ADR, but not as you know it – A new form of electronic dispute resolution

May 23, 2019

A new form of electronic dispute resolution has emerged in recent months. Its simplicity mirrors the rapidly modernising world, one without geographical boundaries where a myriad of tasks are conducted from the comfort of a laptop. “Kleros” is an attempt to bring some of this modernity to the resolution of civil disputes. Although many will find its proposal astonishing (particularly lawyers!) many others might say that its approach is long overdue in the traditionally “tech-unsavvy” world of dispute resolution.

So what is Kleros’ proposal? It provides a platform to resolve civil disputes online and worldwide. Its platform is designed to make it easier for parties to resolve their disputes, especially where they reside in different countries. The system hopes to produce rapid decisions within days and envisages that lawyers will not be involved, nor required. “Judgments” are handed down electronically using lay jurors picked at random from a pre-existing “pool” of people who have previously opted to become jurors.

Kleros caters for rapid enforcement of its judgments by relying on blockchain technology. This works on the basis that, before the parties contract with each other, the paying party “locks” monies into a smart contract and in the event of dispute (which the parties have opted to resolve using Kleros), once the Kleros jurors have provided their decision, the money is released to the correct party, with deductions made to the jurors for their fees. Although it would appear eminently suitable for simpler contractual disputes, Kleros states that it aims to provide fast, secure and affordable arbitration for “virtually everything”, including complex disputes. It envisages a platform which enables disputes to be resolved virtually instantaneously, which in turn allows parties to put their dispute behind them and quickly resume their normal working relationship.

It hopes to be a solution for disputes in the “global, digital and decentralized economy where they cannot be solved by state courts”. It also states that its “resolution layer uses blockchain technology and crowdsourced jurors to adjudicate disputes in a fast, secure and affordable manner.” The dispute resolution process is simply described as: Step 1: “users create a smart contract and choose Kleros as its adjudication protocol”; Step 2: “the relevant information (about the dispute) is securely sent to Kleros”; Step 3: “A tribunal is drawn from the crowd. Jurors evaluate evidence and cast their vote”; Step 4: “the decision is enforced by the smart contract”.

The Kleros website offers various examples of disputes which it envisages are suitable to be resolved in this way, including freelance contracts, disputes arising from disparaging content posted on social media, online gaming, contractual disputes, and disputes arising out of the purchase of products or services online.

So what should we make of this new ADR online platform? It’s early days of course and only time will tell what the take up will be and how well it will work in practice. An obvious concern will be over both the quality and integrity of the jurors deciding the disputes. Jurors will not be legally trained but will, we are informed, have specialist market expertise in the various different types of disputes which may arise. Kleros believes that game theory will provide jurors with “incentives for honest rulings” and that their desire not to get their decision “wrong” will incentivise them to vote with the majority for the “true” answer. Quite how this interesting concept will work in practice is yet to be seen. The system will need to go through a few months or perhaps years of use to build up a reputation for fair and sensible rulings. Appeals will be possible, though not encouraged, as the parties must pay increasing fees for jurors to adjudicate upon them.

Although the potential of Kleros for resolving straightforward online disputes is obvious, we are less sure of its suitability for those cases which beg a more detailed analysis such as those involving mixed issues of law and fact such as professional negligence, fraud or those arising out of contracts where the parties have negotiated detailed terms. Where parties have reached this level of sophistication in their dealings, it may be a tall order for a group of disconnected lay jurors to interpret intricate wording or facts and make fair determinations. There is some reference in Kleros’ literature to jurors relying on “evidence”, although the traditional use of witnesses (including expert witnesses) to assist the determination of the issues, is not expressly catered for. Nor does there seem to be scope for anything more than very limited disclosure of documents.

As the jurors selected to “adjudicate” disputes will not be legally qualified, the scope for this method of dispute resolution to apply any jurisdiction’s established body of law is likely to be very limited. This means that Kleros jurors are likely to decide disputes by relying on globally acceptable commercial principles as well as, where applicable, principles generally accepted in the industry concerned, rather than legal principles. This scheme sounds like a return to the Lex Mercatoria of the Middle Ages. For this reason, we also speculate whether the platform will be more popular for simpler disputes which lend themselves to such an approach. This commercial approach, combined with the considerably lower cost of taking the dispute forward, points to Kleros’ suitability for lower value disputes where the issues are fairly binary. Whilst not wishing to exclude complex, higher value disputes from its remit, Kleros itself acknowledges this, stating that it will enable “arbitration in a large number of contracts that are too costly to pursue in court”and that “just as Bitcoin brought “banking for the unbanked”, Kleros has the potential to bring “justice for the unjusticed”.

We will report again on how Kleros fares in due course. No doubt it will suffer from some teething troubles as it launches but we think that its quick decision turnaround, zero lawyers, low cost and super-fast enforcement of money judgments, will be key draws for those who would normally shy away from making a claim due to the likely time and cost involved. No matter what, and irrespective of how successful Kleros turns out to be, we think it is really very heartening to see that the range of dispute resolution options for those embroiled in disputes (whether high or low value) is gradually increasing due to plucky and imaginative proposals such as this. It has been the case for a very long time, both in the UK and elsewhere, that many worthwhile claims have simply gathered dust due to the (probably accurate) perception that they are more trouble than they are worth. Ideas such as these try to cut through the thorns and as Kleros says bring “justice for the unjusticed”, and for that, we think that Kleros deserves a gold star.

To find out more about Kleros, please visit: https://kleros.io

For the discussion paper, please visit: https://kleros.io/assets/whitepaper.pdf