This article is written by Krishna Joshi, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.
Table of Contents
Blockchain with respect to arbitration represents probably one of the most significant changes in the context of digitalisation. The idea of blockchain in arbitration first emerged in 2008. So, before moving further, let us understand what blockchain is.
“Blockchain is a system of recording the information in a way that makes it very difficult or impossible to change, hack, or cheat the system.” The technology allows tribunals and parties to store and trace the information on a large number of computers at the same time. This makes it virtually impossible to hack the system or corrupt the information stored since that would require hacking all computers at the same time which is almost an impossible thing to do.
Blockchain Arbitration includes “On-Chain Arbitration” which means that the arbitration award will be automatically executed by a smart contract. The execution of the award will be executed without the involvement of the third party and without any additional actions by the parties.
Features of blockchain
1) Blockchain is an open platform where a party can log into the system at any time without permission or approval. Each party has its own unique identifier keys through which they can log in into the system.
2) Blockchain has a decentralized structure, which means that there is no higher authority in terms of implementation or control. The security of the system is ensured by the algorithms. Each party is identified on the network with private keys. These keys are created with passwords and algorithms. There is no intervention of any outsider, except the parties. Therefore the information remains totally safe and confidential.
3) It eliminates human error: The reliability and validity of a transaction depends upon the accuracy of the algorithm underlying the transaction. Since, each transaction is based on algorithms, which are mathematical models, it is free from human influence and, consequently, human error.
If we compare blockchain arbitration dispute resolution with traditional arbitration dispute resolution, it definitely saves a lot of precious time for parties as well as tribunals.
4) In terms of privacy, the blockchain technology will also minimise the security risks which arise from sharing documents via e-mail and other similar means. Digitising the arbitration process will undoubtedly drive down the costs of parties and it will save a lot of time for the parties.
5) The blockchain system will enable the transactions to be carried out quickly and efficiently. A fast and cost-friendly arbitration is deemed as one of the possible benefits of this technology.
What procedure could be followed in blockchain arbitration
The Blockchain would be provided to the parties and to the Tribunals. Then, the Claimant will create the digital platform using a simple blockchain algorithm. This platform will be replicated at the respondent’s place of operation so that the arbitration can be conducted smoothly. It will be like an app where both parties exchange information.
- Notice of Arbitration: The process of Arbitration will begin with the notice of Arbitration. The Claimant will give the notice of Arbitration to the Respondent through blockchain. Both the parties and the Tribunal will have their keys to access it and no outsider can have access to the information. It will be completely confidential.
- Appointment of Arbitrator: Once the notice of arbitration has been sent to the Respondent, the appointment of the Tribunal/ Arbitrator can be done on the blockchain. The tribunal will be a part of this blockchain and he will get access of all exchange of documents, emails and messages etc. Video conferencing will be done online using the blockchain, which will automatically record all the proceedings. This transcription will be saved and this can not be manipulated.
- The Pleadings: The Pleadings which is the statement of claim, statement of defence, counterclaim, reply to counterclaim, and further submissions etc. can be submitted online. This will be automatically served to the parties to the proceeding and it will be uploaded automatically. Both the parties and the Tribunal can have access to it anytime. This ensures time-bound submissions. Any delays will automatically be penalised in terms of costs.
- Taking of Evidence & Preparation of Award: Blockchain can be very efficient in taking evidence and preparation of Award. Examination in chief and cross-examination can be easily done using integrated video conferencing. All the evidence of witnesses (statements and documents) can be uploaded online in the blockchain. This record will be saved permanently and will be available to the other party and the Arbitral Tribunal. Artificial Intelligence with gesture recognition tools can even advise the Arbitrator and counsel if a witness is lying. In addition to that, there is no scope of manipulating or denying anything said during the course of examination and cross examination of the witnesses.
Benefits of blockchain arbitration
1) Briefs, Transcriptions & Document Management: The tool in the system can quickly and efficiently provide the synopsis and briefs of the record. This will be very useful to the parties and to the Tribunal. The parties can also search for the cases which they have relied and presented before the Arbitral Tribunal as all the record is available online on the blockchain. There is no chance of missing any document. In fact, the AI tool will arrange the documents and evidence taken in the chronological order.
2) Ease in making the Arbitral Award: The blockchain tools can assist the Tribunals with the preparation of awards. The tools ensure that all necessary ingredients to make the award reasoned and enforceable have been taken care of. In fact the blockchain will continue to prepare the award from the beginning as the arbitration progresses.
3) Security of Data: The blockchain is the safest way of storing information. Each block will be authenticated by the Arbitral Tribunal and the party to the proceedings. There is no provision for changing, altering or deleting the data unilaterally. It can only be done when it is authenticated by the Arbitral Tribunal and the party to the proceedings. Since, there is no third party involvement, the possibility of breach of data and information is negligible.
4) The Settlement Averages: Through AI tools, parties can even proactively predict the outcome of the Arbitration Award. The parties can predict the likely damages based on historical data. This could help the parties to settle the dispute by way of compromise when both the parties are equally at fault.
The main question which arises is will it be acceptable to the courts that the awards are prepared by the blockchain and Artificial Intelligence.
The question can be answered in the positive, because the procedure followed in the blockchain arbitration will be free from all the defects, as no tempering can be done by any party. Hence, it will be free from all the defects. Besides, the procedure which would be followed will be Lex Arbtri.
Since, there cannot be any mishandling or fraud committed by the parties and Arbitral Tribunal, the chances of setting aside an arbitral award on procedural lapses would be minimal.
Moreover, the remedy by way of appeal and judicial review is not available to the parties during the arbitration proceeding. Hence, the award can not be challenged on the merits of the case. So, it can be presumed that the Tribunals will promote blockchain-based arbitration.
In fact, the enforcement of awards will be more simpler for the Courts, as the award would be free from arbitrariness of the Tribunals.
In conclusion, the present disposition of COVID, has provided the right opportunity for courts to adopt blockchain based arbitration. It could be seen that there are certain disputes that can be successfully resolved by using arbitration on blockchain. Undoubtedly, the use of this technology could be advantageous not only for the parties to such disputes, but also for the justice system. The courts and Tribunals could be relieved of the burden of deciding repetitive and relatively simple disputes. As a result, disputes could be resolved much faster.
So far, no institution has announced its intention to conduct blockchain arbitration. Whether and to what extent will the arbitration institutions jump on the tech wagon will depend on the technologies themselves.
However, we are yet to see how these platforms will operate in the future. The mere fact that they exist, should be a signal for the arbitral institutions that there is a need to adapt blockchain arbitration. In my opinion, this is the best way to make the technology work for the benefit of parties and for the Arbitral Tribunal.
Blockchain Arbitration looks very attractive and provides attractive solutions, it can definitely act as an alternative to classical Arbitration.
There is an urgent need to make the rules by the Arbitration centres related to the Blockchain Arbitration, so that blockchain arbitration can take place. In fact, few cases are on trial, worldwide. After the successful completion of the trial, we can think of introducing Blockchain Arbitration all over the world.
Therefore it remains a mystery as to how the Blockchain Arbitration process will proceed.
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