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Blockchain Dispute Resolution – Use of Blockchain Technology in ADR

Introduction

Traditionally, the court has always been a renowned effective platform for dispute resolution. Back then, whenever a conflict or controversy arose between two parties, it always culminated in a judicial proceeding. The complication pertaining to dispute resolution, which provides for the process of resolving the conflict, claim, or dispute arising between the parties, is the method by use of which the dispute is resolved. As an alternative to the time-consuming court processes, to render speedy justice sprung from the aphorism ‘justice delayed is justice denied’ the ARD mechanism came into being. The ADR is the manifestation of importunate demands for finding an alternative to the conventional methods of resolving a dispute. ADR extends its hands to cover all range of disagreements viz. Civil, Commercial, Employer-Employee, Accidents cases, insurance coverage, IPR, Family and etc.

ADR mechanism enables an effective means of resolving a dispute between parties struggling to start any sort of dialogue, by appointing a neutral party, privately retained by the parties themselves to reach a point of amicable agreement. It allows litigants to have a degree of control over the dispute resolution process and its outcome.[1] ADR wrought to reduce the burden on the courts is of various modes namely Arbitration, Conciliation, Mediation, Negotiation, Med-Arb, Mini trail, Neutral Evaluation, Settlement Conference and Community Dispute Resolution Program. While ARD itself is purported to be advancement in the legal system made to par with the changing societal needs, ODR on the other side is the further stage of advancement, as it uses technology to resolve the dispute outside the courtroom. In other words, ODR uses the available information and communication technology to deliver ADR services. As posited by many scholars, ODR is the early harbinger of future dispute resolution in this digital era; it has evolved and brought forth Blockchain dispute resolution. Comprehending the concepts of ADR, ODR, Special Contracts, and its operations in the legal arena is a prerequisite to understanding how Blockchain technology is being used as a dispute resolution platform.

Alternative Dispute Resolution

The Fast Track Special courts have been constituted in India to resolve the longstanding crisis of slow judicial process and dispensation of justice, in line with Article 21 of the Indian Constitution, which guarantees the right to a speedy trial. However, it is incontrovertible that even after establishing thousands of fast-track special courts across the country, the issue of extensive delay in rendering justice is still impacting the functioning of normal courts. There comes the need for ADR, which aims to obviate the lassitude in settling cases.

To the common knowledge, dispute resolution takes place only after identifying the dispute. As per Black’s law dictionary, a conflict or controversy, especially one that has given rise to a particular lawsuit is perceived to be a dispute. In a broad sense, a resolution to a dispute can be arrived at either in an adversarial manner or an amicable manner, based on which, it has been divided into three viz. Traditional Dispute Resolution (in-court settlement pursuant to the procedure established by law), Alternative Dispute Resolution (Party-centric, out-of-court settlement), and Hybrid Dispute Resolution (cross-over of both).

By annexing the prefix ‘Alternative’ to dispute resolution, a dispute can be resolved through ADR, which has altered the general, conception that the only way of resolving a dispute is through approaching the court. As held in the case of Food Corporation of India v. Joginderpal,[2] the ADR process is meant to be simple, less technical, and in compliance with the principles of natural justice and fair trial.

The bedrock provision that laid the foundation for a speedy trial that ultimately contributed to the institution of ADR is Article 21; it is explicated in the case of Hussainara Khatoon v. Home Secretary, Bihar[3] that the right to a speedy trial is part and parcel of the right to life and personal liberty enshrined in Article 21 of Indian constitution.

Section 89 of CPC, 1908 has attempted to reduce the burden of the court by bringing about outside court resolution of the dispute as it prescribes the court to refer the parties for the resolution of the dispute to arbitration, conciliation, mediation, or judicial settlement including settlement through Lok Adalat. In pursuance of this provision, it can be done as follows, if a dispute is referred for,

  • Arbitration- the provisions of the Arbitration and Conciliation Act, 1996 shall apply
  • Lok Adalat- Sub-section 1 of Section 20 of the Legal Service Authority Act, 1987 shall apply
  • Judicial settlement- provisions of Legal Service Act, 1987
  • Mediation- the compromise shall take place as per the prescribed procedures.

Therefore, the alternative to the traditional method of dispute resolution has gained statutory recognition, which was widely purported conversely.

Online Dispute Resolution

As far as India is concerned, the status of ODR is promising; on one hand, the judiciary is extending its support unequivocally through judgments that elucidate the potential of ODR, and judges are vocally recognizing the same. The former chief justice of India, N. V. Ramana while stressing the need for use of ADR which can ultimately change the legal landscape, spoke on the recently launched ‘FASTER’ digital platform, which delivers court orders in encrypted electronic format and live streams the court proceedings. On the other hand, the executive through its ministries and departments emphasizes the use of ODR platforms; it can be exemplified by the launch of the SAMADAAN portal by MSME and the release of the ODR policy by RBI for digital payments.

In abstracto, the ODR is the settlement of disputes, especially small and medium-value cases through an online mode of communication between the disputants in a non-confrontational way with the help of a neutral third party. ODR takes cases that are having been initiated in cyberspace but with an offline source and can fully or partially be settled over the internet. In general, the ODR can entirely be done through the internet, where the parties have a real-time conversation by using various videoconferencing applications (Synchronous ODR) and via chats, emails, or other communication applications (Asynchronous ODR). In some cases, if parties decide, they may also meet in person to have a face-to-face interaction. ORD involves Mediation, Arbitration, and Negotiation to enable dispute resolution. It has expanded with the expansion of e-commerce.

Blockchain Dispute Resolution

What is Blockchain Technology?

In a nutshell, ADR is an alternative to court litigation, ODR is ARD conducted online, and Blockchain Dispute Resolution (BDR) is complementary to ODR. BDR platforms work on Blockchain and provide for the Dispute Resolution mechanism with the help of smart contracts, which are self-executing software that performs functions by itself without any human intervention. Though Blockchain doesn’t have a common definition, it is well known that it provides decentralized networks and works on distributed ledger technology (DLT). Blockchain started and gained its popularity as the technology behind bitcoin, its scope is built on its nature of being promising mitigating technology for cybersecurity. This technology produces a data structure where data are stored cryptographically in blocks, each block contains a transaction or bundle of transactions, which are linked by a chain and broadcasted to every party in the network. Through the participation of members across the distributed network, this technology enables decentralization as every transaction within each block is validated and agreed upon by consensus. Blockchain technology itself is considered to be democratic as no new block can be added or alternation can be made without the consensus of the majority of the members present in the network. With the addition of the new block, the modification or tempering of the older block is difficult.

What are Smart Contracts?

The Cambridge Centre for Alternative Finance defines Smart Contract as a self-executing software program that automatically performs some functions, which work on Blockchain. According to the Chamber of Digital Commerce, a smart contract is an instrument that executes underlying terms. The smart contract itself is not a legal contract, per contra, it is just a program or a code, when the predetermined condition on that code is met, and it executes the contract without any additional steps and third-party intervention. In other words, it is a computer protocol that aims to facilitate the performance of agreed contractual terms and enforce the same by allowing trackable, irreversible, and transparent transactions through Blockchain. In layman’s terms, smart contracts work like an ‘artificial agent’ between the parties, which executes the contract right after the predetermined conditions are satisfied.

How Does BDR Works? 

The disputed parties submit the conflict by drafting a ‘Smart Contract’ to the unbiased, incorruptible, expedited, relatively expensive platform to attain a neutral ground for resolution. The smart contract, which is basically a computer code, which operates as an automatic escrow is provided with the condition to be satisfied and submitted amount (Crypto or other Bitcoins) by the parties themselves. By meeting the conditions, the parties can avail the currency issued by the computer code.

To make the BDR enforceable, the parties opting for it should deposit the currency in advance and shall meet the condition within a stipulated time mutually agreed by the parties. If the conditions are not met, the currency would not be issued, whereby the BDR fails. Similar to ADR, BDR also works in compliance with the principle of consensus.

At present, there are only two types of BDR viz. mediation through Smart Contracts and Crowdfunded arbitration. While the former is explained earlier, the latter is still in its embryonic stage, which operates through majority decision-making by taking the votes cast by the members of the distributed network into account.

Conclusion

Besides, Blockchain Arbitration is also called on-chain arbitration, which has been recognized by UNCITRAL Electronic Model Law on Electronic Commerce (1996 Convention) and UNCITRAL Convention on Electronic Communications in International Contracts (2007 Convention) as these Convention has facilitated the Blockchain Contracts vis-à-vis Smart Contracts and validates the electronic data record and data transaction in arbitration. The shortcomings of ODR, like trust and confidentiality issue that challenges the credibility of the ODR mechanism, is promoting the growth of ODR. Security and privacy of data is a major concern, the website of the Permanent Court of Arbitration was hacked during the hearing of Republic of the Philippines v. the People’s Republic of China, an International arbitration between the Philippines and China, relating to the maritime border is the example of data security jeopardy in ODR. As far as India is concerned the BDR is being at its nadir, the Blockchain awards cannot be enforced in India as it is a grey area, which is yet to be defined and recognized by the law.

Reference:

  • https://www.ijlmh.com/wp-content/uploads/2019/04/Online-Dispute-Resolution-An-Indian-Perspective.pdf
  • https://www.scconline.com/blog/post/2022/04/25/smart-contracts-and-blockchain-arbitration-smart-solutions-paving-the-way-for-a-better-dispute-resolution-mechanism/

[1]https://www.thehindu.com/news/national/cji-wants-courts-to-promote-alternative-dispute-resolution-tools/article65306903.ece

[2] (1989) 2 SCC 347

[3] 1979 AIR 1369 1979 SCR (3) 532 1980 SCC (1) 98

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Snegapriya V S

A third-year student of law at Vellore Institute of Technology (VIT School of Law), budding first-generation lawyer cum legal researcher with multiple publications in various web journals and portals on different subject matters of law in issue. Being a zealous-natured person with thoughts enrooted in epistemophilia has boosted my passion for research writings by interpreting diversified legal facets. As a perceptive observer and reader, I pay greater attention to the overlooked legal fields where divergent challenges might arise, that include cyber law, environmental law, consumer law, and several constitutional provisions. Besides, I prioritize construing legal problems with social psychology. My dream and vision are to catch myself as a skilled legal adroit.


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