09/ Dispute Resolution for Smart Contracts

Dispute Resolution for Smart Contracts Isabelle Corbett, Senior Counsel, R3 Matt Britton, Consultant, R3 Ian Grigg, Consultant, R3 The Second R3 Smart Contract Templates Summit 16 November 2016 Private & Confidential 115 UNRESTRICTED

R3 AWG. Legal & Dispute Resolution Frameworks SWG 1 2 As part of the wider R3 AWG , the Legal & Dispute Resolution Frameworks SWG looked at the following areas, predominantly on the architectural aspects: • User agreements • Legal enforceability of smart contracts • Dispute resolution • Handling of dispute resolution 1 AWG = Architecture Working Group 2 SWG = Sub-Working Group UNRESTRICTED 116

User Agreements. How much change is needed to accommodate DLT? • Agreements governing parties’ behavior and obligations to one another still must exist • Contracts with automated elements are still contracts and, therefore, subject to contract law • Contract law will likely not change as quickly as technology advances, so agreements must adapt UNRESTRICTED 117

User Agreements. Types of Agreements Required • Agreements must be in place that address the following questions: • What determines who is allowed to participate on a ledger? • What governs behavior on the ledger? • What governs transactions in a particular assets? • What sets forth the terms of transactions that parties agree to? • Who else is providing services to facilitate transactions and what are the obligations that attach to provision of those services? UNRESTRICTED 118

User Agreements. Next steps • Look at the agreements that exist today and determine how much those agreements need to change to accommodate the technology • Learn from currently existing electronic trading agreements • Explore the identity question as it relates to signatures • Continue dialogue with regulators • These must be done in parallel with the analysis of enforceability of smart contracts and the suitability of contracts for conversion into “smart contracts” UNRESTRICTED 119

Assumption. Disputes will happen UNRESTRICTED 120

Assumption. Disputes will happen Dispute UNRESTRICTED 121

Assumption. Disputes will happen • More or less frequently • More or less expensive Dispute Goal: to create certainty and confidence UNRESTRICTED 122

Handling disputes. How do we deal with them? UNRESTRICTED 123

Handling disputes. How do we deal with them? Dispute initiateDisputeResolution() pause() UNRESTRICTED 124

Handling disputes. How do we deal with them? Dispute Resolution Exhibit A Dispute initiateDisputeResolution() pause() UNRESTRICTED 125

Handling disputes. How do we deal with them? Dispute Resolution Exhibit A Ruling Dispute initiateDisputeResolution() restart() pause() or terminate() UNRESTRICTED 126

Dispute Resolution. What are the options? Between parties within legal system Courts Between parties with independent, Arbitration decision-making arbitrator Between parties with independent, Mediation non decision-making mediator Between parties only Negotiation UNRESTRICTED 127

Dispute Resolution. What are the options? Between parties within legal system Courts Between parties with independent, Arbitration decision-making arbitrator Between parties with independent, Mediation non decision-making mediator Between parties only Negotiation • Expert knowledge • Cross-border jurisdiction UNRESTRICTED 128

Dispute Resolution. What are the options? Between parties within legal system Courts Between parties with independent, Arbitration decision-making arbitrator Between parties with independent, Mediation non decision-making mediator Between parties only Negotiation • Expert knowledge • Cross-border jurisdiction UNRESTRICTED 129

Arbitration. How would this work? Could be a natural fit for the challenges around expert knowledge and cross-border jurisdiction. Examples: SWIFT, CME, ISDA, EDI & LCH UNRESTRICTED 130

Arbitration. How would this work? Could be a natural fit for the challenges around expert knowledge and cross-border jurisdiction. Examples: SWIFT, CME, ISDA, EDI & LCH What would we need? • Arbitration clause in the legal prose of the Smart Contract • Administration • Policy / set of rules • List of arbitrators and mechanism for selection UNRESTRICTED 131

Arbitration. The challenges 1. Being able to find the experts UNRESTRICTED 132

Arbitration. The challenges 1. Being able to find the experts 2. Scope of disputes Or UNRESTRICTED 133

Arbitration. The challenges 1. Being able to find the experts 2. Scope of disputes Or 3. Volume of disputes UNRESTRICTED 134