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This article explains why Article IX (9) "Dispute Resolution" should have the changes of 30-May-2018 reverted.
The current community Constitution contains, in Article IX (9) "Dispute Resolution", a substantive last-minute change that many of us now believe exposes the entire EOS blockchain community to an unacceptably high risk of substantial and irreparable harm.
A request is now open to revert the effect of that last-minute change, and return Article IX to its prior meaning.
The file difference can be seen here in this Pull Request.
Image of the difference
To be a governed blockchain, EOS requires three branches of governance. One of these, Arbitration, has been under development by a team of specialists for many months. The team have created a complete Arbitration Forum, the "EOS Core Arbitration Forum" or ECAF intended to provide default arbitration services for the EOS Mainnet.
On 30-May, after a 4 day offline vacation, I (Thomas) came back to the office and had a conversation w/ Dan that resulted in the last-minute changes that I am now recommending be reverted. I'm at fault for not being up to speed on (A) the maturity of ECAF at that time, (B) the implications of the change to ICC, and (C) the lack of deliberateness in creating this change.
Below I (Thomas) summarize my prior thinking vs what I think now.
These are the main heads made by the Arbitration team's advisors, as agreed to after discussion by the whole Arbitration team:
1. ICC will be too expensive for a default forum
2. ICC has a focus that's a poor match to our situation
3. ICC rulings are out of the context of, and exclude, the EOS Community
4. ICC will be too slow for a default forum
5. Having an external forum as the default will encourage harmful fragmentation of arbitration
6. Significant harm to the BPs and risk of breakdown of Arbitration enforceability
7. ICC will be unaccountable to the community
8. ECAF is more mature than many realize
9. ICC will remain an option for any truly horrifically large arbitration cases that might occur
It's the recommendation of the Arbitration team that the change to Article IX of the EOS Constitution be reverted from ICC to ECAF prior to chain launch.
It's the separate recommendation of me, Thomas Cox, to revert from ICC back to ECAF prior to chain launch.
As of 30-May-2018 I was under the impression that:
As of this writing on 07-Jun-2018, I now believe:
The following summarizes the shared position of the Arbitration Team plus Thomas, after conferring with our advisors and among ourselves in the period since 30-May-2018 to the present.
ICC is a forum oriented to expensive commercial cases involving cross-border contracts where deals have millions of dollars in value.
Outcome: ICC automatically mitigates against any notion of community arbitration. ICC will knock out 90% of routine cases, as a guess, just on the expense. Could be as high as 99%.
ICC is not directed to blockchain or even software specific questions and cases. Its focus is normal contractual questions. It’s likely that their arbitrators have never even heard about the idea of “smart contracts”. If they have heard about “blockchain” they likely would gravitate towards thinking about “Bitcoin”.
Claimants and respondents will need to train the arbitrator in everything blockchain related. This will happen with not only the arbitrator but also the legal counsel x 2 who will typically be experts in the general law field but not experts in blockchain. This comes additional of the need to explain the positions in the specific case.
Outcome: cases will be more expensive. Community will not like to file there for unfamiliarity.
NB - where we say blockchain, it is is a proxy for: digital signatures, international and multi-jurisdictional community contracting, smart & Ricardian contracts, DLT and blockchains, etc.
As the parties are unlikely in agreement they possibly would present different explanations for what all these blockchain elements are, as even in the blockchain community there are sometimes different expectations about what the terms mean exactly.
Outcome: the arbitrator likely will not be able to follow the depth and will either reject any blockchain specifics, including the idea that “smart contracts” can in any way be legally understood as contracts. Or the arbitrator will have to do legal decisions on what the blockchain terms are. Which can be quite far away from what the community believes it to be.
The ICC would rule for the parties, being the claimant and the respondent. They would not rule for the community. This has multiple consequences. The constitution is meant to be understood as a contract between all possible parties. This is the basis both for the arbitration but also for the contractual relationship that is then under review within the arbitration case.
If there is another contract between the parties (for example a contract to buy tokens from each other or a contract to pay money for some dapp service) the ICC would have to evaluate for every case which one of the contracts (constitution and the other contract) are the leading contract for the relationship that leads to the arbitration. Especially when there are clauses to be considered from both contracts which don’t fit easily together.
An EOS blockchain focussed forum would understand the specific additional contract as a special contract that was made in the wider context of the constitution. For the ICC both contracts originally are just two contracts beside each other. Every single arbitration then would have to evaluate the relationship between those two contracts before entering the real case.
If there is NO other contract, every arbitration under ICC first would have to establish that the constitution is actually a contract to which both parties have agreed and under which the specific case can be handled. This is a question that ANY forum has to answer. Whereas, our community forum of DR will build up a warchest of questions and answers to do this, in short this barrier is crossed because the constitution is assumed.
Outcome: the contractual relationship between parties before ICC is much more unpredictable, repeated for every individual case. The Community context is likely ignored and excluded.
The fact that the ICC handles cases for the parties also has another implication: The ruling is provided to the parties and the parties only. The community does not necessarily learn about any ruling. This makes it hard for others to use the rulings for their own decisions or to re-use those rulings in their own cases. It also makes it hard to evaluate the work of the ICC and if it is good or harmful for the community as such.
Even more, the whole arbitration can be private to the parties. This likely is the default of ICC, whereas it would more likely be the exception for ECAF. In theory it is possible that the parties are forbidden to inform others about the case.
Outcome: The community has few options to evaluate the process of arbitration OR to see who is involved in an arbitration. Or who lost a multitude of arbitrations. Or who has been found to be stealing from others. This has been assumed to be a core strength of community arbitration and a crucial part of the entire design of governance; losing it would cause far ranging harm.
ICC has no special role over the community. Its remedies will be limited to awarding monetary damages.
Outcome: Community remedies up to and including explulsion will be ignored.
In each case, the ICC arbitrator and counsel X 2 will need to learn and ratify (cost) every relevant clause (uncertainty) in the C and other docs. Each of these clauses and documents are new, and each may generate a view that they are novel -- up to and including illegal. That is, in some jurisdictions, blockchain is strictly against the law. Etc. Or not.
Outcome. the analysis by the arbitrator & legal counsel over our Constitution and other related documents will be at the minimum costly, likely uncertain in results, and at the maximum can be catastrophic to parties that have relied in good faith. I.e., clauses can be simply struck down, and in the extreme cases could be referred to criminal prosecution.
Worse, there could be multiple cases at the same time that are handled in parallel. These cases can come to very different understandings of the meanings of clauses of the constitution or other core documents. One case could invalidate a clause, another could accept it.
For the ICC all these cases are independent, singular cases between two contracted parties. The ICC has no incentive to evaluate the constitution and other core documents with the perspective that there is a big community who is in desperate need of a consistent interpretation of the rules and by this aligned rulings.
In contrast, a Dispute Resolution Forum that is aligned with the EOS blockchain and its community would aim to build up a consistent set of rulings to prevent future cases from being inconsistent. The ICC has little interest in aligning future cases on related topics.
Outcome: The rulings for different cases can be quite contradicting. Which makes it hard to align ones actions with the decisions in a manner that one could prevent future cases.
The danger of some clauses being understood to be illegal on some kind of law based on some jurisdiction by the parties is not helped by the fact that the constitution does not provide any guidance of a “real” governing law on which basis the ICC can evaluate the cases. Governing laws in general are quite complex and give a lot of guidance and also have accumulated some additional case law. The constitution does not provide this.
As the ICC arbitrators would not have any guiding of how to interpret the rules, they likely would fall back to anything that is familiar for them. Which is likely quite more aligned with some arbitrary government interpretation.
Outcome: The arbitrators have no choice then to fall back to arbitrary local law interpretations of clauses. Which don’t necessarily work well with blockchains.
We have no reason to believe that the above considerations would do anything other than slow down arbitration cases.
In short, there is a large chance that ICC will become a place-filler, not actually performing the job but holding the title. This will have several effects. Setting a place filler as the default forum will have far-reaching harmful effects to undermine overall governance of the blockchain, as it will:
The putting in place of a single ineffectual base forum and a multitude of dapp-chosen incompatible forums (above) will likely present an impossible challenge to BPs.
100 forums as chosen by 100++ dapps cannot instruct the BPs to enforce things without a highly sophisticated forum approval process. It's just another forum, right?
Then, the easy attack here is to set up a local forum called PutinChain, get it registered for approved rulings, and seize all the value. Profit!
Outcome: Actually neuter any ability to instruct the BPs to do anything. End of Judicial branch of the three legs of Governance. Collapse of EOS society.
The community has no say at all in ICC and will not be able to control their rules or to review or control their arbitrators. It will be difficult for the community be able to influence the Arbitration Forum choices of any dapp or any other project.
To be good, a forum needs the following hard items:
ECAF has all of these in an advanced state of readiness.
We agree that all disputes arising out of or related with this Constitution shall be finally settled under the Rules of Dispute Resolution [RDR : https://forums.eosgo.io/discussion/1010/proposal-for-rules-for-dispute-resolution] of the EOS Community Arbitration Forum [ECAF : https://eoscorearbitration.io/].
One the website https://eoscorearbitration.io/file-a-claim/
Sam et al
Moti Tabulo and the Arbitration Team
These will come with time.
Lastly, it is indeed possible that some enormous, horrifically expensive and complex case might arise that would be beyond the capabilities of ECAF in the short term. For such a case, it will be entirely possible for the parties to "agree to disagree" in the context of the ICC, taking advantage of its strengths.
It is the shared belief of the Arbitration Team and of me, Thomas, that the last-minute change to Article IX be reverted. This community is ready to govern itself. It should face that self governing future with confidence.
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blockchain governance expert - active in the EOSIO ecosystem
US: +1 503.516.3886
(all opinions are my own)