There are currently no laws on smart contract dispute resolution. While a smart contract may be functionally executable to the extent that the transfer of assets and payment is all that is required, in situations where the code does not perform as intended by the parties or there is some form of disagreement, there is currently no formal redress system to resolve such issues or disputes. To this end, Alternative Dispute Resolution (“ADR”) provides parties with the formal means to resolve disputes in a private setting and without resorting to courts. This offers a two-fold advantage over the informal and unilateral approach taken by Ethereum. First, it transfers legal authority to an independent and experienced arbitrator, who uncontroversially is qualified to hear and rule on disputes. Second, it elevates computer code to binding contractual provisions and provides a legal platform for recognising and enforcing legal rights in a smart contract.

In this respect, not only are arbitrators better placed to consider principles of contract law to determine what the parties have agreed, but they also have the authority to render a legal judgment that would be enforceable in a court of law. Naturally, given the lack of representative capacity of constituents of the blockchain (i.e. developers, creators, or investors) and the lack of recognized legal form of distributed autonomous organisations (“DAOs”), which are organisations that are run through rules encoded as smart contracts, ADR provisions would need to be tailored to suit the nuanced requirements of such transactions. We discuss the advantages of arbitration as a form of dispute resolution for blockchain-based smart contracts further here.

Notwithstanding the challenge of developing such a discrete and adaptable set of smart contract provisions, ADR offers an important opportunity to test blockchain technology disputes and develop an effective system of governance that balances the values of blockchain immutability with the need for certainty in contracts. Although we are still a long way from smart contracts entirely replacing traditional legal contracts, we have already begun moving in that direction and it seems clear that the businesses that keep apace with technological innovation in this rapidly evolving area will gain a competitive advantage.

Sources

• “Smart Contracts”: The Next Big Battleground?
• South African Reserve Bank Circulates First Ever Smart Contract Using Private Ethereum Blockchain
• Smart contracts for finance parties