ODR in cross-border disputes: Issues & solutions (3/3)

By Kim Panti

This blog post series is part of an assessment for The Global Lawyer at Monash University where Kim currently studies. It was originally published on Linkedin

This post builds on the previous discussion in part 1 and part 2 about Online Dispute Resolution (ODR) as an avenue for resolving cross-border disputes following e-commerce transactions. As the final post in this series, this post discusses in detail the problems that arise with enforceability of outcomes, and briefly considers the future of ODR.

 

Enforceability

The lack of enforceable outcomes is a key issue of ODR according to Maxime Hanriot. She argues that the effectiveness of an outcome relies on whether it is an adjudicative or non-adjudicative mechanism, and binding or non-binding. For example, a binding ODR outcome can be enforced in a court of law if the trader refuses to comply, whereas a non-binding outcome cannot, and the party would have to rely on private enforcement mechanisms. Both forms of outcome can be challenging. Binding outcomes face the challenge of relevant international legislation that governs the enforcement of arbitration awards in the domestic context. On the other hand, non-binding outcomes involve further costs in addition to choosing the ODR services to assist with settlement.

The use of adjudicative mechanisms, such as arbitration, to settle disputes, posit a number of challenges. This is largely due to the applicability of relevant legislation. For example, pre-dispute ADR clauses in a contract stipulate that if a dispute arose between parties, it would be resolved through out-of-court ADR. The application of this clause may protect parties, especially consumers who are generally the weaker party in this power dynamic. Article 10(1) of the ADR Directive protects the consumer from a pre-dispute ADR clause if it has the ‘effect of depriving the consumer of his right to bring an action before the courts for the settlement of the dispute’. As the European Commission’s ODR framework prohibits pre-dispute clauses, parties are protected from potential abuse. However, this may result in the use of ADR/ODR being overlooked because parties are not bound to settle their disputes through ADR. Therefore, parties may not be receiving the best solution to their dispute, nor the ability to talk and negotiate with the other party to reach a mutually agreeable decision.

Article 10(2) says that parties are only bound by the solution if the parties themselves take the solution to be binding. This provides flexibility for parties who do not take the solution to be binding to further negotiate their agreement and to seek better terms. Parties are also not forced to comply with an agreement if it does not suit them. It may be problematic if one party does take the solutions to be binding and another does not. The use of ODR services with clear rounds of offer and demand may prevent this miscommunication. However, it is still possible that parties can miscommunicate, especially if parties choose to withdraw from the ODR service and settle their dispute outside of ODR. Whilst this scenario may be unlikely, it would be interesting to see what the outcome would be.

 

Unilaterally binding mechanism

Hanriot also discusses unilateral binding mechanisms, which allow the consumer to define the extent to which the outcome is binding. Recital 43 of the Directive provides that agreements between a consumer and a trader are not binding if it is a pre-dispute agreement, and if it deprives the customer the right to pursue the dispute. Recital 49 also ensures ‘that consumers have access to redress’ and ‘are not obliged to forego their claims’, but maintains that the application should be ‘without prejudice’ to any applicable national rules. In any case, if a consumer chooses to be bound, per Article 9 of the Directive, then the outcome is binding on the trader; however, the consumer can withdraw from the procedure if they are ‘dissatisfied with the performance or the operation of the procedure’. The protection this provides the consumer is a key benefit of the Directive. However, the prohibition of pre-dispute ADR clauses in most national laws, and in the ODR framework, can mean that disputing parties are deprived of the benefit. This may limit their capacity to advance beyond their disputes and move towards a resolution by complying with an ADR/ODR mechanism, and more importantly, receiving a binding and enforceable outcome in court.

 

Online awards

Enforcement of online arbitral awards is governed by the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 or the New York Convention. One of the main challenges is the enforcement of a foreign award in a domestic court. Article VII acknowledges the validity of multilateral and bilateral agreements, with parties allowed to rely on laws and treaties on the country in which the award is sought to be relied upon. This flexibility can allow parties to refer to national and international laws to support the validity of the agreement. Article 2 requires the parties’ agreement to ‘submit to arbitration’ be in writing. It is uncertain whether this also encompasses online agreements. National law may, however, provide that such electronic agreements be considered as recognition. A possible solution to resolve this uncertainty could be to amend the Convention to include electronic agreements, or to create another convention taking into consideration electronic adjustments and e-commerce trends.

 

Non-adjudicative mechanisms

On the other hand, non-adjudicative mechanisms, like mediation and negotiation, are easier to navigate because parties will usually honour the settlement. However, problems may arise if the party refuses to comply with the outcome. In this scenario, the consumer’s only option is to bring the dispute to court for breach of contract. This raises the challenge of inaccessibility which threatens the consumers’ access to justice as they may be unable to initiate court proceedings. To do so may be costly, time-consuming, and excessively complex.

A solution to this according to Hanriot, seems to be the use of private enforcement mechanisms. In particular, the use of trustmarks has the potential to affect the business and influence the reputation of the brand. This can have a powerful effect for consumers who look at trustmarks before engaging in business with an online seller. Cortés adds that the higher the trustmark, the more that the consumers trust the brand, giving business the ability to ‘boost their trade’. Thus, through trustmarks, the consumer who is the traditionally weaker party can control and influence the procedure and attitudes of businesses when engaging in transactions. Additionally, positive feedback provides free advertising to businesses and can affect not only their image but also their revenue. The expansion of ODR in the consumer context, according to Cortés, creates value for consumers in delivering ‘innovative’ ways of dispute resolution that are not impeded by high costs of litigation and face-to-face ADR methods.

 

Future of ODR

Cortés suggests that ODR will develop towards e-commerce, suggesting that ODR providers will evolve to more than just consumer disputes. Furthermore, dispute avoidance will become more prevalent as online vendors will be advised to minimise consumer disputes. On the other hand, according to Legg, ODR design will be important, especially as ODR providers rely on human knowledge and expertise to operate. ODR will thus expand to meet the needs of consumers and businesses in cross-border disputes, and improve the mechanisms by which awards are enforced, and outcomes are followed.

About Kim Panti
Kim Panti is a penultimate Arts/Law student at Monash University and is currently part of the Law Ambassador program. Connect with Kim on Linkedin.

Featured image by rawpixel on Unsplash

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