In this article, we will cover some of the basic features of the arbitration and dispute resolution systems proposed by EOS.
What is dispute resolution?
Since ancient times, societies have found ways to resolve disputes among its citizens. Although in the early ages of civilization most disputes were resolved through the use of violence, most societies soon after began to refer disputes to the judgement of certain individuals deemed to be qualified for that: kings, priests and ultimately, judges. Today, most people in the world will have their disputes judged and settled by state-controlled courts and their respective judges. These procedures are commonly referred to in civil courts as “lawsuits”.
As opposed to traditional courts, alternative dispute resolution (ADR) systems have existed for a long time and are a growing trend in the world. They provide alternatives to courts, as the parties of a claim may seek the aid of a third-party to settle their controversies. The demand for ADR methods only increases as the caseload in traditional courts is unprecedented, resulting in slow and costly legal proceedings. Today, many jurisdictions recognize the benefits of ADR and some apply it into their own courts system, such as the European Union (European Mediation Directive of 2008).
Why arbitration as means of dispute resolution?
Among numerous ADR methods, the most commonly used is arbitration. In brief, arbitration means the settling of controversies by a third-party chosen or agreed by the disputing parties. As you will note, one of the key differentiators between arbitration and traditional courts is that the parties may choose who will judge their disagreement. Although in some jurisdictions and cases the parties may select to which court they may bring a claim, it is uncommon that they would be able to pick the court judge to settle the dispute.
It is easy to notice that arbitration offers several advantages, including the following:
- Choice of Arbitrator: Parties elect who will settle their differences. This way, parties may choose arbitrators that are qualified to judge their case (e.g. a dispute over the specifications of a software may require an arbitrator knowledgeable in the technical aspects of the dispute);
- Confidentiality: Unlike a trial that is public in most cases, arbitration disputes may be kept confidential, if agreed by the parties.
-Speed: Due to the increasing caseload in courts, arbitration proceedings tend to resolve disputes much sooner. In most cases, arbitration awards are also non-appealable, as opposed to court cases.
How valid are arbitration clauses?
Arbitration proceedings are usually derived from and require an arbitration clause that is inserted into the contract signed by the disputing parties. A common arbitration clause would be as follows: “All disputes arising out of or in connection with the present contract shall be finally settled by one or more arbitrators appointed by the parties”. In addition to this simple clause, the parties are free to add additional details about the proceedings, such as the appointment of a specific arbitrator or chamber, the general rules governing the arbitration, deadline for delivery of final arbitration award, among others.
Although certain restrictions may apply, arbitration clauses are generally recognized and enforced in most jurisdictions. As an example, 159 countries have signed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which establishes that countries must recognize arbitration agreements and clauses.
Nevertheless, it is important to note that, according to the aforementioned Convention, signatory countries still possess certain discretion to refuse recognition and enforcement of arbitral awards in two cases:
“a) the subject matter of the difference is not capable of settlement by arbitration under the law of that country;
or b) the recognition or enforcement of the award would be contrary to the public policy of that country”.
The issue of recognition enforcement of arbitration clauses and awards is still subject to controversy in many jurisdictions, especially in cases relating to employment agreements, consumer contracts and certain electronic/online agreements.
The EOS Dispute Resolution System
EOS intends to use arbitration as the dispute resolution system for any disputes between users of the EOS blockchain. The EOS Constitution will contain an explicit arbitration clause and any transactions on the network will incorporate the hash of the EOS Constitution in them. This will ensure that, in carrying out transactions on the network, all parties will agree to and be bound by the EOS Constitution and, consequently, to arbitration.
Similar to the block producers, the EOS ecosystem will have a number of selected arbitrators voted by the community. These arbitrators will be responsible for the settling of any controversies among the users, acting as judges on the EOS network. A great example of how an EOS arbitration proceeding would look like has been detailed in this Medium post by Thomas Cox, Blockchain Governance Expert at Block.one.
A number of questions are expected to be raised along the way. A real concern many may have is whether jurisdictions will enforce the arbitration clause contained in the EOS Constitution. As we mentioned above, it is likely that the EOS arbitration clause could be disputed in courts if the content of the claim is considered to be one of public policy or subject to special protections in that given jurisdiction (e.g. consumer contracts or employment agreements). Only time will tell how courts may interpret this novelty in the blockchain space.
Although there may be obstacles in the future, the EOS arbitration system is one of the most ambitious ideas in the blockchain space. Its attempt to create a closed system within the blockchain with a Constitution and dedicated dispute resolution system, irrespective of national borders, will be an exciting development to follow. At EOS Argentina, we intend to take part of the movement to create this brave new world.
This post was created by Luis Brecci, a legal advisor for EOS Argentina. If you have any questions or comments about it, feel free to e-mail Luis at [email protected] or EOS Argentina at [email protected].
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