Arbitration Proceedings of Avatar vs. Avatar in The Metaverse!
While the self-executing contracts are coded and automatically executed as soon as the predetermined conditions are met, the resolution of disputes of these automated written programs in the decentralized Metaverse attracts a lot of scepticism and discussion
From ‘browsing’ the internet to ‘being’ inside of it, the complexities and dynamics of the internet and the global interaction on and around it has transformed manifold. With the recent blast of Metaverse, the augmentation of virtual reality has resulted in a universal marketplace being created wherein entertainment, shopping, education, communication and work environments interact and transact in a single space in a seamless manner. However, with an increase in transaction, the possibility of increasing disputes pave the way for finding modes of resolving these complex transactions between anonymous parties. However, before delving into the modalities and scope of resolving disputes in the Metaverse from a legal lens, it is imperative to understand the concept of Metaverse.
Created in 1992 by Neal Stephenson, Metaverse is a decentralized virtual platform, based on blockchain technology, using digital assets called “smart contracts”. The users of a Metaverse create their own digital assets, avatars (digital identities), and experiences.1
Much like the real world, commerce, trade and exchange in the Metaverse need to be regulated for the transactions which take place through decentralized or crypto currencies. In order to regulate and facilitate these transactions, it becomes important that the trading takes place through these smart contracts, which are akin to digital contracts. For example: someone investing in real estate in the metaverse, a consumer buying some goods in the metaverse, two or more anonymous individuals engaging in business transactions – all such transactions need to be protected and regulated through a systematised mechanism. This would aid in protecting the interests of parties to such transactions in the Metaverse. These self-executing contracts are coded and automatically executed as soon as the predetermined conditions are met. That being said, the resolution of disputes of these automated written program in the decentralized Metaverse attracts a lot of scepticism and discussion. Amongst the finer modalities of resolving disputes arising out of these smart contracts, most of which are still being deliberated, one pertinent issue is that of party anonymity and consent. At present, it is unclear as to how these cornerstones of arbitration will be resolved with respect to all such exchanges taking place through the Metaverse, where the anonymity of parties is of utmost concern. While many experts have, and are continuing to explore the arbitration as one of the modes of dispute resolution in this ‘meta jurisdiction’, the discussion around the possibility of ensuring the cardinal rules and principles, while conducting arbitration amongst avatars has not been significantly gone over.
To aid the dispute resolution process for on-chain digital assets and smart contracts, the UK Jurisdiction Taskforce released its Digital Dispute Resolution Rules on April 22, 2021 (“UKJT Rules”)2 which, inter-alia, provide for a systematized dispute resolution process, including optional anonymity for the parties. While the UKJT Rules do not define ‘smart contract’, however, the same are incorporated by way of calling them as ‘digital asset’3.
Rule 13 of UKJT Rules not only provide for an option for the parties to remain anonymous to each other, but also cast this obligation on the arbitral tribunal, which is obliged not to disclose the identity details unless disclosure is necessary for the fair resolution of the dispute, for the enforcement of any decision or award, for the protection of the tribunal’s own interests, or if required by any law or regulation or court order. This optional anonymity is subject to the mutual consent of the parties, which clearly ensures that the fundamental principle of party autonomy is duly protected.
Whilst the UKJT Rules allow the parties to remain ‘anonymous’ to each other, the parties are, however, still obliged to “provide details and evidence of their identity to the reasonable satisfaction of the tribunal”.
Insofar as the scope of anonymity of arbitrators is concerned, the UKJT Rules, while providing for an option, of anonymity to parties, does not provide a cover in a situation where the ‘real’ identity of the arbitrator is not revealed to the parties. This brings in a situation wherein an arbitrator may be appointed by the appointing authority basis the consent of the parties to the qualifications and expertise of the arbitrator. However, other factors giving justifiable doubts on the independence of the tribunal are at the risk of being overlooked. It goes without saying that possible conflict of interest and necessary disclosures to the appointing authority become sine qua non for the arbitrator in this case.
However, the UKJT Rules are a step in aid for arbitral institutions in developing an organized dispute resolution mechanism for the disputes arising in, or in relation to Metaverse. Being at its nascent stage, these rules can become the touchstone for several arbitral institutes (such as ICC4, LCIA5, HKIAC6, ICDR7) which mandate the parties to disclose their real identities to each other. It would be further important to check if the independence of the tribunal can be subjected to similar standards of disclosure and conflict of interests (e.g.: as prescribed under the IBA Guidelines on Conflicts of Interest in International Arbitration, 2014), or would it require a more comprehensive and exhaustive set of rules.
It is pertinent for all practitioners and stakeholders in the Metaverse to acknowledge that the complexities of the Metaverse cannot be dealt with traditional means of dispute resolution such as court litigation, at least in the foreseeable future. Hence, the scope resolving the disputes, arising out of smart contracts, or otherwise, within the ‘meta jurisdiction’ by way of arbitration need to be accepted.
The Metaverse is envisioned as a version of the internet providing for such stimuli wherein individuals and entities across the globe interact in an augmented reality giving them an experience as if they are transacting with each other across the table.
While the positioning and modalities of legal intricacies are far from being called ‘developed’, but with the kind of expansion and growth that is being witnessed of the Metaverse, it is safe to presume that the legal framework governing the functionalities of the Metaverse are soon to see the light of the day.
Needless to say, much like it is in traditional forms of alternate dispute resolution, the principles and fundamentals of party autonomy, consent, transparency ought to be embedded in rules that are to be developed for the Metaverse. However, the grey areas of the IP and data privacy in the Metaverse need to be delved into with much more caution and attention, as the complexities and the level of faith and trust required between anonymous parties (interacting through their avatars) is at a higher pedestal than a real life interaction and transaction between two parties.
Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.
1. Olga V Mack, What Laws Apply in Metaverse, Available at:https://abovethelaw.com/2022/04/what-laws-apply-in-Metaverse/
2. LawTech UK, Digital Dispute Resolution Rules UK Jurisdiction Taskforce, Available at https://35z8e83m1ih83drye280o9d1-wpengine.netdna-ssl.com/wp-content/uploads/2021/04/Lawtech_DDRR_Final.pdf
3. Rule 2(a) UKJT Rules, 2021
4. Article 4(a) and (b) and Article 5(a) and (b), ICC Rules of Arbitration 2021
5. Article 1(i) and Article 2(i) and Article 4.7, LCIA Rules of Arbitration 2020
6. Article 4.3 and Article 5.1, HKIAC Rules of Arbitration 2018
7. Article 2(3)(b) and Article 3(3), ICDR International Dispute Resolution Procedures: International Arbitration Rules 2021.