Can a Multisig Transaction Meet Legal Award Requirements?

Table of Links Abstract and I. Introduction II. Award Form and Content III. Electronic Signatures, Writing Requirement, and Authentication A. Is it possible for an Arbitrator o Digitally Sign an Arbitral Award B. How could an Electronic Award be Considered to be "In Writing" C. Could a Multisig E-Award be Duly Authenticated IV. Can Multisig Arbitration be Seen as an Autonomous Legal Order? V. Conclusion Appendix A: Multisig Transaction on Bitcoin Testnet Example Appendix B: Breakdown of BTC Stored in 2/3 Multisig Accounts II. AWARD FORM AND CONTENT An award can be defined as a record that evidences an arbitrator’s decision, which is the consequence of evaluating opposing contentions between parties, weighing evidence and submissions[4]. The award puts an end to the arbitration process in whole, or in part, and finally settles issues, which cannot later be reopened or revised[5]. In making an award, arbitrators must act in accordance with the principles of natural justice[6], where each party is given a full opportunity to present their case and parties are treated equally[7]. The arbitrators must also use their best efforts to render an enforceable award[8]. Form and content requirements are governed by multiple sources that include: the arbitration agreement itself, national arbitration laws, and arbitration rules; furthermore, arbitrators commonly refer to non-binding guidelines on drafting awards published by a number of non-governmental organizations. The concept of party autonomy is a key pillar of international arbitration law. Parties have the freedom of contract to resolve disputes privately under the terms chosen by them. The parties can customize the entire arbitration process in their image when drafting the arbitration agreement to the extent allowed by public policy considerations. Parties have the confidence that the arbitration process is “their” arbitration and that it will be conducted according to their will[9]. In this sense, an arbitrator's power to issue an award is founded upon the consent of the parties. As arbitration is a creature of consent[10], the arbitration agreement ought to be the primary source for ascertaining the form in which an award is given. Some national laws have taken this view. For instance, in the United Kingdom, Section 52(1) of the Arbitration Act 1996 provides that “parties are free to agree on the form of an award,” similarly, Article 189(3)(1) of Switzerland's Federal Code on Private International Law indicates that parties can agree on award form[11]. As part of this freedom, parties could choose which arbitration rules are applicable. Some arbitration rules call for arbitral awards to be in a particular form. For instance, under ICC Arbitration Rules, Article 32(2), an award should state the reasons upon which it is based on. Additional information in awards are called for by guidelines like the ICC Award Checklist for Arbitrators, which require, inter alia, the quotation of the entire arbitration agreement, relevant choice-of-law clause, and a summary of procedural steps that haven been taken[12]. The Chartered Institute of Arbitrators[13] suggests an award should also contain the names and addresses of the arbitrators, a summary of the facts and procedure, and operative language[14]. While the International Bar Association recommends an award should contain the commercial registration number and nationality of corporations, the nationalities of the arbitrators, and a chronology of the events leading to the commencement of the dispute[15]. There is a tendency for awards to be very detailed. This could be the case because arbitrators have a duty to ensure awards are enforceable[16], so will err on the side of caution and include more information than less in order to provide evidence that the parties were given a full opportunity to present their case and were treated equally[17]. These procedural safeguards are meant to ensure compliance with the fundamental principle of due process, a violation of which may lead to the setting aside of an award[18]. Considering this, we now turn to the question if an electronic award recorded on a blockchain could meet the form requirements. As an illustration, the author performed a multisig transaction on the Bitcoin testnet network, details found in Appendix A. It is proposed that the raw data of a multisig transaction could represent a final and binding arbitral award providing that the parties select a seat of arbitration in a jurisdiction conducive to the will of the parties as it relates to the form of an award. The parties would need to agree in an arbitration agreement that either the United Kingdom or Switzerland is the seat of arbitration. Furthermore, the appointed arbitrators and parties would need to be named and associated with specific cryptocurrency wallet addresses in the agreement, since this would provide a means for identifying the parties and arbitrators in the resulting multisig transaction. With this information and the testimony of an expert witness, an enforcement court would have sufficient evidence to establish the existence of an award. However, ICC Arbitration Rules and guidelines, as noted above, require the award to be reasoned and include other information besides the name of the parties and place of arbitration. There are limitations to the amount of data that can be included in a transaction. In Bitcoin, OP_RETURN opcode has a limit of 83 bytes of data for any given transaction[19]. The data size of a reasoned award can be in the hundreds of kilobytes range. Even if the data is broken up into multiple transactions, the burden of storing and verifying large amounts of data would be shifted to node operators and could ultimately adversely affect the economic sustainability of the blockchain in the long term. Moreover, a very verbose award on a public blockchain undermines confidentiality of the parties as anyone can look-up the information. A possible solution around this is to not upload the award, but rather run a SHA-256 checksum of an award that is saved as a single file and anchor the resulting hash to a transaction in order to timestamp the document on the blockchain, or alternatively, the award could be encrypted and stored off-chain into a distributed file system, e.g. IPFS, where the associated hash is added to a transaction in a similar fashion[20]. In both of these methods, the transaction does not represent the actual award, but is a reference marker to a document. In this case, a multisig transaction utilizing these methods would be incapable of being an arbitral award when a reasoned award is required. On the other hand, there are some institutional rules that do allow parties to explicitly opt-out of a reasoned award[21] and given the concept of party autonomy, parties are able to prohibit arbitrators from following guidelines on the form of an award in the arbitration agreement. Another option is to adopt bespoke ad-hoc arbitration rules that would allow for electronic awards. In both approaches, most institutional rules, Article 31 of UNCITRAL Model Law, and Article 34 of UNCITRAL Arbitration Rules, call for awards to be “in writing” and “signed” by the arbitrators. One would have to consider the functional equivalence of paper documents in the electronic medium. This issue is particularly problematic for a party attempting to seek recognition under the New York Convention as Article IV(1) (a) requires a duly authenticated original award. Author: (1) A.J. Santos, B.A. (UTSA), J.D. (STCL), Department of Private International Law, Ankara Yıldırım Beyazıt University, Faculty of Law (ajsantos@protonmail.com). This paper is available on arxiv under ATTRIBUTION-NONCOMMERCIAL-SHAREALIKE 4.0 INTERNATIONAL license. [4] Turner, Ray (2005) Arbitration Awards: A Practical Approach, Hoboken, Wiley-Blackwell, pg. 3. [5] ICCA (2011) Guide to the Interpretation of the 1958 New York Convention: a Handbook for Judges, pg. 17. [6] Turner (2005), supra 4 at pg. 5. [7] UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006, Article 18; Trans-Lex.org ‘Principle XIII.3.1 - Arbitral due process’ https://www.trans-lex.org/969020 l.a.d. 04/18/2019. [8] Platte, Martin (2003) ‘An Arbitrator’s Duty to Render Enforceable Awards’ Journal of International Arbitration, I:3, V:20, pp. 307-313; Trans-Lex.org ‘Principle IV.6.5 - Best efforts undertakings’ https://www.trans-lex.org/932000 l.a.d. 04/18/2019. [9] Chatterjee, C. (2003) ‘The Reality of The Party Autonomy Rule In International Arbitration’, Journal of International Arbitration, V:20, I:6, pg. 540. [10] Moses, Margaret L. (2010) ‘Arbitration Law: Who's In Charge’, Seton Hall Law Review, V:40, I:1, pg. 154. [11] Original text in German: “Article 189(1) - Der Entscheid ergeht nach dem Verfahren und in der Form, welche die Parteien vereinbart haben.” [12] International Chamber of Commerce, ‘ICC Award Checklist’ l.a.d. 04/17/2019. [13] The Chartered Institute of Arbitrators, ‘Drafting Arbitral Awards Part I’ https://www.ciarb.org/media/4206/guideline10-drafting-arbitral-awards-part-i-general-2016.pdf l.a.d. 04/17/2019. [14] Operative language is a phrase that is indicative of a command, such as “we award,” “we direct,” “we order.” [15] International Bar Association, ‘Guidelines for Drafting International Arbitration Clauses’ https://www.ibanet.org/lpd/dispute_resolution_section/arbitration/projects.aspx l.a.d. 04/17/2019. [16] supra note 8. [17] supra note 7. [18] New York Convention, Article V(b). [19] It should be noted that many members of the Bitcoin community object to the use of OP_RETURN to store arbitrary data. See Bistarelli, Stefano/Mercanti, Ivan/Santini, Francesco ‘An Analysis of Non-standard Transactions’, Front. Blockchain https://doi.org/10.3389/fbloc.2019.00007 l.a.d. 08/13/2019. [20] The author illustrates this method with the use of Monero, a privacy-centric cryptocurrency, and IPFS. See https://github.com/monero-ecosystem/monero-pgp-messenger l.a.d. 08/13/2019. [21] See Stockholm Chamber of Commerce Rules, Article 42. Hong Kong International Arbitration Centre Rules, Article 35. Although HKIAC Article 35.6 adds an additional form requirement of a seal affixed to the award. Table of Links Abstract and I. Introduction Abstract and I. Introduction II. Award Form and Content II. Award Form and Content III. Electronic Signatures, Writing Requirement, and Authentication A. Is it possible for an Arbitrator o Digitally Sign an Arbitral Award B. How could an Electronic Award be Considered to be "In Writing" C. Could a Multisig E-Award be Duly Authenticated A. Is it possible for an Arbitrator o Digitally Sign an Arbitral Award A. Is it possible for an Arbitrator o Digitally Sign an Arbitral Award B. How could an Electronic Award be Considered to be "In Writing" B. How could an Electronic Award be Considered to be "In Writing" C. Could a Multisig E-Award be Duly Authenticated C. Could a Multisig E-Award be Duly Authenticated IV. Can Multisig Arbitration be Seen as an Autonomous Legal Order? IV. Can Multisig Arbitration be Seen as an Autonomous Legal Order? V. Conclusion V. Conclusion Appendix A : Multisig Transaction on Bitcoin Testnet Example Appendix A Appendix A : Multisig Transaction on Bitcoin Testnet Example Appendix B : Breakdown of BTC Stored in 2/3 Multisig Accounts Appendix B Appendix B : Breakdown of BTC Stored in 2/3 Multisig Accounts II. AWARD FORM AND CONTENT An award can be defined as a record that evidences an arbitrator’s decision, which is the consequence of evaluating opposing contentions between parties, weighing evidence and submissions[4]. The award puts an end to the arbitration process in whole, or in part, and finally settles issues, which cannot later be reopened or revised[5]. In making an award, arbitrators must act in accordance with the principles of natural justice[6], where each party is given a full opportunity to present their case and parties are treated equally[7]. The arbitrators must also use their best efforts to render an enforceable award[8]. Form and content requirements are governed by multiple sources that include: the arbitration agreement itself, national arbitration laws, and arbitration rules; furthermore, arbitrators commonly refer to non-binding guidelines on drafting awards published by a number of non-governmental organizations. The concept of party autonomy is a key pillar of international arbitration law. Parties have the freedom of contract to resolve disputes privately under the terms chosen by them. The parties can customize the entire arbitration process in their image when drafting the arbitration agreement to the extent allowed by public policy considerations. Parties have the confidence that the arbitration process is “their” arbitration and that it will be conducted according to their will[9]. In this sense, an arbitrator's power to issue an award is founded upon the consent of the parties. As arbitration is a creature of consent[10], the arbitration agreement ought to be the primary source for ascertaining the form in which an award is given. Some national laws have taken this view. For instance, in the United Kingdom, Section 52(1) of the Arbitration Act 1996 provides that “parties are free to agree on the form of an award,” similarly, Article 189(3)(1) of Switzerland's Federal Code on Private International Law indicates that parties can agree on award form[11]. As part of this freedom, parties could choose which arbitration rules are applicable. Some arbitration rules call for arbitral awards to be in a particular form. For instance, under ICC Arbitration Rules, Article 32(2), an award should state the reasons upon which it is based on. Additional information in awards are called for by guidelines like the ICC Award Checklist for Arbitrators, which require, inter alia, the quotation of the entire arbitration agreement, relevant choice-of-law clause, and a summary of procedural steps that haven been taken[12]. The Chartered Institute of Arbitrators[13] suggests an award should also contain the names and addresses of the arbitrators, a summary of the facts and procedure, and operative language[14]. While the International Bar Association recommends an award should contain the commercial registration number and nationality of corporations, the nationalities of the arbitrators, and a chronology of the events leading to the commencement of the dispute[15]. There is a tendency for awards to be very detailed. This could be the case because arbitrators have a duty to ensure awards are enforceable[16], so will err on the side of caution and include more information than less in order to provide evidence that the parties were given a full opportunity to present their case and were treated equally[17]. These procedural safeguards are meant to ensure compliance with the fundamental principle of due process, a violation of which may lead to the setting aside of an award[18]. Considering this, we now turn to the question if an electronic award recorded on a blockchain could meet the form requirements. As an illustration, the author performed a multisig transaction on the Bitcoin testnet network, details found in Appendix A. It is proposed that the raw data of a multisig transaction could represent a final and binding arbitral award providing that the parties select a seat of arbitration in a jurisdiction conducive to the will of the parties as it relates to the form of an award. The parties would need to agree in an arbitration agreement that either the United Kingdom or Switzerland is the seat of arbitration. Furthermore, the appointed arbitrators and parties would need to be named and associated with specific cryptocurrency wallet addresses in the agreement, since this would provide a means for identifying the parties and arbitrators in the resulting multisig transaction. With this information and the testimony of an expert witness, an enforcement court would have sufficient evidence to establish the existence of an award. However, ICC Arbitration Rules and guidelines, as noted above, require the award to be reasoned and include other information besides the name of the parties and place of arbitration. There are limitations to the amount of data that can be included in a transaction. In Bitcoin, OP_RETURN opcode has a limit of 83 bytes of data for any given transaction[19]. The data size of a reasoned award can be in the hundreds of kilobytes range. Even if the data is broken up into multiple transactions, the burden of storing and verifying large amounts of data would be shifted to node operators and could ultimately adversely affect the economic sustainability of the blockchain in the long term. Moreover, a very verbose award on a public blockchain undermines confidentiality of the parties as anyone can look-up the information. A possible solution around this is to not upload the award, but rather run a SHA-256 checksum of an award that is saved as a single file and anchor the resulting hash to a transaction in order to timestamp the document on the blockchain, or alternatively, the award could be encrypted and stored off-chain into a distributed file system, e.g. IPFS, where the associated hash is added to a transaction in a similar fashion[20]. In both of these methods, the transaction does not represent the actual award, but is a reference marker to a document. In this case, a multisig transaction utilizing these methods would be incapable of being an arbitral award when a reasoned award is required. On the other hand, there are some institutional rules that do allow parties to explicitly opt-out of a reasoned award[21] and given the concept of party autonomy, parties are able to prohibit arbitrators from following guidelines on the form of an award in the arbitration agreement. Another option is to adopt bespoke ad-hoc arbitration rules that would allow for electronic awards. In both approaches, most institutional rules, Article 31 of UNCITRAL Model Law, and Article 34 of UNCITRAL Arbitration Rules, call for awards to be “in writing” and “signed” by the arbitrators. One would have to consider the functional equivalence of paper documents in the electronic medium. This issue is particularly problematic for a party attempting to seek recognition under the New York Convention as Article IV(1) (a) requires a duly authenticated original award. Author: (1) A.J. Santos, B.A. (UTSA), J.D. (STCL), Department of Private International Law, Ankara Yıldırım Beyazıt University, Faculty of Law (ajsantos@protonmail.com). Author: Author: (1) A.J. Santos, B.A. (UTSA), J.D. (STCL), Department of Private International Law, Ankara Yıldırım Beyazıt University, Faculty of Law (ajsantos@protonmail.com). This paper is available on arxiv under ATTRIBUTION-NONCOMMERCIAL-SHAREALIKE 4.0 INTERNATIONAL license. This paper is available on arxiv under ATTRIBUTION-NONCOMMERCIAL-SHAREALIKE 4.0 INTERNATIONAL license. available on arxiv available on arxiv [4] Turner, Ray (2005) Arbitration Awards: A Practical Approach, Hoboken, Wiley-Blackwell, pg. 3. [5] ICCA (2011) Guide to the Interpretation of the 1958 New York Convention: a Handbook for Judges, pg. 17. [6] Turner (2005), supra 4 at pg. 5. [7] UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006, Article 18; Trans-Lex.org ‘Principle XIII.3.1 - Arbitral due process’ https://www.trans-lex.org/969020 l.a.d. 04/18/2019. Trans-Lex.org https://www.trans-lex.org/969020 [8] Platte, Martin (2003) ‘An Arbitrator’s Duty to Render Enforceable Awards’ Journal of International Arbitration, I:3, V:20, pp. 307-313; Trans-Lex.org ‘Principle IV.6.5 - Best efforts undertakings’ https://www.trans-lex.org/932000 l.a.d. 04/18/2019. Trans-Lex.org https://www.trans-lex.org/932000 [9] Chatterjee, C. (2003) ‘The Reality of The Party Autonomy Rule In International Arbitration’, Journal of International Arbitration, V:20, I:6, pg. 540. [10] Moses, Margaret L. (2010) ‘Arbitration Law: Who's In Charge’, Seton Hall Law Review, V:40, I:1, pg. 154. [11] Original text in German: “Article 189(1) - Der Entscheid ergeht nach dem Verfahren und in der Form, welche die Parteien vereinbart haben.” [12] International Chamber of Commerce, ‘ICC Award Checklist’ l.a.d. 04/17/2019. https://iccwbo.org/publication/icc-award-checklist-1998- [13] The Chartered Institute of Arbitrators, ‘Drafting Arbitral Awards Part I’ https://www.ciarb.org/media/4206/guideline10-drafting-arbitral-awards-part-i-general-2016.pdf l.a.d. 04/17/2019. https://www.ciarb.org/media/4206/guideline10-drafting-arbitral-awards-part-i-general-2016.pdf [14] Operative language is a phrase that is indicative of a command, such as “we award,” “we direct,” “we order.” [15] International Bar Association, ‘Guidelines for Drafting International Arbitration Clauses’ https://www.ibanet.org/lpd/dispute_resolution_section/arbitration/projects.aspx l.a.d. 04/17/2019. https://www.ibanet.org/lpd/dispute_resolution_section/arbitration/projects.aspx [16] supra note 8. [17] supra note 7. [18] New York Convention, Article V(b). [19] It should be noted that many members of the Bitcoin community object to the use of OP_RETURN to store arbitrary data. See Bistarelli, Stefano/Mercanti, Ivan/Santini, Francesco ‘An Analysis of Non-standard Transactions’, Front. Blockchain https://doi.org/10.3389/fbloc.2019.00007 l.a.d. 08/13/2019. https://doi.org/10.3389/fbloc.2019.00007 [20] The author illustrates this method with the use of Monero, a privacy-centric cryptocurrency, and IPFS. See https://github.com/monero-ecosystem/monero-pgp-messenger l.a.d. 08/13/2019. https://github.com/monero-ecosystem/monero-pgp-messenger [21] See Stockholm Chamber of Commerce Rules, Article 42. Hong Kong International Arbitration Centre Rules, Article 35. Although HKIAC Article 35.6 adds an additional form requirement of a seal affixed to the award.