UNCITRAL’s WGIII on Online Dispute Resolution… a Seemingly Perpetual Tug of War

Between October 20^th and 24^th, as it does every Autumn, UNCITRAL’s Working group III on Online dispute resolution met to try and finally draft procedural rules for ODR providers. Unlike previous sessions, this year’s was rumoured to be a “make it or break it” meeting. This could be gleaned from the restatement of the directives given to participants in July of 2012 by UNCITRAL:

(a) the Working Group should consider and report back at a future session of the Commission on how the draft rules would respond to the need of developing countries and those facing post-conflict situations, in particular with regard to the need for an arbitration phase to be part of the process;

(b) the Working Group should continue to include in its deliberations the effects of online dispute resolution on consumer protection in developing and developed countries and countries in post-conflict situations, including where the consumer was the respondent party in an online dispute resolution process; and

(c) the Working Group should continue to explore a range of means of ensuring that online dispute resolution outcomes were effectively implemented, including arbitration and possible alternatives to arbitration.

It could also be understood from the Chair’s indications that there was a matter of urgency to complete the rules. As we’ve previously noted, this matter of urgency is due, among other things, to the fact that the European Union will soon have its own rules and that many jurisdictions around the world have decided to follow suit. Therefore, if UNCITRAL’s WGIII does not agree on draft rules almost immediately, its work may become unnecessary.

Unfortunately, notwithstanding the aforementioned urgency, expectations regarding the importance of this meeting were unfounded or, at least, were not met. Work seems to be at a standstill and even previously agreed-upon concessions are now being re-examined. Proof-and-point, the “two-track” system that had been proposed following great compromise by all member states is no longer seen as a viable option. To refresh readers’ memory, since some delegations insist that ODR rules must allow for mandatory arbitration for consumers should a mediated settlement be unreachable, while others oppose the very idea since it goes against their own laws, it was agreed that consumers would be offered a “two-track” system where individuals would follow the track that has been chosen by their countries.

Although this two-track system seemed like a welcomed compromise, it’s becoming more and more apparent that it suffers from certain flaws that may make its implementation impossible. First, how do we decide which track an individual has to follow? Country of residence? Citizenship? Place from where a purchase is made? This problem is not insurmountable, but since the validity of an arbitrated settlement depends on this very important categorization, it is an important one. More problematic, however, is establishing who will be responsible for drafting and maintaining the list of countries where track one (binding arbitration clauses) isn’t allowed. Obviously, ODR providers don’t have the resources to put such a list together, and, even if they did, they wouldn’t want to deal with the liability issues that could stem from an incorrect classification.

That being said, since the two-track system seems to be the only way to include all member countries in the discussion, maybe there is a way to get around the two aforementioned problems: just invert the tracks.

Under the latest version of the draft rules, the default track is “track 1”, i.e. the mandatory arbitration track. Consumers would therefore be offered the right to opt-out of said track if they are subject to the laws of States where mandatory arbitration clauses in consumer contracts are void. As mentioned, this implies creating a complex list of these countries, and keeping it up to date. Therefore, instead of using an opt-out mechanism, why not favour an opt-in solution? By making the default track the discretionary arbitration track, the list becomes much shorter and liability concerns are no longer valid since forgetting to put a country on the list will have no legal ramifications.

After all, there are, to our knowledge, only two types of countries: those that allow arbitration clauses in consumer contracts, and those that don’t. None of the member countries has come out and stated that its laws make it obligatory to include such clauses in consumer contracts. Therefore, in inverting the tracks, the only risk is that an online merchant having its place of business in a country where arbitration clauses are legal cannot impose arbitration on consumers who would rather go to the courts (something that is unlikely considering the values in play). Furthermore, if the discussions held in October are of any indication, there are currently only three countries (the USA, Columbia and Honduras) that insist on allowing mandatory arbitration clauses to be inserted into consumer contracts. A list of three countries seems much easier to handle than a list of a few dozen countries…

Of course, this doesn’t settle whether citizenship or place of residence should be the criteria to establish if a consumer is submitted to a given track, but maybe this question could be settled by stealing a page from the Tribunal de grande instance de Paris’ playbook. In LICRA v. Yahoo!, the Court basically stated that French laws apply when an IP address belonging to a French Internet service provider is used by a consumer when consulting a website. Although this solution isn’t perfect, it has the advantage of being simple and easy to manage for ODR providers.

Work for WGIII is set to resume on February 9^th in New York. With more and more member states threatening to stop taking part in the stalled discussions, whe can only hope that a compromise is finally reached, otherwise, we fear that we could very well see the working group’s work come to a halt. Of course, those are just rumours…