Arbitrating Digital Assets Disputes

As technology is rapidly evolving both national courts and arbitral tribunals are adapting to the challenges that it poses. Arbitration, however, offers some unique advantages as a forum for resolution of disputes over digital assets.

1: Is arbitration a suitable forum for digital assets dispute? Why?

Arbitration is well-suited to the needs of digital assets traders as it offers welcome flexibility and effectiveness. Some of the benefits that arbitration can offer over court litigation include:

• Ability to elect applicable law and jurisdiction – Potential issues that may arise in digital assets disputes relate to the arbitrability of the dispute, evidence of ownership or title and availability and enforceability of remedies and relief. These issues can be further complicated by the fact that digital asset disputes often lack a clear geographical connection. As such, the ability to select the applicable law and jurisdiction avoids the uncertainty as to which national court has jurisdiction over the dispute.
  
  Given that the courts at the seat of arbitration have important supervisory and supportive functions, such as granting interim measures, hearing applications to set aside or annul arbitral awards, etc, it is important that parties select jurisdiction which is arbitration-friendly and has a good track record in enforcing arbitration agreements and arbitral awards.
  
  English courts are experienced with dealing with digital assets disputes and continue to adapt to the challenges that these disputes present. Cryptocurrencies and non-fungible tokens (NFTs) are recognised as property in English law, which is of great significance to parties, which may seek redress from English courts in the form of interim proprietary injunctions and worldwide freezing orders.
  
  In AA v Persons Unknown Who Demanded Bitcoin on 10th and 11th October 2019 & Ors [2019] EWHC 3556 (Comm) the English High Court found that cryptocurrencies can be the subject of property rights given that choses in action encompass intangible property. Later cases including Ion Science Limited & Anr v Persons Unknown (21 December 2020), Fetch.ai Ltd v Persons Unknown [2021] EWHC 2254 (Comm), and Zi Wang v Graham Darby [2021] EWHC 3054 (Comm) support that view.
  
  Arbitration can be a suitable method for resolving digital asset disputes even where certain remedies sought are unavailable. This is illustrated by Grosskopf v Grosskopf [2024] EWHC 291 (Ch) where the court held that provided an agreement to submit a dispute to arbitration is not contrary to public policy, the fact that a claim sought relief which the tribunal could not grant did not make the dispute inarbitrable.
  
  
• Adaptability and party autonomy – The inherent flexibility that arbitration offers can be used to address the many unique technical challenges arising from cryptoassets. Since parties can shape the format of the proceedings, arbitration can be a speedy mechanism to resolve technologically complex disputes. For example, in addition to the ability to select the applicable law and jurisdiction, parties can choose the arbitration rules that will govern the proceedings, number of arbitrators, use of artificial intelligence, etc., thus tailoring the process to their needs while ensuring equal footing of the parties along the way.     
  
  
• Expertise – Arbitration offers a unique benefit to those participating in the digital assets sector, namely access to expert arbitrators. Some national courts lack sufficient expertise in resolving digital asset disputes (and there is no guarantee that the parties will have access to such judicial experience that does exist) or adopting different approaches to digital assets, the ability to select arbitrators with specific expertise in managing such disputes ensures informed and fair outcomes.
  
  
• Confidentiality – The confidential nature of arbitration is an attractive feature in a space where anonymity is treasured. Parties may want to keep information about their businesses, innovations and trade secrets confidential, which is why arbitration can be more appealing than court proceedings.
  
  
• Enforceability of arbitral awards – Given the cross-border nature of cryptocurrency disputes, it is a great advantage that arbitral awards are enforceable in over 170 countries under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the New York Convention”). 
  
  While there are very limited grounds on which an arbitral award can be refused enforcement, one of grounds of significance to digital assets disputes is infringement of public policy. Recently the English commercial court took a rare decision to refuse enforcement of an arbitral award on such grounds (see Payward Inc and Others v Chechetkin [2023] EWHC 1780 (Comm)). The dispute arose out of a user agreement of a crypto exchange, which was governed by English law, and which contained an arbitration agreement. According to the dispute resolution provision any dispute (except for certain disputes relating to intellectual property) was to be resolved through arbitration administered by JAMS with the seat of arbitration being California, the USA. The sole arbitrator refused to apply, or even consider, English law (particularly the Consumer Rights Act 2015 (“CRA”) and Financial Services and Markets Act 2000 (“FSMA”). When the claimant sought to enforce the award against the defendant, a British citizen resident in England, who was found to have acted as a consumer, the court held that, in the circumstances, enforcing the award would be contrary to public policy under section 103(3) of the Arbitration Act 1996. The court confirmed that both the CRA and FSMA formed part of English public policy and the arbitrator’s refusal to consider the acts was sufficient to make the award unenforceable as a matter of public policy.
  
  The court further held that the fact that the tribunal had ruled on its jurisdiction did not bind the courts of a different country when they were asked to enforce the award.
  
  This case is a rare example of an arbitral award being refused enforcement in England and Wales. There are jurisdictions, however, where the enforcement of arbitration award may regarding digital assets face opposition on public policy grounds (e.g. Russia, Qatar and China). It is, therefore, important that arbitration users carefully select the applicable law and jurisdiction when dealing with digital asset disputes. 

2. Are there any specialised arbitration rules for blockchain and smart contracts?

At its core, blockchain is a type of shared database which stores information in a specific manner, namely in blocks linked together via cryptography. It maintains a secure, decentralised and transparent record of transactions. One of the best-known applications of blockchain technology is in cryptocurrencies. 

Smart contracts also rely on blockchain technology to automate and enforce agreements. They are self-automating agreements written in code, which are programmed to respond to specific conditions. For example, if a delivery deadline is missed, the smart contract can automatically withhold payment until the dispute is resolved.

Most institutional arbitration rules are flexible enough to allow arbitrators to adapt the arbitration process so that it is suitable for smart contracts and crypto asset disputes. That said, given the unique challenges and opportunities that blockchain technology present, some arbitration institutions have introduced rules specifically tailored to disputes arising out of disruptive technologies. 

JAMS introduced draft Rules Governing Disputes Arising out of Smart Contracts (“JAMS Rules”) in 2018. JAMS Rules contain several provisions to ensure that a smart contract dispute is delivered within the mandated 30-day period from the appointment of an arbitrator. For example:

• Sole Arbitrator – The dispute will be decided by a sole arbitrator.
• Emergency Relief Procedures – By default JAMS' Emergency Relief Procedures for Smart Contract disputes will apply to the arbitration proceedings unless the parties agree to opt out.
• Limited Discovery – Discovery is limited to the deposition of one competent individual expert witness as to the meaning of the Smart Contract coding.
• Limited Evidence – The only documentation that will be reviewed or considered by the arbitrator shall be the written contract, the computer code and the witness's testimony.

The government backed UK Jurisdiction Taskforce (UKJT) published its Digital Dispute Resolution Rules (“the DDRR”) in 2021. The DDRR are designed to provide a framework to govern disputes relating to disruptive novel technologies, such as cryptoassets, cryptocurrency, smart contracts, distributed ledger technology, and fintech applications. They can be incorporated into on-chain relationships and smart contracts. The DDRR give the parties flexibility to shape the arbitration process to their needs while ensuring a quick resolution of the dispute. This is done by specifying that as default the parties have no right to an oral hearing and the tribunal can determine the dispute on the basis of written submissions only. Furthermore, the tribunal should use its best endeavours to determine the dispute within 30 days from appointment, unless the parties agree otherwise.  Other features of the DDRR include:

• Tribunal’s powers in relation to digital assets – The tribunal will have broad powers to operate, modify, sign or cancel any digital asset relevant to the dispute.
• Optional anonymity – The DDRR allow for anonymous dispute resolution by parties providing their details to the tribunal only. This feature is likely to be of limited benefit to parties. This is because while party anonymity may not be an issue during the proceedings, disclosure of parties’ identity details is required for enforcement of arbitral awards. 
• Publication of Awards – While the DDRR do not go as far as requiring that all awards be published, where the tribunal considers that an award may be of general interest and the parties do not object to it, an anonymised form of the award will be published. 

The London Chamber of Arbitration and Mediation ("LCAM") has introduced a set of new rules designed to resolve digital asset disputes. The Blockchain Expedited Arbitration Rules (“the Rules”) came into force on 9 December 2024 and are designed to ensure enforceability of arbitral awards both “on-chain” (using Immunefi’s Vault system) and “off-chain” through the New York Convention. Other features of the Rules include:

• Expedited Process – The Rules provide that the proceedings will be held electronically and on a “documents-only" basis. There is no disclosure of documents and no hearing by default. The overall timescale of the proceedings, from the appointment of the arbitrator to the issue of the award, should be no longer than 4 months. In addition, there are strict word limits on submissions and evidence and a page limit for bundles.
• Optional Anonymity – The Rules give parties the option to remain anonymous with their identity details being provided only to LCAM and the arbitrator. This feature is likely to be of limited benefit to parties. Similarly to the DDRR this feature is likely to be of limited benefit to parties. 
• Publication of Awards – By default the final award, any other awards and orders on the merits will be redacted and published by the Secretariat of LCAM, unless parties agree otherwise. This has the potential to create a useful source of case law and uphold the legitimacy of the arbitration process, particularly in a new, fast-changing and technologically complex sector.
• Fixed Fees – The Rules introduced a fixed fee structure with claimant and/or counterclaimant fee being fixed at £7,500 for claims up to £1 million (this allows the arbitrator to devote up to 20 hours work). The fees increase to £10,000 for claims above £1 million (allowing up to 40 hours work by the arbitrator). In addition, there is a £150 registration fee payable to register the claim or counterclaim with the LCAM.

The above rules together with the rest of the existing institutional arbitration rules are used in off-chain arbitration which is akin to traditional arbitration proceedings and does not involve automatic enforcement of the arbitral award. On the contrary, on-chain arbitration utilises smart contracts to automate all or some of the arbitral process with the equivalent of a traditional arbitral award being automatically enforced by the smart contract. Many of the platforms, e.g. Kleros, Juris, Confideal, Mattereum and CodeLegit, etc, offer on-chain arbitration services for simple disputes, which do not involve complicated matters/ documentation. 

In conclusion, when it comes to digital asset disputes arbitration represents an attractive alternative to traditional court litigation. Whether parties should include an arbitration clause in their contract depends on the specific circumstances of the contractual relationship between the parties. While the flexibility and confidentiality of the arbitration proceedings, the ability to select arbitrators with specialised expertise and the wide enforceability of arbitral awards inevitably makes arbitration a popular forum for crypto businesses, care must be taken to consider some issues before a dispute arises, namely:

• Selecting a favourable applicable law and jurisdiction to ensure that potential issues concerning ownership or title, available remedies and arbitrability can be tackled effectively;
• Establishing an enforceable arbitration clause is of paramount importance. For crypto asset platforms this means that the arbitration agreement needs to be properly incorporated into their terms of service;
• Considering confidentiality and privacy issues – while the private and confidential nature of arbitration is appealing, it can also lead to difficulties in obtaining access to evidence or material relating to an earlier arbitration award. The case of Lincoln National Life Insurance Co v Sun Life Assurance Co of Canada, Neutral Citation Number [2004] EWCA Civ 1660) illustrates that different arbitrations on closely inter-linked issues may lead to different results due to privacy and confidentiality;
• Obtaining interim relief and urgent measures may be more difficult or cumbersome in arbitration proceedings particularly when dealing with unknown parties (arbitration agreements do not bind parties outside the agreement) or difficult parties which can slow the appointment of an arbitral tribunal.
• There is potential for jurisdictional challenges and inconsistent judgments. The fact that arbitral awards are not binding on third parties can be problematic in crypto asset disputes involving multiple parties. In addition, arbitrators in different arbitrations may reach inconsistent decisions on closely related or similar issues, which may lead to uncertainty for arbitration users.