As many of us have discovered, a customer in the United States who buys something on eBay and is displeased – because the item arrived broken, was not as described, or even never arrived at all – can seek recourse in the same online platform with which he or she bought the item. But if that same person buys a crystal vase directly from an online vendor based in Budapest and the vase arrives in pieces, the buyer’s only option to dispute the transaction and get a refund or replacement may be to fly to Hungary and file a claim there.
The United Nations Commission on International Trade Law, known as UNCITRAL, has been working to change this for three years, aiming to establish an online dispute resolution (ODR) framework to resolve low-value, cross-border e-commerce disputes. But several months after the fifth meeting of the Working Group III, which is focused on this challenge, it remains to be seen whether the states involved can develop a system that can be both readily implemented and effective. This article relates my experiences as an observer of the Working Group as well my views on the draft rules and policies currently under consideration.
The Internet was opened for commercial use as recently as 1992. It was a few years later, in 1996, that ODR made its appearance in academic literature, and it was about this same time that e-commerce became part of consumers’ marketplace options. Fast-forward less than 20 years, and our dependence on technology is self-evident. Online intermediaries such as Google, Twitter, Apple, Facebook, Amazon, eBay, and PayPal have capitalized on the synergies among online searching, communicating, buying and selling. Similarly, the devices on which we do all these things are evolving rapidly and making their way into the hands of billions of people globally. We have undergone a merger of our physical and virtual worlds, and younger generations, in particular, operate seamlessly in both these platforms.
Naturally, as consumers engage in the virtual world, disputes of all sorts arise, and e-commerce is no exception. Indeed, in 2010 eBay/PayPal handled 60 million disputes between buyers and sellers, up 20 million from 2008. Although e-commerce (along with its share of online disputes) has penetrated domestic marketplaces, cross-border e-commerce has not seen a corresponding growth throughout most of the world.
The Working Group’s mandate is based, in part, on the premise that one reason for this lack of growth is merchants’ and consumers’ uncertainty about what forum and law would apply in case of a dispute. Many involved in the Working Group assume that if an effective dispute resolution system were in place, both merchants and consumers would flock to new cross-border opportunities.
UNCITRAL ODR Colloquium
UNCITRAL convened the ODR Colloquium in 2010 as a first step toward the goal of creating a cross-border ODR system for e-commerce. Speakers at the colloquium confirmed that the number of disputes arising from low-value e-commerce transactions could annually amount to the multi-millions. Other than credit card chargeback protection, which is not available in a majority of countries, few, if any, legal redress mechanisms are currently available, leaving a wide legal gap in the online marketplace. More than one expert urged system designers and legislators to think outside the box and not necessarily resort to traditional ADR models. The rapidly developing online marketplace and emerging new payment structures, they argued, need a correspondingly progressive ADR system or systems. Speakers also recommended that any set of rules accommodate transactions made over mobile phone devices, possibly using mobile payment options, as well as other electronic commerce platforms. Finally, given the nature of the online marketplace, speakers asserted that there was no reason to distinguish between business-to-business (B2B) and business-to-consumer (B2C) transactions for the purposes of developing model ODR rules and processes for low-value transactions.
With regard to this last point, it is worth noting that at the outset of this project most representatives involved agreed that ODR is particularly suited to low-value “straightforward” online transactions such as Amazon or eBay purchases. In this scenario, the seller has made the buyer aware of the specifications for the goods and contract terms and the buyer has made payment – all without direct interaction between buyer and seller. This is in contrast to more traditional B2B online sales, in which the web presence is the first point of entry for the buyer to view the seller’s goods but which usually involves further direct negotiation between buyer and seller of pricing, payment, quantity, delivery and other terms.
Shortly after the colloquium, state delegates to UNCITRAL overwhelmingly supported the creation of the Working Group to establish an ODR framework to resolve high-volume, low-value e-commerce disputes. Specifically, the current mandate includes a four-part framework: (1) procedural rules; (2) substantive rules; (3) standards for ODR providers; and (4) an enforcement protocol. Most observers expect that independent ODR providers – for example, the newly established MODRIA – will provide ODR services in accordance with the framework, as opposed to UNCITRAL or national government agencies.
Current Systems to Address Low-Value Disputes
Two widely recognized models currently exist to address disputes arising from low-value e-commerce transactions, represented by the regulated credit card chargeback system and the private eBay/PayPal ODR system. The main commonalities are: (1) they sit within the transactions and/or payment channel, so consumers are readily (and intuitively) aware of their availability and the systems are easily accessed; (2) the resolutions are executed within the self-contained system, since the payment channel can “move money”; (3) sellers who use the payment system are bound to use the dispute resolution system – the system binds sellers to the dispute resolution process, without binding the buyers; (4) parties always have recourse (which is virtually never used, but exists) back to the courts; and (5) the systems are funded by a fee charged to the seller, which for chargebacks increases for “bad” sellers and therefore encourages merchants to resolve issues before a chargeback is filed. As such, there is an inherent equalizing quality in the system, so large “repeat-players” do not necessarily have increased leverage over a consumer.
There are also a few additional benefits specific to payment intermediary-hosted dispute resolution for e-commerce. First, payment intermediaries have incentives to have “good” sellers and buyers use their services and accordingly have developed mechanisms to track and reduce fraudulent sellers and buyers on the front end of the transaction. Market-driven screening systems in the front end can be coupled with back-end dispute resolution systems for the most comprehensive protections against fraud. Second, sellers need online payment intermediaries and therefore have incentives to provide good customer service to prevent claims from being filed and potentially losing their rights to use the payment service. Third, these systems are scalable and cost-effective. An autonomous institution administering B2B cross-border commercial arbitrations may manage 1,000 to 2,000 international commercial arbitration cases a year, cases in which an arbitrator makes a few hundred dollars an hour. This model is not transferable to resolve millions of disputes that average less than $100 per dispute.
Working Group Draft Procedural Rules
The Working Group is currently negotiating the procedural rules. Despite the apparent effectiveness and advantages of the dispute resolution models in the current payment systems, the Working Group has not factored these models into its work or used them as a starting point to tweak away their shortcomings. Instead, the rules were initially structured to provide a two-tiered binding dispute resolution process that sits entirely outside the transaction channel (i.e., not with the payment intermediary or another online intermediary). Specifically, the rules provided for a mandatory automated negotiation phase (where, it is assumed, a majority of claims will be resolved) and, if no resolution is reached, a binding online arbitration process. An arbitrator also has the discretion to facilitate a settlement between the parties before issuing a final, binding award.
The Working Group seems to have put the cart before the horse, establishing a procedure for claims it has not yet defined. What types of disputes will be covered? Disputes over goods and all types of services? Delivery issues? Non-conformities? It’s reasonable to think that to create a process that handles the disputes effectively, this level of definition is necessary.
The proposal also departs from the payment intermediary-hosted systems in several profound ways:
1. If the dispute resolution system sits outside the payment channels, autonomously in cyberspace, it means a.) sellers will have to be made aware of it and voluntarily sign up and stay enrolled in the system (and pay for it?); b.) buyers will be forced to bind themselves to it at the time of the transaction and later on must recall the availability and/or trust the seller’s referral to “their” system; c.) the autonomous system, presumably managed by independent ODR providers, will not have the power to enforce decisions, so if a seller does not voluntarily comply, the buyer must go to seller’s jurisdiction and seek to have the award enforced under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) in local court; d.) unless addressed by the Working Group at some point, the system will not be centralized within a few payment providers but instead decentralized among several ODR providers, making it difficult, if not impossible, to track scheming or fraudulent sellers and buyers.
2. Consumer-buyers lose their right to seek redress in court and are essentially stripped of their right to court intervention and review regarding the substance of the matter (given limited New York Convention review), and states lose this critical oversight because of confidential proceedings.
Moreover, including binding international arbitration has an impact beyond the process itself. The rules take an ADR process that is intended for complex and/or industry-specific B2B commercial disputes and transpose it to apply to all simple low-value e-commerce cases. As such, they incorporate the UNCITRAL international arbitration machinery into the process. How is a trained customer service representative (a.k.a. an arbitrator, under these rules) supposed to navigate the complexities of these laws for a few dollars? Further, what are the possible impacts on landmark rules and conventions, such as the New York Convention and the UNCITRAL Model Arbitration Law, of including low value e-commerce cases under their umbrellas? Also, when we get to the second part of the framework, substantive rules, how can a good-faith claim be made that substantive rules should be disregarded, i.e., decisions should be made on an equitable basis or on a few basic general principles, when on the procedural side, we are reliant on a complex body of law?
Proponents of this system have primarily argued that
1. Arbitration is necessary to ensure enforcement in a cross-border context;
2. It must be binding pre-dispute, or else sellers will not participate post-dispute;
3. Blacklists and trustmarks will help sellers comply with the awards;
4. Sellers will protest the system if a binding option is not included; and
5. Companies and individuals in the developing world don’t have sophisticated e-commerce environments or online payment systems, so a more traditional ADR approach must be taken.
The proponents also claim that if the rules establish a fair, efficient and transparent system, there is nothing wrong with binding buyers pre-dispute and taking away their right to go to court.
These arguments, however, seem to run contrary to the experience within the existing systems. Sellers aren’t stonewalling credit card companies or PayPal, which bind them to their ADR systems while leaving buyers with non-binding options. Traditional trustmark schemes have limited appeal in the online marketplace. E-commerce and payment systems in the developing world are transforming so quickly on mobile phones that legislating on today’s technology is short-sighted. Forcing a buyer to seek enforcement in a local court under the New York Convention puts us back at square one, leaving a buyer without effective options.
In fact, we must create a fair, efficient and transparent system because no other remedy exists. And if we do build that system, sellers and buyers will be drawn to use it as a preferred option – not because it is their only option. We are looking to accommodate three needs: buyers looking for cheaper buying options, sellers looking to expand markets and states wanting to protect their citizens’ rights – in some cases, constitutionally protected rights. Insisting on a binding arbitration system makes it very difficult to accommodate these three interests and could hinder, rather than encourage, cross-border e-commerce.
In the background of this debate is a larger policy question that has largely not been addressed. Some Working Group observers have suggested that the chargeback and the eBay/PayPal system are more or less customer-service mechanisms, whereas a cross-border binding arbitration system is more akin to an online global justice system for low-value disputes, running parallel to domestic small claims court systems. This suggestion seems to imply that the latter is more desirable than the former. Assuming one agrees with the categorization of the two systems, the Working Group apparently has not yet defined the breadth of the system it is looking to create. As a starting point to this discussion, remember that consumers and merchants in the United States, which has a robust small claims court system, use chargebacks and non-binding ODR to resolve low-value e-commerce disputes. To my knowledge, neither merchants, consumers, consumer groups, nor government agencies are alleging justice has been denied.
We need to consider whether the United States would have a better system for its consumers if it abandoned chargebacks and private ODR initiatives and put government-funded small claims courts online. If 60 million eBay/PayPal disputes were redirected to small claims courts, would consumers obtain more justice in this scenario? Similarly, would the creation of essentially a B2B cross-border arbitration system – as opposed to payment intermediary hosted ODR system – provide more or better justice for millions of consumers worldwide? The procedural layers of a cross-border binding arbitration system might make the breadth of the framework look good on paper but unrealistic to implement (or alternatively unrealistic to expect wide-spread participation). If this is the case, the Working Group will have reinforced the status quo, which means no redress opportunities, no justice, for consumers engaging in the cross-border marketplace.
A Two-Track System?
The larger policy questions regarding the breadth of the system remain unanswered. The states in the Working Group disagree about whether the rules should include binding arbitration and allow for pre-dispute arbitration agreements. This split is clearly influenced by the recent US Supreme Court cases supporting the enforcement of pre-dispute arbitration agreements in B2C contracts and the recent European Commission proposal for an ODR regulation and the regional sentiment that runs counter to the current Supreme Court jurisprudence. In fact, negotiations were moving toward a halt over this issue until this past November, when the delegation for the Czech Republic reignited discussions with a proposal to modify the procedural rules to provide for a two-track system. One track provides for a non-binding two-phase process, negotiation and facilitated settlement (and possibly a non-binding decision-making stage). The second track reflects the current draft rules, providing for negotiation, facilitated settlement and binding arbitration. Merchants apparently would choose the track by inserting one or the other dispute resolution clause into their contract.
Although this proposal does provide an opportunity for states to consider alternatives to the current draft, two concerns immediately come to mind. First, if they want to ensure that the binding track is not applied against their consumers, states are likely to pass legislation eliminating that option. If this is the case, is there really a need to introduce a two-track process? Second, this approach would place a significant burden on merchants to tailor their dispute resolution clause to every individual sale. Arguably, it would require a.) buyers to identify to the seller whether they are consumers or merchants; and b.) have sellers analyze the buyer’s domestic law to determine which clause should be included. In the alternative, sellers could take a uniform approach and insert a binding dispute resolution clause that consumers may feel obligated to agree to because they are not aware of their rights and options. Either option seems designed to thwart desired objectives.
The greatest contribution of the latest proposal may be that it represents an openness to discuss other approaches to achieve the Working Group’s objectives. If, going forward, attention is shifted to understanding system design and more specific types of claims, it may help to naturally reshape the rules to a more realistic option (e.g., uniform ODR framework for payment providers). But whether the states involved perceive a need to shift – and are willing and open to that possibility – is still unclear.
The Next Step
Pursuant to UNCITRAL practice, eventually the chair of the Working Group will need to consolidate the discussion and express an opinion on what he considers the prevailing view. It would be a shame if this leads to a framework based on binding arbitration, as it would not close the legal gap that was identified in the 2010 UNCITRAL Colloquium and would seem a lost opportunity for ODR and e-commerce. Without a significant shift in the discussions at future Working Group meetings, the smart money will look instead to domestic law initiatives by state agencies or to the launch of private marketplace initiatives (or a combination thereof) to ultimately determine the opportunities for justice that consumers will receive in the cross-border online marketplace.
Vikki Rogers is the director of the Pace Law School Institute of International Commercial Law and an adjunct professor of law at Pace and Fordham Law School. She participates as an observer in the UNCITRAL Working Group III meetings. She can be reached at firstname.lastname@example.org.
 Ethan Katsh, Dispute Resolution in Cyberspace, 28 Conn. L. Rev. 953 (1996).
 UNCTAD, Information Economy Report 2012, at 30 (2012), available at http://unctad.org/en/PublicationsLibrary/ier2012_en.pdf.
 Colin Rule & Chittu Nagarajan, Leveraging the Wisdom of Crowds: The eBay Community Court and the Future of Online Dispute Resolution, ACResolution, Winter 2010, at 4.
 Colin Rule, Making Peace on eBay: Resolving Disputes in the World’s Largest Marketplace, ACResolution, Fall 2008, at 8.
 See OECD, Conference on Empowering E-Consumers: Strengthening Consumer Protection in the Internet Economy Background Report, December 8-10 2009(2009).
 In 2010, the Pace Law School Institute of International Commercial Law, the UNCITRAL Secretariat, and Penn State Dickinson School of Law organized a colloquium of leading experts in the ODR field (podcasts of presentations can be found at http://law.pace.edu/speaker-presentations).
 As noted on the UNCITRAL website, “The Commission is composed of sixty member States elected by the General Assembly. Membership is structured so as to be representative of the world's various geographic regions and its principal economic and legal systems. Members of the Commission are elected for terms of six years, the terms of half the members expiring every three years.” For further information regarding State representation at UNCITRAL see http://www.uncitral.org/uncitral/en/about/origin.html.
 Reports of Working Group III and a copy of the draft procedural rules are available on the UNCITRAL website at UNCITRAL Working Groups ODR.
 In China, Alibaba/Alipay also offers an online dispute resolution platform. It is the author’s understanding that although the process is slightly different and it appears that payment is placed in escrow until delivery of conforming goods is confirmed, the commonalities between chargebacks and eBay/PayPal identified in this article are also applicable to this process.
 As states apply the concept of mediation differently and conciliation is addressed in the UNCITRAL Model Law on International Commercial Conciliation, the term “facilitated settlement” offers a level of autonomy and neutrality to be shaped by the states in the ODR framework.
 See Angie Raymond, It’s Time the Law Begins to Protect Consumers from Significantly One-Sided Arbitration Clauses within Contracts of Adhesion, 91 Neb. L. Rev. (forthcoming 2013); Pablo Cortés & Fernando Esteban De La Rosa, Building a Global Redress System for Low-Value Cross-Border Disputes: An Appraisal of the UNCITRAL Rules on Online Dispute Resolution, 62 I.C.L.Q. (forthcoming 2013).