UNCITRAL’s Draft Procedural Rules for Online Dispute Resolution for Cross-Border Electronic Commerce Transactions: Where Are We Now?

Between November 5^th and 9^th, the United Nations Commission on International Trade Law’s (UNCITRAL) Working Group III met for its 26^th session, the fifth session dedicated to the drafting of procedural rules for online dispute resolution for cross-border electronic commerce transactions. Those who would need a refresher course on the working group’s agenda and mandate can read John Gregory’s posts from April of 2012 and 2011. As with the previous three sessions of the Working Group, work was to be centered around the “preparation of legal standards on online dispute resolution for cross-border electronic transactions and consider proposals on principles applicable to Online Dispute Resolution providers and neutrals”[1]. Since it has an observer status within this working group, the Centre de recherche en droit public (CRDP) usually attends these meetings, but cuts in funding for education and research by both levels of government in Quebec have forced us to limit our involvement. That being said, we tried to stay abreast of what has transpired during the last session and, while we’ll let John Gregory continue to offer summaries of the negotiations taking place, we would like to draw attention to the fact that participants have finally addressed the elephant in the room, i.e. mandatory arbitration clauses.

As we have discussed in previous posts the main point of contention between the USA and most of Europe as well as Canada, has been whether or not ODR, or rather online arbitration, should be mandatory, meaning that parties in cross-border high-volume/low-value transactions would be denied access to the court system of any given country. While the USA remains in favour of such an approach, Canadian and European delegates point to laws and, in the case of Europe, international treaties, which render arbitration clauses inapplicable. While this important point of contention has arisen from the very beginning of negotiations, is was simply pushed back to subsequent sessions. Of course, this had the dire consequence of making any other decision with regards to the draft procedural rules only temporary since the impact such an important element of negotiations will have on other aspects of the rules is evident, effectively making progress somewhat illusionary.

While reading the “Report of Working Group III (Online Dispute Resolution) on the work of its twenty-sixth session (Vienna, 5-9- November 2012)”, we were happy to see that delegates have finally decided to stop putting off the inevitable:

14. On the afternoon of the first day of the session, a brief report of the progress of the informal consultations was given by one delegation on behalf of those who participated. It was said that there were broadly two perspectives expressed, namely: (i) on the one hand, from those countries whose laws rendered pre-dispute agreements to arbitrate not binding upon consumers, and (ii) on the other, from those countries where no such laws were in place. It was said that the presence of an arbitration phase in the Rules could be problematic in those countries where such agreements were not regarded as binding.

15. A suggestion to overcome this difficulty was to have a “two track” system of ODR, one track of which would include negotiation, facilitated settlement and arbitration phases, and one which would not include an arbitration phase. It was said this might be accomplished by the preparation of alternative clauses or provisions under which parties to a transaction could agree to the use of the ODR Rules, with different clauses providing for the application of a different “track”. There was said to be consensus on the need for flexibility in the Rules, allowing (inter alia) for such a two-track approach.

Should this two-track system be adopted, an ODR provider whose platform offers negotiation, mediation and arbitration services as a continuous process (if negotiations fail, the parties move on to mediation, and if that fails, they move on to arbitration) would have to forewarn consumers that the arbitration stage of the process is or isn’t mandatory depending on their country of origin. According to an annex to the aforementioned report, there are two views as to how this should be presented:

View 1

It is suggested that, at the appropriate point in the text of the Generic Rules, a provision will need to be added to provide a procedure that accommodates binding pre-dispute arbitration agreements, while ensuring that the ODR process does not — without the buyers consent — move on to arbitration if the buyer is resident in the country according to the laws of which relevant agreements are not binding on him.

View 2

It is suggested that, at the appropriate point in the text of the Generic Rules, a procedure will need to be added that accommodates binding pre-dispute arbitration agreements without imposing awards arising out of such agreements on buyers who would not be permitted to enter into such agreements under applicable law from which the parties cannot derogate.

Whichever view is adopted, this two-track system offers an interesting twist on the position we’ve held since the beginning of negotiations, i.e. that arbitration should be binding for merchants, but non-binding for consumers. We do wonder, however, how said system will work in practice. This is not the first situation where conflicts of laws have forced online merchants to adapt their contracts to different jurisdictions. For example, Google’s Terms of Service state that:

The courts in some countries will not apply California law to some types of disputes. If you reside in one of those countries, then where California law is excluded from applying, your country’s laws will apply to such disputes related to these terms. Otherwise, you agree that the laws of California, U.S.A., excluding California’s choice of law rules, will apply to any disputes arising out of or relating to these terms or the Services. Similarly, if the courts in your country will not permit you to consent to the jurisdiction and venue of the courts in Santa Clara County, California, U.S.A., then your local jurisdiction and venue will apply to such disputes related to these terms. Otherwise, all claims arising out of or relating to these terms or the services will be litigated exclusively in the federal or state courts of Santa Clara County, California, USA, and you and Google consent to personal jurisdiction in those courts. (emphasis added)

How is a consumer, with little knowledge of international principles, supposed to know whether “the courts in his country will not permit you to consent to the jurisdiction and venue of the courts in Santa Clara County”? Granted, he can seek legal counsel, but that entails costs that will probably be more important than whatever claim said consumer has against the search engine, which is the very problem ODR is expected to address. Therefore, although we welcome the idea of the two-track system, we do question whether or not it will actually protect those consumers whose government have chosen to limit the reach of arbitration clauses. Of course, should this approach be adopted, UNCITRAL members will ultimately have little control over its success since ODR service providers are the ones that will have to put the proper safeguards into place…

[1] See the “Annotated provisional agenda” of the 26^th session available here.