Abstract
In a world where vending machines dispense justice and code implies law, blockchain arbitration may threaten to dislodge the altar from the holy seat of law. This blogpost explores whether Web3 native smart contract arbitrations meet the fundamental principles of the New York Convention. From pseudonymous jurors to awards that are stateless, it asks whether gamified resolution processes are arbitration or simply a masquerade. As law and code collide, this piece advocates principled recalibration and not rejection; where the gavel holds greater weight than the algorithm, even when expediency is useless in the face of the dispossession of justice’s meaning.
Keywords: Smart Contract Arbitration, Decentralized Dispute Resolution, Blockchain Arbitration, Enforceability of Smart Contract Awards, Consent in Digital Arbitration
Introduction
Imagine a dispute silently igniting, resolved not in a courtroom nor before an arbitral tribunal, but in a self-executing string of commands. There is no human contact, no argument, no signatures, just lines of immutable code carrying out the final decree.
What was once just a thought experiment has turned into a developing legal reality in the burgeoning Web3 ecosystem, where smart contracts characterized as self-executing digital contracts embedded in the blockchain are capable not only of automating performance but also resolving disputes.[1] The arbitration clause is no longer agreed upon, signed, or even visible. It is now coded, buried within the smart contract, and triggered by logic, not law.[2] Disputes will no longer be resolved by arbitration institutions, but through decentralized platforms with decisions made by pseudonymous jurors incentivized by tokens, rather than a duty to adjudicate. These developments raise an existential question for the fundamental foundations of international arbitration which are consent, due process and enforceability. Can a process that is opaque, lacks negotiation and notice, and takes place outside the realm of visibility qualify as “arbitration” under the New York Convention? Do these techno-legal systems comply with the procedural safeguards required by the UNCITRAL Model Law or domestic arbitration statutes such as the UK Arbitration Act 1996 and Singapore’s International Arbitration Act (IAA)?
This article critically examines whether code-embedded arbitration clauses qualify as valid arbitration agreements under the law and whether awards rendered by such decentralized systems can or should be recognized and enforced by courts worldwide. The issue is not merely a legal or technological challenge. It raises a deeper question about the compatibility of automation and autonomy within an emerging lex arbitri.
The Rise of Code-Based Arbitration
Asmart contract, first articulated by Nick Szabo in 1994, is a self-executing agreement where performance is compelled automatically through code not necessarily through legal coercion.[3] Existing on decentralized ledgers (like Ethereum), smart contracts replace legal formalities with if-then logic. The quintessential example is a vending machine: put in your quarters, and the coke automatically tumbles out; there is no discretion and no interpretation. When smart contracts contain arbitration provisions, disputes are often directed to decentralized platforms without the active consent of users at the time of contracting. Decentralized platforms like Kleros rely on history-token based mechanisms to choose anonymous jurors who earn cryptocurrency as a reward for voting on cases. Aragon Court and Jur embed dispute protocols in decentralized autonomous organizations (DAOs) and therefore allow disputes to be resolved in the governance structure of the organization itself.
This evolution represents a real change in a practical sense, including:
- Efficiency: Dispute resolution is almost instantaneous;
- Minimization of costs: Elimination of legal and administrative costs through automation;
- Decentralization: Jurisdictional entanglements are avoided.
Nevertheless, the benefits come with a substantial risk of legal uncertainty, as disputes take place in a juridical vacuum.: There is no seat of arbitration, no applicable governing law, and no ability for parties to negotiate or see even the mechanism for addressing disputes.[4] Such legal black holes challenge the very foundations upon which the New York Convention and domestic arbitration statutes stand upon.
As Bassiri and Panjwani (2021) note, the New York Convention presumes the existence of a defined legal seat and a baseline of procedural regularity, assumptions that often do not hold in the context of blockchain-based arbitration.
Consent and Autonomy
The concept of consent is not just a technicality; it is inherent and essential to arbitration.[5] Article II (1) of the New York Convention states that arbitration agreements should be in writing. Likewise, Option II of Article 7 of the UNCITRAL Model Law requires a recorded agreement between the parties evidencing their mutual consent to submit disputes between them to arbitration. Section 5 of the UK Arbitration Act 1996 expresses a similar view. However, consent becomes murky in blockchain-based transactions. The user is using a decentralized application, which will execute a smart-contract, sometimes without the user realizing that a dispute clause is buried deep in the backend code. The dispute clause could even be concealed in a way that is not readable, let alone negotiated. This is where the browsewrap analogy is illustrative. Browsewraps refers to type of online agreement where a website tries to bind users to terms and conditions without them actively clicking or acknowledging anything. Courts in many jurisdictions have refused to uphold agreements to terms described in ways that were passive or hidden, like at the bottom of a webpage. In Nguyen v. Barnes & Noble Inc.[6], Noonan, J. opined that passive behaviour does not equal informed consent. In smart contracts, it is arguably worse: a user does not even see the terms, let alone scroll by them, thus vitiating informed consent.
This invokes the concern of procedural unconscionability, wherein one of the parties involved in a contract has little choice or understanding of the terms to which they are purportedly bound. The concern is particularly acute in retail-facing decentralized finance (DeFi) applications where users are agents lacking the legal or technical sophistication. Arbitration is based on the validity of a knowing and voluntary submission that is wholly absent when a user is silently bound by code that they cannot read, understand, or negotiate.
Procedural Fairness
Even if one were to concede that the spectre of consent is satisfied, the legal structure of procedural fairness in a block-chain arbitration is still plagued with significant problems. According to Article V(1)(b) of the New York Convention, an enforceable award may be refused by a court if a party was not given proper notice of the arbitral proceeding or if he was unable “to present his case.” For decades viewed as the gatekeepers of procedural fairness in international arbitration, these provisions raise considerable difficulties for Liquid Dispute Resolution (LDR) systems, which are based not upon traditional arbitral practice, but rather on code. For example, jurors in platforms such as Kleros cast votes anonymously, selected through token-based randomization processes. Jurors are rewarded economically by voting, and do so based on the appearance of the most popular vote, often by algorithmically defined incentives for voting coherently, rather than legal argument or deliberative reason.[7] Adjudication always occurs without traditional notice, without written submissions, and without reasoned awards. Most of the time, there is no ability to appeal any arbitral award, no arbitrator exercising public accountability, and no institutions other than code, or document, that governs ethical, procedural compliance. An LDR system functions less like a traditional arbitration proceeding and more like a gamified prediction market, an intentionally designed, arbitrary, and opaque process conducted rapidly to produce a final outcome.
This is in contrast to the protections found in Article 18 of the UNCITRAL Model Law, which states that parties are to be treated with equality and given the opportunity to be heard in their case. The IBA Guidelines on Party Representation in International Arbitration also recognize that transparency, independence, and due process are fundamental for legitimacy, all of which are not assured in virtually all blockchain-native tribunals. From a legal standpoint, an arbitration lacking basic procedural safeguards such as notice, impartial adjudication, and the opportunity to be heard, is unlikely to satisfy courts assessing the enforceability of awards under the New York Convention or similar domestic frameworks. When tasked with distinguishing enforceable arbitral awards from the mere outputs of an algorithm, courts are unlikely to recognize as legitimate any award that fails to demonstrate even the minimal standards of due process.
Enforceability
Enforceability is the final crucible through which any arbitral award must pass. It is the bridge that transforms digital determinations into legal outcomes with real-world effect.[8] Yet, for smart contract-based awards, often rendered by anonymous algorithms or decentralized juries, this bridge is fragile, and in many jurisdictions, perhaps impassable. To be enforced under the New York Convention, a blockchain-based arbitral award must satisfy four key elements:
- A valid arbitration agreement under Article II;
- A clearly defined seat of arbitration to anchor the lex arbitri;
- A recognizable arbitral process that affords due process; and
- An award that is not contrary to public policy, procedurally or substantively.
Smart contract arbitration, in its current form, falters at multiple thresholds. Most glaringly, the absence of a physical seat undermines the procedural skeleton provided by national arbitration laws. The lex arbitri, traditionally rooted in territoriality, becomes unmoored. Without a designated seat, it is unclear which jurisdiction’s procedural protections or annulment mechanisms apply. This procedural statelessness is anathema to most national enforcement regimes. Equally problematic is the lack of institutional scaffolding. As noted by the UK Supreme Court in Enka v. Chubb[9], the absence of a governing law or seat invites significant uncertainty. Yet, blockchain platforms often operate in precisely such legal vacuums. Further, many platforms do not issue reasoned awards or identify arbitrators features essential to legitimacy. For instance, Section 68 of the UK Arbitration Act 1996 and Section 19B of Singapore’s IAA empower courts to set aside awards where serious procedural irregularity or due process violations are evident. A “Kleros award,” with anonymous jurors, no formal pleadings, and gamified incentives, may struggle to meet even minimal judicial scrutiny.
To resolve these legitimacy gaps, several pathways are emerging:
- Hybrid models, where code triggers arbitration but human neutrals conduct adjudication;
- Soft law innovations, such as the UKJT’s Digital Dispute Resolution Rules (2021), which aim to harmonize code-based systems with legal norms;
- And the long-term goal of a supplementary UNCITRAL protocol to standardize blockchain arbitration under a transnational framework.
Without such interventions, code-based arbitration risks floating in a legal ether: efficient in execution, but inert in enforcement.
Conclusion
Smart contract arbitration exists in a space in between technological autonomy and uncertain legality. It has the potential to be radically efficient and decentralized. But the efficiency and decentralization can also undermine the foundations of arbitration. The responsibility of legal systems is to be able to counteract the appeal of expediency and automation when that expediency pushes too far against due process. The legal systems should not simply reject prospects for efficiency and expediency but refine them in principled ways. Courts, legislators, and arbitral institutions could begin by defining the limits of enforceable arbitration in digital environments: What is a legitimate agreement and how do we ensure procedural integrity in a code-governed system? Similarly, the legal system needs to define when new forms of notice, consent, and adjudication are valid, but each form must accomplish at least the most minimal threshold of substantive justice. Finally, we need to maintain a discourse in terms of doctrinal consistency and comparative legal jurisprudence, so that the legitimacy of technology and arbitration are in harmony.
The algorithm may be swift, but the law must be sure. So, we return to our central question:
Would you trust an algorithm to decide your next dispute and more importantly, would your jurisdiction?
[1] Wulf A Kaal and Craig Calcaterra, ‘Crypto Transaction Dispute Resolution’ (2017) 73 Bus Law 109 https://www.jstor.org/stable/26419193 accessed 21 April 2025.
[2] Rainer Kulms, ‘BLOCKCHAINS: PRIVATE LAW MATTERS’ (2020) Sing JLS 63 https://www.jstor.org/stable/27032601 accessed 21 April 2025.
[3] Nasdaq, ‘Smart Contracts Described by Nick Szabo 20 Years Ago Now Becoming Reality’ (Nasdaq, 26 April 2016) https://www.nasdaq.com/articles/smart-contracts-described-by-nick-szabo-20-years-ago-now-becoming-reality-2016-04-26 accessed 21 April 2025.
[4] Joseph T McLaughlin, ‘Arbitration and Developing Countries’ (1979) 13 Int Lawyer 211 http://www.jstor.org/stable/40705956 accessed 21 April 2025.
[5] Jan Paulsson, ‘Arbitration Unbound: Award Detached from the Law of the Seat’ (1981) 30(2) ICLQ 358.
[6] Nguyen v Barnes & Noble Inc 763 F.3d 1171 (9th Cir 2014)
[7] Dan Simon, ‘A Third View of the Black Box: Cognitive Coherence in Legal Decision Making’ (2004) 71(2) U Chi L Rev art 3.
[8] Stanley D Henderson, ‘Contractual Problems in the Enforcement of Agreements to Arbitrate Medical Malpractice’ (1972) 58 Va L Rev 947 https://doi.org/10.2307/1072083 accessed 21 April 2025.
[9] Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, [2020] 1 WLR 4117
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