Online Dispute Resolution – an Update

Attentive readers of this blog know that the United Nations Commission on International Trade Law (UNCITRAL) has a working group actively considering online dispute resolution (ODR). The working group has met three times and meets again at the end of May. Slaw.ca has had progress reports from time to time, notably here a year ago, and more recently here . It is time for another. I expect that the Canadian delegation, and possibly others, would be interested in your views on the texts that the working group will have before it in May. Comments on this article will come to their attention.

All the working documents of the UNCITRAL Working Group on ODR (Working Group III) are online here. (Links to individual documents do not work well from the UNCITRAL site, so any UN document mentioned in this article can be found through this link.) Reports of the previous meetings are also at this link. The discussions at the November 2011 meeting, for example, are described in Document A/CN.9/739. Those discussions focused on general principles set out in WP. 110, which are still relevant to the project.

The May meeting will review at least four working papers. WP.112 through WP.115. (It is possible that more could be filed and published at the site before the meeting.)

• WP.112 and addendum: draft procedural rules for international ODR
• WP.113: Further issues for consideration in designing a global ODR framework, beyond those mentioned in earlier UNCITRAL documents
• WP.114: principles applicable to the providers of international ODR services and neutrals
• WP.115: substantive principles on which claims may be resolved

WP.112: Draft procedural rules

The basic principle of the rules of procedure is that they depend on contract between the parties to an online transaction, and that they are subject to mandatory law that might be applicable. (That does not mean that they will not require national legislation to ensure they have the appropriate effect.) The rules are designed for high-volume, low-value transactions, where the parties might have no effective remedy in their absence, since recourse to traditional courts will normally cost more than the sums in issue. The rules are stated to apply to business-to-business (B2B) and business-to-consumer (B2C) disputes. The role of consumer protection legislation, or even of later recourse to civil courts, is still open to debate within the working group. (Professors Benyekhlef and Vermeys have discussed elements of this question here.)

The opening provision of the draft rules contemplates the agreement of the parties. One option refers to the agreement without mentioning the time of the agreement. A second option allows parties to agree to use ODR at the time of the transaction or at the time of the dispute. Even such a simple provision raises concerns among consumer protection advocates who prefer that an agreement to arbitrate not be binding until the consumer knows what the dispute is.

After some definitions, the draft rules say how electronic communications are to be used and addressed. Communications are between parties and the ‘ODR provider’, either a service or a technological platform through which ODR is available. The ODR provider passes messages between the parties and the ‘neutral’, i.e. the mediator or arbitrator. The commentary to the rule canvasses several options for a rule on the time of receipt of a message in this process (para 26).

The parties then communicate their claim, response or counter-claim in electronic form to the ODR provider, along with supporting documents. A prescribed form is contemplated, with its basic contents spelled out in the rule. It must state that neither party has sought other remedies with respect to the dispute. The process for counter-claims is still under discussion (para 34). Whether special rules on authentication of parties would be needed is an open question at this stage (para 38).

The rules assume that some direct negotiation has occurred between the parties before the ODR process is launched. Then there are three stages: negotiation through the ODR provider; facilitated settlement (much like mediation); and arbitration. Time limits determine when the dispute is moved on to the next stage if it has not settled. The commentary provides more detail than the rules themselves on how the stages may be carried out.

Draft rule 6 (we are now in WP.112 Add.1) provides that a neutral is to be appointed by the ODR provider from a roster it maintains. The neutral must affirm his or her impartiality. Parties have two days to object to the appointment; each party has three challenges. The neutral gets to see all the communications up to that point, then carries on. He or she has broad discretion to conduct the proceedings fairly and efficiently. The neutral may rule as to his or her own jurisdiction, including the validity of the reference to ODR. This is similar to the powers of an arbitrator under UNCITRAL’s Model Law on International Commercial Arbitration.

The neutral engages in facilitated settlement with the parties under draft rule 8. If the neutral develops doubts about his or her ability to remain impartial, he or she must resign. After ten days the process moves to outright arbitration. The neutral must decide the dispute within seven days after the parties make their final submissions. The formalities of the award align with those of arbitral awards enforceable under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards: in writing, signed, final and binding (subject to a decision of the working group on whether other recourse may be allowed, such as through the courts.) Whether reasons may be given is also still open. The award is to be made in accordance with the contract, possibly taking into account trade usages applicable to the transaction (rule 9(5)).

In principle (indeed under draft rule 10), the proceedings will be conducted in the language of the transaction in dispute. Given the flexibility of some web technology in providing translations or full service in multiple languages, it is conceivable that a merchant and customer have used different languages to conduct the transaction. Options for such circumstances are discussed in the comments (para 20 – 25).

The draft rules conclude with permission of parties to be represented during ODR and provisional clauses limiting liability of the neutral and ODR provider, and barring any award of costs.

Nothing here is set in stone yet, and the draft text shows many options for amendment or deletion. We now turn to the documents that supplement the draft procedures. How they are to be integrated into a final package will be determined in a later meeting.

WP.113: Further issues for consideration in designing a global ODR framework

This working paper gives an overview of the possible structure of the whole ODR framework, with the procedural rules supplemented by rules for ODR providers and neutrals, substantive principles for the resolution of particular kinds of dispute, and methods to ensure adequate consumer protection. It shows how the other documents in this set might fit together, in the light of the previous discussions of the working group and of the Commission itself.

WP.114: principles applicable to the providers of international ODR services and neutrals

The operations of the providers of ODR services need to be governed by recognized principles if the procedures are to be trusted by parties to the transactions. Likewise the character and conduct of neutrals should be set out clearly. This working paper is a contribution of the government of Canada to those discussions, rather than a document prepared by the UNCITRAL Secretariat like the preceding papers.

The dozen principles are not themselves controversial, but the text shows that issues may arise in designing a system that will operate in a large number of situations. The system will have to balance sufficient detail to ensure trust against a level of generality to allow for a wide application.

For example, the first principle proposed requires ODR providers to maintain a roster of competent neutrals. That raises the issue of the public nature of the roster, the means of ensuring competence of the neutrals, and the meaning of competence itself: does it mean subject-matter expertise? Should there be a review mechanism to ensure that these criteria are met?

What might be meant by a principle that neutrals must be independent or impartial? Can an ODR provider be constituted by one party, for example an association of merchants? Is disclosure of this fact sufficient underpinning for trust? Some method of disclosure of relationships is needed, along with a mechanism to remedy the lack of neutrality.

All of the procedures of a recognized ODR provider will have to be available to the public, including procedures for handling complaints against the provider or neutrals. Privacy interests of parties also need to be considered. On the other hand, there have to be methods to establish the identity of the parties to everyone’s satisfaction. Communications systems must be both secure and accessible, though these two values are not always in harmony. The working paper asks without a recommendation whether ODR providers should have to carry data breach insurance.

It appears helpful to have a rule on the publication of the results of ODR processes, but the content of that rule is open for discussion. Should parties’ names be published? Is there an exception for consumers? Should compilation data be published, like the number of complaints that a provider or neutral resolves in favour of the merchant or the buyer, the average time to resolution, and the backlog? Should such information be current, or published, say, once a year?

A special principle is proposed to ensure cultural sensitivity among neutrals, given the diverse backgrounds of potential parties. This goes beyond mere competence in the parties’ language(s). The document goes so far as to prohibit providers from actively soliciting clients ‘where linguistic or cultural needs cannot be accommodated.’ (Principle 8(2))

Costs of the system are to be reasonable, and disclosed ahead of time. Costs are not to be awarded in the cause. Professors Benyekhlef and Vermeys have examined the financing of a B2C ODR system in more detail here.

The provider is to take measures to encourage compliance with decisions, potentially including the posting of security or seeking undertakings at the outset of the procedure respecting compliance.

Finally, the provider is not to propose to potential users of its service that they waive any consumer rights or legal recourse afforded by their domestic law. Whether this principle can be maintained is open for discussion, as noted above. The question is likely to be resolved at a higher level than that of any individual ODR provider, though.

WP:115: substantive principles on which claims may be resolved

The working group has contemplated from its first meeting that an ODR system might usefully contain its own set of substantive legal principles applicable to the disputes it covers. WP.112 says (para 35) that “it may be necessary to limit the types of cases to simple fact-based claims and basic remedies, to avoid overloading the system with complex cases, making it inefficient and expensive.”

WP.115 suggests a method of carrying these ideas forward. It has been prepared by the Center for International Legal Education (CILE) at the University of Pittsburgh School of Law. CILE is one of a global network of academic, not-for-profit and service-oriented organizations that are actively promoting the ODR project.

As noted above, and in WP.113, studies of online transactions have found that the bulk of disputes fall into a narrow range of predictable types that do not raise issues of subtle law. Were the goods delivered? Did they work? Did the buyer pay? Having a common set of substantive legal principles to resolve such disputes could help enable international ODR, without having to get into complex controversies about what parties’ law should apply. A system that resolves 80% of disputes is worth creating. At one point it was thought that a European Union project to create a transnational harmonized law of sales would help. This ‘twenty-eighth law’ (beyond the laws of the 27 EU member states) could be referred to instead of any national law. However, the draft of that law turns out to be several hundred pages long, which will not be a helpful quick reference to someone contemplating a low-value transaction. A recent compilation of official and private documents about this initiative is here.

CILE proposes to incorporate the basic substantive law principles into fact-based forms for registering a complaint with an ODR provider and for responding to the complaint. “[T]he substantive rules for resolving these fact based claims would be implied in the structure of claims that may be brought and relief that may be granted in the ODR system.”(page 2) It will be clear from this structure that types of relief not expressly given in the forms would not be available in the ODR system and is thus left to other dispute resolution methods. However, it is also widely recognized that for low-value transactions, other such methods may be illusory.

Rolling all the principles of law into the claims forms also avoids having to have special rules or distinctions for consumer transactions. It is fair to say that WP.115 is sceptical of the possibility of preserving special consumer rights outside the ODR system. The first of its ‘core principles underlying a global ODR system’ is that such a system ‘must recognize that alternatives for efficient and effective dispute resolution do not currently exist for cross-border, high-volume, low-value electronic transactions.’ (page 5) Another core principle is that ‘simplicity and efficiency require as few exclusions from scope as possible.’ The system should be ‘self-contained and avoid the need for reference to national rules of private international law.’

Not only should parties be enabled to understand what they are getting into if they agree to ODR (generally accepted in the project to need a separate consent from the one entering into the transaction itself), but states who would adopt rules to facilitate participation in such ODR must be able to see that the system is ‘simple, efficient, effective and transparent’. Those criteria will be met if the system is fair. ‘If states find the system to meet these tests, then the system itself will replace the need for ‘protective’ rules of private international law, and will itself result in the type of consumer (and other) protection often sought by such rules of national law.’ (principle 8, page 8)

As noted earlier, however, the role of consumer protection laws is an open question in the ODR project as a whole. To some extent the CILE proposal may allow the topic to be ignored while a workable ODR system is built.

WP.115 concludes with several pages of draft claim and response forms to show how its concept would look in practice. All the forms aim to permit the formulation of what the procedural principles contemplate, a statement of ‘the grounds on which the claim is made’ and ‘any solutions proposed to resolve the dispute’, or the equivalent for the respondent. The forms contain a checklist of possible claims, e.g. ‘I did not receive the goods at all’, ‘I received the goods in the time required, but … (a) what I received was entirely different from what I ordered, (b) the item was the wrong size/colour/(other)’ and so on, a list of six claims in all.

The claimant then has a selection of remedies: ‘I want a full refund..’, ‘I want to receive the goods I originally ordered’, and two others. A similar list is available for claims arising out of a contract for services.

The respondent’s form provides for an answer to each kind of claim, though at present it provides for most of them only a blank, not yet a checklist. That is future work, once the working group recognizes the attraction of the format. There is certainly enough in WP.115 to put its notions squarely before the working group.

Conclusions

The working group is starting to give some shape to a global ODR system, but major questions remain, such as financing, relation to consumer protection laws, and enforcement. The questions highlighted in this note are only the highlights of the issues raised in the detailed drafts, the alternative options and the footnotes to the texts referred to. The outline of general principles in WP.110 still governs most of the work. (Note by the way that the relevant documents are not long. The four discussed here total about 40 pages. WP.110 is 12 pages and the report of the November 2011 meeting is 22. It is accessible material.)

You still have a good opportunity to influence the discussions. Governments and non-governmental organizations are participating in the working group, and all are very willing to hear suggestions for improving the text, or resolving questions of principle or practice. Comment on this article, write to your government or to member of a delegation, or even publish your own article: all expressions of interest, even doubtful ones, will help improve the product, whatever it turns out to be.