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Citation:
Chinthaka Liyanage, Online Arbitration Compared to
Offline Arbitration and the Reception of Online
Consumer Arbitration: An Overview of the Literature, 22
Sri Lanka J. Int'l L. 173 (2010)

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 (2010)22 (No.l) Sri Lanka JiL 173

ONLINE ARBITRATION COMPARED TO OFFLINE

ARBITRATION AND THE RECEPTION OF ONLINE
CONSUMER ARBITRATION: AN OVERVIEW OF
THE LITERATURE

Chinthaka Liyanage *

ABSTRACT

There has been a continuous search for an appropriate dispute

resolution mechanism to resolve cross-borderelectronic commerce
disputes, driven mainly by the rapidexpansion qfelectronic commerce
and the inappropriatenessof traditional dispute resolution
mechanisms. Online dispute resolution (ODR) mechanisms such as
automated negotiation, online conciliation, online mediation and
online arbitrationcan be consideredpromising developments of this
research commitment. The purpose of this paper is to explore the
differences between offline and online arbitration,and the reception
of online consumer arbitrationfor cross-borderbusiness-to-consumer
electronic commerce disputes (B2C e-commerce disputes) by tracing
the ODR literature and referringsome legal instruments. This paper
further argues that online consumer arbitration(OCA)-specific legal
framework needs to be developed in order to make it viable for B2C e-
commerce disputes.

1. INTRODUCTION

The internet revolution has created a virtual world in which people from different
countries interact commercially regardless of location, wealth and trading
capabilities. Global connectivity via the internet has opened up a global e-market
which is different from the traditional offline marketplace. In this global e-market,

LL.B. (Sri Lanka), LL.M. (Melbourne), Attorney-at-Law (Sri Lanka), Ph.D. Candidate in
law at La Trobe University-Melbourne, Lecturer in law, Faculty of Law, University of
Colombo, Sri Lanka. I wish to thank Prof Tania Sourdin and Prof Jianfu Chen for their
very useful comments on this paper.
 (2010) 22 (No. 1) Sri Lanka Journalof InternationalLaw

the private sector has developed its business and marketing strategies and fast-
growing Internet technology, which have been the main contributors to the
development of B2C e-commerce activities nationally and internationally.1 As a
result of the development of the e-market environment, there is an increase in
cross-border electronic commerce disputes. 2 The search for appropriate dispute
resolution mechanisms is also evolving in the midst of challenges both technical
and legal in nature, posed by cross-border electronic disputes. There are challenges
3
such as the applicable law, cost of litigation; and 'clickwrap' terms and conditions.
Park holds the view that there should be "a radically different form of ADR
which cuts across jurisdictional borders and is specifically tailored to e-commerce
and the internet". 4 As a response to these challenges and demands, ODR has
emerged as an appropriate solution.' The Organisation for Economic Co-operation
and Development (OECD) indicates the rationale behind the development of ODR;
which includes "inexpensive, fair and effective redress". 6

See, Australian Communications and Media Authority, Australia in the digital economy
Consumer engagement in e-commerce, (2010), <http://www.acma.gov.au/WEB/
STANDARD/pc-PC 312364>, last visited on 29.06.2011; see also, Australian Bureau
and Statistics, Business Use of Information Technology, <http://www.abs.gov.au/
AUSSTATS/abs@.nsf/Lookup/8167.OMain+Features62008-09>, last visited on
29.06.2011.
See, Panagiota-Aikaterina Sidiropoulou and Evangelos Moustakas, E-Disputes at the
Crossroads: A Stakeholder Analysis of On-Line Dispute Resolution Mechanisms (ODR),
<http://is2.Ise.ac. uk/asp/aspecis/20090247.pdf> , last visited on 30.06.2011.
Caslon Analytics ADR, <http://www.caslon.com.au/adrprofile.htm>, last visited on
30.06.2011.
Michael Park, 'E-commerce and ADR: some suggestions', ADR Bulletin Vol.5 No. 6
2002 Article 4, at p. 1.
See, "While the internet began in 1969, a need for ODR did not emerge until the early
1990s. For its first two decades, the Internet was used by a limited number of people in
a limited number of ways". Ethan Katsh, 'Online Dispute Resolution: Some Implications
for the Emergence of Law in Cyberspace', (2006) Vol. 10 (3) Lex Electronicaat p. 3,
<http://www.lex-electronica.org/docs/articles 65.pdf>, last visited on 29.06.2011; see
also, Colin Rule, Online Dispute Resolution for Business for e-commerce, B2B,
Consumer Employment, Insurance, and Other Commercial Conflicts' [Jossey-Bass,
2002].
Organisation for Economic Co-operation and Development, Promoting Entrepreneurship
and Innovative SMEs in a Global Economy: Towards a More Responsible and Inclusive
Globalisation, Alternative Dispute Resolution (ADR) Online Mechanisms for SME
Cross-Border Dispute, 2nd OECD Conference of Ministers Responsible for Small and
Medium-Sized Enterprises (SMEs), 2004, at p. 13.
 Online Arbitration Compared to Offline Arbitration : An Overview of the Literature

This paper explores two aspects of online arbitration (OA). First is a discussion of
how far OA can be differentiated from offline arbitration. This shows that
technology plays an important role in differentiating OA from offline arbitration,
and this distinctive feature of OA allows it to be considered an appropriate dispute
resolution mechanism for the resolution of cross border B2C e-commerce disputes.
Second, based on the first discussion, the paper looks at the reception of OA by
academia and existing legal frameworks. This discussion is developed by reviewing
the ODR literature and referring to some legal instruments. The overall discussion
provides some insights into the scope of online arbitration, and issues that may
arise when OA is applied in the B2C e-commerce setting.

2. CONCEPTUAL BASIS OF OFFLINE AND ONLINE ARBITRATION

It is important to explore the ODR literature briefly whether the fundamental

principles of arbitration are present in both offline and online arbitration processes
as it provide some insights for the search for issues in the forthcoming sections.
The traditional arbitration is based on principles such as freedom of contract,
confidentiality, cost effectiveness, due process, binding decisions and less courts
intervention. In the international commercial arbitration context, Redfern, Hunter,
Blackaby and Partasides argue that "Yet at its core, international commercial
arbitration remains much as it always was". 7 The important point is whether these
principles are embedded in the area of OA as well. The answer is affirmative.
For example, the ODR literature recognises that "Online arbitration and mediation
mimic their traditional offline origin".8

See further, Alan Redfern, Martin Hunter, Nigel Blackaby and Constantine Partasides,
Law and Practiceof InternationalCommercialArbitration, [Sweet and Maxwell 4th
edn., 2004], at p. 1.
Paustinus Siburian, WTO'S Online Disputes Settlement: Enriching Understanding on
Rules and Procedures Governing Settlement of Disputes, 2006, at p. 4,<http://
papers.ssrn.com/sol3/papers.cft?abstract-id-981878&download-yes>, last visited on
29.06. 2011; "From a superficial point of view it may seem that different forms of ODR
are mere transplants of ADR into the online environment; in other words, ODR
replicates ADR online. This superficial observation is fallacious in the same way as the
argument that, for all forms of motorised transport, the horse that drew the cart has
merely been replaced by an engine, but that the transportation itself has not changed.
To say that ODR is merely online ADR would similarly underestimate the transformative
power of the technology". Julia Hdrnle, Cross-BorderInternet Dispute Resolution,
[Cambridge University Press, 2009], at p. 86.
175
 (2010) 22 (No. 1) Sri Lanka Journalof InternationalLaw

Moreover, offline arbitration adopts an adjudicatory or rights-based approach, rather

than an interest based approach.9 An arbitration process involves a third party
decision-maker, " compared with other consensual Alternative Dispute Resolution
(ADR) mechanisms such as conciliation and mediation in which parties make
their own final decision. A view of the scope of rights-based and interest-based
approaches has been given in the paper entitled 'Mediation; Alternative Dispute
Resolution (ADR) and the Alaska Court System' as follows:

Rights-based processes like litigation and arbitration narrow issues,

streamline legal arguments and predict outcomes based on fact and law.
Interest-based processes like mediation expand the legal discussion to
examine underlying interests, deal with emotions, and seek creative
solutions. An ADR process can contain both rights-based and interest-
based elements; for example, in settlement conferences judges often
predict legal outcome but also may explore underlying interests.11

This statement reflects the idea that arbitration operates as a dispute resolution
mechanism which consists of an adjudicatory element that focuses on rights. The
issue is whether OA adopts either a rights-based or interest-based approach in
the resolution of disputes. It is evident that OA is also considered an adjudicatory
or rights-based process as it also follows procedural elements similar to those of
offline arbitration and delivers a final binding or non-binding arbitral award. In the
case of a binding arbitral award, OA possesses the authority to prevent parties to
it resorting to national courts. In this sense, it appears that OA is similar to offline
arbitration from a conceptual perspective.

See, Julian D. M. Lew, Loukas A. Mistelis, Stefan Krdll, Comparative international

commercialarbitration,[Kluwer Law International, 2003 ], at p. 2-3; see also, "arbitration
adjudicates rights and therefore has different requisites for the quality of its justice".
Thomas Schultz, Gabrielle Kaufmann-Kohler, Dirk Langer and Vincent Bonnet, Online
Dispute Resolution: the State of the Art and the Issues, E-Com Research Project of the
University of Geneva, 2001, at p.11, <http://papers.ssrn.com/sol3/
papers.cfm?abstract id-899079>, last visited on 29.06.2011.
10 See, Julian D. M. Lew, Loukas A. Mistelis, Stefan Krdll, Comparative international
commercialarbitration,[Kluwer Law International, 2003 ], at p. 2-3; see also, "arbitration
adjudicates rights and therefore has different requisites for the quality of its justice".
Ibid., Schultz, Kaufmann-Kohler, Langer and Bonnet, at p. 11.
11 Alaska Judicial Council, Mediation; Alternative Dispute Resolution (ADR); and the
Alaska Court System, 1999, at p. 2, <http://euro.ecom.cmu.edu/program/law/08-732/
Courts/medguide99.pdf>, last visited on 29.06.2011.
176
 Online Arbitration Compared to Offline Arbitration : An Overview of the Literature

The question is: are there any special features which differentiate OA from offline
arbitration? The following sections highlight the existence of some differences
between these two areas.

3. DIFFERENCES BETWEEN OFFLINE AND ONLINE ARBITRATION

The following discussion focuses on identifying differences by comparing offline

arbitration and OA. Two requirements, technological and physical requirements,
are discussed as the main differences between offline arbitration and OA.

3.1. The use of Technology

At the outset, it is important to look at how some writers characterize the differences
between offline and online dispute resolution mechanisms as they provide a valuable
foundation for the following discussion. Schultz, Kaufmann-Kohler, Langer and
Bonnet are of the view that "Electronic communication is probably the first major
difference between offline dispute resolution and ODR".12 The National Alternative
Dispute Resolution Advisory Council indicates that "on-line ADR represents an
interplay of technical, human, legal, economic and policy factors". 13 Moreover,
some writers identify three differences, namely, 'the environment', 'the architecture
of the institutions' and 'the procedural rules'.14 Additionally, technology has been
recognized as the fourth party in the online dispute resolution process, 5 and this is
neither present nor recognised in the offline arbitration process.

12 Schultz, Kaufrnann-Kohler, Langer and Bonnet, supra., note 9, at p. 2.

National Alternative Dispute Resolution Advisory Council, On-line ADR Background
Paper, 2001, at p. 26, <http://www.nadrac.gov.au/www/nadrac/rwpattach.nsf/VAP/
(960DF944D2AF 105D4B7573C 11018CFB4)-ADR.rtf/$file/ADR.rtf>, last visited on
30.06.2011.
14 See, Schultz, Kaufrnann-Kohler, Langer and Bonnet, supra., note 9, at p. 2.

11Ethan Katsh and Alan Gaitenby, Introduction: Technology as the "Fourth Party",
2003,<http://www.odr.info/unece2003/pdflntro.pdf>, last visited on 29.06.2011.
 (2010) 22 (No. 1) Sri Lanka Journalof InternationalLaw

This brief review shows that the element of technology is one of the underlining
differences between offline and online dispute resolution mechanisms. The
following discussion elaborates on its role in shaping the scope of OA compared
to that of offline arbitration.

3.1.1 Definitions of offline and online arbitration

It is important to look at the use of technology when defining the scope of OA

compared to that of offline arbitration. As far as the offline arbitration is concerned,
De Vries states that "it is a mode of resolving disputes by one or more third
persons who derive their powers from agreement of the parties and whose decision
is binding upon them".16 It seems that this definition is likely relevant to both
institutional and non-institutional-related arbitration. Moreover, definitions of
traditional arbitration indicate that the arbitral process tends to reflect the processes
that operate in domestic courts of law.17 Indeed, OA is also based on a similar
functional scenario. 8 However, from a definitional point of view, OA has the
additional element of the use of technology, which has become a vital element for
differentiating offline arbitration and OA. For example, ODR mechanisms have
been defined as a process which uses the internet to settle disputes in general. 9

16 Henry P. De Vries, 'International Commercial Arbitration: A Contractual Substitute for

National Courts' (1982) 57 (1) Tulane Law Review at p. 43.
17 See, <http://www.sefirot-gmbh.de/en/projekte/iosg/was ist SGK.htm>, last visited on
29.06.2011; "It is a private method of dispute resolution, chosen by the parties
themselves as an effective way of putting an end to disputes between them, without
recourse to the courts of law". See, Redfern, Hunter, Blackaby and Partasides, supra.,
note 7 and supra., note 9.
18 See, Cristina Coteanu, Cyber Consumer Law and Unfair TradingPractices,[Ashgate
Publishing, Ltd, 2005], at p. 92.
19 See, Jos6 Antonio Garcia Alvaro, Online Dispute Resolution- Unchartered Territory,
2003, <http://www.camarb.com.br/areas/subareas conteudo.aspx?subareano-46>, last
visited on 29.11.2009; See also, Eugene Clark and George Cho, 'Law and technology:
what does the future hold for ADR?' (2001) Vol.20 (3) The Journalof the Institute of
Arbitrators& Mediators.
 Online Arbitration Compared to Offline Arbitration : An Overview of the Literature

This technological element is reflected in the OA terminology as well. For example,

OA has been termed as online arbitration, 2 transnational online arbitration 21 and
internet arbitration. 22 Dispute resolution mechanisms which are recognised in the
offline ADR sector, such as negotiation, mediation and arbitration, are also
embedded in the sphere of ODR. 23 However, it must be noted that ODR has an
additional dispute resolution mechanism, 'blind-bidding negotiation', which is based
24
on computer technology.

The other important distinction is the possibility of conducting OA either exclusively

online or with some parts of the arbitral proceedings conducted with the support
of online technology. 25 A question may arise as to whether one can draw a line

20 Rafal Morek, Online Arbitration: Admissibility within the current legal framework, at p.
5, <http://www.odr.info/Re /20greetings.doc>, last visited on 01.07.2011; see also, Dr.
Li Hu, Online Arbitration in China An Overview and Perspective 2007,<http://
www.fabao365. com/zhuanti.php?action-onlinearbitration&item-shownews&id-294>,
last visited on 28.06.2011.
21 Antonis Patrikios, 'The role of transnational online arbitration in regulating cross-
border e-business Part 11' (2008) 24 (2) Computer & Security Report.
22 See, <http://www.net-arb.com/>, last visited on 29.06.2011.
2" 'The main forms ofADR are negotiation, mediation and arbitration. These categories
are also present in ODR". Schultz, Kaufmann-Kohler, Langer and Bonnet, supra., note
9.
24 "This brings me to a specific form of online negotiation blind-bidding negotiation. In
blind bidding, the parties submit offers and demands in the form of a settlement bid to
a computer, through a secure, password-protected web-based communication platform.
If the bids come within a given percentage or figure, the computer settles the case for
the median amount. If they are not, the parties go on to the next round of bidding".
Thomas Schultz, 'Connecting complaint filing processes to online resolution systems',
Vol. 10, Commercial Law Practitioner,at. p. 312, <http://papers.ssrn.com/sol3/
papers.cfm?abstract id-898609&http://www.google.com.au/>, last visited on
29.06.2011; see also, Coteanu supra, note 18, at pp. 93-94; "It seems that no one can
control the Internet enough to be confident in the medium as a neutral tool for dispute
resolution". Dr Eugene Clark & Arthur Hoyle, On-line Dispute Resolution: Present
Realities and Future Prospects, 17th BILETAAnnual Conference, 2002, at p. 2, <http:/
/www. bileta.ac. uk/Document / 20Library/1/On-line / 20Dispute / 20Resolution / 2 0-
%20Present%20Realities%20and%20Future%20Prospects.pdf>, lat visited on
30.06.2011.
25 "Online platforms may be used in fully and partly online procedures". Julia H6rnle,
Online Dispute Resolution-The Emperor's New Clothes? Benefits and Pitfalls of Online
Dispute Resolution and its Application to Commercial Arbitration, <http://
www.egov.ufsc.br/portallsites/default/files/anexos/18561-18562-1-PB.pdf>, last visited
on 30.06.2011; see further, Haitham A. Haloush & Bashar H. Malkawi, 'Internet
 (2010) 22 (No. 1) Sri Lanka Journalof InternationalLaw

between exclusively online and partly online. Hornle notes that "there is no such
clear-cut distinction".26 Accordingly, it seems that there is no hard and fast rule
for the differentiation of these two possibilities. In light of this, four criteria could
be drawn from the arbitration perspective to differentiate OA from offline
arbitration:

i. If the arbitral process is conducted entirely online, and all parties and
arbitrator are involved in the arbitral process through technological means,
there is no doubt that such arbitration can be called online arbitration
(Importantly, the disputes themselves are also online and dispute resolution
is online, which includes B2C scenario);

ii. If some major parts of the arbitral proceedings are conducted with the
use of online technology, but some procedural parts of the arbitral process
are supported, for example, one or a few face-to-face meetings take
place, still such arbitral proceedings can be termed OA (the disputes are
online, limited parts of the arbitral process have offline or physical
elements, but the rest is online);

iii. The other scenario is the use of online techniques for the resolution of
offline disputes by way of arbitration. It seems that ODR is broad enough
to term this aspect online arbitration.

iv. The use of technology only for the facilitating or expediting tool in the
arbitral process, while the major procedural steps and issuing of arbitral
awards are in the physical form, such an arbitral process could be termed
offline arbitration (In this case, the disputes are offline and arbitral process
is predominantly in a physical form, but in some of the proceedings online
technology is used).

Therefore, it is clear that technology plays a pivotal role in defining the scope of
arbitration and it can also be considered a way to differentiate OA from offline
arbitration.
Characteristics and Online Alternative Dispute Resolution,' (2008) Vol. 13 (2) Harvard
NegotiationLaw Review, at p. 342.
26 Ibid., Hrnle.
 Online Arbitration Compared to Offline Arbitration : An Overview of the Literature

3.1.2 Types of Technology and Extent of the use of Technology

The types of technologies that can be used and to what extent this technology can
be used during the dispute resolution process are important points to consider.
The use of technology is optional in the case of traditional arbitration. Communication
tools such as email, video-conferencing and the electronic file management systems
are not fully developed in the traditional arbitration process.27 However, in practice,
there are offline private international arbitration providers which offer ODR
services including online arbitration by using online technology. For example, Cortes
notes "currently, traditional offline institutions have introduced ODR technology,
2
such as online filing and online case management". 1

By comparison, a detailed analysis of the technologies used in the OA process is

available in the ODR literature. 29 At present, online technology, which includes
the internet, email, video- conferencing, the use of multi-media transcripts and
mobile phone technology, is being used in all forms of the procedural stages of
OA. 31 It is evident that various types of technological tools are allowed to be used
in these dispute resolution proceedings.

2 Hdrnle notes that "the uptake is the lowest for commercial, large-scale arbitration.
Nevertheless, as has been outlined, the use of ODR, even in large-scale arbitration,
enhances efficiency and convenience and in fact some ODR techniques are already
commonly used". Ibid., Hdrnle.
28 Pablo Cortes, The Potential of Online Dispute resolution as a Consumer Redress
Mechanism, 2007, at pp. 11, 19, <http://papers.ssrn.com/sol3/
papers.cfm?abstract id-998865>, last visited on 29.06.2011.
29 See, e.g., Ethan Katsh and Alan Gaitenby, Introduction: Technology as the "Fourth
Party", 2003, at p. 82-86, <http://www.odr.info/unece2003/pdf/lntro.pdf>, last visited
on 30.06.2011.
"Furthermore, an interesting online technique is the use ofmulti-media transcripts at
face-to-face hearings, allowing the participants to simultaneously see and hear the
evidence but also to see the written transcript and case file on the screen in front of
them almost instantaneously. The idea is that this enhances presentation and makes
the evidence more comprehensible". Hdrnle, supra., note 25; see also, Gabrielle
Kaufmann-Kohler and Thomas Schultz, The Use of Information Technology in
Arbitration Jusletter 5, 2005, <http://www.lk-k.com/data/document/the-use-information-
technology-arbitration-jusletter-5-december-2005-available-http-www.pdf>, last visited
29.06.2011.
 (2010) 22 (No. 1) Sri Lanka Journalof InternationalLaw

However, the types of technology used and the extent of the use of technology
for a particular OA may depend on rules established by the parties or power given
by the parties to the online arbitrator, in the absence of specific statutory rules
applicable to this area. Hence, the more that technology is advanced, the greater
the potential of OA to provide justice to parties who encounter cross-border
electronic disputes. 31 Most importantly, given the lack of specific rules in regard
to the types of technology to be used and the extent of the use of technology,
Scultz suggests a useful common sense approach in the following terms:

[...] the opportunities technology provides should never be used to

gain or give advantages to one party only, to the detriment of the other
party; a recourse to technology should not modify the balance of powers
between the parties. Similarly, an arbitral tribunal may only use
technology to simplify the procedure to a certain extent; simplification
beyond a certain baseline may jeopardize the parties' fundamental
rights."

It is also important to point out that there are some considerable issues about the
use of technology in this particular field of OA. Two specific issues can be
highlighted. The first is that the technology itself has posed challenges. Lodder,
Zeleznikow and Cona are some of the writers who have addressed some issues
and aspects of the use of technology in the ODR sector. 33 Second, access to
technology has been researched as a considerable issue from the perspectives of
both developed and developing countries. For instance, Sourdin's research study

See, Tania Sourdin, ODR An Australian perspective on the digital divide, 2004, <http:/
/www.endispute.com.au/wpdl/ODR%/ 20an / 20Australian / 20Perspective.pdf>, last
visited on 30.06.2011; see also; Working Group on E-commerce Environment and
Technologies Exploitation- Resolution of E-commerce Disputes- 2002, <http://
www.ogcio.gov.hk/eng/about/download/ArbitrationCentre-WG-7.ppt>, last visited on
30.06.2011.
32Thomas Schultz, Information Technology and Arbitration. A Practitioners Guide
[Kluwer Law International 2006], at p. 107; see also, Philippe Gilli~ron, From Face-to-
Face to Screen-to-Screen: Real Hope or True Fallacy, 2007.
See, Arno R. Lodder and John Zeleznikow, 'Developing an Online Dispute Resolution
Environment: Dialogue Tools and Negotiation Support Systems in a Three-Step Model',
(2005) Vol. 10 HarvardNegotiationLaw Review; see also, Frank A. Cona, 'Application
of Online Systems in Alternative Dispute Resolution' (1997) Vol. 45 (3) Buffalo Law
Review.
 Online Arbitration Compared to Offline Arbitration : An Overview of the Literature

on 'digital divide issues' which was conducted in the Australian context can be
cited. 34 This study includes areas such as culture and preference, broadband issues,
age, disability, income, geographical factors and education, which have all been
35
noted as factors that contribute to the digital divide.

In summary, it is evident that technology is in the process of shaping the area of

OA. It is reasonable to assume that the fast-growing nature of technology might
further transform the nature and scope of OA in times to come. 36 However, OA
is vaguely defined (there is a similar experience in terms of offline arbitration as
well). The lack of definition is an open issue in ODR which requires more research
and more attention from law-makers. Even though the use of technology is a
striking element that differentiates OA from offline arbitration, finding an appropriate
definition for OAis an increasingly challenging task due to the impact of technology.
Additionally, issues can be raised if technology is not appropriately used during
the arbitral process and/or the penetration of IT is close zero in some of the
communities in the world.

3.2 Physical Requirements

The use of technology has become a vital part of the evolution of ODR; 37 it helps
to identify the differences between offline and OA in the following aspects of
arbitration as well. Such differences can be related to the physical elements of
arbitration, such as the presence of parties in one location to conduct arbitral
proceedings face-to-face and formalities in regard to certain arbitration-related
documents such as arbitration agreements and arbitral awards.

4 Sourdin, supra., note 31, at p. 1.

Ibid. at p. 6; see also, Mohamed Abdel Wahab, Online Dispute Resolution and Digital
Inclusion: Challenging the Global Digital Divide, Proceedings of the Third Annual
Forum on Online Dispute Resolution, 2004, <http://www.odr.info/unforum2004/>, last
visited on 30.06.2011.
36 See further, Sourdin, supra., note 31 and Schultz and Gilli6ron, supra., note 32.
"Changing and emerging technologies have considerable relevance to the continuing
evolution of ADR processes". Ibid., Sourdin, at p. 1.
 (2010) 22 (No. 1) Sri Lanka Journalof InternationalLaw

3.2.1 Face-to-FaceRequirement

The offline arbitration literature shows that "traditional forms of arbitration or

ADR (including mini-trial and fast-track arbitration) [...] require hearings and a
physical meeting between the parties". 3 In line with this view, the physical
requirements of offline arbitration are: the presence of the parties to a dispute and
the arbitrator or arbitrators conducting arbitral proceedings face-to-face in either
the place where they reside for a natural person or for an institution, in a place
which is geographically demarcated.

One reason behind this in the traditional arbitration sector is the regulatory
mechanisms in place. These laws place traditional offline arbitration within a formal
structure of dispute resolution and strive to ensure the observance of these rules
by the judiciary as well. The principle behind this legal tradition is based on the
fact that justice will be accomplished when parties conduct arbitral proceedings
face-to-face and comply with the formal requirements of arbitration agreements
and arbitral awards. However, this strict and formal rules-based approach may
delay the embracing of the full potential of technological developments into the
traditional dispute resolution landscape.

By comparison, in the online context, face-to-face requirement has been

transformed by the extension of technology into the dispute resolution landscape.
It appears that face-to-face requirement as recognised in the offline context has
been transformed along with the change in the location of arbitration. For example,
in terms of the location of arbitration, Lodder and Bol hold the view that, "Online
Dispute Resolution (ODR), by designating cyberspace as a location for dispute
resolution is different from traditional systems of settling conflict". 39 As it is not
possible to determine an exact physical location in cyberspace, the inevitable
consequence is that parties, witnesses and arbitrators cannot fulfill the face-to-

38 United Nations Conference on Trade and Development Dispute Settlement International

CommercialArbitration 5.9 Electronic Arbitration 2003, at p. 6, <http://www.unctad.org/
en/docs/edmmisc232add20 en.pdf>, last visited on 30.06.2011.
Arno R. Lodder and Stephanie H. Bol, Towards an online negotiation environment:
legal principles, technical requirements and the need for close cooperation, <http:/
www.odr.info/monthly/Edinburgh / 20paper / 20defdoc>, last visited on 30.06.2011.
 Online Arbitration Compared to Offline Arbitration : An Overview of the Literature

face requirement. So, change to traditionally recognised form of face-to-face

4
requirement by the advent of technology had to be realised. 1

Some writers identify two differences between offline ADR and ODR. The first
difference relates to the use of e-mail and other similar methods, which have the
facility to conduct ODR asynchronously.41 The second difference refers to the
4 2
lack of face-to-face communication; which is termed a qualititative difference.
In the OA process, face-to-face meetings of the parties and procedural steps are
facilitated by technological means, 43 for instance, the submission of pleadings via
email, and hearings conducted on papers or by using video-conferencing
techniques. 4 4 Moreover, Sourdin notes the use and the relevance of emerging
technologies for the evolution of ADR processes in the following terms:

At present, technology supplements and supports the operation of

many dispute resolution processes. For example, viedeoconferencing,
teleconferencing and email communication can supplement and support
face-to-face ADR approaches.45

Video-conferencing technology has several areas of potential, such as the potential

to replace traditional face-to-face hearings, and cross-examination of witnesses,
the avoidance of travel, less time required and more cost-effective.46 However,

40 See, Melissa Conley Tyler and Susan S. Raines, 'The Human Face of On-line Dispute
Resolution' (2006) 23 (3) ConflictResolution Quarterly,<http://onlinelibrary.wiley.com/
doi!10. 1002/crq. 141 /pdf>, last visited on 30.06.2011.
41 Norman Solovay and Cynthia K. Reed, The Internet and Dispute Resolution:
Untanglingthe Web [Law Journal Press, 2003], at pp. 2.01 and 2.06[l].
42 Ibid.
4 "Also, since the parties do not meet physically in online dispute resolution, it takes the
emotion out of the dispute and encourages a rational settlement". Supra., note 3 8, at p.
8.
44 "Online dispute resolution allows the dispute to be settled remotely, without requiring
the parties or their legal representatives to be physically present. The parties merely
have to connect from their workplaces to the site of the chosen organization and
transfer documents and data messages for the cost of a local phone call". Ibid., at p. 6;
see also, Morek, supra., note 20.
41 Sourdin, supra., note 31.
46 A. Haloush & H. Malkawi, supra,note 25.
 (2010) 22 (No. 1) Sri Lanka Journalof InternationalLaw

Marquardt argues that, "while e-ADR has many attributes, it probably will never
entirely replace face-to-face negotiations, especially if a case has many issues to
7
be resolved".

3.2.2 Document-Related Formalities

The filing of relevant documents in hard copy, the delivering of final arbitral awards
in writing and the enforcement of arbitral awards through traditional national courts
following registration requirements are all part of the offline arbitral process. In
the offline arena, arbitration agreements and arbitral awards are generally required
to be in writing. They can be in a separate agreement or arbitration clause within
the major agreement. Even though, at present, international commercial arbitration
laws and most national commercial arbitration laws recognise the legal validity of
arbitration agreements in electronic form, unfortunately, arbitral awards are still
required to be in writing." In comparison, online arbitration agreements and online
arbitral awards are formed by using the internet and other related technological
means 49 so they are written in an electronic form rather than hard copy.

In summary, this section has highlighted that in OA it is mainly the physical elements
that have different facets compared with traditional offline arbitration. From the
point of view of online consumer rights and legal issues, these differences have
the potential to produce some problems, for example, i) due process-related issues
especially in an environment of standard-form online contracts (contracts based
on 'take it or leave it' principles where consumers have no participation in the
formation of such contracts);5" and ii) the formalities of arbitration agreement and
arbitral award.

4 Robert R. Marquardt, Settling Disputes Online: Just Another Tool, or are Negotiators,
Mediators and Arbitrators Approaching Extinction?, <http://adrr.com/adr4/sdo.htm>,
last visited on 30.06.2011.
48 Article 35 of the Model Law, Part III of the InternationalArbitration
Act 1974 (Cth) as
amended in 2010 and Section 25 (1) ofthe Sri Lankan ArbitrationAct in 1995.
49 See, Morek, supra., note 20. at p. 3 and supra., note 38.
50 See, Wayne Barnes, Consumer Assent to Standard Form Contracts and the Voting
Analogy 2009, <http://works.bepress.com/cgi/viewcontent.cgi?article 1001&context-
wayne barnes>, last visited on 30.06.2011.
 Online Arbitration Compared to Offline Arbitration :An Overview of the Literature

4. THE RECEPTION OF OCA FOR THE RESOLUTION OF B2C

E-COMMERCE DISPUTES

4. 1. Writer 's Responses

The next important point is whether OA has been recognised as a viable dispute
resolution mechanism for B2C e-commerce disputes in the ODR literature. It is
difficult to find a sound answer to this question. There is a growing literature on
one hand in regards to the application of OA for B2C e-commerce disputes, based
mainly on the positive elements of OCA, while on the other hand some writers
oppose the use of OA, given the fact that some elements of OA can violate
consumer rights. This section briefly reviews both positive and negative perceptions
in regards to the use of OCA for the resolution of B2C e-commerce disputes.

From the positive perspective, ODR literature provides evidence in support of

OA in the resolution of online consumer disputes. Electronic dispute resolution is
believed to be suitable for the resolution of "global consumer disputes where the
amount in controversy is small and jurisdiction and conflict of laws questions are
prevalent". 1 It seems that OA has been recognised as a mechanism which can
be utilised to resolve disputes which are in law value transactions.12 Other two
advantages of OA: "it keeps low the costs of proceedings and ensures swift
adjudication of the case".13 Moreover, OA offers diverse benefits such as the
promotion of 'dynamism', 'uniformity', 'predictability' and 'legal certainty' and
OA 'reflects the nature of e-business'.14 In addition, Patrikios emphasises that,
"nevertheless, neither OADR nor online arbitration should be excluded from
application to consumer disputes". 5

51 "E-DR seems especially suited for global consumer disputes where the amount in
controversy is small and jurisdiction and conflict of laws questions are prevalent. Such
systems play a vital role in giving greater confidence in e-business". See, Clark &
Hoyle, supra., note 24, at p. 9.
52 See, Karen Stewart and Joseph Matthews, 'Online Arbitration of Cross-Border, Business

to Consumer Disputes', (2002) Vol. 56 (4) University ofMiamiLaw Review, at p. 1123.

Francois Dessemontet, On-Line Arbitration, 2003, at p. 4,<http://www.unil.ch/webdav/
site/cedidac/shared/Articles/On-Line%/ 2OArbitration.pdf>, last visited on 01.07.2011.
4 Patrikios, supra., note 21. at p. 133.
Ibid.,atp. 136.
 (2010) 22 (No. 1) Sri Lanka Journalof InternationalLaw

Hang rightly asserts that, "the advantage that ODRS has over land-based legal
systems is that it avoids the problem of whether the court has jurisdiction over an
issue".56 Moreover, ODR entails positive attributes such as timeliness and cost
effectiveness. 7 Indeed, the development of ODR in general and OCA in particular
for the resolution of B2C e-commerce disputes as an appropriate alternative reflects
the search for a mechanism with these attributes.5

From the negative perspective, however, there are opposing views on the use of
OA for the resolution of B2C e-commerce disputes. OA has been questioned for
several reasons: it lacks due process; it denies the right of consumers to go to
national courts; and it prevents other remedies such as class actions as well.59
The other drawback recognised in the ODR literature is the vulnerability of
consumers in terms of knowledge and experience compared with powerful business
people: online business people are termed 'repeat players'. 6"

4.2 Legal Response

From the legal point of view, however, there are legal developments, mostly country
-or regional-specific legal developments, which address issues associated with
OCA. Some countries adopt an OCA-friendly legal approach; others have different
56 Lan Q. Hang, 'Comments Online Dispute Resolution Systems: the Future of Cyberspace
Law', 41(3) 2001, Santa ClaraLaw Review, at p. 856.
See, Caslon Analytics, supra., note 3.
58 See, Dennis Campbell and Susan Woodley, E-commerce."Law and Jurisdiction The
Comparative Law Yearbook of InternationalBusiness [Kluwer Law International,
Issue2002, 2003], atpp. 142, 151.
See, Christine Riefa, 'Uncovering the Dangers Lurking Below the Surface ofEuropean
Consumer Arbitration', (2010), Consumer Journal, <http://papers.ssrn.com/sol3/
papers.cfin?abstract id- 1354590>, last visited on 30.06.2011; see also: Edward J. Brunet,
Richard E. Speidel, Jean R. Sternlight and Stephen J. Ware, ArbitrationLaw inAmerica:a
CriticalAssessment [Cambridge University Press, 2006]; see, generally, Shelley
McGill,'Consumer Arbitration Clause Enforcement: A Balanced Legislative Response'
(2010) 47 (3) American Business Law Journal;See further, Alan S. Kaplinsky, The Use
of Pre-Dispute Arbitration Agreements by Consumer Financial Services Providers,
2004, <http://www.afsaonline.org/CMS/fileREPOSITORY/Arbitration / 20-
%20Pros%20and%20Cons.pdf>, last visited on 30.06.2011.
60 See, W. Mark C. Weidemaier, Arbitration and the Individuation Critique, (2007) 49 (1),
Arizona Law Review; see also, Susan Schiavetta, 'Does the Internet Occasion New
 Online Arbitration Compared to Offline Arbitration : An Overview of the Literature

limits on OCA.6 1 As far as the United States of America is concerned, its Supreme
Court has created an OCA-friendlyjurisprudence by adopting a liberal interpretation
of the Federal Arbitration Act (FAA), which was enacted in 1925. Constant
notes that:

Thus, while the Supreme Court has sided with proponents of arbitration
in consumer disputes, consumers themselves must be "compelled" by
the courts to arbitrate disputes, apparently kicking and screaming all
the way62

H6rnle has succinctly indicated that, "in the US, consumer arbitration clauses are
usually enforceable. The US courts will only refuse to enforce a binding arbitration
clause against a consumer where it would be unconscionable to do so"1.63 From
the point of view of the development of OCA as a speedy and less costly
mechanism, this judicial intervention can be considered a promising move and it
bears the potential to be applied in the international arena as well. This could be,
perhaps, accomplished by adopting an internationally harmonised approach to OCA,
or other countries could follow a similar judicial role to that of the US courts.
However, it is worth noting the growing opposition to some aspects of OCA in the
USA as well. For example, the Arbitration FairnessAct in 2011 reflects this
64
growing opposition.

Directions in Consumer Arbitration in the EU?' (2004) 3 JournalofInformation, Law &

Technology, <http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/2004_3/schiavetta/>, last
visited on 30.06.2011.
61 Ibid., see also, Coteanu, supra., note 18, at p. 100.

See, Gina T. Constant, Mandatory Arbitration ofPublic Utility Consumer Disputes: An

Examination of Public Policy and the Typical Cell Phone Contract, at p. 12, <http://
pegasus.rutgers.edu/-rcrlj/articlespdf/constant.pdf>, last visited on 29.06.2011.
63 Julia Hdrnle, 'Online Dispute Resolution in Business to Consumer E-commerce
Transactions' (2002) 2 Journal of Information, Law & Technology, <http://
www2.warwick.ac.uk/fac/soc/law/elj/jilt/2002 2/hornle/>, last visited on 30.06.2011; see
also, Lucille M. Ponte, 'Boosting Consumer Confidence in E-Business:
Recommendations for Establishing Fair and Effective Dispute Resolution Programs for
B2C Online Transactions' (2002) 12 (2) Albany Law JournalqfScience & Technology
at p. 450.
64 The ArbitrationFairnessAct of201 1, FINDINGS, 112THCONGRESS 1ST SESSION S.
987, To amend title 9 of the United States Code with respect to arbitration. IN THE
SENATE OF THE UNITED STATES MAY 12,2011.
 (2010) 22 (No. 1) Sri Lanka Journalof InternationalLaw

The bill named the Arbitration Fairness Act of 2011, which was brought to
amend the FederalArbitration Act, includes Section 2 in which the following
elements are listed:

(1) The Federal Arbitration Act (now enacted as chapter 1 of title 9 of the
United States Code) was intended to apply to disputes between commercial
entities of generally similar sophistication and bargaining power.

(2) A series of decisions by the Supreme Court of the United States have
changed the meaning oftheAct so that it now extends to consumer disputes
and employment disputes.

(3) Most consumers and employees have little or no meaningful choice whether
to submit their claims to arbitration. Often, consumers and employees are
not even aware that they have given up their rights.

(4) Mandatory arbitration undermines the development of public law because

there is inadequate transparency and inadequate judicial review of
arbitrators' decisions.

(5) Arbitration can be an acceptable alternative when consent to the arbitration

5
is truly voluntary, and occurs after the dispute arises.1

This bill reflects the growing negative views of the use of mandatory arbitration
for the resolution of B2C disputes, both offline and online, and attempts to ban
only pre-dispute arbitration clauses, which is further articulated in Section 402 of
the bill in the following terms:

Notwithstanding any other provision of this title, no predispute

arbitration agreement shall be valid or enforceable if it requires arbitration
of an employment dispute, consumer dispute, or civil rights dispute.66

One can argue that this specific amendment has brought to thwart the prevailing
positive approach adopted by US Supreme Court in regard to mandatory pre-
dispute arbitration clauses as they violate consumer rights with the powerful position
of business-people. Regardless of this view, it appears that the bill is designed to

65 Section 2 of the ArbitrationFairnessAct of 2011.

66 Section 402(a) ofthe ArbitrationFairnessAct of 2011.
 Online Arbitration Compared to Offline Arbitration :An Overview of the Literature

prevent only pre-dispute consumer arbitration clauses not the post-dispute B2C
arbitration clauses. The intention to preserve post-dispute B2C arbitral clauses
can be considered a positive move in favour of using OA for B2C e-commerce
disputes as well. However, the success of this bill is doubtful, as similar attempts
were made on previous occasions, but were not successful.

Some regulatory attempts with regard to the regulation of OA can be seen in the
EU context. It is important to note that pre-dispute arbitration clauses in B2C
contracts are invalid in some European Countries.67 In some countries, the validity
of arbitral clauses has been regulated from contractual frameworks, for example,
national consumer protection laws which recognise that unfair terms of a contract
are void. The legal consequence to online consumer arbitration clauses is that the
validity of B2C online arbitration clauses embedded in standard form contracts
depends on the criteria adopted in determining the fairness of such a contractual
clause. The Competition and Consumer Act 2010 (Cth)" in Australia in 2010
can be cited as an example in this regard. Moreover, there are unfair contracts
terms legislation which are separately enacted to deal with the fairness of
contractual clauses in general, by which B2C online arbitral clauses can be tested
as to their fairness. The Unfair Contract Terms Act 69 in Sri Lanka can be
highlighted as an example.

The next question is whether there are solutions offered by legal instruments to
overcome these conflicting situations, nationally or internationally. In other words,
it is important to explore whether there is a positive response offered by an
appropriate legal framework in regards to the use of OCA for the resolution of
B2C e-commerce disputes.

In the offline arbitration context, traditional arbitration operates within a national

and international legal framework.Y" Referring to the international context, Haloush

6 See, Coteanu, supra., note 18, at p.92.

68 The Competition and ConsumerAct 2010 (Cth).
69 The Unfair Contract Terms Act No. 26 of 1997, <http://www.lawnet.lk/
process.php?st- 1997YOVOC26A&hword-"&path-2>, last visited on 30.06.2011.
71 See, Arnold Vahrenwald, Out-of-Court Dispute Settlement Systems for E-commerce
Report on Legal Issues part III: Types of out-of-Court Dispute Settlement, 2000, at p. 8,
<www.tbplaw.com/data/part3.pdf>, last visited on 30.06.2011.
 (2010) 22 (No. 1) Sri Lanka Journalof InternationalLaw

and Malkawi note that "arbitration takes place within a well-established international
legal framework and is based on established commercial practices".71 This legal
framework includes the 'private law of parties' 'contract', 'national arbitration
law', and 'international enforcement treaties'. 72

In the online dispute resolution context, OA operates within a self regulatory

framework.7 3 For instance, the dispute resolution mechanism of the Internet
Corporation for Assigned Names and Numbers (ICANN) has a Uniform Dispute
74
Resolution Policy (UDRP) which is considered a self-regulatory instrument.

Furthermore, there are consumer protection model laws which deal with ODR in
general, for example, the Guidelines for Consumer Protection in the Context of
Electronic Commerce developed in 1999 by the OECD (Organization for Economic
Cooperation75 and Development and Australian Guidelines for Electronic
Commerce promulgated in 2006.76

71 See, A. Haloush & H. Malkawi, supra., note 25, at p. 340.

72 Ibid., at 340-341; see, Hdrnle, supra., note 8, at p. 91-92.
71 "Another issue that must be resolved in the growth and development of e-DR are the
relative role of government versus private regulation of this new environment. Self-
regulation is typically based on three principles: 1) free access to consumers; 2) right
of advertisers to challenge complaints; and 3) an enforcement mechanism based on
national codes or guidelines within the framework of the law". Eugene Clark and Arthur
Hoyle, E-ADR: On-line Dispute Resolution: Issues and Recent Developments, at p. 7;
see also, Aura Esther Vilalta, 'Legal framework and harmonization ofADR/ODR methods'
(2010) Vol. 2(7) JournalofLaw and Conflict Resolution at, p. 106.
71 Internet Corporation for Assigned Names and Numbers (ICANN), Online Dispute
Resolution Standardsof Practice,<http://www.icann.org/ombudsman/odr-standards-
of-practice-en.htm>, last visited on 29.06.2011 ;See further, Thomas Schultz, 'Internet
Disputes, Fairness in Arbitration and Transnationalism: AReply to Julia Hrnle' (2011)
Vol.19 (2) InternationalJournal of Law and Information Technology, <http://
ijlit.oxfordjournals.org/content/ 19/2/153. full>, last visited on 29.06.2011.
71 OECD Guidelines for Consumer Protection in the Context ofElectronic Commerce (1999),
<http://www.oecd.org/document/50/0,3343,fr 2649_34267_1824435 1 1 1 1,00.html>,
last visited on 29.06.2011.
76 Commonwealth ofAustralia, TheAustralian Guidelinesfor ElectronicCommerce 2006,
<http://www.treasury.gov.au/documents/ 083 /PDF/australianguidelines for
electronic commerce.pdf>, last visited on 29.06.2011.
 Online Arbitration Compared to Offline Arbitration : An Overview of the Literature

Unfortunately, no OA-specific legal framework has been adopted in these

instruments. They do not address specific issues (some of which have been
highlighted in this discussion). Instead, these laws provide some basic benchmarks
for online business or dispute resolution providers to follow when designing
appropriate dispute resolution mechanisms. These model laws allow the private
sector to conduct ODR by including OA within a self-regulatory legal framework
designed by itself in line with this benchmark.

More importantly, none of these legal instruments either hard or soft laws, which
are related to ODR mechanisms including OA expressly ban ODR or deny the
use of it for the resolution of B2C e-commerce disputes which in turn can be
considered as a positive element in terms of the development of OCA. However,
this positive element has to be understood in light of the different legal approaches
adopted in regards to the validity of binding online consumer arbitration clauses.

In summary, as far as the ODR literature is concerned, there are positive as well
as negative views in regards to the use of OA for the resolution of cross border
B2C e-commerce disputes. From the legal point of view, there is no uniform
approach to the recognition of OA as an appropriate dispute resolution mechanism
for B2C e-commerce disputes; instead, there appear to be a mix of approaches,
and specific legal frameworks addressing issues connected with OCA are lacking.

5. CONCLUSION

This paper has provided a background to understanding the special characteristics

of online arbitration compared with offline arbitration, and the potentials and
challenges of using OA for the resolution of B2C e-commerce disputes. It is
evident that OA is an expansion of the existing arbitration model with the use of
technology; this view can be supported by the facts that the fundamentals of OA
and offline arbitration are similar, and the differences lie mainly in the use of
technology in the arbitration process. Most importantly, the ODR literature provides
further evidence as to the appropriateness of OCA for the resolution of B2C e-
commerce disputes. Combination of these elements provides a platform for the
 (2010) 22 (No. 1) Sri Lanka Journalof InternationalLaw

consideration of its viability for the resolution of B2C e-commerce cross-border

disputes.

Given these special characteristics embedded in OA and its use for the resolution
of B2C e-commerce disputes, it is reasonable to suggest that OCA has to operate
within a technologically secure platform and appropriate legal framework, so that
it can be developed as an appropriate dispute resolution mechanism; if not, its
existence could undermine online consumer rights and online consumers may be
reluctant to go through this process. In order to avoid such negative implications,
this paper advocates the need of enhancing opportunities for access to appropriate
technology and a well developed legal framework which ensures the legitimacy
of OCA, which are important parts of developing OCA for the resolution of B2C
cross-border e-commerce disputes.