Introduction

Blockchains are designed to execute objective and deterministic contracts. Arbitrators are designed to be oracles for subjective evaluation of non-deterministic contracts. EOS combines these two concepts with the goal of minimizing the opportunity for dispute, maximizing the quality and transparency of evidence of agreement, and creating the technical tools to allow human intervention to correct bugs in execution or violations of subjective agreements. In this sense, EOS is the first contracting platform focusing on formalizing, automating, and clarifying agreements among consenting well-intentioned adults. This is far broader and more powerful than blindingly enforcing bug-ridden contracts without any respect to the intention of the parties.

Source: “Decentralized Blockchain Governance” by Dan Larimer: Source

Arbitration, a method of alternative dispute resolution, is a very exciting prospect for the EOS mainnet. It offers businesses and individuals an opportunity to take advantage of doing business on the EOS blockchain and have the confidence that they have means to resolve disputes should they need them. No blockchain to date has been able to achieve a dispute resolution framework on-chain. As it currently stands within the EOS ecosystem, there is only one arbitration forum for parties to a dispute to leverage: the EOS Core Arbitration Forum (ECAF). ECAF is the default forum for arbitration on EOS and is named in the Constitution. There is currently no other option available to EOS token-holders. But ECAF’s rules for dispute resolution may not be compatible for every type of contract agreement that may form between EOS token-holders.

In order to allow EOS token-holders the freedom to issue agreements and resolve disputes as they see fit on the EOS blockchain, we seek to introduce a standard method of identifying arbitration forums and arbitrators on-chain through the use of two distinct functions contained in a Smart Contract/Ricardian pair(s) on EOS. At the same time, we propose a minimum standard of deliverables and service for both arbitration forums and arbitrators offering their services within the EOS ecosystem. The structure we propose is specifically designed to be opt-in, voluntary, consent driven, and moderated by free-market forces.

Arbitration: How It Works

In our EOS Constitution we aim to deploy arbitration. Arbitration is a form of dispute resolution meant to be a streamlined and cost-effective alternative to traditional court systems. International arbitration has been internationally recognized by 159 countries per the “New York Convention” which originally occurred in 1958 under the authority of the United Nations. The text of this agreement has been translated into dozens of languages here.

Arbitration Forum

An arbitration forum or association is an organization that administers arbitration proceedings. These organizations are distinctly different from arbitrators because the forum does not actually arbitrate or write arbitral awards (essentially the rulings that are the result of arbitration). Their job is to maintain a set of rules for dispute resolution (RDR), maintain a database of qualified arbitrators to match-make with the needs of the claimants, assist in the administrative tasks from claim filing to close, and act as a hub of communication between the arbitrator and the claimants.

Arbitrators

An arbitrator is a professional that works to increase communication between two sides of a dispute. They are private individuals or groups who offer their own unique experience and areas of expertise to resolve these disputes. It is not required that an arbitrator be a member of an arbitration association so long as both parties to a dispute consent to that arbitrator.

What is “Arbitrable”?

For a dispute to be “arbitrable”, or able to be arbitrated, there must be essentially two pieces of information that are agreed to in the contract between parties at the point at which it is signed:

1. The defined scope of what is arbitrable within the contract.

2. The jurisdiction and rules under which arbitration will occur in case of a dispute.

This is why ECAF is named within the EOS Constitution accompanied by the phrase,

“All disputes arising out of or in connection with this Constitution shall be finally settled under the Rules of Dispute Resolution of the EOS Core Arbitration Forum by one or more arbitrators appointed in accordance with the said Rules.” (Source)

The Process of Arbitration

According to sources procured by the American Bar Association, arbitration typically takes 7 months on average but can be longer or shorter. The process typically follows this structure.

Filing and Initiation: An arbitration case begins when one party submits a Demand for Arbitration to an arbitration forum. The other party (the respondent) is notified by the forum and a deadline is set for a response.

An arbitration case begins when one party submits a Demand for Arbitration to an arbitration forum. The other party (the respondent) is notified by the forum and a deadline is set for a response. Arbitrator Selection: The forum works with the parties to identify and select an arbitration based on the criteria determined by the parties.

The forum works with the parties to identify and select an arbitration based on the criteria determined by the parties. Preliminary Hearing: The arbitrator conducts a preliminary hearing with the parties, to discuss the issues in the case and procedural matters, such as witnesses, depositions, sharing information, and other matters.

The arbitrator conducts a preliminary hearing with the parties, to discuss the issues in the case and procedural matters, such as witnesses, depositions, sharing information, and other matters. Information Exchange and Preparation: The parties then prepare for presentations and exchange information.

The parties then prepare for presentations and exchange information. Hearings: At the hearing, both parties may present testimony and evidence to the arbitrator. Unless the case is very complex, this is usually the only hearing before the arbitrator.

At the hearing, both parties may present testimony and evidence to the arbitrator. Unless the case is very complex, this is usually the only hearing before the arbitrator. Post-Hearing Submissions: After the hearing, both parties may present additional documentation, as allowed by the arbitrator.

After the hearing, both parties may present additional documentation, as allowed by the arbitrator. The Award: Finally, the arbitrator closes the record on the case and issues a decision, including an award, if applicable.

Source

The Blockchain Contract

The ability to make and enforce contracts and resolve disputes is fundamental if markets are to function properly. Good enforcement procedures enhance predictability in commercial relationships and reduce uncertainty by assuring investors that their contractual rights will be upheld promptly.

Source: “Contract enforcement and dispute resolution”, The Organisation for Economic Co-operation and Development (OECD)

The Smart Contract, pioneered by Ethereum, allows for the automatic execution of a previously determined agreement. Members of the Ethereum community have attempted to instruct parties to an agreement to include specialized clauses within their smart contracts which will allow for binding dispute resolution off-chain. However, the risk with this approach to dispute resolution is that it may introduce state courts into disputes of property on the blockchain.

In EOS, where high-throughput and a robust development environment enables a sandbox full of possibilities, contracts of many types will become more complex and scale upward in frequency. As a result, the increased frequency by which property changes hands also increases the likelihood of a dispute. Smart Contracts alone may not obviate ultimate human enforcement of a contract because, in certain cases, specific provisions of a contract may not be possible to instantiate into code as a Smart Contract requires. For this reason EOS has elected the use of the Ricardian contract. Where Smart Contracts control the execution of an agreement, a Ricardian contract, or human readable and machine parsable contract (i.e. read by both human and machine), controls the issuance and intent of an agreement. Through the use of the hash of the Ricardian contract, the intent of an agreement can be connected to its smart contract execution, all on-chain.

But even with the addition of a Ricardian contract, the issue in both EOS and Ethereum is that even if an arbitrator were to issue an arbitral award there is no reliable way to ensure that the award can be enforced if the award debtor (loser) refuses to comply. Even if a state court were to compel the enforcement of an arbitral award which includes blockchain based property, it would not be difficult for the award debtor to avoid compliance. Lastly, the state would not be able to appeal to the blockchain to compel award enforcement because, while individual network participants may fall within jurisdiction of the state, the decentralized nature of EOS prevents a single outside authority from exerting influence over chain consensus. This makes a contract difficult to enforce.

So what do we do?

We are proposing a system level means for EOS Block Producers to recognize both the authority and identity of (1) arbitration associations and (2) arbitrators for the purpose of dispute resolution proceedings involving property on the blockchain. We furthermore propose language that describes the nature of arbitration on EOS through opt-in consent and moderated by free-market forces.

Proposed Constitutional Language for Arbitration On-chain

The following language was written using the Federal Arbitration Act of the United States as a guide.

This portion will formally recognize The New York Convention of 1958 allowing all foreign arbitral awards to be recognized if award author is registered on-chain.

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, shall be recognized by all members of this blockchain {chain_id} where the author of any such arbitral award is duly registered on-chain {chain_id} via {regarbitrator}

This portion states that valid arbitration is binding.

Any on-chain provision included in any on-chain transaction or an on-chain smart contract evidencing a transaction involving EOS blockchain based property to settle by arbitration a controversy thereafter arising out of such on-chain smart contract or on-chain transaction, or the refusal to perform the whole or any part thereof, or an agreement on-chain to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable.

This portion makes it clear that agreements must specify a forum and/or arbitrator for arbitration to be available to parties to a dispute.

If any controversy or claim arising out of or relating to such an on-chain agreement provision, on-chain transaction, or on-chain smart contract or on-chain Ricardian contract be made for a method of naming or appointing an arbitrator or arbitrators through {regforum} or {regarbitrator}, such method shall be followed. Only upon the application of either party to the controversy {regforum} or {regarbitrator} shall act under the said agreement with force and effect.

This portion defines what is “on-chain”

“On-chain”, as herein defined, means any transaction which is cryptographically validated by an elected Block Producer, or any smart contract or Ricardian contract code which can be viewed, audited, and verified as existing on the EOS mainnet blockchain in the last irreversible block.