World’s First Smart Contract Based Arbitration Proceedings Conducted

Datarella, that counts Intel, Siemens, Daimler and others among its clients, claims to have conducted the world’s first arbitration proceedings based on a smart contracts blockchain.

The start-up says they conducted a mock arbitration in a simple setting to showcase their project called CodeLegit. They say:

“Two parties agree on doing business that is defined in a Smart Contract. This Smart Contract includes our Arbitration Library. In parallel, both parties conclude a legal contract which includes an arbitration clause referencing the Blockchain Arbitration Rules.”

According to their seemingly still in development whitepaper, the arbitration clause states:

“Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the Blockchain Arbitration Rules.”

In most jurisdictions, the clause likely binds the parties to use the arbitration proceedings, although in some countries, like UK, they can in some circumstances appeal the decision to higher state courts.

Describing the process, if the smart contract has any bugs or if there is any breach of the contract, either party can pause it by calling function pauseAndSendToArbitrator.

Unless they have already agreed on an arbitrator, the function sends the matter to CodeLegit which acts as an administrator, managing the paper work and potentially proposing arbitrators.

The matter then proceeds as you’d expect a normal case. Case statements are sent by both parties, probably together with any Witness Statements as well as all the relevant evidence.

An oral hearing is then held online, unless the matter is sufficiently simple to decide on paper. Then, the arbitrator gives his ruling while also either ending the smart contract, re-starting it, or modifying it as may be required.

The difference from a normal case is the fact that all three parties – claimant, defendant, arbitrator – can be anywhere in the world, with the nature of its jurisdiction potentially global, while also likely recognized as binding in most western courts.

It should also be a lot cheaper because a number of facts won’t be disputable as much of what happened can be seen on the blockchain with the start-up further saying they will hash email communications between the parties on the bitcoin blockchain and on ethereum’s public blockchain.

This somewhat simple, but seemingly effective set-up, can then allow smart contracts to be used for actual contracts, such as goods purchases, crops futures, as well as potentially more complex contracts such as ICOs or when investing in a business.

It’s something that has often been talked about with the project, if it is to be useful, probably developing smart contract templates so that you can just plug and play.

Then, ethereum’s blockchain in particular, but other blockchains too, can put contracts back into smart contracts with the field now seemingly expanding to the legal system, which may join the many other industries that are exploring blockchain technology to increase efficiency and capabilities.