Online Arbitration

Faye Fangfei Wang

• Publisher: Informa Law from Routledge
• Year: 2017
• ISBN:
  9781317233633
• Edition: 1
• Topic: Droit
• Subtopic: Arbitrage, négociation et médiation en droit

Innovative initiatives for online arbitration are needed to aid in resolving cross-border commercial and consumer disputes in the EU, UK, US and China. This book provides a comparative study of online dispute resolution (ODR) systems and a model of best practices, taking into consideration the features and characteristics of various practical experiences/examples of ODR services and technological development for ODR systems and platforms.

The book begins with a theoretical approach, looking into the challenges in the use of online arbitration in commercial transactions and analysing the potential adoption of technology-assisted arbitration (e.g. Basic ODR systems and Intelligent/Advanced ODR systems) in resolving certain types of international commercial and consumer disputes. It then investigates the legal obstacles to adopting ODR by examining the compatibility of technology with current legislation and regulatory development. Finally, it suggests appropriate legal and technological measures to promote the recognition of ODR, in particular online arbitration, for cross-border commercial and consumer disputes.

By exploring both the theoretical framework and the practical considerations of online arbitration, this book will be a vital reference for lawyers, policy-makers, government officials, industry professionals and academics who are involved with online arbitration.

Part I
Background

Chapter 1
The challenges of the use of online arbitration in commercial transactions

1.1 The concepts of Online Dispute Resolution (ODR)

1.1.1 Traditional means of dispute resolution

Every year, thousands of multinational companies emerge into the world, constantly expanding sales and production internationally through the internet. This is largely seen as the key to growing the economy and stimulating globalisation. Transactions in a global market increase the probability of transnational disputes, and parties situated sometimes in different continents are opposed over small claims.

Traditionally, when people have disputes, they usually go to court to resolve them. However, traditional dispute resolutions become problematic because different countries have different rules for trade and various prohibitive costs of legal action across jurisdictional boundaries. Moreover, for traditional dispute resolutions, the appropriate forum is determined by the place of business or the place of performance.

Traditional litigation is complicated to apply to international business disputes because it is very difficult to determine which court will hear the case and whose law will apply. It will be even more complicated if those international business disputes involve electronic communications or electronic transactions, as the determination of place of business or place of performance over the internet is different from the traditional jurisdiction rules. Currently, there are no specific rules in the model laws and conventions dealing with internet jurisdiction. There are also no jurisdiction provisions in the UNCITRAL Model Law on E-Commerce and the UN Convention on the Use of Electronic Communications in International Contracts.

Although parties may agree in advance a choice of court and choice of law clause, litigation through the court system can still be a time-consuming process because of all of the formalities that must be followed in any court-based process of litigation. Moreover, it is often inflexible as it is based on a formal model that is heavily governed by rules and procedures. It can also be adversarial, which might poison or destroy a more valuable long-term business relationship between the parties over a minor business problem.¹

In cyberspace, the localisation factor can be much less obvious as the boundless internet may be accessed from anywhere in the world. Furthermore, when e-disputes only involve a small amount of money, it may not always be cost effective to sue the other party in another country. So how does an e-commerce site resolve disputes? What will be the least costly but more efficient solution?

1.1.2 The popularity of alternative dispute resolution

Alternative dispute resolution (ADR) can be deemed to be a key technique in dispute resolution, a structured process with a third party intervention and an escape from court litigation. In the 1980s, ADR was most commonly used to resolve international commercial transactions disputes other than cross-border litigation. ADR, including arbitration, mediation/conciliation and negotiation, is considered to be more efficient, flexible, confidential and less costly, compared with traditional litigation. ADR can avoid the long court proceedings for international disputes that are affected by the conflicts of jurisdiction and choice of law. International instruments have been developed to promote the harmonisation of international ADR practices, such as the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards; the UNCITRAL Model Law on International Commercial Arbitration 1985 and the UNCITRAL Model Law on International Commercial Conciliation 2002.

In the early 1990s, out-of-court dispute resolution mechanisms – ADR involving arbitration, mediation and negotiation – were more frequently employed than courts, taking advantages of their speed, flexibility and cost efficiency. ADR can be chosen by agreement at any time, even after a dispute has arisen. It mainly includes three methods of dispute settlement:

• Negotiation Persons seek to resolve a disagreement or plan a transaction through discussion.² It can be used in all manner of disputes and transactions.
• Mediation is an informal process in which an impartial third party helps others resolve a dispute or plan a transaction but it does not impose a solution.³
• Arbitration In arbitration, the parties agree to submit their dispute to a neutral party whom they have selected to make a decision.⁴

Furthermore, some mixed processes are also recommended as means of dispute settlement, such as mediation–arbitration. ‘med-arb’ begins as mediation. If the parties do not reach an agreement, they proceed to arbitration.⁵ The differences among them are that ‘arbitration’ is a form of adjudication with a neutral decision-maker – an arbitrator, rather than a judge – and its award is normally enforceable as a court judgment. ‘Mediation’ is different from arbitration in that a neutral third party – a mediator – will have no power to adjudicate or impose an award but seeks to help the disputed parties to reach a negotiated agreement. ‘Negotiation’ is the most informal method of ADR that parties communicate with each other with the aim of making a decision, which is voluntary and non-binding. Sometimes, negotiation can be assisted by a third party chosen by the disputed parties.⁶

From a commercial dispute perspective, as ADR aims to resolve disputes in a more friendly way rather than going to the court, it is used for merchants who make efforts to establish a long-term business relationship with each other. As ADR is also considered to be more efficient, flexible, confidential and less costly, compared with traditional litigation, it is also useful for consumers who seek help for small claims.

However, with the development of digital markets and the growth of globalisation, the traditional ADR system may have lagged behind to some extent due to the complexity and various prohibitive costs of legal action across jurisdictional boundaries; the difficulty of the determination of the place of business or the place of performance in cyberspace; and the need of for experts with the knowledge and practical technique of new technology. So a less costly but more efficient solution to resolve e-disputes needs to match the legal, business and social concerns in the new environment. Modernisation of ADR is required.

1.1.3 The advent of Online Dispute Resolution

In the early 1990s, global computerised transactions or usages increased the probability of cross-border disputes. There were instances where parties situated in different continents were opposed over small claims or cyber-related issues. Such disputes challenged the traditional dispute resolutions because:

• different countries have different rules for trade and various prohibitive costs of legal action across jurisdictional boundaries;
• the much less obvious localisation factor on the Internet causes difficul-ties in determining the place of business or the place of performance in cyberspace due to the fact that the boundless Internet may be accessed from anywhere in the world;
• cyber-related disputes may require a legal expert who is equipped to adapt to the diverse evolving technological, social nature and commercial practice of cyberspace.⁷

In the process of creating the least costly but more efficient solution to resolve Internet-related disputes, the modernisation of ADR – online dispute resolutions (ODR) – was introduced in the mid-1990s by the Virtual Magistrate at Villanova University, the Online Ombuds Office at the University of Massachusetts, the Online Mediation Project at the University of Maryland, and the CyberTribunal Project at the University of Montreal, Canada. The concept of ODR has been further developed by a number of non-profit making public organisations, such as the American Bar Association (ABA), American Arbitration Association (AAA), World Intellectual Property Organisation (WIPO) and China International Economic and Trade Arbitration Commission (CIETAC). It aims to provide more efficient, cost-effective and flexible dispute resolutions in the information society. ODR takes advantage of the Internet, a resource that extends what we can do, where we can do it, and when we can do it. The ABA Task Force on E-Commerce and ADR provides a generic definition of online dispute resolution (ODR):

ODR is a broad term that encompasses many forms of ADR and court proceedings that incorporate the use of the internet, websites, e-mail communications, streaming media and other information technology as part of the dispute resolution process. Parties may never meet face to face when participating in ODR. Rather, they might communicate solely online.⁸

As defined in the ABA Task Force, ODR is not only an extension of alternative dispute resolutions (ADR) – online arbitration, online mediation and online negotiation – but also an application of cybercourts, although online litigation is not as common as eADR.

The latest definition of ODR was proposed in the UNCITRAL Draft Procedural Rules on Online Dispute resolution for Cross-border Electronic Commerce Transactions 2013 Article 2(1) as follows: ‘“ODR” means online dispute resolution which is a mechanism for resolving disputes facilitated through the use of electronic communications and other information and communication technology.’⁹ In the 21st century, with the emergence of new technologies, electronic communications have been increasingly incorporated into methods of litigation and ADR. The phenomenon of ODR has increased with the deployment of advanced dispute resolution technologies. ODR is the equivalent to electronic ADR and the cybercourt, moving traditional offline dispute resolution and litigation online. Its occurrence will boost the confidence of doing business online and certainly be more efficient than offline methods, for example, in a case that has an international or cross-border factors but which only involves lower financial amounts.

In practice, disputes that use the ODR mechanism are mostly cases involving online shopping (small claims) and domain names disputes. In this book, previous/past experience of international ODR practices will be examined; and new successful experiences will be explored. For example, this book looks into the reasons of the collaboration between SquareTrade and eBay and its eventual termination; and discusses the success of the strategic alliance between AAA and Cybersettle as well as cooperation between the Internet Corporation of Assigned names and Numbers (ICANN) and WIPO, and their limitation to service.

As to the underlying technical principles deployed in the ODR system, this book explores the possibility of employing the intelligent and adaptive system of service-oriented computing to provide intelligence and reasoning capabilities to give automated support to the ODR procedures and help constructing fair outcomes without direct human intervention under defined circumstances. The technical support to online arbitration will be particularly explored, i.e. the theories of decision-based design and automata-based design languages. ODR brings efficiency and convenience to the resolution of conflicts but at the same time faces a number of challenges due to technology, management and legal obstacles, in particular in the area of online arbitration. The book also discusses the possible technical factors in creating an ODR system where the ar...