One of the most important subjects in law, because of its profound impact on us all, is remedies. My Remedies professor in law school repeated a mantra that's stuck with me through nearly a decade of law practice, and it's one of the most important lessons to learn about law: without a remedy, there is no law. The rest of this blog post explores the reality of this maxim in Canada today, and what global technologists in the blockchain field may do to help with the situation.

Ancient Law, Modern Application

The law may as well not exist if there is no ability to get compensation for wrongs, because without any incentive to not commit a wrong, laws are reduced to normative statements (at best) in a rational society. Few people are interested in laws that have no consequence if breached. And it's the basis of the rule of law that when a wrong is committed there must be a remedy. This principle is contained in the famous US Supreme Court case of Marbury v. Madison (1804) where the Supreme Court cites the famous legal author William Blackstone:

[I]t is a general and indisputable rule, that where there is a legal right, there is also a legal remedy by suit or action at law whenever that right is invaded.

But the law doesn't say anything about whether the remedy is affordable. And since we live in a society where money is the determinant of most things, there's often a large gap between aspiration and reality. It is this real world application of the principle that is most important.

Most ordinary people have little need for laws as morals (or more cynically: fables). Laws without consequence may as well not exist, and people often know this, as societies have an intuitive sense of which laws are often enforced and which ones can safely be ignored. Lawyers treat all laws seriously, and are required to advise clients to follow laws even where a breach would have no consequence.

Lawyers should inform the clients of potential consequences, but that may be more difficult to divine than most people would guess. Often penalties aren't specified in laws, or they're such a huge range that the specified penalty is meaningless. For example, a business could theoretically be fined $100,000 for sending a single spam email under Canada's anti-spam legislation. A director of a company that participates in blocking a highway in Ontario as part of a protest can potentially be fined $500,000 under the recently passed Bill 100 in Ontario. A company that doesn't put their legal name on an invoice could be fined $25,000 under the Business Names Act. These are a few examples from the tens of thousands of statutes in Canada. Which ones are likely to be enforced? How much would someone really pay if they violate it? How can people know these answers?

The above penalties are specified as maximums, with no information about how the actual penalty might be set. But more importantly; they're not very meaningful because they're not very likely. The likelihood of enforcement by government is usually unknown or known only imprecisely by skilled practitioners in that area of law. Whatever the exact degree of enforcement, the actual enforcement of laws is often spotty, whether due to a lack of government regulator (or appetite for taking on cases), or a lack of private enforcement of a legal right. Taken together, what is the expected value of the law with respect to the lawbreaker?

The rest of this blog post is about the idea of not having a remedy and what that means for society, and more particularly: the cryptocurrency industry.

No Remedy: Private Enforcement

When I speak to lawyers they strongly resist the claim that most breaches of laws have no remedy. There may be a theoretical remedy but is there a remedy that is economical? Because there's no value in a right that costs $50,000 to enforce if the outcome is a payment of $30,000. Only someone who is very mad, vindicative, or principled would pursue justice if the cost is -$20,000. If only because of the stress and time involved in pursuing bad actors through the legal system. The raw economics of the legal system preclude the righting of most wrongs by legal means in the way that people might expect if they've watched law in fictional TV programs, or listened to stirring speeches about justice. Real life is messier.

With court systems backed up for years, even an economical case should be viewed through the lens of a time-consuming process that is always at least a bit uncertain. Might the defendant go bankrupt in the interim?

Private enforcement of legal claims is expensive. In Toronto, lawyers are rarely less than $200 per hour, and top firms charge in the range of $600-$1000 per hour. No matter how efficient a litigator is, there's substantial procedural requirements and evidence-gathering that will inevitably require significant investments of time. Factoring management time, or the money a person could have made working their job instead of dealing with litigation, the calculus is strongly tilted towards not pursuing justice other than for the most egregious cases. Or more accurately, only the most damaging cases. And the most damaging cases are generally those that involve the more affluent members of society. This is not the playing field for the problems of ordinary people, which can rarely justify such expensive intervention. Exceptions to this include matters like real estate, or perhaps class action lawsuits (although those sometimes pay out in gift cards or nothing at all to the affected people).

If the foregoing seems too cynical, various academic research projects on the plight of self-represented people shows that without a lawyer there's little hope for many to navigate a complex systems that's designed for litigants with lawyers. Furthermore, even $0 self-representation isn't free for wage earners because of the time required out of their day (during business hours) and the lack of compensation at the end of the day. Curiously, many lawyers cite this as a benefit of the legal system, because they've been taught that if people could sue easily it would be opening the floodgates. Many justice system participants view it as a good thing that people can't use the legal system because it's so expensive, limiting the cases to the ones that are most important, but this presumes that the ones that are most valuable are the most important to society, rather than simply the ones that affect people who have the most. If there are really so many wrongs that they would be like a flood, isn't that a serious indictment of the system?

For most claims, most of the time, for most wrongs, the answer is that it's not worth it. The remedy is not worth pursuing - the juice isn't worth the squeeze. Although not new, the proliferation of law and its promises to the public mean ever-growing disappointment. The vast majority of people know this, and don't even consider that a lawyer is the answer to their problems. This is a common observation in the legal profession, and a point of discussion outside of it, but it's less obvious how this relates to business models and the cryptocurrency industry. But first, it's worth looking at the other side of the coin: government.

No Remedy: Public Enforcement

Almost all complaints to the government end up with no action. Even very correct complaints, about obviously wrongful action that is contrary to law, do not get enforced through the legal system. Most are diverted to complaints systems in which government officials merely record complaints and summarize them in end of year statistical reports, are discarded, or perhaps result in a phone call to ask what's going on if the complainant is lucky. People who have tried to report wrongs in society know this experience well. The reality of public enforcement is that it's often a paper tiger.

In a surprisingly high number of cases, there isn't even a part of the government that handles complaints about violations of a certain statute. The law was made with a regulatory body in mind, but none was ever funded or is so overburdened with other matters that it may as well not exist. In this case, the public has no possibility of obtaining a remedy. In the vast majority of cases they have a very remote chance of action. This applies whether the complaint is regarding a fraud, a breach of a statute, or some other sort of legal wrong. As the government has over time assumed more control over the enforcement of certain wrongs (instead of leaving it to common law there are boards, departments and other government agencies tasked with the issue), this has left the public with even fewer opportunities to achieve redress. With no remedy for public wrongs, the result is frustrated citizens and broken promises in the form of laws on the books that have no value to the public other than as moral statements about what the legislature has condemned.

When public authorities fail to enforce laws the public loses respect for those laws. It also makes much of the legislative activity that goes on more of a virtue-signalling competition than an attempt to deal with the very real problems of society that law could have solutions for. It's also confusing to citizens because some laws are enforced with vigor and others are merely aspirational, but without any indication within the law as to which category it belongs to.

The Impact On Business

Businesses with experience or legal counsel know that the legal system won't help their customers. It is not what disciplines their actions, and it probably shouldn't be, but it's contrary to how most people imagine the law in theory. Almost all of the time, the customer will be out of luck no matter what the business does. But customers in Canada aren't completely oblivious to how things work and they make use of tools like credit cards with certain guarantees (i.e. chargebacks) and buy from companies that are known to offer generous return policies (i.e. Amazon). But this type of discipline is most effective when it comes to items that are immediately ascertained. For example, whether or not a dishwasher works is easily understood by a customer. Even the warranty for the dishwasher can be understood reasonably well by doing online research. But it's more problematic when the product isn't well understood by the customer. Hard to understand products are proliferating as the digital age consumes more of our lives. An e-Book that is licensed by Amazon (USA) to a Canadian customer isn't like buying a book from a bookstore, and the legal reality is more complicated rather than merely being of a different kind. Intellectual property licensing is not intuitive, and the consequences of a license vs. a purchase is not generally understood. How does this apply to cryptocurrency, an even more debated category of assets?

Cryptocurrency Exchanges And Unsecured Creditors

Coinbase recently announced in a securities filing that their customers are unsecured creditors. Many people paid attention to this announcement because Coinbase's stock price has fallen precipitously and it's more obviously a problem now than it was when the company had a better market capitalization. But there's nothing new about the legal content of the announcement. Customers are almost always unsecured creditors for money that they've provided the merchant or goods ordered but not manufactured/shipped. Customers are last in line (but ahead of shareholders), behind secured creditors like banks or financing companies. These situations are covered by bankruptcy & insolvency law, and are dealt with through professional bankruptcy trustees that ensure the money is disbursed appropriately. These are institutional mechanisms that work quite well to distribute assets to the creditors. This is not the situation for someone who has an individual wrong that was committed against them on an individual basis as part of the ongoing operations of the business. It is the latter situation that's more relevant to individuals who are navigating the global cryptocurrency space.

The Cryptocurrency Industry And Civil Wrongs

Customers care about what they get, and whether they're going to get it. They want to know about compensation, and they want it soon. In contrast, lawyers often speculate about how various wrongs may be treated by a court, but if it's not economical to get there, it's largely an academic question. If an individual customer is wronged, the business may be in a much better position than the law alone would dictate because of the reality of how difficult it is to obtain a remedy. Savvy (or unscrupulous) companies use this to their advantage. But even the worst Canadian companies is a much better counterparty than an offshore business because the difficulty of enforcing rights across borders is even higher.

Very few cross-border wrongs result in litigation because of all the problems listed above plus the additional challenges of navigating a foreign jurisdictions. Even a case that's won in Ontario doesn't help against a German company if they have no business presence in Ontario, requiring the litigant to enforce the judgement in the courts of Germany to obtain restitution if the company is unwilling to abide by the law in Ontario.

Since most of the activity in the cryptocurrency space, like the Internet economy in general, is outside of Canada's borders, few people can obtain compensation for wrongs that happen to them. For people participating in the emerging metaverse economy, DAOs, or other online places of commerce, the legal system has almost nothing to offer them. This might be surprising to many of the people who act in these worlds. (Although I certainly know savvy people who are aware of these risks and balance them against other risks that may be more relevant to them.)

A World Without Law: Looking For Analogs

A world without law is where the global economy is headed. It's already here for many people, because the companies they do business with are abroad, unreachable, unresponsive, or don't respect the law. Brand reputation is one way of mitigating this problem but it also requires a change in perspective. Is there a remedy? may be the only question worth asking, rather than how a wrong is to be characterized or how much money could be obtained if successfully pursued in court.

As globalization increases, and businesses become ever better at navigating the world to create more situations where they are effectively beyond the reach of the law, lawyers will increasingly have to answer their clients that they cannot help. In a globally competitive market, the firms that can reduce their costs by sidestepping costly legal processes are the ones that can offer the most efficient services, and thus attract more customers. This is especially done when the uncompensated wrongs are less obvious, or are unlikely, because these are harder for customers to evaluate. An example of this phenomenon can be seen in the one-sided legal terms that most companies gravitate towards. This isn't a cynical comment, it's a realistic comment. But the comment invites a question: What is to be done?

Dealing With A Lack Of Law: Smart Contracts

Companies like eBay and most other e-commerce platforms already use private online dispute resolution as the default means of addressing conflict on their services. These services are cheap and may genuinely serve most customers better than courts. These systems will only continue to grow. But it is my hope that people think more creatively.

Smart contracts are one potential solution because they offer the promise of systems that work according to algorithms, rather than human whim. They can be coded to follow the principles (if not the letter) of the law. This may be done not for altruistic reasons, but because these laws reflect genuinely good rules (since many laws are imperfect reflections of good ideas). More importantly, they can be done in a way that justice can be seen and known. Users know what they are getting into (or can know, if someone else reads the code for them) and failures are transparent to the public because they are on-chain.

Blockchains record issues forever, and users can see for themselves whether a service is working as intended. The more records are added to the public, immutable, online ledgers, the more people can avoid risks posed by the lack of law. The lack of remedy in the globalized world may further the adoption of these new technological systems. In a world with less trust because there is less law, it's possible that more code will be a part of the answer. Because a service that people have more trust in is one that will attract more users. For example, Bitcoin's incredible utility comes from its ability to act as a type of online money that can't be revoked or counterfeited, and this has spawned a trillion dollar global market for cryptocurrencies in a little over a decade. This sort of innovation will not stop. Consumers demand it and technologists will deliver it.

Perhaps legal systems can be reformed to start delivering on their promise. Government agencies could do a much better job of enforcement, or at least be more public about their lack of enforcement so that people know where they stand. Streamlined laws, by eliminating the ones that aren't adequately enforced, would reduce costs for everyone involved and lessen the need for lawyers (and bureaucrats). More judges and better funded courts, taking advantage of modern tech, could hear far more cases than they do now and tip the balance back towards local businesses accountable to customers and the public. But all of this depends on massive reforms that haven't ever happened, so it's far more likely that technologists will step up to the plate. As a lawyer, I'd like to believe it would be the lawyers, judges, court staff, and government employees who answer this challenge, but there are institutional reasons why the current system lumbers forward.

Global, Technological Solutions

The global, dynamic world of software developers seems a more likely place where solutions will appear as that's already where solutions are coming from, and the competition is fierce. Whether the solution is less need for remedies, or greater availability, increasing the alignment between expectations and reality is a necessary project. It happens to be good for business too, as the companies that adopt this mindset are the ones that customers flock to. For example: Amazon and Walmart's return policies are a major reason for their success over local merchants.

It seems likely that smart contracts and blockchain-based systems will be a part of the future. The creation of new parallel structures that patch over the lack of remedy that ordinary people commonly experience today is already happening. The future is not evenly distributed, but it's here, and technological progress is rarely rolled back. Technology is never the only answer, but it plays a part, and can play a bigger part in the solution to the global problem of the mismatch between the aspirations of the rule of law and the imperfect reality of no remedy.