CHRISTOPHE DUGUÉ - AVOCAT - INTERNATIONAL ARBITRATION - PARIS FRANCE
While his practice in the field of blockchain crypto disputes focuses on the resolution of disputes off-chain by means of international arbitration, including serving as arbitrator in blockchain and crypto disputes, Christophe Dugué displays a strong interest on existing and future dispute resolution alternatives.
In addition to his experience as arbitrator in blockchain/crypto disputes, Christophe is a regular speaker in conferences on the topics of the impact of new technologies on dispute resolution and the relevance of international arbitration to resolve blockchain and crypto disputes.
Conferences as speaker on the place of international arbitration in the context of the emergence of dispute resolution on-chain and artificial intelligence include:
Assas Lab’ Incubateur (University Paris 2), workshop held on 17 July 2023 on Harnessing the Power of Traditional Mediation and Blockchain Arbitration, participant
Paris Arbitration Week 2023 - CMAP, conference held on 30 March 2023, speaker on Blockchain, Crypto, Smart Contracts, Artificial Intelligence, an opportunity for International Arbitration?
Assas Lab’ Incubateur (University Paris 2), conference held on 8 March 2023 on New Trends in Technology and Law: Law in Times of Disruption / AI vs. Humans: Partners or Competitors?, speaker on The Place of International Arbitration vs. On-chain Dispute Resolution and Artificial Intelligence
If you are looking for an experienced Arbitrator or Counsel in crypto dispute international arbitration
Do not hesitate to contact me
The following developments are a brief presentation of certain concepts relating to arbitration of blockchain/crypto disputes and in no way constitute legal opinion or a legal advice.
Blockchain, Crypto, Smart Contracts, Metaverse, Artificial Intelligence.
What about International Arbitration?
The emergence of the blockchain and its use for smart-contracts (which in turn are used for Decentralized Finance-DeFi), crypto (coins, stable coins, crypto-currencies, tokens, Non Fungible Tokens-NFTs), and metaverse, as well as the development of Artificial Intelligence (in the sense of an object, not as a scientific field) are leading to the emergence of new types of disputes and possibly of new modes of dispute resolution.
Two main questions arise on the current and future place of International Arbitration with the emergence of new methods of dispute resolution and the emergence of new technologies.
What is the Blockchain? What Is it Used for? What Is Crypto? What Is a Metaverse? What Is a Smart Contract?
A blockchain is a decentralized ledger that allows the creation of a repository in which data once recorded are immutable and traceable.
Blockchain is a technology for storing and transmitting information that offers high standards of transparency and security because it works without a central control body. It allows its users connected in a network to share data without an intermediary.
A blockchain is a database, a distributed ledger that records a growing number of data, in a series of blocks linked together, using cryptographic hashes. Each new block contains the cryptographic hash of the previous one, is time stamped and contains the data of the transaction so recorded. The blocks are validated (by miners) and stored on a network of computers (nodes), used as a public distributed ledger, that implement a consensus algorithm protocol.
Data and transactions recorded on the blockchain are immutable because the data recorded in a block cannot be retroactively modified (which would require a modification of all subsequent blocks of the chain).
Transactions recorded on the blockchain are traceable. On 15 May 2023 the US Secret Service made the point that the immutable nature of the blockchain ledger means that illicit financial activity can be more easily monitored and tracked than fiat in some cases. Because cryptocurrencies operate on public, transparent blockchains they can be traced and crypto can actually help, not harm the missions of lawmakers, regulators, and law enforcement agencies to weed out illicit activity.
Bitcoin: Created in 2008 by Satoshi Nakamoto (a pseudo for a person or a group of people) for use as a distributed ledger created for Bitcoin cryptocurrency transactions, Bitcoin is active since January 2009.
Ethereum: In addition to Bitcoin, one of the oldest major blockchains is Ethereum (created on 30 July 2015 by Vitalik Buteryn), a decentralized blockchain that is used to support smart contracts and DAOs (Decentralized Autonomous Organizations).
Cryptos are digital assets based on the blockchain technology that include tokens, Non-Fungible Tokens (NFTs), and cryptocurrencies.
Cryptocurrencies are digital or “virtual” currencies based on blockchain technology, the decentralized structure of which allows them to exist outside the control of governments and central authorities.
Cryptocurrencies are not currencies because, by contrast with fiat currencies, they are not issued by a central authority, they are independent from States, and they do not have legal tender (although some countries have decided otherwise).
Their legal status is not uniform and when cryptocurrencies are deemed legal, regulatory agencies and lawmakers treat them as either as a digital asset, a commodity or a security.
An example of this ambiguity: in the US the Commodity Futures Trading Commission-CFTC- classifies cryptocurrencies like Bitcoin and Ethereum as commodities that fall under its supervision, while the Securities and Exchange Commission-SEC- considers some cryptocurrencies as securities that must abide by its regulations.
Although they do not have the legal status of a currency, cryptocurrencies can serve as a means of payment to the extent that the parties to a transaction so accept.
Notion: Known long before Facebook/Meta and its Metaverse, a metaverse is an already old concept, coming from the science fiction novel Snow Crash by Neal Stephenson, published in June 1992, that describes a virtual dystopian universe in which the computer code acts as law. It is a a "meta"-"universe", a universe that goes beyond the physical world that we know, in other terms “a virtual world, going beyond the real world”.
Today, a metaverse is either based on the blockchain and NFTs (a "crypto-metaverse) or not (Augmented Reality and Virtual Reality). It is a structured, immersive, interactive and open virtual world in which users interact (in 3D), in real time, remotely through their own avatars, with other people/avatars and with digital objects. It is not necessarily virtual reality or the replacement of the Internet; it can be a multi-player video game or an application.
Use in Arbitration: A metaverse is not as such a dispute resolution mechanism but can be used in the context of an arbitration, for example in order to hold remote hearings.
Metaverse Disputes: The use of a metaverse can give rise to disputes between a metaverse platform itself and metaverse users, or between users (who can be anonymised or pseudonymised and have not disclosed their real-life identity, or who can be AI-driven robots).
A smart contract (or “self-executing contract”) is neither a contract nor intelligent, but an instrument for the automated execution of contractual obligations.
It is an irrevocable computer protocol, deployed on the blockchain, which is programmed to perform specific predefined actions when predefined conditions are met, autonomously and automatically.
Once in place, the parties are no longer in control of its performance. This essential feature is an advantage that also constitutes a major risk.
Once deployed a smart contract cannot be changed, which means that if it is poorly designed and has a critical bug that prevents its proper performance, it is too late and disputes may pile up!
Smart contracts built on the Ethereum blockchain are used for Decentralized Finance (DeFi), which is an alternative financial infrastructure that uses smart contracts to create protocols that replicate existing financial services in an open, interoperable, and transparent way.
The uses of Blockchain Technology
Blockchain technology has many applications ranging from crypto assets, i.e., cryptocurrencies and non fungible tokens (NFT), to metaverse; it is also used for the governance of decentralized autonomous organizations (DAOs) and for applications such as smart contracts.
Blockchain/crypto disputes can result from a variety of reasons, that relate to the underlying transaction or the functioning of the platform itself (e.g., when a coding error or the failure of an oracle to provide the requested information entail that the corresponding smart contract cannot be performed), or the performance of contractual undertakings (e.g., when a party to margin trading does not post the required margin call in time, resulting in the liquidation of its portfolio of investments, or for any other reason the portfolio is liquidated).
Disputes can also arise between a metaverse platform itself and metaverse users, or between users (who can be anonymised/pseudonymised and have not disclosed their real-life identity, or who can be AI-driven robots).
Unless they relate exclusively to a technical aspect of how blockchain works, blockchain and crypto disputes are not always original. They can be categorized according to their complexity and their stakes, or according to their purpose.
The disputes that are likely to arise can be grouped into three segments, according to their complexity and their stakes:
As regards blockchain and crypto, and specifically the various transactions and investments in digital assets / cryptocurrencies made using an exchange platform, there are at least four categories of disputes:
What dispute resolution mode is best suited for my blockchain crypto dispute? Existing off-chain modes, centralized (national State Courts) or decentralized (International Arbitration)? Or on-chain modes (on-chain dispute resolution protocols such as Kleros)? And can I use Metaverse and/or AI?
On-chain transactions are performed within the blockchain network.
Off-chain transactions are performed outside of the blockchain network.
Disputes between blockchain users involve parties who are most of the time located in any part of the world.
Litigation before State courts is not the most suitable solution and recourse to alternatives is preferred.
Alternative blockchain dispute resolution methods to court proceedings can be divided into two sub-categories, on-chain modes, and off-chain modes.
In addition to International Arbitration, which is an off-chain dispute resolution mode, there are new modes of "on-chain justice" (e.g., on-chain dispute resolution protocols such as Kleros) and emerging technologies (Metaverse, Generative Artificial Intelligence and, in the -short?- future, General Artificial Intelligence).
What are the pros and cons of these modes and/or technologies in connection with an international dispute?
And can they replace or be used in conjunction with International Arbitration?
International Arbitration is unlikely to be replaced by on-chain dispute resolution protocols, that are designed to resolve issues that are not prone to litigation before courts or arbitral tribunals. Both will co-exist to resolve the type of disputes for which they are best suited.
International Arbitration and lawyers (counsels and arbitrators) are unlikely to be replaced by General Artificial Intelligence, if and when it is ripe for implementation, because for justice to be acceptable to humans it must be rendered by humans (for moral, ethical and philosophical considerations; this is not just a matter of technology).
As regards metaverse and Generative Artificial Intelligence, International Arbitration will benefit (in fact, it already is) from the use of tools designed on such technologies.
Artificial Intelligence (AI) is a term used to designate a sector of research, a set of technologies and a myth.
AI refers to a set of technologies that give rise to conversational agents and generative systems based on machine learning algorithms coupled with powerful computing infrastructures capable of identifying statistical patterns in huge databases in order to deduce a plausible outcome. These technologies, known as specialised artificial intelligence, do not conceptualise, think, reason or understand - in short, they are not intelligent. The same term also refers to general artificial intelligence (sometimes referred to as strong Ai as opposed to weak AIs), which is a myth and does not exist and which would be capable of an intelligence comparable to or superior to that of humans.
Generative Artificial Intelligence, already exists. A number of them are already implemented that can be used simply in natural language, and that proceed by statistical calculations and links, to provide plausible responses to questions (they are used to generate text, code or images). The main issue with Generative AIs is that what counts is not the meaning but the appearance of credibility. In sum, Generative AI is not the magic tool that will substitute human beings. It is nevertheless very useful when used under the supervision of humans knowledgeable about the domain at hand and can be used to generate a draft of text, images or code, but it cannot replace human work because the result is only plausible but is not always correct, if not invented.
The current generative AIs are using a family of Large Language Model (LLM) which is an automatic learning model developed to predict the probable continuation of a sequence of words. To simulate a form of understanding they are based on transformers, a technology that identifies the context of a text from a selection of data (hence the name GPT: Generative Pre-trained Transformer). These Generative AIs respond to a request based on a probability calculation. As such they are not intelligent, they do not “think”, they do not “understand”, they are devoid of critical thinking and problem-solving skills. Generative AIs are unable to go beyond the specialty for which they were designed. Although this technology is quite promising, it nevertheless has several shortcomings that need to be addressed before its widespread use. A major flaw is that Generative Artificial Intelligences are not trustworthy as they sometimes fabricate information, they confidently make assertions that look like they might be good but are not justified by their training data, and are plainly wrong or are a mere invention (this phenomenon is referred to as “hallucinations”). In sum, a Generative Artificial Intelligence is a “stochastic parrot” (term coined by the American linguist Emily M. Bender), a sort of "plagiarism machine", as it is repeating back the contents of the data and it does not understand what it has learnt, so that it cannot determine if it is repeating something incorrect, or out of context.
General Artificial Intelligence, that does not exist as yet, designates a machine capable of reproducing human cognitive abilities in a general way, on various problems that would be submitted to it.
The use of International Arbitration is a reality in blockchain contracts and has already been implemented for the resolution of crypto disputes.
The reason is probably that International Arbitration has many advantages and is suitable for this new field. This is not surprising as International Arbitration is the natural candidate for dispute resolution in the crypto industry.
International Arbitration and crypto ecosystems are international by their nature, with no connection to a specific jurisdiction. International Arbitration is a decentralized dispute resolution mode, independent from a given State, based on freedom of choice and on trust, and which is flexible.
International Arbitration involves a combination of laws, legal systems and backgrounds of the parties, as well as their counsels and the arbitrators, that matches the requirements of parties to crypto transactions.
Blockchain / cryptocurrencies ecosystems and International Arbitration share many features:
These are all reasons why International Arbitration fits the spirit of the blockchain and crypto ecosystem.
The use of dispute resolution protocols on the blockchain is one of the on-chain modes: the resolution of blockchain disputes by the blockchain, by using a "dispute resolution protocol" whose implementation is agreed at the outset between the parties.
These dispute resolution protocols are available through applications that are built on blockchain. They are called "decentralized justice" platforms.
Amongst these platforms, the one offered by Kleros aims to give a Yes or No answer to a simple question that is disputed by the parties to a blockchain transaction.
The advantages of such a mechanism lies in its speed and effectiveness since the "enforcement" of the decision is carried out by a smart contract (with respect of which Kleros plays the role of a blockchain "oracle").
However, such "dispute resolution" protocols do not equate arbitration as they do not resolve any dispute nor decide on any complex or legal issue, let alone a dispute, and merely provide a simple answer to a simple question.
On-chain dispute resolution protocols do not replace arbitration; they are fit for very basic issues that can be resolved by a simple yes or no answer.
On-chain and Off-chain Dispute Resolution Modes
Blockchain and crypto transactions are performed on the blockchain and thus are not specifically located in a single or specific country; they are "everything, everywhere and all at once" type of activities, which in turn raises the question of the determination of the most suitable dispute resolution mode. A variety of new on-chain and existing or emerging off-chain modes can be considered, and even if national state courts are selected in a significant number of cases, the choice of alternative modes prevails. In this regard, each mode has a specific audience, and international arbitration has a major role to play.
On-chain and Off-chain Dispute Resolution Methods for Blockchain and Crypto Transactions
When it comes to determining the best way to resolve a blockchain dispute, several on-chain and off-chain modes can be considered.
Regarding disputes between blockchain users and exchange platforms who are most of the time located in any part of the world, recourse to the national jurisdictions of a given State is not the most suitable solution and recourse to alternatives is preferred.
Alternative blockchain dispute resolution methods to court proceedings can be divided into two sub-categories, on-chain modes, and off-chain modes.
Off-chain Dispute Resolution: State Courts Are Not the Preferred Option
While the parties are free to select or prefer state courts, these courts do not appear to be the best suited mode of dispute resolution in an international context, both for a subjective reason (State courts are only familiar to one of the parties) and objective reasons (costs, length and unpredictable deadlines, difficulties for an enforcement abroad).
Subjective reasons for refusing to resort to State courts: lack of familiarity for one of the parties
The subjective reason is that the advantages of state courts are also a disadvantage in the presence of two parties of different nationalities. State courts are familiar to at least one of the parties, but only familiar to one of the parties. This imbalance entails that the parties do not start their dispute on an equal footing before the State courts of the other party; hence the need to rely on a neutral judge, which is one of the reasons why international arbitration developed.
Objective reasons for refusing to resort to State courts: costs, length and enforcement issues
The objective reasons are in particular: (i) the costs, because if State justice can in certain States be relatively inexpensive (with the exclusion of legal fees) the cost can be excessive for low stakes and access to justice the subject of thresholds, (ii) length, with a procedural schedule not controlled by the parties (multiple dismissals, distant hearing dates, appeal procedure, even cassation, etc.), (iii) enforcement difficulties, as enforcement of a court decision may turn out to be uncertain when it comes to enforcing a decision abroad (with the “benefit” of additional costs and delays).
In addition, most of the judges do not have a lot of time to devote to each case and may lack familiarity with certain business sectors. Finally, a legal proceeding is not suitable for anonymous (or anonymized) parties.
On-Chain Dispute Resolution Protocols Do Not Compete with International Arbitration
The use of dispute resolution protocols on the blockchain is one of the on-chain modes: the resolution of blockchain disputes by the blockchain, by using a "dispute resolution protocol" whose implementation is agreed at the outset between the parties.
Such an emerging dispute resolution mode, such as the one offered by Kleros, aims to give a Yes or No answer to a simple question that is disputed by the parties to a blockchain transaction. The advantages of such a mechanism lies in its speed and effectiveness since the "enforcement" of the decision is carried out by a smart contract.
The decision is obtained after a procedure which cannot be assimilated to arbitration and does not give rise to an arbitration award. It is rather a simple response (neither given in law nor reasoned) to a simple question, which means that it does not legally put an end to the dispute, because the decision obtained is not the equivalent of an arbitration award (or a judgment). It is at most a simple contractual agreement for the performance of a contractual undertaking with the help of a third party. It follows that the dissatisfied party remains entitled to seize a court (or, as the case may be, an arbitral tribunal).
However, as a practical matter, given the low stakes, the simplicity of the questions and above all the self-execution by a smart contract of the solution so obtained, the probability of a continuation of the dispute appears almost non-existent.
International arbitration and on-chain dispute resolution protocols are not of the same nature.
International arbitration results in an arbitral award that puts an end to a dispute and is a decision made by an arbitral tribunal deciding at law, on simple or complex factual and legal disputes issues. On-chain protocols merely provide an answer to a simple question, which is often a question of fact, that calls for a yes or no answer, after a cursory review of a limited number of elements, without reasons being given and without the need for any legal background.
In sum, on-chain dispute resolution protocols such as Kleros are not the equivalent or a substitute for arbitration but a contractually agreed method of performance of the contract.
The Use of Metaverse
The resolution of disputes by use of a metaverse platform, although it is eminently innovative in its form, does not appear as a new method of dispute resolution.
Such a tool is already implemented. On March 30, 2023, the Dubai International Arbitration Centre (DIAC) announced the launch of its metaverse platform for dispute resolution, a tool which is intended to provide a virtual reality space where parties can participate together and simultaneously in arbitration proceedings. from anywhere in the world, thus eliminating the need for physical transportation for participants.
It is not a distinct dispute resolution method but remains a classic arbitration, the conduct of which will involve the metaverse, with the advantage of saving time and reducing costs.
Thus, the parties, their counsel, any experts and witnesses, as well as the arbitrators will indeed participate in an international arbitration, with the particularity of using a mode of communication and "virtual" meeting to meet together at a distance in a "virtual” open environment where these people will be able to interact as they would if they were physically present in the same place.
In addition to its use for holding hearings, it is also possible to envisage that the metaverse technology be used in an arbitration procedure to carry out the visit of an industrial installation or the visit of a construction site allowing all participant to better understand the underlying asset that is the subject of the dispute without the need to travel, which allows a substantial saving of time and costs which are often the reasons why such a visit is not organized.
International Arbitration Is the Preferred Option for the Resolution of Blockchain and Crypto Disputes
The decentralized nature of blockchain and related applications and cryptos and the ensuing cross-border nature of crypto disputes explain why investors tend to trust arbitration. The fact is that the terms and conditions of many platforms expressly provide for the use of arbitration.
However, this does not mean that the arbitration award may be expressed in cryptocurrencies; indeed, in such a case, difficulties of execution could arise both because cryptocurrencies are not currencies and because of restrictions or prohibition of cryptocurrencies by certain countries that might render the enforcement of the award impossible in those jurisdictions.
Crypto Disputes Are International by Nature
Cryptos are decentralized (i.e., control and decision-making power are distributed among multiple entities or individuals); they are recorded on the blockchain, a ledger made of a series of nodes located on computers worldwide, so that the corresponding digital assets have no specific location, can be instantaneously transferred elsewhere and are “everything, everywhere, all at once”. Users come from various jurisdictions and can be anonymized or pseudonymized. Exchanges do not have a legal presence or assets in the same jurisdiction as the users, and sometimes are not easily identifiable either. Therefore, a crypto dispute is more than likely to be a cross-border dispute, with the possible application of a set of various laws, a situation that is common in the context of international arbitration.
International Arbitration Is Widely Used for the Resolution of Blockchain/Crypto Disputes
Crypto exchange platforms (centralized or decentralized intermediaries) provide a wide variety of services (exchange functions, broker functions, custody, and clearing, staking and lending functions). The high stakes, complexity of transactions, and volatility of crypto can result in significant losses. As the stakeholders are most of the time located in different countries, international arbitration appears to be the most suitable mode of dispute resolution in this field of activity (with the caveat that when deemed a consumer dispute, it might raise the issue of non-arbitrability. As regards France, where the contract entered into with the platform contains an arbitration clause providing for mandatory arbitration, the latter may be invalidated by the French courts on the basis of article R212-2 10° of the French Consumer Code).
The fact is that the use of arbitration is a reality in blockchain contracts and has already been implemented. The reason is probably that it has many advantages and is suitable for this new field.
International Arbitration Is a Reality for Blockchain Disputes
International arbitration is chosen by the parties and crypto disputes already gave rise to a number of international arbitration proceedings.
Why would users of cryptocurrency exchange platforms choose arbitration to resolve a blockchain/crypto dispute?
These trading and exchange platforms allow investors to buy, sell, trade or exchange cryptos (digital assets) and are either centralized (CEX, Centralized Exchange), or decentralized (DEX, Decentralized Exchange) which allow the same transactions to be carried out but without a central authority. Centralized crypto exchange platform (CEX) are centralized because they are run by a single entity or authority that acts as intermediary between buyers and sellers. By contrast, decentralized crypto exchange platforms (DEX) involve no intermediary; they are run by blockchain-based applications (smart contracts) on a blockchain (such as Ethereum, Solana, etc.), to support peer-to-peer trading transactions between crypto-users.
Empirical research shows that many crypto assets trading and exchange platforms provide for ICC, SIAC or HKIAC arbitration, with most of the seats in Paris, Singapore or Honk Kong that are "arbitration-friendly" and also perceived a "crypto-friendly" jurisdictions.
ICC: International Chamber of Commerce / SIAC: Singapore International Arbitration Centre / HKIAC: Hong Kong International Arbitration Centre / AAA: American Arbitration Association / CPR: International Institute for Conflict Prevention and Resolution / DIS: German Arbitration Institute/Deutsche Institution für Schiedsgerichtsbarkeit / JAMS: Judicial Arbitration and Mediation Services / LCIA: The London Court of International Arbitration
A number of trading and exchange platforms also opt for more or less exotic jurisdictions and state courts: Austria (Bitpanda) / Belgium (Bit4You) / Bermuda (Bittrex, BlockFi for its non-US clients) / Cyprus (eToro Europe, Kraken and FTX Europe) / England (eToro UK) / France (Binance France) / Ireland (Coinbase, for customers from the Europan Economic Area) / New Jersey (BlockFi, for its US clients) / Seychelles (eToro Seychelles) / Taiwan (Woofi).
The fact is that providing for arbitration is common practice in the crypto ecosystem and that the choice to resort to arbitration already resulted in several crypto arbitration cases.
Artificial Intelligence and/or International Arbitration?
Artificial Intelligence (AI) and/or International Arbitration (IA) Dispute Resolution?
Artificial intelligence is a technology for simulating or reproducing human intelligence by machines (using computers, Large Language Models and algorithms designed by humans) to perform tasks that were previously performed only by humans. The use of Artificial Intelligence in the context of International Arbitration raises a series of questions.
IA or AI, or IA and AI? / Can AI replace AI, or can AI be used in the context of International Arbitration? / And Is there still room left for International Arbitration?
The question of AI in the context of IA boils down to the alternative:
Is Artificial Intelligence a Helper or an Alter Ego?
Generative and General Artificial Intelligences Cannot Replace International Arbitration
In sum, Generative Artificial Intelligence is not that intelligent; it is a (sophisticated) tool, that uses math and statistics, and that relies only on input data, which is both a source of dependence and bias. The functions of human language are essentially thinking and communicating. Artificial Intelligence is communicating without thinking.
In addition to its "hallucinations" (artificial hallucination, confabulation, delusion, are terms that are used to express the situation where Artificial Intelligence produces a response -with certainty and the appearance of truth- that is not supported by, or even is made in contradiction with, its data), Artificial Intelligence is unable to assess the sincerity of human beings, or to exercise critical reasoning, or to take fairness into consideration. As an example, how could a Generative Artificial Intelligence properly give effect to a provision such as Article 1194 of the French Civil Code (Contracts create obligations not merely in relation to what they expressly provide, but also to all the consequences which are given to them by equity, usage or legislation) when it cannot deal with concepts such as equity, and need to analyse the context of the contract to infer the appropriate usages to be taken into account? And what if the dispute that need to be resolved has no precedent?
Generative Artificial Intelligence can therefore neither serve as a substitute for lawyers for providing legal advice, negotiating a settlement, writing briefs, witness examination, or pleadings, nor as a substitute for arbitrators for decision-making.
As for General Artificial Intelligence, its use as a judge, counsel or arbitrator would also raise the (ethical, moral, philosophical) question of its acceptability. In any event the use of an Artificial Intelligence in lieu of a judge or arbitrator would question basic justice requirements and human rights such as the right to a fair trial and to a human judge.
Artificial Intelligence Is Already Used in Aid for International Arbitration
Both Metaverse and Generative Artificial Intelligence cannot replace judges or arbitrators, but they can provide useful tools for all participants involved in International Arbitration proceedings.
International Arbitration is constantly evolving to adapt to the needs of all participants as is demonstrated by the constant update of most arbitration rules, international arbitration practitioners and arbitral institutions strive at keeping at the forefront of the latest technologies.
In addition to the launch of a metaverse dispute resolution platform by the Dubai International Arbitration Centre (announced on 30 march 2023), international arbitration also uses artificial intelligence, blockchain, cloud and other recent technological developments. The Online Dispute Resolution platform eBRAM, for example, explains that it "has developed its platform leveraging latest technologies including artificial intelligence, blockchain, cloud and soft robotics" which allows the parties to maximise efficiency and reduce costs of their arbitration, and "ensure a user-friendly balance between technology and human touch". All these technologies are used at all stages of the proceedings, including conventional meetings and hearings that can be arranged via the platform and video-conferencing, as well as AI Machine Translation Services.
Artificial Intelligence Must Be Reliable Before it Can Be Used in Aid for International Arbitration
Artificial Intelligence is already used by a number of law firms, for example in connection with knowledge management, legal research or document analysis. It is a toolbox that can certainly provide valuable assistance for the performance of repetitive tasks and the analysis of voluminous data, and as such it can be very useful in a number of arbitration cases.
However, Artificial Intelligence must be improved before it can be trusted and its use is more widely accepted and disseminated in the field of dispute resolution, and in particular International Arbitration.
Artificial Intelligence based tools must prove their reliability, must be properly trained with accurate data that are relevant in a legal context, display the source of their assertions, and must be exempt of bias. It is a tool created by humans, and therefore, it may reflect the limitations and biases of its creators and the data on which it is trained.
In addition to the hallucinations of Artificial Intelligence which bar its use in the context of dispute resolution, a major drawback of Artificial Intelligence is that it is an instrument can have the effect of a massive replication and dissemination of biases, voluntarily or inadvertently introduced human biases, not to mention the addition of its own biases.
The fact is that Artificial Intelligence does not understand, and merely replicates what it gets in the first place. The GPT AI is not trained to answer questions but to develop texts; it generates plausible texts with words that go well together, it creates a credible sequence of words. That is not proper legal work.
In addition, because Artificial Intelligence is a machine that is alien to critical thinking, and to concepts such as fairness, morals, due process (to name a few that are at the crux of justice), it is quite difficult to assess if and when Artificial Intelligence is ripe for playing a trustworthy role in International Arbitration.
On the use of a Generative AI to write a memo, its use in international arbitration and its limitations, see the LinkedIn posts (also posted in the blog below):
The Benefit of a Decentralized Justice for a Decentralized Eco System
International Arbitration is the perfect fit for blockchain/crypto disputes
International Arbitration and blockchain crypto eco system have a lot in common; they both are:
These similarities explain why international arbitration is the perfect fit for blockchain and crypto disputes. Above all, International Arbitration has an irreplaceable advantage: it is human -made by humans, made with humans, made for humans.
Autonomy: Free choice by the parties of arbitrators, applicable law, language, rules of procedure.
Neutrality: Neutrality of the arbitrators, adversarial procedure, due process as an essential element.
Trust: Parties choose "their" arbitral tribunal with the required expertise for their case, and spend time with the arbitral tribunal, which helps to establish and strengthen trust in "their judge".
Suitability: The arbitral tribunal takes into account trade usages.
Confidentiality: easy to organize if not already provided for in the contract.
Finality: The arbitral award settles the dispute in a final way and no appeal is possible.
Enforceability: The arbitral award is enforceable globally in a straightforward manner thanks to the New York Convention.
Cost effectiveness: Costs can be relatively limited (allocated to one of the -losing- parties).
The disadvantages are limited, these are the usual, and very limited, ones.
Costs: Can be expensive for small claims. Need experienced lawyers and arbitrators.
Duration: Arbitration may be subject to guerrilla tactics to derail the arbitration. At times institutional arbitration adds delays.
Complexity: Some arbitrations can be a bit cumbersome and difficult for the parties to understand.
A Successful Crypto Arbitration
Success of a crypto arbitration is obviously a matter of facts and law, not to mention the selection of proper arbitrators and experienced counsel on your side. However, if you are unprepared not matter the quality of your claims, you might face a situation where significant procedural objections can undermine your efforts.
In sum: be proactive and get ready!
DYOR and NYKNYC, and what about the dispute resolution clause?
You have invested in cryptos and have put the odds on your side.
You have applied the DYOR (Do Your Own Research) principle before selecting the stakeholders (crypto broker, crypto staking or loan provider, crypto exchange platform) with which you will carry out your crypto transactions.
You have been wise enough to avoid rug pulls and other scams.
You have also navigated through the technicalities regarding the choices between hosted/non-hosted and hot/cold wallets, have complied with the adage NYKNYC (Not Your Keys Not Your Cryptos) and you have favoured self custody in a cold wallet to contain your private keys.
What is a crypto wallet? A crypto wallet is a digital wallet (like a bank account) that is used to store, manage, and transfer cryptocurrencies. Crypto wallets are either hot wallets that are connected to the internet, hence easily accessible from any place where there is access to an internet connection, but vulnerable to hacking, or cold wallets that are not connected to the internet and thus less vulnerable to hacking. Cold wallets can be a piece of paper on which your private key is written or any physical device that stores your keys offline.
Or are you immune from fraud or scam? No.
Are you immune to dispute with a crypto broker, a crypto trading provider, or a crypto exchange platform? No.
Are you happy with the submission to the courts of a country your are not familiar with? Do you prefer International Arbitration?
International Arbitration is well suited to address your claims, provided that you have identified the proper respondent, the one that is to be held liable of the wrongful performance that did cause the damage that you have suffered, and that you do not spend your time, money and efforts in fighting procedural objections that can be avoided (in particular with respect of jurisdiction of the arbitral tribunal and admissibility of your claims).
Against this backdrop, in order to maximize the chances of success of a procedure, it is useful to prepare, preferably before the occurrence of the dispute, even before contracting with the party of your choice, and then throughout the life of your investments.
Without further ado, you should be prepared and ready to answer a few questions that will determine the success of any proceedings. To this end, the first task is to carefully read the general conditions to determine from the outset the answers to a certain number of questions, which may, in the event of a dispute, pose serious procedural difficulties.
What questions must be addressed to enhance your chances of success when the crypto dispute is brought before an arbitral tribunal?
Who are the parties to the contract?
Do the general conditions include precise identification, with the name, nationality, and registered office of the contracting company, designated responsible in the event of a breach in the performance of the contractual obligations?
Is it a regulated service provider (in France a Digital Asset Service Provider must be licensed or registered with the AMF) and are its status and identification number indicated?
In such a case, it is best to reconsider your decision and, if necessary, not to contract with such a platform, unless you are prepared to have no recourse in the event of a dispute.
Which party can be held liable?
Indeed, in the event of a dispute, this situation can serve as the basis for an objection to the jurisdiction of the tribunal, resulting from the lack of consent of the party prosecuted to the arbitration clause.
Another difficulty can arise, linked to the lack of cause of action against one or more of the companies that may fall within the definition of the "company", due to the absence of wrongdoing that would be attributable to them in the event that this or these companies did not play a role in the performance of the contract.
What are the terms and conditions that are applicable?
It is essential to keep a copy of the general conditions (and, if applicable, of the specific conditions applicable to certain types of transactions), which includes the version in force at the start of the contractual relationship, then the successive versions.
For which transactions and which risks?
The determination of the contractual undertakings of the contracting party: does the platform only play the role of executing or transmitting orders given by the user, or does it have a management or even advisory role? Does it keep your keys?
The corollary of this question is to assess, under the law applicable to the contract, the validity and scope of the non-liability clauses, the limitation of liability clauses, and the risk allocation clauses. Many general conditions drastically limit the liability of the service provider and place all the risks on the user.
What compensation can be requested? What went wrong? What is the amount of the prejudice suffered?
The determination of the type of damage that can be compensated is a matter to be considered under the applicable law, which is a task that will most often be carried out when the damage has already occurred.
However, as soon as the contract is implemented, the user must keep proof of his investment (date, amount, currency), as well as of the transactions carried out and their possible wrongful performance.
This is an essential question. In the absence of proof, even if liability of the service provider is admitted, the action may prove unsuccessful if the user cannot justify the quantum of his loss or damage.
What is the dispute resolution method and what are the procedures for bringing a claim? The question of the mode of resolution of a possible dispute must be approached with the utmost seriousness, before even contracting.
Which court or arbitral tribunal has jurisdiction in the event of a dispute? Is this a state court, and if so which one, or is there an arbitration agreement? In such a case, is the arbitration ad hoc or institutional? And is the institution correctly designated, are the seat and the language of the arbitral proceedings indicated? What is the law applicable to the merits of the dispute? Is there a procedural law specified. Is there a provision regarding the law applicable to the arbitration agreement? Is the arbitral tribunal composed of one or more arbitrators, and is the mode of appointment of the arbitrators provided for?
Can the user avail himself, and is there an interest in doing so, of the status of consumer, to benefit from provisions that would be more favourable to him (for example, in France, the possibility the arbitration agreement being non-opposable)?
What are the steps to follow in the event of a dispute? Almost all the general conditions expressly stipulate that before initiating an action before a court or an arbitral tribunal several steps must be followed. They range from the sending of a formal notice according to the methods specified in the general conditions and a phase of conciliation with a "mediator" internal to the service provider, to the intervention of an external mediator (one and the other are generally designated in the general conditions; this may be a mediator such as that of the AMF if the platform is registered in France or for a regulated platform in the European Union, the mediator of the network of Financial Mediators of European Union), before any action can be taken.
Failure to comply with these preliminary steps may, depending on the applicable law, raise as procedural difficulties a question of admissibility of the claims, or even of the jurisdiction of the court or arbitral tribunal, or for the most extreme cases, a question of consent to arbitration.
What is the limitation period? Another pitfall lies in determining the limitation period. In addition to the statutory limitation period which results from the applicable law, the general conditions often provide for a shorter contractual period (most often 12 months) before the expiry of which the action must be brought.
A prudent investor will take at least the following precautions before committing funds: