New technologies could critically impact how deals are negotiated, how they are reflected in sales or purchase contracts and letters of credit, and how eventual disputes are handled through Alternative Dispute Resolution (ADR). Traders, though legitimate successors of the Lex Mercatoria of the Middle Ages, have not always readily left their comfort zone to enter challenging new paths. This is changing. Pioneers are putting their skin in the game to develop or subscribe to new solutions based on new technologies.
It is commonly accepted in commodity trading that disputes should be resolved efficiently and cost-effectively. ADR was and is the way ahead. Distributed Ledger Technology (DLT) may provide limited input in ADR’s softer, more informal forms (negotiation and mediation). However, mediation could be inserted into Blockchain if parties agree to clear parameters on its modus operandi and mediator scope. Whilst a mediation decision is not binding, a mediation settlement could conceivably be coded on Blockchain, carrying binding obligations upon the parties. This would secure swift implementation and avoid further enforcement proceedings in case of non-performance.
As in Alternative Dispute Resolution for Commodity Trading, Shipping and Trade Finance (ACT), developed by the Swiss Chambers’ Arbitration Institution (SCAI) with the support of STSA, a self-executing smart contract on the Blockchain could be put on hold to give mediation a chance until arbitration proceedings take hold. The overall platform could integrate ADR as a final phase in case of disputes, implying automation of the parties’ performance obligations. Though irreversible under pure Blockchain logic, the advantages could marry with commodity trading’s flexibility and adaptability if parameters are properly established from the outset. Clear rules of the game established by all stakeholders is of critical importance if this process is to live and develop.
Self-executing obligations will decrease, but not end, disputes and classical litigation. Their nature will change and, more importantly, how parties’ obligations are set forthand disputes are managed. ADR institutions face an important paradigm as pioneers challenge how disputes are handled. Like any new and revolutionary concept, there will be sceptics, but the process will find its path and the train will move forward. The bottom line is to maintain an open but challenging mind. Commodity trading from lex mercatoria times represents the essence of a bottom-up approach, regardless of the tentative impulse of persons writing regulations behind their desks.
Blockchain is by far the most virulent exhibit of a bottom-up or horizontal/community-based approach. Its combination with the commodities trading world is a natural and complementary outcome. This natural combination will only develop and give birth to solutions which will gradually but surely take over modus operandi currently accepted in the commodities trading world. Make sure you are there and do not miss the train.