Dr. Talal Jaber
Lawyer
Managing Partner at Jaber Law Firm
Chakib Jaber
Chief Technology Officer
Spin Systems, Inc.
About the Authors
The authors provide both the legal and technical expertise supporting the legal industry:
Dr. Talal Jaber – Lawyer and managing partner at Jaber Law Firm (www.jaberlawfirm.com) specialized in Business Law, International Arbitration, and Business Ethics. He is the author of five books and many articles. His last book “Arbitration”, is a main reference on Arbitral Jurisprudence in Europe and the Middle East. Additionally, his book “Introduction to Business Law”, in its three editions, is being taught at top-ranking American Universities in the Middle East. He is a facilitator for many local and international workshops, focusing on claims and counter claims in construction, communication skills, negotiation skills, international business law, patent law, developing business plan, international arbitration, and contract management. His varied experience covers legal services, arbitration, legislation, consultancy, education services, corporate training, and business ethics.
Chakib Jaber – Chief Technology Officer at Spin Systems, Inc. (www.spinsys.com). For the past 20 years, he has focused SpinSys in leading the development and deployment of enterprise legal systems in support of both government and private institutions; it is recognized as an industry leader in blockchain technology. With a focus on big data, process automation, system integration and advanced analytics and insights, SpinSys has been supporting public and private sector organizations in maximizing the value of their data. As the SpinSys big data platform, www.mdaca.io has been leveraged by multiple enterprises to include the support of introducing and enhancing the use of digital transformation in the legal industry.
Legal technology is evolving at a fast pace and the legal system continues to evolve in leveraging technology facing as such all recent technology advances and innovative approaches amongst which blockchain. These innovations will affect and drive the legal industry as a whole and will increasingly require traditional lawyers, law firms, and legal practitioners to establish ways to better embrace and understand technology and how it can be leveraged to drive efficiencies in their practices and the entire industry.
This article aims to detail the influences of technology innovations and advances on the legal sector, the possibilities of using them in support of such industry, and the ways of driving the future of the space of legal technology. We explore herein the blockchain technology and its implications on legal arbitration as a use case.
Overview of Blockchain Technology [1]
A blockchain is, in the simplest of terms, a time-stamped series of immutable record [sic] of data that is managed by cluster computers not owned by any single entity. Each of these blocks of data (i.e. block) are secured and bound to each other using cryptographic principles (i.e. chain).[2] These records, especially when a cryptocurrency like Bitcoin or Ethereum is involved, may consist of information such as credits and debits, or might record the ownership of property by providing a record of the deed.[3]
A) Blockchain technology’s claim to fame has been in its use to secure and share financial transactions in cryptocurrency. The core concept behind blockchain is that it is a distributed, write-only ledger that records transactions between participants. It offers a way to securely and efficiently create a tamper-proof log of legal activity. It creates an ecosystem where valuable data is recorded as a permanent, immutable, tamperproof record. A variety of technologies and frameworks have emerged in the industry supporting secure distributed ledgers. Two prominent implementation approaches are permissionless and permissioned blockchains defined as follows:
– Permissionless blockchain, leveraged by most of the major cryptocurrencies (like Bitcoin), runs on permissionless blockchain networks. It allows anyone to take part in the network and to access information. It is decentralized and open to the public and anyone who wants to access the blockchain has the ability to access it. Thus, an internet connection is all that is required to view the transactions that have taken place across the entirety of the blockchain[4]. As explained by Vitalik Buterin, the founder of the Ethereum blockchain:
“[A] public blockchain is a blockchain that anyone in the world can read, anyone in the world can send transactions to and expect to see them included if they are valid, and anyone in the world can participate in the consensus process – the process for determining what blocks get added to the chain and what the current state is. As a substitute for centralized or quasi-centralized trust, public blockchains are secured by cryptoeconomics – the combination of economic incentives and cryptographic verification using mechanisms such as proof of work or proof of stake, following a general principle that the degree to which someone can have an influence in the consensus process is proportional to the quantity of economic resources that they can bring to bear [sic][5].
– Permissioned blockchains are blockchains that are closed or have an access control layer. These are based on premissioned membership and privileged access such to provide security advantages to governments, institutions, companies, and private entities to handle data in a more secure way. A permissioned blockchain provides complete control over who has the access to it and who has permission to make the change while providing the advantages of leveraging blockchain technology.
B) In legal organizations, where client privileged information needs to be securely shared, leveraging permissioned blockchain provides the capabilities in support of governance, privacy, security and scalability. Key features of a permissioned blockchain include:
- Distributed Network: Blockchain’s distributed network topology is a decentralized Peer to Peer (P2P) architecture with nodes consisting of network participants. This offers layers of redundancy and reduces single points of failure.
- Shared Ledger: Members in the distributed network record digital transactions into a shared ledger. To add transactions, members in the network run algorithms to evaluate and verify the proposed transaction. Since all members in the network have a complete copy of the blockchain no single member has the power to tamper or alter data.
- Digital Transactions: Any type of information or digital asset can be stored in a blockchain and the network implementing the blockchain defines the type of information contained in the transaction.
- Permissioned: Provides collectively defined membership and access rights where all participants have known identities. Additionally capabilities exist within the network to utilize data partitioning on the blockchain, ensuring data is only accessed by the parties with the need to know.
The Revolutionary Potential of Blockchain Technology & its Intersection with Arbitration
A comparison between the blockchain technology and the internet appears to be prominent in order to better understand and assess the revolutionary potential of blockchain and the reasons for considering it as an ideal forum for arbitration dispute resolution.
Both blockchain and the internet are considered communication means allowing businesses to communicate worldwide in a timely manner. With an efficient and instant access to markets and resources, blockchain is a platform that ensures further enhancement of the communication abilities. It addresses also, in theory, the issue of trust – allowing users to trust the communicated information without the need for validation as the blockchain, by virtue of its construction, is incapable of presenting fraudulent information.
The comparison with the internet highlights some of the reasons why arbitration is a well-suited mechanism for resolving disputes that arise from the use of blockchain technology. First, it is better tailored to deal with issues of jurisdiction where the entities using blockchain to communicate information with one another are from different legal jurisdictions. Second, as smart contracts evolve to at least partially represent the parties’ intentions, the freedom to select arbitrators who can understand the limitations of coding language when determining such intentions will become highly valuable. Along the same lines, arbitration also allows parties some room to detach from the traditional framework of contract law whose doctrines of contract validity, formation, and interpretation may not be readily applicable to contracts that adopt the use of smart contracts on blockchain platforms[6].
Blockchain Supporting Key Components of Arbitration Process
Being one of the oldest and most efficient Alternative Dispute Resolution (“ADR”) mechanisms, arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute.
In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court and aim for a time-bound and specialized decision-making process.
Arbitrations are typically document and fact intensive; each arbitration case is subject to four procedural aspects and two legislative phases. The procedural aspects are those related to the submission of pleadings, interim measures, evidence, and award drafting. The legislative phases are restricted to data security as well as the challenge and the enforcement of the issued final award.
A) Permissioned blockchain technology may allow a smooth management of the arbitration process and facilitate the information exchange. It can also limit arbitrary human dynamics especially as the disputing parties mainly rely on shared information that are maintainable and auditable among them in order to prove claims or establish their respective defenses regarding disputes, inefficiencies, costs, and delays.
B) Below we detail some advantages related to the use of blockchain during the process of arbitration to make it more efficient and free from unnecessary indulgence of stakeholders:
- Communication & Calls of the Disputing Parties. These calls can be carried out using an integrated VoIP (Voice Over Internet Protocol) calling facility and will be also automatically recorded and cannot be manipulated.
- Briefs, Transcriptions & Document Management. The tool in the blockchain system can quickly and efficiently provide synopsis and briefs of the record which would be beneficial not only to the Arbitral Tribunal but also to the disputing parties.
- Confidentiality / Security of Data: Blockchain is the secure and safe 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 third parties are entirely absent from the proceedings, the possibility of breach of data and information is negligible. Disputes arising out of smart contracts can be made confidential, which will limit the exposure of the nature of dispute between the parties. Blockchain has a decentralized structure and the security of the system is protected by cryptography.
C) The value of Blockchain technology can be expanded to support the overall arbitration process, including its procedural aspects and legislative phases, beyond the immutable records managed. Depending on the standardization and adoption of the technology among entities and private and governmental organizations, blockchain technology can help facilitate, automate, and secure the process and produce efficiencies. Areas in the overall arbitration process that blockchain can support includes:
- Notice of Arbitration. The disputing parties may agree to conduct the arbitration process using a system that utilizes blockchain. In such an event, the claimant will create digital records that will be replicated to all the approved stakeholders in the arbitration. Similarly both disputing parties will be able to exchange information via the digital platform.
- Appointment of Arbitrator(s) & Case Management Conference. Once the notice of arbitration has been sent, the appointment of the arbitrator(s) can be done through blockchain. Thus all exchanges of documents, emails, messages, etc. are automatically recorded and replicated without manipulation at computers of the arbitration participants. The case management conference can be further held via blockchain integrated video conferencing facility, enabling it to be automatically recorded, transcribed, and filed in original without manipulation through computers of the arbitration participants.
- Terms of Reference. The terms of reference agreed to between the disputing parties can be done as self-executing smart legal contracts (“SLCs”), to be resolved as the arbitration progresses. Each of these self-executing SLCs will continue to get resolved as the documents are filed and witness statements are exchanged. This tool can advise on the shifting burden of proof to assist the Arbitrator(s)[7].
- Pleadings. The pleadings including four rounds of submissions including, but not limited to, a Statement of Claim / Counterclaims, Statement of Defense, reply to Statement of Defense / Counterclaims, Rejoinder and further submissions that can be submitted online and are automatically served to the disputing parties and the Arbitral Tribunal along with automated acknowledgments. This ensures timely submission and helps maintain the uniformity of pleadings thus circulated. Any delay will also be penalized in terms of time or cost as prescribed by the Arbitral Tribunal or as agreed by the parties. The fear of ex-parte communication will also be mitigated when the procedural orders and communication by the Tribunal will be auto-delivered to both parties and their respective representatives.
- Interim Measures. Interim measures that are sought from courts can be executed on the blockchain if the judicial system of a particular jurisdiction allows for a seamless digital interface with the parties’ computers. In the case of an automated interface with the judicial system, the execution of court orders can also happen immediately provided the jurisdiction’s administrative machinery is using blockchain.
- Recording of Evidence. The efficiency of blockchain can be seen in evidence-taking. Witness conferencing, cross-examination, and taking of oral evidence can be easily done using video conferencing suites, or even if hearings are done physically, they can still be transferred on blockchain and stacked for procedural integrity and automatically delivered to all participants to the arbitration process. Statements of expert witnesses, oral submission by experts, and expert communications can be recorded on the blockchain. The prompt availability of the oral submissions can definitely enhance the time efficiency and reduce the hearing related costs. Most importantly, gathering evidence through oral or written submissions or through witnesses and experts via blockchain preserves the recording and does not allow the manipulation or denial of the exchanged information.
- Preparation of the Final Award. Blockchain tools can crucially be used by the arbitral tribunals in preparing their final awards. These tools ensure that all necessary ingredients essential for the arbitral award drafting, reasoned, and enforceable have been taken into consideration. The blockchain tools will start and continue to prepare and draft the final award at the earliest point of the beginning of the arbitration process and as it progresses.
- Security of Data. Blockchain is a secure way to store information because each block is replicated and authenticated by all stakeholders to the proceedings. The provision to unilaterally alter or delete any data does not exist until authenticated by all stakeholders. In the absence of intervention of a third party, there is no network administrator or supervisor making the possibility of data breach negligible. Blockchain has a decentralized structure and the security of the system is protected by cryptography.
- Challenges of the Final Awards. The chances of a final award being set aside for procedural considerations are negligible for the following reasons: (i) the procedures followed in the arbitration process is the lex-arbitri; (ii) no allegations of fraud by the parties or mishandling by the arbitral tribunal are possible; (iii) appeal does not exist in arbitration; (iv) the final award cannot be challenged on the merits; (v) no judicial review is possible. In a blockchain-based arbitration system, the stakeholders can program their agreements into a smart contract that manages their arbitration procedure. These agreements seamlessly interact with smart contract code to ensure the enforceability of any arbitral awards[8].
Challenges of Permissioned Blockchain in Supporting the Arbitration Process
Blockchain technology is introducing exciting opportunities into industries, including the arbitration process. Its ultimate impact and major challenges are yet to be seen in the road map for adoption. To that effect, Blockchain technologies have a twofold impact on dispute resolution. On the one hand, looking at potential future developments, these technologies seem to have the ability to marginalize State courts by enabling the creation of self-enforcing systems of private dispute resolution. These arbitral systems pose some significant challenges and trigger the need for transnational law-making, concerning, in particular, the balancing of conflicting needs in the enforcement phase[9].
Finally, it is noteworthy that leveraging blockchain as part of the legal system shows that multi-fold reforms are needed before such a system can gain wide acceptance and use. Its related required reforms and challenges include:
- Establishment of Standardization. Any new developing technology should be subject to globally acceptable standards to ensure its success; blockchain is no exception. Adopting the right legal standards for the blockchain technology can ensure its interoperability and generate further trust among the users, whether legal practitioners, disputing parties of an arbitration or arbitral tribunals. Such standardization will certainly ease the use of the blockchain in arbitration, support its development and create a pathway to mass adoption. However, as the blockchain technology and its standards landscape are complex and cover several supra-national, national and industrial and technical organizations, the establishment of unified standards requires a global active contribution engaging closely with all relevant bodies. In that respect, some important organizations in the European Union blockchain standards include StandICT, European Standardisation Organization, Supra-national and industry organizations, National standards bodies, Open standards bodies, INATBA.[10]
- Laws/Procedures in Support of Acceptance. Both the UNCITRAL Electronic Model Law on Electronic Commerce and the ‘UNCITRAL Convention on Electronic Communications in International Contracts’ are the primary legal instruments providing legal recognition to on-chain arbitrations and facilitating, therefore, the blockchain contracts[11]. It is to be noted in that respect that Articles 6 and 18 of the aforesaid 2007 Convention allows electronic data records and electronic transactions ( i.e., the on-chain arbitration).
- Applicable Jurisdiction. There is currently no regulation in trans-national blockchain-based arbitration. Such deficiency causes a serious challenge regarding the designation of the applicable jurisdiction in a blockchain-based arbitration. On the other hand, due process is a fundamental plank of international arbitration. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards enshrines this concept and its article V(1)(b) may sanction a lack of due process by refusing to recognize and enforce an award. However, such a sanction is futile in the case of final awards rendered via the blockchain system and the self-executable smart contracts since enforceability is automatic[12].
- Data Exchange. Confidentiality is an essential principle in arbitration. Even though the blockchain assures, to a great extent, the protection of data, data privacy can pose significant concerns for various reasons as (i) independent third parties might get involved in the arbitration process as an oracle in dispute resolution; (ii) hackers also keep updating their skills; and (iii) no technology is flawless. Accordingly, it is to be noted that on the technical side, the blockchain system has to be made dynamic enough to keep abreast with the challenges of new advents in unethical hacking. Furthermore, the General Data Protection Regulation (GDPR) provisions are not currently empowered enough to regulate the intricacies in the decentralized functioning of blockchain, which makes it difficult to impose liability on data controllers. Subsequently, the traceable feature of blockchain is again in conflict with the GDPR’s requirement of the “right to be forgotten”[13].
- Training. It is essential to organize appropriate initial and continuous training programs for lawyers, law firms, and legal practitioners to ensure (i) an unimpeded use of the blockchain technology; (ii) a constant uninterrupted update of their information in relation to this rapidly developing technology.
- Adoption. The adoption of the blockchain technology needs to be gradually implemented in order to be properly understood and applied by all legal practitioners. It may also need to grow organically among the relevant professional groups that advocate to establish standards across the legal industry as a whole.
The blockchain innovation presents new challenges to arbitration as an alternative dispute resolution. This article offers a coherent framework and details, an overview of the blockchain technology, and its revolutionary potential for arbitration. It observes the intersection of such technology with arbitration and the supporting key components it represents in the arbitration process. It finally explains the legal challenges that the permissioned blockchain is currently facing and the multi-fold reforms that shall be required before setting such a system to use.
