Online Dispute Resolution and Avoidance in Electronic Commerce 1999


PART II: Dispute Resolution Online

F. ADR Explained

Alternative Dispute Resolution, and more recently, Appropriate Dispute Resolution, or just Dispute Resolution ("DR"), is a way of describing a number of different processes that are used to resolve issues or differences outside the trial process offered by the courts. Since the courts are themselves offering forms of mediation, neutral evaluation and even arbitration, the alternative in ADR has been changed to appropriate. These ADR processes may be categorized in many ways. Using the degree of intervention by a third party who is a stranger to the dispute, ADR processes range from no intervention in one-on-one negotiation, to non-decision-making intervention in a facilitation or a mediation, to advisory decision-making intervention in a neutral evaluation, to partial decision-making intervention in a fact finding, to full decision-making intervention in an arbitration. An outline of the main ADR processes as they appear on the intervention continuum appears below.

ADR Continuum

Negotiation Facilitation Mediation Neutral Evaluation Fact Finding Arbitration

1. Ombudsman

Ombuds, as they are coming to be called, play a facilitative role in fostering communication between disputing parties. It can take many forms - from securing needed information, to bringing the parties together to talk, to actually mediating a resolution. What is essential is that they are impartial as between the disputing parties and that confidentiality is maintained.

2. Mediation and Mediation Models

Mediation is generally understood to be a confidential "process in which the parties to a dispute meet with an impartial third person, a mediator, who helps them settle their differences" 24 . "The mediator assists the participants to negotiate a consensual and informed resolution of the issues in dispute" 25 . "The mediator, in contrast to the arbitrator or judge, has no power to impose an outcome on disputing parties" 26. Decision-making authority rests with the parties.

That there are at least two quite different models of mediation adds an element of confusion to the meaning. The more traditional model is usually called interest- based mediation because it focuses primarily on reconciling the disputing parties' interests underlying their stated positions. Their interests include such motivations as needs, desires, concerns, or fears. For example, Ms. X's stated position is that her company will never agree to forgo the penalty in a systems integration contract, but her interest is a concern that the systems integrator will walk away four years into a five-year contract, leaving behind an unusable system and a shell company to sue. Obviously, if a satisfactory, going-forward agreement is negotiated which addresses the issue of financing, X's position may well change. The work of an interest-based mediation is a back and forth process of communication, both in joint sessions of all parties and the mediator, and in separate caucus sessions between the mediator and one of the parties, seeking a mutually acceptable resolution. In the example given, an acceptable resolution would likely reconcile Ms. X's interest in the satisfactory completion of the systems integration, and the systems integrator's interest in nailing down what satisfactory means.

In another, more evaluative model of mediation, the mediator gives the parties, either in individual caucuses or jointly, a right's-based opinion as to the likely outcome of the case if it were to proceed to trial. The mediator still does not decide the outcome, but rather, gives the participants some information based on his or her substantive experience in the area of law, that may inform their subsequent negotiations. They also may choose to ignore it. This evaluative type of mediation is also called neutral evaluation or case evaluation.

Courts in Canada that are using mediation use the interest-based model of mediation that does not engage the mediator in making a right's-based evaluation of the case. Private mediators use one or both models, or a hybrid model, depending on their expertise and on the needs of the case. It is not uncommon for an interest-based model to be employed for most of a mediation. However, if at the end of the allotted time the parties have reached an impasse and cannot find their way through to agreement, a mediator with expertise in the subject-matter of the case may give his or her view as to how it is likely to turn out if it goes to court, or he or she may not. It depends on whether the mediator thinks that the opinion will help bring the parties to resolution, or whether it will just polarize the parties by identifying a winner and a loser. Whatever the situation, a skilled mediator will rarely introduce an opinion as to the outcome early on in the process. Once the mediator has declared a view, the party on whom it falls less favourably will typically lose trust in the mediator, bringing the process to an end.

3. Arbitration

Arbitration
is a method of resolving a dispute in which the parties to the dispute ask an independent third person, the arbitrator, to listen to their facts and arguments and to make a decision how the dispute should be resolved, and what remedy, if any, should be imposed. The hearing of the facts and arguments by the arbitrator may be in person, by conference call or in writing.

4. Arbitration and Mediation Contrasted

There are significant differences between arbitration and mediation which are obviously important to bear in mind in choosing which process is appropriate for the dispute under consideration. The further you move along the ADR Continuum from negotiation to arbitration, the less control the parties to the dispute have over the outcome. For example, an arbitration award is an outcome which is imposed by the arbitrator after the parties are duly heard in an adversarial process, much like a trial. The parties have given the power to decide that outcome to a third party, the arbitrator.

By contrast, a mediated settlement is a consensual outcome. The mediator has no power to impose a solution, but rather assists the parties, in an informal, confidential setting, to maximize their negotiation opportunity, and to forge a durable resolution that is grounded in each of their interests. Throughout the mediation the parties retain the power to decide the outcome for themselves. It is their agreement to the mediated settlement that makes it binding. They also retain the power not to agree. The resolution statistics vary depending on the type of mediation programs offered, but the generally accepted range of resolution rates in mediation is between 60% and 80% of the cases brought to mediation.

G. Online Dispute Resolution Projects

The first experiments with actually providing dispute resolution online were begun not by Online Vendors, but by joint ventures of educational institutions, research foundations and organizations of neutrals. Although there are projects in Austraia and France, the most well-known North American sites are:
Cyber Tribunal, 1998, University of Montreal, 27

The Virtual Magistrate, 1995, National Center for Automated Information Research, Cyberspace Law Institute and American Arbitration Association, 28 and

Online Ombuds Office, 1996, National Center for Automated Information Research, University of Massachusetts, Center for Information Technology and Dispute Resolution 29.

1. Cyber Tribunal

The sole Canadian initiative, Cyber Tribunal, got its start in June, 1998. It offers, in both French and English, voluntary mediation and arbitration processes to resolve disputes arising in cyberspace for parties who agree to be bound. The only type of disputes that it exempts from its ambit are ones requiring decisions on issues of a public nature. The project is based on the premise that conflict in cyberspace is inevitable, and the traditional means of state law will not be able to control it effectively. Since no state has the sole power to set the rules or standards or to say how they are applied, new, effective rules can be agreed to by the parties. Cyber Tribunal's aim is that its dispute resolution mechanisms "contribute, at least in part, to the determination of rules of conduct and processes by which the rules of the cyberspace game are applied", and that the existence of such mechanisms "will be an obligatory component of cyberspace transactions".

Its mandate also includes the development of dispute prevention initiatives, but the only one implemented to date is a voluntary code of conduct for Vendors who subscribe to and post on their Web sites the Cyber Tribunal Seal. The Seal commits the Vendor to submitting any dispute with a consumer to the mediation process and, if necessary, to arbitration. In portraying the advantages of the Seal for Vendors it states:

Cyber Tribunal helps to make electronic commerce more secure by offering conflict resolution mechanisms. It contributes to creating a climate of trust in electronic exchange.

So far, only two Vendors have signed up.

On the dispute resolution side, Cyber Tribunal is promoting mediation, with arbitration as a fallback. That is in line with the general trend toward mediation that has been mentioned in several recent studies 30 . At Cornell University, David Lipsky and Ronald Seeber report in: "The Use of ADR in U.S. Corporations" that mediation is preferred to arbitration in all types of disputes. "Interpretation of the survey data suggests that corporate respondents see the use of mediation as widely applicable, while arbitration usage is more targeted to certain types of disputes" 31 . Evaluations of mediation projects involving consumers tell a similarly positive story about mediation. A strong majority of participants in the Ontario Court ADR Centre Pilot Project were satisfied with the mediation at the Centre, even if their cases did not settle, and more than 95% said they would try mediation again. 32

While the Cyber Tribunal Web site speaks of novel ways of resolving disputes, not much detail is given. The processes apparently take place entirely online, but nothing is said about how this would be different from a more traditional mediation or arbitration in the physical world. Nor is any information given about disputes actually processed by the program.

Cyber Tribunal has four mediators listed on its roster and eight arbitrators, but there is no indication whether and to what extent its free dispute resolution service has been utilized. Inquiries were not answered by the time of writing.

2. The Virtual Magistrate

The creators of the Virtual Magistrate (VM) sought to explore the feasibility of fast, low-cost dispute resolution online to lay the foundation for "a self-sustaining online dispute resolution system as a feature of contracts between system operators and users and content suppliers" 33 . The VM was designed for users of online systems with complaints against system operators about messages, postings, etc., but it will accept any type of complaint, including defamation, invasion of privacy, and copyright infringement, with the sole exception of billing or financial issues between users and systems operators.

Complaints are e-mailed to Villanova Center for Information, Law and Policy, either using the form they have developed or not 34. The American Arbitration Association (AAA) administers the random assignment to the panel of qualified arbitrators and the arbitration contract. Users may access the program without payment, but must agree to be bound by the outcome and sign a waiver that absolves the project from any liability. A listserv/newsgroup ("grist") with password access is established for each case, and that is where all participants post their communications concerning the case. Private e-mail communications with the arbitrator are possible, but only with his or her consent. They are then made to a private e-mail address. Once assigned, the arbitrator must agree to being available online for the next three business days. The briefs from each side are e-mailed to the arbitrator, who may decide the case after reading them, or ask for more information.

The decision is based on the material supplied by the parties, the AAA's procedural rules, liberally construed, general principles of fairness and whatever combination of laws and standards he or she considers appropriate. It is hoped that a new body of cyberlaw will develop. The decision is rendered within three days of the receipt of all necessary information and is posted on the grist for the parties. It is also posted for the public unless the arbitrator decides otherwise, although the proceedings leading up to the decision remain confidential. The decision may require a system operator to delete, mask or otherwise restrict access to the message, file or posting that was the subject-matter of the complaint. The most serious penalty is to deny a person access to the online system.

Enforcement of the decision practically depends on the support of the system operators, although the decision may be enforced in a court and through international conventions in the same manner as other arbitration decisions made under the AAA Rules.

To date only one decision has been made under the program. Recent contact with its Executive Director elicited the information that the project is moribund at this stage. "We never did attract any cases that we could decide" 35 .

3. Online Ombuds Office

The Online Ombuds Office (OOO), although sharing some of VM's backers and aims, has a very different program design. It offers mediation to help parties resolve any disputes originating online, as well as being a public resource for information about dispute resolution online. Part of its goal was to develop and road-test a set of DR tools and protocols for use in cyberspace. The Center for Information Technology and Dispute Resolution has overall responsibility for the OOO, and includes an online mediator on its staff and a pool of volunteer mediators.

Since mediation is outside the personal experience of many, the OOO Program has posted a full transcript of a mediation for educational purposes. Reviewing it can give the potential user a good idea of what to expect in the process itself. Parties in disputes mediated by the OOO participate in the program voluntarily and without cost. Although no guarantees are given, every effort is made to ensure their confidentiality. Communications between the mediator and the parties are typically by e-mail, and the interest-based model of mediation is used. Any resolution resulting from the mediation is a binding contractual commitment because the parties agree to it.

The OOO mediation program has had considerably more take-up by users than the VM arbitration program. Although total numbers of cases since its inception in 1996 are not disclosed, they were reported to be about 40 to the end of 1997, typically involving " a Web site developer and a local newspaper, a game developer and a programmer, a listserv owner and a listserv participant, and online activists using the same word to describe their activities" 36. OOO recently embarked on its largest scale pilot project to date with two online auction houses, eBay.com 37 and up4sale.com 38. They expect to mediate between 200 and 250 disputes arising out of online auctions during the two-week trial period. 39 They are also mediating disputes over domain names and for those associated with the World Organization of Webmasters.

H. Why so few cases?

The three programs outlined above have not done their own evaluations so there is no specific data to point to potential reasons for their relative success or failure. It is still very early in the history of online DR and too soon to predict how it will evolve from here. It is curious, however, that none of them seem to be overrun with cases even though there is no cost to the consumer to participate.

Conflict certainly exists on the Internet. This week there are reports of the Maekawa 40 case in Japan and the Colorworks 41 case in Pennsylvania. Both deal with the question of what law applies to Internet activities of individuals or corporations domiciled outside the jurisdiction of the court. The Japanese court convicted a man of distributing obscene images over the Internet even though his computer transmitting the images was in the United States, because he intended the images to be viewed by Japanese citizens. The case is similar to the Liberty Net case in Vancouver in 1996. They both suggest that if you are targeting a jurisdiction, even if you are outside it, the court will assume jurisdiction over the activity. In the U.S. case, the court was asked and declined to take jurisdiction over a Vancouver company. It was alleged that its domain name infringed the trademark of a Pennsylvania company merely by its registration and the posting of its Web site on the Internet. The court said that was not enough to subject a party domiciled in one state to the jurisdiction in another. "There must be something more to demonstrate that the defendant directed his activity toward the forum state." 42

Why are these cases being decided by the courts and not by online dispute resolution mechanisms? Will that change? Disputes over Internet subjects are no different from disputes in the physical world. They involve people, and they will use whatever mechanism for resolving the disputes that meets their needs. When a field is new and the road marks are few, there is often a greater need for public precedents that can show the way. Because ADR is private and contractual, it cannot generate a decision with the precedential power of a court, or bring together unwilling parties. Nor does it have the power to deprive anyone of his or her freedom, as the courts do. The role of the courts will never be supplanted by ADR, either the physical or the online variety.

Other factors may play a role in the lack of utilization of the dispute resolution programs online. Their existence may not be well known. By their very nature, it is difficult for them to get their success stories out for potential users to hear about them. What they do is confidential. They may not have been in existence long enough to earn the trust of consumers. Or, as is most likely, their voluntary nature is acting as a barrier to their utilization 43 . The experience of voluntary mediation programs is that there is very little take-up. The mediation process is unfamiliar to most people, and consequently they are unlikely to volunteer for it. There are probably also effectiveness issues. A voluntary program will not easily attract the hardball player, or the person whose interest it is to delay resolution, or the person who thrives on the anonymity of the Internet.

The Online Ombuds Office may be leading the way to the next stage in the development of online DR by making it look like many familiar consumer complaint programs in the physical world. OOO has captured the interest of several Vendors in portraying their online auctions as credible and worth doing business with more than once. Because it is a pilot project it is low risk for the Vendors, with the potential advantage of building relationships and trust that will lead to increased business online. Also, because the Vendor has already agreed to be bound by the outcome, the consumer concerns about effectiveness of a voluntary DR program are minimized. It is an interesting experiment, and the publication of the results in a non-attributable way may well provide some of those success stories that the online dispute resolution programs have been lacking. Those, in turn, should help persuade more Vendors, who are interested in building trust and relationships with their online customers, to participate. There are still major hurdles, such as how do you make the online DR programs self-sustaining, but the direction seems sound.

I. Evolution of Online Dispute Resolution

The more complex challenge is to develop a variety of ADR processes that consumers will use and that work as part of an effective global dispute resolution framework which includes the courts of many jurisdictions. This may happen within identifiable trading zones such as NAFTA, or it may happen as a result of uniform law initiatives of new combinations of countries. These DR processes will not only adapt to Internet realities, but they will capitalize on the new possibilities those realities present. It is not enough to enable people to communicate in writing instantaneously. So much of the appeal of mediation, for example, is that it enables people to tell their story in ways that they feel "heard". What ways can we replicate that online? How do we identify and understand different cultural, language and legal expectations that have an impact on perceptions in a dispute? Or can we design a completely new communication paradigm that enables us to understand one another's perspectives, even though we live continents apart. We are only just beginning to tackle these issues. Whatever the outcome(s), it is bound to be an interesting journey.

Technology will certainly play a part in the new DR. Currently, individuals can communicate over the Internet in writing, by voice and by video conferencing. Experience with those three modes in the non-Internet world reinforces that each of these, on its own, has limitations in resolving disputes. A flexible combination of all three, depending on the nature of the dispute, may provide some of the answers. Also, inevitably, as Internet use increases and our skills evolve, we may find new ways of using these technologies or new protocols or expectations that change how we think about disputes and what are acceptable and effective ways to resolve them.

The barrier that is most problematic is largely invisible, although it may reveal itself in body language. That is the cultural barrier. People often have completely different understandings of the same word in the same language. The difficulty multiplies when different languages, backgrounds and laws are added to the mix. A great many disputes grow out of misunderstandings and different perceptions that are permitted to fester unresolved for too long. The truly ground-breaking work will be in finding ways to address those differences and to foster understanding across the cultural barriers. Cyber Tribunal is right when it puts forward one of its advantages as being situate in a jurisdiction with people conversant in two highly evolved, but very different systems of law - civil and common law. Significantly, it is the knowledge of the people that is the advantage, and not the technology.

Some work is already being done that may eventually lead to the new DR paradigm. The University of Massachusetts held Cyberweek, 44 the first-ever online dispute resolution conference in November, 1998. For five days over 700 participants could post and receive messages, observe and comment on role plays of hypothetical disputes put on by Cyber Tribunal, use a new, interactive decision- making tool and other conflict resolution support software under development, participate in and vote on substantive issues such as confidentiality, and try out DecisionRoom, an innovative online "space" for meeting and resolving problems See footnote 45 45 . As yet there has been no thoughtful analysis of the collaboration at the Cyberweek conference, but the organizers have kept the Web site active as a centre for ongoing discussion and information exchange. It is well worth a visit.

In Canada, we have started to explore new ways of resolving some of our own intractable conflicts. One of these is through the electronic commons Web site which can be found at www.candesign.utoronto.ca. Its "Canada By Design" Visionary Speaker Series holds out great promise:

Through the powers of speech at the live events and the reach of video and digital technologies in the online discussions and Web site, the convenors have stimulated an unprecedented conversation on a topic that will affect us all: the future of Canada as linked to its policies on the new media. How should we, how can we shape a knowledge nation, that will confer opportunities and benefits upon all 46 .

While this effort is not strictly online dispute resolution, it is representative of many initiatives in which people are grappling with complex problems, such as the very nature of democracy itself, and seeking new ways to communicate and inform through the Internet. The underlying premise, or perhaps it is a hope, is that if people can be given the tools they need to understand an issue, they will be able to find a way to resolve it.

J. Ramifications for Electronic Commerce

This paper began with the premise that a consideration of disputes and how to avoid or manage them had been a central focus of Vendors in persuading "browsers" to "buy", thereby becoming online consumers. Their early efforts related to avoidance or minimization, through improved security technology, certification, and privacy and service guarantees. While these have undoubtedly been effective to reduce avoidable disputes, conflict still proliferates.

Some Vendors are now showing signs of participating in independent, online dispute resolution programs, to which they direct their customers as a resource if problems arise. It is not for all disputes. Fraud is commonly exempted. Nor is it a first-line response. Up4Sale's dispute resolution page is a good example. In accord with conflict resolution process design best practices it advocates using "exhaustive efforts" to work out your differences with another Up4Sale member before resorting to the resources listed on the page.  47 Implicit in its adoption, however, is a recognition that it reflects well on the Vendor if an online dispute is resolved in an acceptable manner.

Electronic commerce is growing and will continue to do so. The Vendors' efforts to avoid disputes or categories of disputes with consumers have undoubtedly played a part in that growth. So far, the ability to resolve disputes online has not had much take-up and correspondingly little impact on the growth. That may change with some Vendors seeing it as a benefit to offer their type of consumer. It is too early and there is too little data to draw any firm conclusions.

The real change will come when users perceive online dispute resolution as being a better and more effective option for redress than other alternatives available to them. That might be because of new engagement or enforcement protocols agreed to by participating countries, or it might be because of new ways of looking at disputes between people speaking different languages, having different cultural backgrounds and with different levels of access to technology. Courts themselves may take on some of the attributes of online DR.

So far, the experiments and debate have taken place principally in the realm of private disputes. The next step will inevitably be to explore how the resolution of public disputes can be facilitated, harnessing the advantages of the Internet to overcome some of the disadvantages of physical world dispute resolution, such as distance and cost. Given our geography and our bi-cultural history, Canada should surely be in the forefront of these initiatives. When that happens, online dispute resolution will emerge as an essential thread in the fabric of electronic commerce, the one that will turn the global dream into a reality.


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