One Click Too Much? – Thoughts on UNCITRAL’s work on ODR draft rules, PART I
BY Riikka Koulu
Disputes arising from e-commerce are an urgent issue – and drafting unified rules to resolve them is a task very well suited for the United Nations’ Commission for International trade law (UNCITRAL). UNCITRAL’s working group III has focused on ODR since 2010 and is now in its 10th meeting on the topic (and 31st session altogether) which was held in New York in February 2015. The following post will discuss the content of the February meeting but first I would like to make some points on the work done previously hoping that this would further clarify the context.
The Objective of Model Rules
The working group is drafting procedural rules for cross-border electronic commerce transactions. E-commerce is an evolving field, which still lacks coherent cross-border regulation, and there is no consistent self-regulation of market platforms or merchants. As UNCITRAL’s objective is to further the unification of international trade law and serve the needs of international commerce under the mandate of the UN’s General Assembly, there arises an urgent need to provide unified rules of due process for the low-value, high-volume disputes of ecommerce.
WG III’s work on ODR began in 2010 in its 22nd session in Vienna. Then the need for unified legal standards for both B2B and B2C disputes was a hot topic as traditional resolution mechanisms such as litigation are a poor fit for disputes arising from ecommerce. Other issues discussed already in the first session included the need to abide by existing UNCITRAL instruments on arbitration, conciliation and electronic commerce, the differences in the levels of consumer protection in different States, the funding of ODR, language issues, as well as the possibility of chargebacks (see Report on 22nd session, § 22-23). The objective of the unification process was to provide procedural rules for solving low value, high volume ecommerce cases. However, the definition of ‘low value’ has never been set.
Already at the beginning of the whole ambitious unification project it became clear that the key issue at hand consists of the policy differences between countries which accept pre-dispute consumer arbitration and countries which do not (Report on the 22nd session, § 30). However, it was agreed that arbitration is a necessary part of ODR, although cases should primarily be settled without an arbitration phase. An opt-in solution was discussed where the arbitration would be binding on the merchant but not on the consumer (Report on the 22nd session, § 53) as this solution could perhaps overcome the policy differences in countries where pre-dispute consumer arbitration was not accepted. However, this proposal was rejected.
Into Two Tracks and Back
Later on, a two-track system was introduced in WG III’s 5th meeting on ODR in November 2012. This system resolved the tension between pro- and contra-arbitration positions by separating non-binding and binding ODR rules into two different tracks (Report on the 27th session, § 15). The binding arbitration track would be applicable to business-to-business (B2B) disputes, and to B2C disputes in jurisdictions where binding pre-dispute arbitration was accepted. Thus, in track I the parties would have agreed at the time of purchase that any dispute would be resolved in an ODR procedure which would end in a binding arbitration award. The award, in turn, could perhaps be enforced through the 1958 New York convention, although this is still somewhat unclear. Only one click would be needed, the click which simultaneously completes the purchase and agrees to the binding arbitration clause. In track II, binding arbitration would still be possible, but only if the consumer accepts it after the dispute has arisen. So, both tracks would start off with facilitated negotiation, but the difference would be that there is a second click for parties in contra-arbitration jurisdictions: a click to opt-in for binding arbitration after they have failed to reach an amicable solution earlier.
However, the two-track system had its own flaws, such as the difficulty of determining which track a dispute belongs to and what would be the point of reference for determining whether a certain B2C dispute is within a non-arbitration jurisdiction. As is often the case in private international law, the question of allocating jurisdiction has many solutions: jurisdiction can be determined based on nationality, by place of residence, by place of purchase or by other criteria, all of which options have further not-so-simple definitions. Determining jurisdiction becomes even more difficult in relation to ecommerce, as foreign e-commerce platforms are easily accessed from several countries, purchases can be done while visiting a different country, and network traffic can be rerouted. Also, the basic issue with holding on to the two-track system is “the annex question”: who would create and maintain the list of countries by track so that ODR providers could determine which set of rules would be applicable?
During the 9th meeting on ODR in Vienna in October 2014, the two-track system was revisited as several delegations pointed out that arbitration would not provide sufficient consumer protection and that simplified arbitration rules would undermine traditional arbitration procedure. Several delegations stated that non-binding rules would be able to accommodate all jurisdictions and the practical influence of ODR arbitration would be low, and awards’ enforceability would remain without effect because enforcing arbitral awards would be too expensive and time-consuming for low-value disputes (27th meeting § 33-35).
In the meeting in October 2014 the two-track system was set aside for the time being. Although it was stated that there still was some sort of consensus about the two-track system, the content of this would have to be clarified in future sessions. Also, it was left open whether the two-track system would be comprised of two sets of rules or a single set of rules with two tracks. In any case, it was discussed whether there should be an annex attached to the rules for deciding which country would follow which track was also addressed but nothing was concluded.
Reality of the Online Market
The debate on one or two clicks reflects also the reality of the online market in two large economies the US and the EU.
The USA, which is also a major player in international ecommerce with market leaders like eBay and Amazon located in the country, is known to accept pre-dispute consumer arbitration in its legislation. The USA also has an existing practice of addressing ecommerce disputes through chargebacks, as legal remedies are rare in the ecommerce world. In chargeback mechanisms, consumer protection is provided by the so-called chargeback guarantee, where the credit card company forces a reversal of payment back to the purchaser of defunct products, and conversely the merchant’s chargeback fees increase in recurring situations. Chargebacks are often argued to be the ideal solution for the online market, as they are connected directly with the payment channel and do not require additional enforcement mechanisms. However, it should be noted that chargeback policies transfer the settlement to the private policies of issuing banks and are rare in other jurisdictions. A chargeback model law proposal has been tabled in WG III, but it is suspended for the time being.
In contrast, national legislation in EU Member States does not generally allow pre-dispute consumer arbitration. The EU has also taken the initiative for regulating ODR by adopting the ODR Regulation and the ADR Directive in 2013. The ADR directive requires implementation in the Member States by July 2015 and the EU-wide ODR platform established by the Regulation will be applied starting from January 2016. The ultimate goal behind the adoption of these instruments is to increase trust in the European Single Market and facilitate the growth of European ecommerce. In addition to ADR instruments, the level of consumer protection is considered to be very high and is guaranteed both in EU legislation and national legislations, and access to courts is provided for in several EU-wide instruments that facilitate low-value cross-border litigation. The extensive regulative framework of both substantive and procedural rules sets limits to the functioning of markets and the role of self-regulation could be claimed to be less significant than in jurisdictions of lesser regulation.
It should be noted that especially in the developing countries the online market is still work in progress and regulatory ODR regimes are rare. As cross-border e-commerce is a quickly evolving field and there are no uniform rules for fair redress mechanisms, the need to find consensus exists, as otherwise the consequences could very well decrease consumer protection. Still, the fundamental differences are difficult to reconcile. All these realities of the market place exist in the work of UNCITRAL.
Riikka Koulu, doctoral candidate of procedural and insolvency law at the University of Helsinki, Faculty of Law.
This content has been updated on 04/28/2015 at 22 h 42 min.