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Blockchain & AI: Is the Cocktail Right for Conduct of Arbitration?
The article focuses on the use of blockchain in the process of arbitration to make it more efficient and free from the unnecessary indulgence of any stakeholder.
Much has been written about smart contracts, smart legal contracts, Artificial Intelligence, cryptocurrency and blockchain. Typically when we talk about blockchain in Arbitration, it resonates with resolving blockchain disputes using Arbitration. However, what the author is focusing on in this article is the use of blockchain in the process of arbitration to make it more efficient and free from the unnecessary indulgence of any stakeholder.
Arbitration process can be broadly broken down into six essential ingredients. Four are procedural aspects and two are legislative. The procedural ones are; submission of Pleadings, interim measures, taking of evidence and preparation of award. Two legislative are; security of data and the challenge & enforcement of Award. Blockchain with some ingredients of Artificial Intelligence can make the arbitration process flawless and absolutely free from the dynamics of human arbitrariness. Let’s see how.
The Arbitral Procedure
1. Notice of Arbitration. The process of arbitration begins with the notice of arbitration by the Claimant. It is not critical if the parties did not expressly agree to the conduct of arbitration using blockchain. A submission agreement could suffice that. Based on method adopted in the contract, Claimant having met the conditions of dispute resolution clause, can send the notice of arbitration. Claimant will require to create a digital platform using simple blockchain algorithm. This platform will be replicated at the respondent’s place of operation such that the arbitration can be conducted smoothly. It’s like an app where both parties exchange information. Parties can agree to use single server at either party’s premise or have independent servers. We will call this the blockchain. This blockchain needs to be provided to all stakeholders in an arbitration.
2. Appointment of Arbitrator. Once the notice of arbitration has been sent, appointment of tribunal/ Arbitrator can be done on the blockchain. The tribunal is part of this blockchain and exchange of documents, emails and messages etc. are all recorded automatically and replicated at all stakeholders computers, without the involvement of any third party. The case management conference can be done online using integrated video conferencing facility of blockchain which gets automatically recorded, transcribed and filed at the computers of all stakeholders in original and this cannot be manipulated. Even the calls to parties can be done using integrated VoIP calling facility and recorded automatically. Also, the terms of reference set out between the parties can be programmed as self executing smart legal contracts, to be resolved as the arbitration progresses. Each of these self executing SLCs will continue to get resolved as the documents are filed and witness statements are exchanged. The tool can advice on the shifting burden of proof to assist the Arbitrator.
3. The Pleadings. The Pleadings viz. statement of claim, statement of defence, counter claim, reply to counter claim, and further submissions etc. can be submitted online and are automatically served to the parties & the tribunal and an acknowledgement is automatically generated. This ensures time bound submissions. Any delays will automatically be penalised in terms of time or cost penalty prescribed by the tribunal or as agreed by the parties. The procedural orders and communication by the tribunal will be auto delivered to both parties and their representatives, mitigating the fear of ex-parte communication and lapse of due process.
4. Interim Measures. Interim measures when sought from courts can be either executed on the blockchain if the judicial system of a particular jurisdiction allows for seamless digital interface with the petitioners computers. If not, the court orders can be subsequently executed offline by the tribunal, as the case maybe. In case of automated interface with judicial system, the execution of court orders can happen immediately if the jurisdiction’s administrative machinery is using blockchain. Otherwise, even offline execution can be done without interference of the parties.
5. Taking of Evidence & Preparation of Award. Taking of evidence and preparation of award, is where blockchain can be very efficient. Submission of witness statements, submission of documents and exhibits or any other evidence can be done by the parties online and they are automatically delivered to all stakeholders. Artificial Intelligence can carry out the role of document forensics and statistical detective, identifying instances of fraud and statistical mismatch. Witness conferencing, cross examination and taking of oral evidence can be easily done using integrated video conferencing suites or even if hearings are done physically, they can still be transferred on blockchain and stacked for procedural integrity. Statements of expert witnesses, oral submission by experts and expert communications can be done using integrated suites and recorded on blockchain. Best part is where all oral submissions get transcribed in real time and are available to the counsel during witness cross examination can enhance time efficiency and as a result reduce costs in Arbitration hearings. Artificial Intelligence with gesture recognition tools can advice the counsel if witness is lying. Moreover there is no scope of manipulating or denying anything said during the course of gathering evidence and proving witnesses.
The Settlement Averages
One of the critical propositions of this article is the Settlement Average. Before, during or after completion of hearings, the Artificial Intelligence based self executing tool will continue to provide both parties an opportunity to independently assess the outcome of the Arbitration and get to known what is the amount of settling the dispute at any point before or during the Arbitration. This is subject to parties prior acceptance of the proposition to settlement averages, the AI tool will continue to advice the parties without the involvement of third party or the tribunal. This will happen without anybody knowing what the other party sees. This can not only prevent parties from getting into any frivolous claims but also proactively predict the outcome of arbitration and likely damages based on historical data in order to settle it.
Briefs, Transcriptions & Document Management
Blockchain based arbitration can quickly and efficiently provide synopses and briefs of large arbitration awards from the archives, for example in cases of voluminous investment arbitrations. The case laws quoted by the parties or sought by the tribunal can be quickly looked up and a smart brief generated for the benefit of all stakeholders. The AI tools will undertake the digital document management and arrange the documents in chronological order with auto indexing and hyperlinking of all exhibits and references. Even the witness statements and transcription of oral exhibits can be hyper linked to where they have been quoted. The blockchain tools will assist tribunals with the preparation of awards and ensure that all necessary ingredients to make the award reasoned and enforceable have been taken care of. The blockchain tools can also assist in preparation of settlement agreements and consent awards where applicable. There will be no need of tribunal secretaries or arbitrators relying on third party for preparation of award. No need for scrutiny by institutions or experts. In fact the blockchain will continue to prepare the award from beginning and as the arbitration progresses. When the blockchain keeps the tribunal informed of the due process and documents & exhibits are all temper proof and auto-linked, the probability of an award being set aside will be negligible. The tool will ensure that the award has all the necessary ingredients including the date, place and digital signature of the arbitrator.
Security of Data
Blockchain is the safest way of storing information because each block is replicated and authenticated by all stakeholders. The provision to change or delete any data does not exist until authenticated by all stakeholders. Since there is no third party involved, there is no network administrator or supervisor, the possibility of data breach is negligible. It’s not easy to hack a blockchain network because unless the login is authenticated by all stakeholders the hacker cannot enter. If somebody employs Quantum servers to hack into a lets say large value investor state arbitration on blockchain, it will be disappointed because the random key generator can reset login credentials and prompt stakeholders to reset their passwords on detection of an attempted breach.
Will the awards prepared using blockchain, and an arbitration conducted using blockchain & artificial intelligence be acceptable by the courts? This question can be answered in the positive for most of the jurisdictions in the world. Besides, the procedure followed is as per the lex-arbtri. In fact, since there cannot be any allegations of fraud by the parties or mishandling by the tribunal, the chances of an award being set aside on procedural lapses is minimal. Since the provision of appeal does not exist in Arbitration, and award cannot be challenged on merits of the case and there being no judicial review, it is essential that local courts promote blockchain based arbitrations. The enforcement of awards coming out of blockchain will be more simpler, and free from arbitrariness of the tribunals and the courts.
In conclusion, the present disposition of COVID and WFH, has provided the right opportunity for stakeholders to adopt blockchain based arbitration. It’s now or never. Certain companies are applying blockchain technology for dispute resolution. However, it is too little and too late. As the businesses switch to blockchain, dispute resolution must also catch up. And now is the right time. Because, resolution of disputes is the fundamental right, and must continue notwithstanding the challenges.
The author is Madhvendra Singh, an independent Arbitrator based out of New Delhi. He is a Commander in the Indian Navy and practices Maritime and Technology arbitration. He completed Masters of Technology from IIT Delhi.
He is a member of the Chartered Institute of Arbitrators, London, and conducts training on International Commercial & Maritime Arbitration at various institutes in India & abroad. (email@example.com)