The lack of clear provisions in the smart contract, on governing law and jurisdiction,
brings into the forefront several difficulties.
One is identifying the governing law in the event of a dispute. In a paper bill of
lading, the governing law is provided for expressly; as well there is a jurisdiction
clause. In the absence of such clauses, conflict of laws problems will invariably arise.
The situation would be no different in the case of a blockchain bill of lading. To
avoid such eventuality, it is imperative that governing law and jurisdictional clauses
are built into a blockchain-based bill of lading as a smart contract. Clear dispute
resolution terms containing the governing law and jurisdiction clauses must be
encoded into the smart contract before any automated implementation can take
place. The best practice is for parties to agree at the outset to record in ordinary
language the intended exclusive governing law and jurisdiction in appropriate
clauses because smart contract codes simply provide for automatic performance of
contract terms written in ordinary language.
54
Another related issue is the status of arbitration clauses in a blockchain bill of
lading. It is uncertain as to how an arbitral tribunal would treat an arbitration clause
becoming defective due to error in its coding. If the matter goes to court, whether
there will be a ruling in support of arbitral or judicial proceedings is a question mark.
A common law court will probably look into whether the parties intended to refer
disputes to arbitration. Needless to say, documentation that may serve as evidence
and corroboratory material should be preserved carefully to meet such eventuality.
Finally, with regard to the issues of governing law and jurisdiction, blockchain
and smart contract-based transactions and instruments may well be subject to the
jurisdiction of any node on the blockchain network. It will no doubt be potentially
difficult to identify the proper jurisdiction under established principles of conflict of
laws if there is a dispute. The problem will be compounded if there are ancillary
contracts. In such case, their term should be woven into the agreement of the parties
on governing law and jurisdiction. It should be borne in mind, however, that
exclusive law and jurisdiction are often subjected to legal challenge. This author
subscribes to the proposition that the absence of a physical jurisdictional connection
will prompt a court to assert jurisdiction despite the existence of an exclusive
jurisdiction clause.
6.3.6 Liable Party
It would be well-nigh impossible to apportion liability in the event of unanticipated
circumstances such as hacking or a systemic glitch whether in the blockchain itself
or in the smart contract. These cannot be easily envisaged; therefore, it would be
useful to have a paper contract specifying possible risks and the apportionment of
liability which should be applied in such eventuality.
55 Such problems can arise with
54 Lin (2017).
55 Ibid.
Blockchain and Bills of Lading: Legal Issues in Perspective
431
brings into the forefront several difficulties.
One is identifying the governing law in the event of a dispute. In a paper bill of
lading, the governing law is provided for expressly; as well there is a jurisdiction
clause. In the absence of such clauses, conflict of laws problems will invariably arise.
The situation would be no different in the case of a blockchain bill of lading. To
avoid such eventuality, it is imperative that governing law and jurisdictional clauses
are built into a blockchain-based bill of lading as a smart contract. Clear dispute
resolution terms containing the governing law and jurisdiction clauses must be
encoded into the smart contract before any automated implementation can take
place. The best practice is for parties to agree at the outset to record in ordinary
language the intended exclusive governing law and jurisdiction in appropriate
clauses because smart contract codes simply provide for automatic performance of
contract terms written in ordinary language.
54
Another related issue is the status of arbitration clauses in a blockchain bill of
lading. It is uncertain as to how an arbitral tribunal would treat an arbitration clause
becoming defective due to error in its coding. If the matter goes to court, whether
there will be a ruling in support of arbitral or judicial proceedings is a question mark.
A common law court will probably look into whether the parties intended to refer
disputes to arbitration. Needless to say, documentation that may serve as evidence
and corroboratory material should be preserved carefully to meet such eventuality.
Finally, with regard to the issues of governing law and jurisdiction, blockchain
and smart contract-based transactions and instruments may well be subject to the
jurisdiction of any node on the blockchain network. It will no doubt be potentially
difficult to identify the proper jurisdiction under established principles of conflict of
laws if there is a dispute. The problem will be compounded if there are ancillary
contracts. In such case, their term should be woven into the agreement of the parties
on governing law and jurisdiction. It should be borne in mind, however, that
exclusive law and jurisdiction are often subjected to legal challenge. This author
subscribes to the proposition that the absence of a physical jurisdictional connection
will prompt a court to assert jurisdiction despite the existence of an exclusive
jurisdiction clause.
6.3.6 Liable Party
It would be well-nigh impossible to apportion liability in the event of unanticipated
circumstances such as hacking or a systemic glitch whether in the blockchain itself
or in the smart contract. These cannot be easily envisaged; therefore, it would be
useful to have a paper contract specifying possible risks and the apportionment of
liability which should be applied in such eventuality.
55 Such problems can arise with
54 Lin (2017).
55 Ibid.
Blockchain and Bills of Lading: Legal Issues in Perspective
431