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A SOCIO-LEGAL INQUIRY INTO DECENTRALIZED JUSTICE & BLOCKCHAIN-BASED ARBITRATION

- By Luis Bergolla & Can Eken.

Keywords: arbitration, decentralized justice, blockchain, Law & Society


To say that the year 2020 has brought upon “trying” times would be an understatement. An ongoing pandemic is shaking the foundations of the world as we know it. Like us, the field of arbitration has not been immune to the virus. With social distancing ordinances in place in most countries and the disruption of air travel, the global health crisis has been testing the arbitral community’s capacity to stay in business. Relying on not so recent technology, that which allows multi-party video conferencing over the internet, the community has managed to bridge the gap between imminent stagnation and a mere “better-than-nothing” scenario. So, irrespective of the individuals’ generational affiliation, computer-literacy or strong-feelings towards the use of technology in arbitration, arbitration stakeholders have managed to rely on virtual hearings and remote work to carry on. The parties are saving hundreds of thousands of dollars in arbitration costs and some aspects of arbitration now appear more time and cost-efficient than before. However, prior to the pandemic, when there was less pressure to rely on this technology, the general attitude towards the idea of fully replacing the old-fashioned arbitration hearing was that it was simply nonsensical.


It should thus not come as a surprise that proposals for the incorporation of newer and potentially disruptive technologies in the field of dispute resolution face the same or even higher levels of skepticism. That is the case of a decentralized justice platform like ‘Kleros’ [1], a blockchain-based dispute resolution platform. It renders the arbitration of disputes feasible in small transaction cases. Kleros’ promise to its users boils down to the assurance that contractual enforcement will follow from every breach. And to implement this promise, randomly selected jurors (arbitrators) determine the terms of the enforcement without ever interacting with each other. To prevent unfair outcomes, Kleros introduces economic incentives (rewards) that go to jurors when they vote consistently with the majority. The premise is that, on average, “coherent” decision-makers can expect to make a profit.


What we have read about blockchain-based arbitration is either too technical (discussing nitty-gritty aspects of blockchain) or too critical (dismissing this technology altogether). What we think is missing, from a socio-legal perspective, is how the blockchain technology is going be integrated into the arbitration world. Luckily, this third line of inquiry about the impact of decentralized justice and new technologies on society is being explored with the convocation of the Algorithmic Law and Society Symposium by HEC-Paris, the Law & Society Review and the Law & Society Association, which is to be held in Paris in 2021. As we explain below, our bid to participate in the symposium uses Kleros as a case-study.


Our proposal to the Symposium


Kleros proposes an alternative by which there will always be contractual enforcement following a breach. This idea of absolute enforcement is to be contrasted with the findings of important socio-legal studies that have shown how individuals rarely use the legal system to obtain redress for the losses they endure from their interactions with others. In the context of business relationships, for example, the parties rarely rely on written contracts or resort to contract law to solve disputes that arise out of a contractual breach. [2] Similarly, only a small number of all tort victims go through the “naming and blaming” steps necessary to arrive to the so-called terminal “claiming” stage. In other words, most victims never sue their tortfeasors, they simply “lump” their claims. [3] More recent studies show that the reasons for this “lumping” can be economic, cultural, and even religious. [4]


With this context in mind, we ask what Kleros’ impact is on its users’ claiming behaviour. Stated differently, we ask whether this type of intervention will cause more claiming than is expected of societies that lack automated enforcing mechanisms. A secondary question addresses whether business relationships will in the aggregate survive the unavoidable enforcement of contracts or arbitration awards. We take issue with the fact that one of Kleros’ foundational principles—to foster transactions that would not occur but for Kleros—could actually defeat its very purpose should Macaulay’s findings remain constant in this new environment.


To answer these questions, we use mixed methods of empirical research (surveys and interviews for the most part) to explore the likelihood among Kleros’ users (potential and actual) to use the system and to become repeat players in it. We rely on Kleros’ data to test whether particular types of users (claimants, respondents, and even jurors) are more likely to become repeat-players in the system. Finally, we inquire about the jurors’ potential biases to favour more frequently a particular type of user, and the possibility that Kleros could inadvertently push jurors to focus on the most likely “biased” result rather than on truth finding in the given case.


Whether in the long run Kleros becomes a system for channelling the “naming, blaming and claiming” that seldom occurs in modern societies, or whether it will become an informal alternative for actually voicing claims are different empirical questions that fall outside the scope of this preliminary study. The answer to our questions, however, can make an important contribution to the Law & Society scholarship on claiming behaviour and would inform any adjustments that Kleros or any similarly situated project must implement to make their proposals viable. If we fail to answer our research questions, this case-study will at least provide the first independent description of Kleros as a dispute resolution system.


Luis Bergolla is a J.S.D. Candidate at Stanford Law School and serves as Co-President of the Stanford International Arbitration Association (2018-20). Can Eken is a Ph.D. Candidate at The Chinese University of Hong Kong and Visiting Student Researcher at Stanford Law School (2019-20). The project discussed in this article has been preliminarily accepted to the Algorithmic Law and Society Symposium in Paris in 2021.


Preferred Method of Citation – Luis Bergolla & Can Eken, ‘A Socio-Legal Inquiry Into Decentralized Justice & Blockchain-Based Arbitration’ (ICAR, 10 July 2020)

<https://www.investmentandcommercialarbitrationreview.com/post/a-socio-legal-inquiry-into-decentralized-justice-blockchain-based-arbitration>.


ENDNOTES

[1] See <https://kleros.io/en/> last accessed 10 July 2020.

[2] Macaulay, Stewart, ‘Non-contractual relations in business: A preliminary study’ (1963) American Sociological Review 55-67.

[3] Felstiner, W. L., Abel, R. L., & Sarat, A ‘The Emergence and Transformation of Disputes: Naming, Blaming, Claiming...’ (1980) Law and Society Review, 631-654.

[4] Engel, D. M., ‘Globalization and the decline of legal consciousness: Torts, ghosts, and karma in Thailand’ (2005) 30 Law & Social Inquiry 3, 469-514; Engel, D. M., ‘The Myth of the Litigious Society: Why We Don't Sue’ (2016) University of Chicago Press.

The views and opinions expressed in the article are those of the author(s) solely and do not reflect the of official position of the institution(s) with which the author(s) are affiliated. Further, the statements of the author(s) produced herein should not be construed as legal advice.

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