The New York Times recently published a pair of scathing articles about the state of arbitration in the United States. The articles focus mainly on the effect of arbitration on consumer and class action litigation and raise important issues of fairness, transparency and access to justice.
Arbitration Everywhere, Stacking the Deck of Justice (Oct.31, 2015) details how it has become almost impossible for a consumer or small business to apply for a credit card, use a cellphone, get cable or Internet service, or shop online without agreeing to private arbitration. The same applies to getting a job, renting a car or obtaining medical or nursing care.
In Arbitration, a ‘Privatization of the Justice System’ (Nov. 1, 2015) looks at claims that arbitrators are biased in favour of the companies who most often use arbitration and how “[t]he secretive nature of the process makes it difficult to ascertain how fairly the proceedings are conducted.”
The Times says it looked at more than 25,000 arbitrations between 2010 and 2014 and interviewed hundreds of lawyers, arbitrators, plaintiffs and judges in 35 states. It uncovered many troubling cases.
In an effort to avoid the flood of consumer and employee class actions in the United States, businesses have increasingly turned to arbitration and class action waiver clauses in their standard form contracts. The courts have generally upheld the validity of these clauses, despite the fact that consumers, small businesses, and employees have no bargaining power to refuse them.
Under US law, apparently, the Federal Arbitration Act trumps consumer protection and class action laws.
In 2005, the US Congress passed a law which moved some class actions out of consumer-friendly state courts into federal courts. When the federal courts upheld the validity of mandatory arbitration and class action waivers for those claims, it forced many plaintiffs into arbitration, The Times reported.
In 2010, the US Supreme Court ruled against a California law which prohibited class action bans in consumer arbitration agreements (AT&T v. Concepcion). This increased the trend toward including such waivers in many contracts.
Class action advocates say most individuals and small businesses simply can’t afford to arbitrate claims that are worth a few hundred or thousand dollars. According to the statistics reported by The Times, the costs of arbitration are too high and the odds of success are too low.
The Times articles also claim that US consumer and employment arbitration lacks transparency and accountability.
“Unfettered by strict judicial rules against conflicts of interest, companies can steer cases to friendly arbitrators,” The Times says. “In turn, interviews and records show, some arbitrators cultivate close ties with companies to get business.”
The Times cites 41 arbitrators who each handled 10 or more cases for a single company over the four-year period the paper examined. The system of private arbitrator appointments encourages a cozy relationship between some arbitrators and the companies that send them work.
All-in-all, the articles paint a bleak picture of a system that lacks basic consumer (or employee) protection, and favours those with deep pockets and powerful political lobbies. No different than the US court system, in other words…
I think the situation is different in Canada.
Consumer protection legislation in many provinces forbids mandatory arbitration clauses or class action waivers in consumer contracts. Consumers can agree to arbitration when a dispute arises, but can’t be forced to do so.
Arbitration statutes and rules require arbitrators to disclose potential conflicts of interest. For example, the ADR Institute of Canada (ADRIC) Arbitration Rules require every proposed arbitrator to sign a declaration that he or she knows of nothing likely to give rise to justifiable doubts as to independence or impartiality and to disclose any such circumstance that arises during the arbitration process. One might question what is a “justifiable doubt”, but Canadian courts have interpreted these rules quite strictly. (See for example, MDG Computers Canada Inc. et al. v. MDG Kingston Inc. et al., 2013 ONSC 5436 (CanLII), where the court removed an arbitrator because of a prior connection with an expert witness who was to testify in the arbitration. I commented on the decision in a previous Slaw column.)
Nevertheless, the American experience should give us pause to reflect on the development of arbitration as a supposedly more efficient alternative to litigation, particularly in areas where the law struggles to keep up with changes in consumer behaviour, such as online and mobile commerce.
While privacy and confidentiality are a real benefit of arbitration in disputes between businesses which may not want to “air their dirty laundry,” that may not be appropriate for consumer disputes. Publication of arbitration decisions allows for more transparency and provides a body of law which – while not binding on other tribunals – facilitates resolution of similar cases.
This is currently done under some provincial statutes. In British Columbia, for example, ICBC publishes arbitration decisions related to underinsured motorist protection claims. The Financial Services Commission of Ontario publishes a database of arbitration and appeal decisions.
In the private sphere, decisions in domain name disputes are made public under the Canadian Internet Registration Authority (CIRA) rules and under the ICANN dispute resolution policy (UDRP). The WIPO maintains a comprehensive database of domain name decisions by its arbitrators, which is a vital reference for those either making or defending claims.
We should also heed the concerns about arbitrator bias and procedural unfairness. Regardless of whether the stories reported in The Times are the exception or the rule, the perception that arbitrators are not accountable casts a shadow over the whole system.
ADRIC – and other administrators such as the British Columbia International Commercial Arbitration Center (BCICAC) or ICDR Canada – play an important role in ensuring arbitrator independence and impartiality by creating rosters of qualified arbitrators and making appointments where parties cannot agree. [Full disclosure, I am on some of these panels.]
Domestic rules and international guidelines – such as the International Bar Association (IBA) Guidelines on Conflicts of Interest in International Arbitration (available here) – provide standards that should be followed in consumer arbitration as well.
ADRIC also administers the national Chartered Arbitrator designation in Canada, providing the only national standard for training and qualification of arbitrators. Internationally, the Chartered Institution of Arbitrators provides training and certification of arbitrators with its Fellow and Chartered Arbitrator designations.
When arbitration was used mainly by sophisticated commercial entities (or in the labour field by unions and large companies) parties could choose qualified arbitrators based on personal knowledge and experience. That is not the case with consumers and small business who haven’t had any experience with arbitration.
I think independently-administered rosters and designations are a useful way to promote confidence in the arbitration process. And roster members and designation holders can be held accountable by the administering bodies if they don’t follow the ethical standards of independence and impartiality.
There are many lessons we can learn from the United States experience. The most important may be that, with arbitration, as with any court process, justice must not only be done, it must be seen to be done.