DISPUTE RESOLUTION OF SMART CONTRACTS – IS ARBITRATION THE WAY FORWARD?

“The power of technology to resolve disputes is exceeded by its power to generate disputes”

~Ethan Katsh

The legal industry has been revolutionised by the increasing impact of digitised contracts also
known as ‘Smart Contracts’. The parallel development of smart contracts and new forms of
decentralised dispute resolution such as blockchain arbitration has exposed the legal sector to a
conflicting array of rules by various state and non-state actors.

While smart contracts boast of various advantages, they come with their own set of limitations and
drawbacks. The issues range from coding errors to country specific issues, for instance, validity of
the contract as per domestic laws, difficulty in identification of parties, determination of governing
law, and enforcement of a court’s decision in other countries. The automation underlining the
contracts thrusts the parties to a dilemma when it comes to repudiatory breaches, allegations of
misrepresentations or duress, amendment in the contract, or subsequent change in law.

Determination of jurisdiction in smart contracts is another uphill task requiring careful analysis of
cross border transactions inherently spanning to various countries. It is one of the reasons why
national courts fall short while adjudicating claims arising out of smart contracts. In addition to
this, litigation in national courts undermines the decentralised efficiency model of smart contracts.

The unprecedent growth of smart contracts and consecutive automation fosters the emergence of a
specialised dispute resolution mechanism. Although arbitration has already gained momentum as
a preferable adjudication method in such disputes, it is bereft with various issues affecting its
legitimacy and enforcement of awards.

The question remains- Is arbitration the way forward? The chapter will discuss the viability of
arbitration as a method of dispute settlement, the practical issues and considerations surrounding
it with special focus on the issue of conflict of laws faced by the tribunal to render an enforceable
award, given the incidence being on cross border transactions.