Will UNCITRAL Online Dispute Resolution Rules Work for Consumers?

The United Nations working group for online dispute resolution (ODR) of cross-border electronic commerce transactions (UNCITRAL Working Group III) met in Vienna early in November to continue its work on procedural rules for ODR. This effort has been underway since 2010 and should be nearing completion, but the approach taken by the working group has drawn some criticism from those concerned that its focus is too narrow and its proposed rules will be ineffective.

Professor Vikki Rogers, Director of the Pace Institute of International Commercial Law, one of the facilitators of the 2010 colloquium that put ODR on the UNCITRAL agenda, has observed that the Working Group’s approach ignores the two most effective existing models to address disputes arising from low-value e-commerce transactions — the credit card chargeback system and the Paypal ODR process.

In a recent online post Prof. Rogers argues that there are several advantages to these systems:

• sellers that use the payment system are required to use the dispute resolution system – so they bind sellers to the dispute resolution process, without binding the buyer;
• they are part of the payment process, so consumers are aware of and can easily access them;
• recourse is available within the payment system, so enforcement is simple;
• parties still have recourse to the courts (although this is seldom used);
• they are funded by fees charged to sellers, which increase for sellers with multiple chargebacks, so it encourages settlement;
• payment processors can aggregate information and track cases against sellers to detect fraudulent practices.

Instead of following and adapting this model for cross-border electronic commerce, the Working Group has proposed a two-tiered binding dispute resolution process, using a combination of mediation and arbitration, that will operate entirely outside the transaction channel. Both parties to a dispute will have to opt into the ODR process, either at the time of the original transaction or later, when a dispute arises. There is little apparent incentive to participate or penalty for refusing to do so.

Since the process is divorced from the means of payment, enforcement may be difficult or impossible. Although proponents of the Working Group’s approach are correct in arguing that making it part of the existing regime of international commercial arbitration will make awards widely enforceable under the New York Convention, local mechanisms for judicial enforcement of arbitration awards can still be expensive and time-consuming.

The approach taken by the Working Group seems more suitable for business-to-business ecommerce disputes than for consumer disputes. Indeed, there has been much debate about whether consumer disputes should be included in the UNCITRAL ODR process at all. The whole notion of binding arbitration of consumer claims is anathema to consumer advocates in many countries, including Canada. But cross-border online consumer transactions is where ODR should hold the most promise for fast, cheap, accessible dispute resolution.

The key, as Prof. Rogers correctly points out, is to make enforcement quick and easy as well. To do that, the ODR process must include the online payment mechanism. In most cases, the only practical way for consumers to enforce mediated settlements or arbitration awards in their favour is to have access to a hassle-free refund of their money. Even resolutions that involve the repair or replacement of goods or services ultimately depend on the threat of a refund to force the seller to comply.

For example, Consumer Protection BC is currently running an ODR pilot project, which provides a set of online tools BC businesses and consumers can use to attempt to resolve disputes through direct negotiation or a neutral third party. But the process is entirely voluntary and non-binding, unless there’s a mutually agreed settlement. And the ODR webite itself notes that: “It is up to both parties to follow through with the agreement….if either party does not follow through, it is up to the party to enforce the agreement.”

Existing consumer-protection laws are largely ineffective when it comes to online transactions, whether domestic or cross-border. The nature of online transactions makes it difficult or impossible for sellers to comply with disclosure and notice requirements, even if they want to. Individual consumers can’t afford to exercise their legal remedies, while class action claims are usually far more lucrative for plaintiff’s lawyers than the plaintiffs themselves. These problems are compounded when it comes to cross-border electronic transactions.

The Working Group is scheduled to continue its deliberations over the rules with a meeting in New York in May, 2013. One hopes that it will soon emerge with effective ODR rules for international business transactions; the prospects for effective international consumer ODR appear to be less promising.