broadening the scope of arbitration, raising the arbitral tribunal’s authority, valuing court assistance (especially interim measures enforcement), encouraging flexibility in language of arbitration, and improving party’s autonomy in arbitration while maintaining proper manners during arbitral proceedings.
Mr. Doug Jones, a leading arbitrator in the international arbitration community, revealed to me his infatuation with the beautiful beach and Vietnamese delicacies after a seminar in Da Nang. He was also inspired by the confidence, assertiveness, competence and the ambition to improve domestic arbitrators to the same level as those working in the international sphere of young arbitrators and VIAC Secretaries.
Law on Commercial Arbitration 2010 (LCA)- the procedural law governing arbitration proceedings whose seat is in Vietnam
Nowadays, as the digital economy emerges, electronic agreements on online websites are becoming more and more prevalent; hence, the legal effect of establishing terms and conditions of service when accessing the website (browse-wrap) and clicking (click-wrap) are of particular interest. The following paper analyzes some of the legal aspects of online agreement conclusion, especially the establishment of the arbitration agreement by means of browse-wrap and click-wrap.
Whether settling disputes in Court or through arbitration, when a party has the burden of proof, it must submit evidence to the arbitral tribunal. The evidence can be in many different forms: Document electronic evidence, audio recordings, video recordings, witness statement, etc. In international arbitration practice, especially in complex disputes, a type of evidence that is frequently used by the parties to defend their opinion/request is testimony/report of "expert witness".
In international commerce and investment, parties to a dispute often select arbitration as an alternative dispute resolution other than litigation in which the court, an authorized state agency, adjudicate disputes. An explanation for this phenomenon is that arbitration may be the optimal means that the parties can exercise their autonomy in writing to select one or several individuals who are not representing state agencies and state power (the so-called private parties) to resolve disputes. However, to prevent the possibility of arbitrators "privatizing" justice, [1] the New York Convention and the ICSID Convention set out the rules for annulment of arbitral award when such award violates arbitral proceeding. Here, questions arise. What rules of procedure are violated? And to what extent is the commercial and investment arbitral award annulled? This article seeks to elucidate the theory and practice of annulment for violations of procedure under the New York Convention and the ICSID Convention.
Goods can be consolidated, batched, packed, sorted, and grouped for a certain period of time before being loaded onto a trailer for carriage to the consignee. Disputes about whether the time to do these things are within the scope of insurance liability or not is an issue worth knowing (through the lawsuit with the documents of a foreign law firm) below for readers’ reference.
Mr. Vu Anh Duong is the Secretary General of the Vietnam International Arbitration Centre (“ VIAC “), which is the leading Vietnamese arbitration and mediation institution . Mr. Duong has contributed significantly to the development of arbitration in Vietnam in various ways; in addition to his role with the VIAC, Mr. Duong has served as a member of various drafting committees dealing with not only the VIAC’s Rules of Arbitration (2017) (“ VIAC Rules ”), but also Vietnam’s arbitration-related legislation. He also regularly lectures on commercial arbitration and sits as an arbitrator in both international and domestic commercial arbitrations.
Abstract: This discourse focuses on a detailed analysis of some theoretical and practical issues about the application of interim emergency measures involving third parties, in the field of domestic and international. Besides, the discourse provides measures to enhance the ability to enforce the decisions applying interim emergency measures with the third parties within the realm of international arbitration law. Subsequently, it extracts experience and recommendations pertaining to the legal framework in Vietnam regarding this matter.
During arbitral proceedings, the mediation process may cause some certain conflicts that requests the Arbitral Tribunal to seriously consider. Resolving effectively these conflicts based on fundamental legal principles and the arbitration skills of the Tribunal will ensure the rights and interests of disputing parties and third parties. This discourse focuses on analyzing potential conflicts and providing recommendations to the Tribunal to maximize the effectiveness of the mediation process and reduce conflict occurrence.
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According to the Department of Judicial Support , Ministry of Justice, currently , there have been 48 arbitration institutions established in our country, with over 600 arbitrators participating in resolving thousands of commercial disputes each year 1 . An arbitration service has been developed. Along with the growth , the trait of this service became more apparent , includi ng the relevance of third-party interests. Unlike court litigation, in principle, arbitration is a private dispute resolution method , therefore, the involvement of third parties is exceptional. The discourse discusses how the arbitral tribunal considers and guarantee s the third party's interest in the arbitra l proceedings by providing some situations in which disputing parties or the arbitral tribunal may need to consider the interests of third parties. The goal of arbitr ation is to make contributions to resolving disputes fairly, thereby encourag ing parties to fulfill their obligations voluntarily in order to avoid further dispute escalation of disputes . Based on the analysis , the author suggests policy improvements pertaining to third parties that may be considered in the upcoming revision of the Law on Commercial Arbitration.
In August 2024, the International Council for Commercial Arbitration (ICCA) formally published the second edition of the ICCA’s Guide to the Interpretation of the 1958 New York Convention. The Guide is a clear, concise yet inclusive handbook, written in plain language, on the essential aspects of the scope, interpretation and application of the Convention. Though principally aimed at judges determining applications under the Convention, the Guide, which benefits from the extensive practical and academic experience of its authors (prominent arbitrators and ICCA members) will also be of interest to students, teachers and practitioners as an introduction to the Convention.
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