We have suggested previously that arbitration may be a preferable alternative to court for smart contract disputes to (i) ensure a knowledgeable decision-maker handles the dispute, (ii) protect proprietary information, (iii) gain flexibility in scheduling and procedures, and (iv) pre-select the right forum. Of course, arbitration doesn’t happen on its own – it typically requires a properly drafted arbitration clause. This article provides several suggestions to consider on that point.
Notwithstanding all the hype associated with smart contracts, the real-world applications on the immediate horizon make use of distributed ledger technology (DLT) in ways that are not likely to necessitate fundamental changes in the dispute resolution procedures in those contracts. Consider the example of commercial lending. A smart contract may include protocols for the use of DLT to disburse loan proceeds and manage payments, but the inherent limits of the technology make it ill-suited to resolve a borrower’s default, leaving that circumstance to be addressed by the legal terms in the contract in the same way a default would be addressed under a traditional contract. That said, there are some aspects of the arbitration clause that should be re-considered when dealing with smart contracts: