Alternative Dispute Resolution and e-Confidence

Definitions

The term "Alternative Dispute Resolution (ADR)" in these recommendations covers all methods of resolving disputes related to obligations resulting from contracts concluded "electronically" (primarily over the Internet) between professional sellers of goods or providers of services and final consumers (B2C), operated by neutral bodies other than public courts, under published rules of procedure. ADR is also sometimes referred to as "out-of-court settlement". More specific distinctions within the ADR concept, such as "arbitration", "mediation" and "conciliation", are often used interchangeably and without much precision in the field of consumer disputes - these recommendations will avoid their use.

For the purpose of these recommendations, we consider as falling outside the scope of the concept of ADR those services that are offered by merchants as an after-sale performance and which are rooted in good commercial sense more than in a spirit of providing an equivalent to court procedures - these systems are referred to here as "customer satisfaction systems". Such systems may, however, become a step in the chain of redress, e. g. if customers, who wish to make use of ADR offered by the merchant, are invited to firstly submit their complaint to such a service offered by the supplier (call centers, complaint services, etc.).

Introduction

The objective difficulty to find a simple answer to the questions of which law applies to international consumer transactions conducted over the Internet and which authorities have jurisdiction over disputes arising from such transactions, is bound to undermine consumer confidence in electronic commerce. Complete international harmonization of applicable laws and international agreements between all states of this world on competent jurisdictions might be the theoretic solution, but it is an illusion to believe that this is ever achievable. On the contrary, new legislation in this field is adopted primarily with the aims to preserve the various and often conflicting national or regional systems of consumer protection and protect these systems against international competition created by the Internet.

Whereas business acknowledges that strict application of the country of origin principle may not be sufficient to boost trust in online transactions, it is convinced that application of the country of destination principle is not the right answer either. Application of this principle not only represents an insurmountable obstacle for many potential Internet vendors and hence reduces competition and consumer choice considerably, it also provides only illusory protection, since the cost and complexity of cross-border enforcement will stand in the way of proper redress in the vast majority of cases. From this the GBDe has concluded that a possible solution to this problem could be that Internet vendors offer their customers sufficiently attractive alternative ways for settling disputes, which will of necessity become an important catalyst for consumer confidence in electronic commerce.

The recommendations in this paper attempt on the one hand, to give guidance to Internet-business in developing appropriate ADR systems or in proposing their customers to use ADR systems run by certain third party service providers, and on the other, outline business requirements for government policy approaches relating to ADR.

However, although ADR can provide appropriate solutions for many disputes, it must be recognized that even in the most ideal of worlds a certain number of disputes will still end up in court. Therefore, and also because within some ADR procedures these questions may need to be resolved, we wish to state upfront that questions of jurisdiction and applicable law in electronic commerce still need to be dealt with urgently in a manner that encourages both business investment and consumer trust in electronic commerce (refer to GBDe Paris recommendations of the "jurisdiction" group).

Scope

These recommendations deal exclusively with business-to-consumer (B2C) disputes in electronic commerce, where ADR is still relatively little known and practiced, except in some Asian countries, in particular Japan, and more recently in North America.

The settlement of disputes resulting from business-to-business (B2B) transactions, both off-line and on-line, follow their own rules with a very high degree of party autonomy relating to the applicable law, the choice of forum and the widespread use of ADR, mostly in the form of binding arbitration. The issues of consumer protection and of consumer confidence are of no relevance in this latter context. Hence, there is neither a need to develop new recommendations for B2B ADR, nor would it be appropriate to address any issues related to B2B dispute settlement under the same parameters as B2C dispute settlement.

Recommendations to Business: Requirements for Appropriate ADR Mechanisms

Independence - Autonomy of the ADR Provider
The ADR provider must be sufficiently independent from either party in order to guarantee the impartiality of its actions.

This should not preclude individual Internet vendors or groups of Internet vendors from establishing ADR systems and offering them to their customers. However, in such cases impartiality must be guaranteed by adequate arrangements, which may include the establishment of supervisory bodies composed of personalities whose independence is beyond any doubt or who represent consumer organizations.

In any case, ADR providers should seek to establish governing structures with equal representation of consumers and business. Names of dispute resolution officers should be made publicly available, and parties should have the right to challenge a dispute resolution officer for cause. When decisions are taken by individuals, these persons (the "dispute resolution officers") should have adequate training to carry out their functions. Dispute resolution officers shall not be liable to be relieved of their duties without just cause.

Low cost
The ADR service should be provided to the consumer free of charge or at a moderate cost, while taking into account the need to avoid frivolous claims.

Transparency
ADR mechanisms should function according to published rules of procedure that describe unambiguously all relevant elements necessary to enable customers seeking redress to take fully informed decisions on whether they wish to use the ADR offered or address themselves to a competent court.

Such information should include

• the types of dispute which may be referred to the body concerned, as well as any existing restrictions in regard to territorial coverage and the value of the dispute;
• the rules governing the referral of the matter to the body, including any preliminary requirements that the consumer may have to meet (e. g. to attempt to get redress through a customer satisfaction system offered by the vendor), as well as other procedural rules, notably those concerning the written or oral nature of the procedure, whether it would be conducted exclusively or partly on-line, whether oral hearings are possible or required (separate of either party or jointly), attendance in person or possibilities of representation, and the languages of the procedure;
• the decision-making arrangements within the body;
• the possible cost of the procedure for the parties, including rules on the award of costs at the end of the procedure;
• the type of rules serving as the basis for the body's decisions (legal provisions, considerations of equity, codes of conduct, etc.);
• the legal force of the decision taken, whereby it shall be stated clearly whether it is binding on the professional or on both parties. If the decision is binding, the penalties to be imposed in the event of non-compliance shall be stated, as shall the means of obtaining redress available to the losing party.

The ADR provider should publish an annual report enabling a meaningful evaluation of decisions taken, while respecting the confidential nature of specific case information and specific case data.

Adversarial procedure
The procedure to be followed should provide a reasonable opportunity, whether on-line or off-line, for all parties concerned to present their viewpoints before the competent body and to hear the arguments and facts put forward by the other party, and any experts' statements.

Principle of representation
The ADR procedure should not deprive the parties of the right to be represented or assisted by a third party at all stages of the procedure.

Legality

One of the principal reasons why business, consumers and governments consider the development of ADR mechanisms to be of such strategic importance for the enhancement of consumer trust in electronic commerce is that such mechanisms can settle disputes in an adequate fashion without necessarily engaging into a cumbersome, costly, and difficult research on the detailed legal rules that would have to be applied in an official court procedure.

ADR dispute resolution officers may decide in equity and/or on the basis of codes of conduct, provided that this has been made sufficiently transparent. Business contends that this flexibility as regards the grounds for ADR decisions provides an opportunity for the development of high standards of consumer protection worldwide.

Liberty
The decision taken by the dispute resolution officer(s) may be binding on the parties only if they were informed of its binding nature in advance and specifically accepted this. Equally, the consumer's commitment to use an ADR mechanism instead of bringing an action before a competent court, may not be the result of an engagement prior to the materialization of the dispute, where such commitment has the effect of depriving the consumer of his right to bring an action before the courts for the settlement of the dispute.

Recommendations to Governments
ADR mechanisms must meet the requirements of transparency, low-cost and independence and must comply with the adversarial principle and the principles of legality and liberty as detailed in these above recommendations.

A policy approach that allows to develop optimum ADR mechanisms meeting these criteria must:

Recognize that the dynamics of the e-commerce marketplace will strongly increase commercial incentives for the deployment of company-run customer satisfaction systems and for the creation of the possibility to seek redress through ADR mechanisms. Policies should therefore encourage consumers to make use of customer satisfaction systems before starting either ADR or court proceedings against a merchant. Likewise, policies should encourage consumers to use available ADR mechanisms before seeking recourse to courts.

Permit and encourage the private sector to develop ADR mechanisms. If similar public mechanisms are already in existence or are planned to be created, they must not enjoy privileges, which would give them unfair advantages over ADR mechanisms run by the private sector. Allow for and promote a sustainable level of competition among ADR providers based on such a framework of self-regulatory rules;

Not discriminate between ADR mechanisms that are offered by third party services providers and those offered by merchants or groups of merchants as long as they meet the requirements set forth in this paper.

Refrain from imposing national or regional accreditation criteria or systems for ADR mechanisms, but rather encourage the development of international self-regulatory principles and rules that could be the basis for self-declarations of compliance. Critical reviews by consumer organizations will without any doubt function as an efficient mechanism for the creation of transparency and for assessing the value of the individual mechanisms for consumers.

Not create, and if there are, eliminate obstacles for ADR mechanisms to function on the basis of equity, codes of conduct, or applicable law convened by the parties, rather than on the basis of those legal provisions which courts would have to apply and which would impose the very severe burden on dispute resolution officers to identify and research the "applicable law" according to the rules of international conventions or international private law.

Not create obstacles for - and, indeed, encourage - the development of globally applicable ADR mechanisms, and take an international perspective on ADR by working with and through the appropriate international organizations.

Not create obstacles for the innovative use of technology to settle consumer disputes.

Comments

John  Hachmeister,   Torrance Ca	jhachmeister@bcc4adr.com      10/23/00
this "ADR" article
In reading your article, it appears three areas need addressing. Even though you say ADR should be low or no cost to the consumer, the consumer is a stake holder in the resolution. Therefore, there should be a charge. Payment begets empowerment. Second, you make ADR sound as though it is only arbitration. It is not. Working within the parameters of the applicable, agreed upon, law, a creative solution is the result. Finally, mediation creates an enforceable contract. in the applicable mediation, choice of law for contract enforcement should be a result. Good article, but it needs much more refinement. Thanks for the opportunity for input. Add New Comment

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