Meta-Versus: Part 3 - How will disputes be resolved in the Metaverse?

Part 2 of our Meta-Versus series introduced the types of disputes that are likely to arise from the Metaverse – including claims against Metaverse platforms and disputes between users. But how are those disputes likely to be resolved? Will standard dispute resolution mechanisms and procedures be applicable to this new and constantly evolving landscape, and if so, how? The answers to these questions will vary depending on the parties involved and the context for the dispute.

Claims by users against Metaverse platforms

As we covered in Part 1, some Metaverse platforms will be developed and maintained by centralised corporations (e.g. Meta, Roblox), whilst others will be decentralised – built and owned on the blockchain by their users. This raises an interesting question: can a decentralised Metaverse platform be sued by a user?

In practice, centralisation is not a binary attribute: many nominally ‘decentralised’ Metaverse platforms still incorporate centralised elements. Some platforms built on the blockchain (e.g. Sandbox) are working towards becoming fully decentralised, whilst others appear to intend to retain centralised elements. For example, whilst Decentraland is governed by a DAO and allows users to hold assets on the platform via decentralised tokens, there is still a centralised element (‘the Decentraland Foundation’) which holds the IP rights over and makes available to the users the various ‘Tools’ needed to access the platform, as well as the platform’s website. This reflects the impracticality and risk of holding all of the technology and legal rights required to operate a Metaverse platform in a decentralised manner. It is likely to be some time before these rights are entrusted to a DAO. Other decentralised platforms will, in all probability, therefore require some assets to be held by a centralised entity.

In practice, this centralised element means that users will (at least for the time-being) be able to target claims against centralised and decentralised Metaverse platforms alike (and vice-versa). Claims by users against Metaverse platforms are therefore likely to be governed and resolved in the same manner as other, more typical web service providers:

• When users sign up to use a Metaverse platform, they are typically prompted to sign a set of terms and conditions (and in the case of the decentralised platforms, this agreement will be with the centralised entity). Those terms and conditions will regulate the use of the platform and will typically be the first port of call in order to determine the user’s legal rights vis-à-vis the platform, as well as the procedure for resolving disputes.
• Many Metaverse platforms have foreseen the litigation risk inherent in providing such a service and have included in their terms very broad limitation of liability clauses which purport to preclude any and all types of claims that might be brought by users (see e.g. Decentraland’s T&Cs) in respect of all types of damage that may be suffered (and also limit the amount of their liability – e.g. to US$100). Others (e.g. Meta’s Horizon Worlds) contain specific disclaimers of liability in relation to the content that can be found on their platforms, including in relation to the content found on virtual land owned by users (which would seem to exclude some of the virtual land-related claims identified in Part 2 of this series).
• The choice of forum clauses in Metaverse platform T&Cs also vary. Decentraland’s T&Cs require disputes to be resolved under the arbitration rules of the International Chamber of Commerce, with the arbitration seat (i.e. the legal place of the arbitration) in Panama. Sandbox has a jurisdiction clause in favour of the Hong Kong courts. Meanwhile Roblox’s terms and conditions contain an express waiver of class actions and require all US citizens to submit to arbitration under the AAA rules.

As will be evident from the above, the terms of many Metaverse platform T&Cs are currently very significantly weighted in favour of the platforms; very little recourse is available to users if they consider that they have incurred losses as a result of actions by the platform (i.e. they wish to make financial claims against the platform). It is therefore likely that despite the terms in the Metaverse platforms’ T&Cs, users will seek to rely on any applicable consumer protection laws in their home jurisdiction in order to seek a more favourable forum. We have already started to see this trend emerging in relation to claims against other Web3 companies:

• In Ang v Reliantco Investments Ltd [2019] EWHC 879 (Comm) a user of a cryptocurrency platform relied on the Brussels Regulation to ask the English court to disregard the platform's standard terms, which gave Cypriot courts exclusive jurisdiction. The court in that case concluded the user was a consumer under the Brussels Regulation and entitled to bring her claim in England.
• In Soleymani v Nifty Gateway LLC [2022] EWHC 773 (Comm) an art collector sought to challenge a New York arbitration clause on the basis of the Civil Jurisdiction and Judgments Act 1982 which states that consumers are entitled to resolve disputes in their domestic courts.

If and when users start to invest more value into the Metaverse, they may start to demand more robust guarantees as to the treatment of their investments, as well as more favourable dispute resolution provisions. Whilst an individual user will not have much in the way of bargaining power in that regard, any business considering an investment into a particular Metaverse platform could demand bespoke terms, which the platform might be willing to accept if it wants to incentivise that business to invest.

Claims between users

Part 2 of this series also addressed the scope for claims between users to arise in the Metaverse. As Metaverse platforms facilitate an increasingly broad and complex range of methods for users to interact and transact with each other, the scope for disputes between users will increase. Similarly, many decentralised platforms involve users purchasing and trading crypto-assets, including cryptocurrencies and NFTs – and anyone who has been following the crypto market will be familiar with the scope for disputes to arise in relation to such assets. How then, will such disputes be resolved?

The answer to that question is not straightforward. The Metaverse will involve a patchwork of different platforms, many of which will enable transactions of varying values and complexity. In the same way, those transactions are likely to require a patchwork of dispute resolution mechanisms. In some cases, traditional dispute resolution may be suitable, whilst in other situations new approaches will evolve, in order to suit the needs of the new types of transactions that will take place in the Metaverse, including (by way of non-exhaustive example):

• Resolution by the platform: Users on centralised Metaverse platforms such as Roblox or Fortnite will (at least for the time-being) only have access to a limited range of transactions. The majority of disputes that arise in respect of such transactions are therefore likely to be straightforward and low value: they may concern a dispute over an in-game item or (as Roblox’s T&C’s specifically envisage) disputes concerning one user copying another user’s unique user generated content and passing it off as their own. These types of disputes can and likely will be resolved entirely on-platform, using mechanisms set out in the platform’s T&Cs, and with the platform (or a representative) effectively arbitrating the dispute between users. For example, Roblox’s T&Cs provide that disputes between users and creators may be escalated to Roblox’s Customer Service team, whereupon Roblox will decide the dispute and may choose to take action to resolve it (including deducting the platform’s currency from one user and crediting it to another). The T&Cs also provide that the users / creators will accept Roblox’s decision as final. In this sense, disputes between users are effectively decided by the platform (without any guarantee of due process or any prospect of appeal) and can be enforced instantaneously without any further action by the users.

• Resolution by DAO: What happens where there is no centralised entity to arbitrate the dispute? Whilst platform-specific inter-user dispute resolution mechanisms are yet to emerge on decentralised platforms in any tangible form, it is likely that some users will agree that their disputes should be resolved by out-sourcing the decision-making process to other users - potentially via a DAO (a decentralised autonomous organisation). Decisions in relation to the platform itself are already entrusted to users through DAOs, which allow users to vote on proposals, with their voting power often determined by the number of tokens they hold. It is therefore possible that inter-user disputes could be decided by the DAO, with other users voting according to which side of the argument they favour the most. This may, however, raise concerns about due process and fairness: can the users with the most tokens (and therefore the most voting power) be trusted to arrive at the right decision?

• Resolution by decentralised arbitration: Metaverse users who have contracted by way of a smart contract may agree that their disputes are to be decided by a decentralised arbitration court, which is independent of the Metaverse platform, such as Kleros, Aragon or Jur.

  • These de-centralised courts involve a randomly selected panel of arbitrators (drawn from a pool of potential arbitrators who have staked crypto-tokens in order to be selected), who are then (if selected) paid via blockchain to arbitrate disputes under smart contracts.
  • Under Kleros, for example, selected arbitrators are provided with a notification that they have been appointed, together with any evidence, and are told that they have three days to submit their decision based on a limited range of options under the smart contract (e.g. ‘Reimburse Claimant’ or ‘Extend deadline for contract’). Decisions are then enforced on-chain under the smart contract.
  • In these de-centralised courts, the arbitrators are incentivised to vote for the most reasonable option: on Kleros, arbitrators whose vote is inconsistent with the others on the panel will not receive their arbitration fees and will lose tokens. Decisions can also be appealed to a larger panel of arbitrators (with a commensurate increase in the fees, which are paid by the appealing party). By using these methods, users are granted additional certainty that they will be afforded due process, but in a leaner and more agile manner than traditional courts or arbitration.

There are various drawbacks to the above mechanisms. They are, at present, ill-equipped to handle high value and complex B2B or B2C disputes. In addition, many inter-user disputes will arise from scenarios where the users have not agreed to resolution by the platform, DAO or by decentralised arbitration (e.g. in the case of a misappropriated digital asset).

As will be explained in Part 4 of this series (which will cover enforcement), the choice of forum for a Metaverse dispute is likely to depend heavily on the ease of enforcement which that forum facilitates. The traditional courts are likely to find favour in the resolution of fraud-related Metaverse disputes (e.g. in the case of a misappropriated digital asset) because of the greater scope for the granting of injunctive relief (and subsequent enforcement) against real-world assets. However, for the broader universe of Metaverse disputes (e.g. some of those surveyed in Part 2 of this series), arbitration is likely to be an attractive alternative – particularly where users have transacted using smart contracts. Off-chain enforcement is also facilitated by the ability to enforce an arbitral award in any jurisdiction which is a party to the New York Convention (c. 170 countries globally).

Nevertheless, whilst traditional forms of arbitration (which take, on average, around 12 months to reach a resolution) are appropriate for complex and high value disputes, there is a growing recognition that they will need updating in order to provide the agility and speed of resolution that Web3 consumers (including Metaverse users) are likely to demand. This is reflected in the UK Jurisdiction Taskforce’s Digital Dispute Resolution Rules released last year (see our article here) which may represent a helpful middle-ground between traditional dispute resolution mechanisms and community-driven methods – particularly for higher value B2B or B2C disputes. It is also likely that Metaverse users will continue to demand more decentralised forms of arbitration, particularly if this is more in keeping with the ethos/structure of the platform on which they have transacted. In either case, arbitration (as a creature of contract) is likely to provide the flexibility needed to adapt to the rapidly changing demands of disputes in the Metaverse.