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A Comment on “Party Autonomy and Access to Justice in the UNCITRAL Online Dispute Resolution Project”

As we are writing these lines, the United Nations Commission on International Trade Law’s (UNCITRAL) working group III is meeting in Vienna to continue its work on online dispute resolution (ODR) or, rather, on establishing guidelines for potential ODR service providers. Since previously scheduled obligations have kept us from taking part in this year’s meeting, we’ll have to wait for feedback from other participants to comment on how things are moving forward.

In the meantime, however, those who wish to get a broader picture of the UNCITRAL negotiations and their potential impact are in luck since Professor Ronald A. Brand, who we’ve both had the pleasure of meeting, published a paper that is currently available on the SSRN website. Said paper, which is titled “Party Autonomy and Access to Justice In the UNCITRAL Online Dispute Resolution Project”, was published online back in August, and should be printed in the pages of the Loyola University Chicago International Law Review shortly. It explains the UNCITRAL process with regards to ODR and outlines the major hurdles that negotiators are currently facing. As professor Brand puts it:

The most difficult issues in the ODR negotiations are centered on concepts raising important questions about the coordination of the ODR process with national rules of private international law (conflict of laws), national rules of consumer protection, and the international arbitration law framework.

He continues by adding:

If any global system of ODR is to be successful, it must avoid difficult questions about the application of national mandatory rules of law, it must be considered to provide fair procedures and results for consumers, and the results obtained must be enforceable across borders.

Although we agree with professor Brand’s evaluation of the underlying issues, we cannot accept the solution he proposes to settle said issues – allowing parties “to enter into binding ODR agreements at the time they form the basic contract for an online transaction” – as one that will ultimately help ODR thrive while offering “fair procedures and results for consumers”.

As we’ve stated in previous posts, and as professor Brand points out in his paper, binding ODR agreements are incompatible with European legislation where consumers are always entitled to seize the court of the country in which they reside (in Canada, such is also the case for Quebec residents). This is done to protect consumers and give them access to the courts, should they wish it. There is therefore no possible way of making Europe (and part of Canada) adhere to an agreement that would impose ODR on consumers unless they agree to change their laws. Of course, since there are those, including professor Brand, who consider the EU model to be inadequate with regards to high-volume low-value disputes, this might be a necessary step.

As we understand it, professor Brand’s critique of the EU approach is that it forces merchants to adopt a strategy akin to a classic insurance model: every consumer pays more so that the merchant will have enough funds to defend himself against eventual lawsuits in different states. Therefore, the goal is to mitigate risk by spreading it around. If consumers were forced to relinquish their right to be heard in their own states, this would limit the number of possible fora and, therefore, limit risk (and costs) for merchants. They could then sell their goods at a lower price, to the benefit of consumers. Notwithstanding the fact that there is no guarantee that a merchant wouldn’t simply pocket these profits, we question the underlying premise of this argument.

As we see it, for professor Brand’s claim to be accurate, it must be demonstrated that there is risk, i.e. that some consumers WILL litigate, otherwise the exercise is pointless. Yet, he believes that “access to courts does not provide a feasible path to an effective remedy in low-value high-volume cross-border transactions”. We would agree with this claim, but cannot understand how it can be made in the same context as a statement that non-binding ODR agreements generate “unpredictability and risk” for merchants as to choice of forum.

If the option is only a theoretical one, i.e. if consumers never seize the courts, it shouldn’t scare merchants. In other words, the argument can only succeed if professor Brand’s underlying premise to justify recourse to ODR (consumers don’t use the courts) is false, in which case there’s no need to make the argument at all. You cannot state that consumers will never go to the courts, and then claim that the fact that consumers could go to the courts is a deterrent for merchants to contract with these same consumers.

But, as the Supreme Court has pointed out, choice of forum isn’t really why merchants cling to binding ODR agreements; choice of process is. Merchants aren’t afraid of being brought before a foreign court for a supposedly defective 50$ DVD. They know it won’t happen. They’re mostly afraid of class action suits. This is the real reason why binding arbitration agreements (whether online or offline) are so attractive to merchants: they are incompatible with class action suits. This is also one of the main reasons why Quebec’s legislator opposes binding arbitration agreements for consumers.

Notwithstanding our philosophical objections to professor Brand’s thesis, we can only agree with his general statement that “access to courts is not access to justice”, and that “[a]n ODR system that is simple, efficient, effective, transparent, and fair, offers the hope of real justice in such disputes”. But even if we agree that ODR mechanisms COULD operate outside the scope of traditional tribunals, we have yet to find an example where all of these criteria are truly present in B2C scenarios, except for closed communities such as eBay. It is therefore difficult to imagine a system that combines all of these elements, as well as low fees (another necessary component of actual access to justice), outside of state funded ODR initiatives. For-profit ODR providers will always have to charge a fee to stay in business which will either deter consumers if they have to pay part of it, or give the process an appearance of unfairness if merchants or merchant associations are the ones to assume all the costs of proceedings.

Getting back to Professor Brand’s position, maybe state sanctioned ODR would be the best way to give merchants the predictability they claim to want while staying within the legal framework of Quebec and most of Europe. If a given ODR service is controlled and funded by a state (or states), it becomes that much more attractive a solution for consumers, making their recourse to the courts even less probable. It still would not be officially binding, but would have the same effect as if it were. In this sense, the European Commission’s proposed Regulation on consumer ODR could be a step in the right direction, but that is a topic for another day…

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Comments

  1. Are class actions the hidden sting(for merchants) in the right of consumers to sue despite the offer of ODR? It’s one thing to say that consumers won’t choose in practice to sue. That’s largely true – that’s why they tend not to do cross-border e-commerce in the first place; they have no assured remedy for problems. It’s another to say that they would not be able to bring class actions.

    Perhaps most legal systems in the world do not allow class actions, or do not allow contingency fees that help fuel class actions, so it’s not a problem for most of the countries at the UNCITRAL meetings.

    On the other hand, does it make sense for the EU and Quebec (and possibly others) to maintain their rule that consumers must have the right to sue, in the face of the practical impossibility of their doing so internationally, and at the expense of a viable alternative? It reminds one that the perfect can be the enemy of the good.