Cryptocurrency disputes are no longer unheard of - they are becoming the centre of numerous international disputes, and arbitration is an increasingly dominant means of resolving them. While some of these fall within patterns familiar to arbitration practitioners, being primarily contractual disputes with a crypto factual matrix, others are less familiar. In particular, the unique characteristics of digital assets mean traditional legal frameworks often fall short, requiring creative solutions and novel applications of existing remedies.
At the heart of cryptocurrencies lies blockchain technology: a decentralised ledger that enables privacy, pseudonymity, and irreversible transactions. These features make crypto attractive for privacy reasons but also create challenges for dispute resolution. Unlike conventional assets, cryptocurrencies can be transferred globally in seconds, often through complex mechanisms like “peel chains” that obscure ownership and location.
Key challenges
- Cross border complexity: Crypto-related investments often involve multi-tiered dispute resolution (MTDR) clauses, and their cross-border nature makes them prone to concurrent proceedings in different jurisdictions, both of which require creative solutions. In Finaport Pte Ltd v Techteryx Ltd, the Singapore Court of Appeal issued an anti-suit injunction (ASI) to restrain foreign proceedings prior to the satisfaction of pre-conditions contained in the MTDR (not just the arbitration agreement), thus making ASIs more widely available. There is therefore potential for resolving novel disputes by applying traditional remedies in some instances.
- Enforcement issues: Part of the appeal of arbitration lies in the enforceability of arbitral awards under the New York Convention and the limited grounds of challenge in many jurisdictions. However, divergent regulatory approaches to crypto globally mean that awards can be annulled and/or refused enforcement on public policy grounds. For example, in Gao Zheyu v Shenzhen Yunsilu Innovation Development Fund Enterprise (LP) and Li Bin, the Shenzhen court set aside an arbitral award that required one party to pay an amount in Chinese RMB equal to the value of Bitcoin owed under the contract. This was seen as facilitating the exchange of crypto to legal tender, which is prohibited in China.
- Asset dissipation: The ease and speed of crypto transfers heighten the risk of dissipation. One response has been the granting of injunctions against unidentified persons, as seen in the case of CLM v CLN in Singapore (which in turn drew on English and Malaysian authorities), where a worldwide freezing order was applied to stolen Bitcoin and Ethereum, despite the thieves’ identities being unknown.
Despite the rise in disputes, there are no crypto-specific arbitration rules that have been widely adopted. While there have been initiatives to create rules which offer more innovative features, such as a 30-day expedited arbitration process by default, on-chain enforcement, and specific rules regarding the interpretation of smart contracts, uptake has been limited. The overwhelming majority of cases are still determined by established institutions like the ICC, with parties seeking early determination procedures for more straightforward payment claims.
Key considerations for businesses
- Contracts: draft robust dispute resolution clauses, paying particular attention to the applicable domestic regulation at the seat of the arbitration and anywhere an award may need to be enforced. Consider carefully the impact of any multi-tiered mechanisms.
- Asset protection: consider interim measures early to mitigate dissipation risks.
Cryptocurrency arbitration is evolving, but the legal landscape remains fragmented and unpredictable. Advice is needed to safeguard interests in this fast-moving sector.
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