Legal Studies Research Paper Series
Working Paper No. 2014-42
November 2014
The Unfriendly Intrusion of Consumer Legislation
into Freedom to Contract for Effective ODR
Ronald A. Brand
A chapter in Liber Amicorum Johan Erauw 365
(Maud Piers, Henri Storme, & Jinske Verhellen, eds., Intersentia 2014)
University of Pittsburgh School of Law
3900 Forbes Avenue
Pittsburgh, Pennsylvania 15260-6900
www.law.pitt.edu
Direct: 412.648.1307
E-mail: [email protected]
This paper can be downloaded without charge from the
Social Science Research Network Electronic Paper Collection:
http://ssrn.com/abstract=2520035
Electronic copy available at: http://ssrn.com/abstract=2520035
THE UNFRIENDLY INTRUSION OF
CONSUMER LEGISLATION INTO
FREEDOM TO CONTR ACT FOR
EFFECTIVE ODR
Ronald A. Brand*
1
“Consumer legislation is a prime example of the unfriendly intrusion of
mandatory rules into the once free territory of the law of contracts, thus
resulting in a reduction of the freedom of private parties to contract.”
Johan A. Erauw, “International Advancement of Consumer Interests through Conflicts
Rules”, in P. Šarčivič (ed.), International Contracts and Conflicts of Laws, 1990, 71.
1.
INTRODUCTION
What was once merely an “unfriendly intrusion” of consumer legislation into the
law of contracts has expanded dramatically over the course of the past two
decades. More than simply an impediment to the ability of parties to determine
their own relationships, it has become an obstruction as well to both the
protection of consumers and the development of more effective and efficient
dispute resolution processes. By limiting the extent to which parties may
contract to determine the forum in which potential disputes might be settled,
and the law by which their relationships will be judged, rules ostensibly designed
to protect consumers have had the opposite effect.
The well-intentioned effort to preserve for a consumer the benefits of both his
home court and his home law has been based on the assumption that the
merchant, as the stronger party, might otherwise impose unfavourable choice of
forum and choice of law on the weaker consumer. Rather than focus on the
creation of better fora for the resolution of consumer disputes, however, states –
*
Chancellor Mark A. Nordenberg University Professor and Director, Center for International
Legal Education, University of Pittsburgh School of Law.
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Electronic copy available at: http://ssrn.com/abstract=2520035
Ronald A. Brand
and the European Union in particular – have focused on requiring access to
courts, even when it is acknowledged that access to courts does not provide
access to justice. In an age in which it is possible to create non-judicial dispute
resolution systems that benefit a consumer through greater economy, efficiency,
and effectiveness, the edge of the sword designed to protect the consumer is
exchanged for the edge of the sword that cuts off the opportunity for fair,
efficient, and effective dispute resolution that can be just what the consumer
needs most when a dispute arises.
Th is effort to impose the restraints of consumer legislation on cross-border
commerce has been apparent in the recent negotiations in UNCITRAL’s
Working Group III, which has been tasked with preparing a global framework
for online dispute resolution (ODR) that will work for both business-tobusiness (B2B) and business-to-consumer (B2C) disputes in high-volume, lowvalue online transactions.1 The effort to inject limitations on party autonomy
into a framework for efficient and effective ODR risks the failure of the entire
project by preventing those most in need of effective and efficient dispute
resolution from having access to it. By burdening UNCITRAL instruments
with rules prohibiting pre-dispute binding arbitration agreements in consumer
contracts, demands for global recognition of largely European approaches to
consumer protection may well doom the effort to move the global trading
community forward to a system that can provide substantial benefits for
consumers globally.
2.
BACKGROUND: CONSUMER PROTECTION
THROUGH RULES OF PRIVATE
INTER NATIONAL LAW
Consumer protection in the European Union has been legislated largely through
rules of private international law. The principal goal has been to prevent a
consumer from being denied the benefits of his home court and home law when
a dispute arises with a merchant. Both the Brussels I Regulation (now Recast),2
1
2
366
See Official Records of the General Assembly, 65th Session, Supplement No. 17 (A/65/17),
§ 253 (2011).
Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the
recognition and enforcement of judgments in civil and commercial matters (Brussels I),
[2001] OJ L12/1, 16 January 2001 [“Brussels I Regulation”], amended by Regulation (EU)
No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on
jurisdiction and the recognition and enforcement of judgments in civil and commercial
matters (Recast), [2012] OJ L351/1, 20 December 2012 [“Brussels I Recast Regulation”].
Intersentia
Electronic copy available at: http://ssrn.com/abstract=2520035
The Unfriendly Intrusion of Consumer Legislation
into Freedom to Contract for Effective ODR
and the Rome I Regulation,3 reflect this effort at protection.4 Thus, while the
Brussels I Regulation generally respects party autonomy, allowing parties to
determine the court in which their disputes may be heard,5 full party autonomy
is limited through special rules designed to protect consumers.6 These rules
allow the consumer to sue in his home court, and prohibit pre-dispute choice of
court agreements.7
Article 6(1) of the Rome I Regulation provides a similar approach to
applicable law by creating a presumption that consumer contracts will be
governed by the law of the country where the consumer has his or her habitual
residence.8 While a choice of law clause technically is allowed in a consumer
contract, Article 6(2) provides that such a clause may not deprive the consumer
of consumer protection rules found in the laws of the consumer’s habitual
residence.9 Thus, without a choice of law clause, under Article 6(1), the consumer
will get the benefit of the provisions of law designed to protect consumers that
are in effect in the country of the consumer’s habitual residence. If there is a
choice of law clause, then the consumer will get the benefit of the provisions of
3
4
5
6
7
8
9
Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008
on the law applicable to contractual obligations, Article 6, [2008] OJ L177/6, 4 July 2008
[“Rome I Regulation”].
On the substantive side of the EU regulatory framework, see Directive 2011/83/EU of the
European Parliament and of the Council, of 25 October 2011 on consumer rights, amending
Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of
the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the
European Parliament and of the Council, [2011] OJ L304/64, 22 November 2011 (“Consumer
Protection Directive”) (Recital 10 of which states that “[t]his Directive should be without
prejudice to Regulation (EC) No 593/2008 of the European Parliament and of the Council of
17 June 2008 on the law applicable to contractual obligations (Rome I)”).
See Brussels I Recast Regulation, supra note 3, recital 19 (original recital 14) (“The autonomy
of the parties to a contract, other than an insurance, consumer or employment contract,
where only limited autonomy to determine the courts having jurisdiction is allowed, should
be respected subject to the exclusive grounds of jurisdiction laid down in this Regulation.”).
Id., Articles 17–19 (original Articles 15–17).
See generally, id. recital 18 (original recital 13) (“In relation to insurance, consumer and
employment contracts, the weaker party should be protected by rules of jurisdiction more
favourable to his interests than the general rules.”). While Articles 18 and 19 of the Recast
Regulation (original Articles 16 and 17) do not technically “prohibit” pre-dispute binding
choice of court agreements, that is their practical effect given the limitations placed on such
agreements. For a more detailed discussion, see Ronald A. Brand, “Transaction Planning
Using Rules on Jurisdiction and the Recognition and Enforcement of Judgments”, 358
Collected Courses of the Hague Academy of International Law 9, 191–196 (2013) (hereinafter
“Transaction Planning”).
Th is rule applies if the professional:
(a) pursues his commercial or professional activities in the country where the consumer has
his habitual residence, or
(b) by any means, directs such activities to that country or to several countries including
that country,
and the contract falls within the scope of such activities. (Rome I Regulation, supra note
4, Article 6(1)).
Id., Article 6(2).
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Ronald A. Brand
law designed to protect consumers that are in effect in both the country of the
consumer’s habitual residence under Article 6(1) and those in the country whose
law is chosen in the clause under Article 6(2). There is therefore no reason (and
in fact a disincentive) for a merchant to include a choice of law clause in a
consumer contract.10
Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer
contracts effectively expands the Brussels I rules on choice of court and the
Rome I rules on applicable law to the arbitration context in consumer contracts.11
Article 3 defines “unfair terms” for purposes of consumer contracts, and
Article 6(1) requires Member States to legislate that unfair terms will not be
binding on a consumer. Article 3(3) includes a reference to an Annex, which
provides that an unfair term includes a term that excludes or hinders “the
consumer’s right to take legal action or exercise any other legal remedy,
particularly by requiring the consumer to take disputes exclusively to arbitration
not covered by legal provisions, unduly restricting the evidence available to him
or imposing on him a burden of proof which, according to the applicable law,
should lie with another party to the contract.”12 In Mostaza Claro v Centro Móvil
Milenium SL,13 and Asturcom Telecomunicaciones SL v Cristina Rodríguez
Nogueira,14 the European Court of Justice (now the Court of Justice of the
European Union, or CJEU) has demonstrated a clear tendency to support
blanket prohibitions on pre-dispute arbitration agreements in consumer
contracts in the implementation of this Directive.15
10
11
12
13
14
15
368
The European Union Parliament has noted the disadvantages of the Rome I approach on choice
of law, with the Rapporteurs for the Rome I Regulation stating that the protection offered by its
consumer provisions in private international law rules “is largely illusory in view of the small
value of most consumer claims and the cost and time consumed by bringing court proceedings”.
European Parliament, Committee on Legal Affairs, Final Compromise Amendments to the
Rome I Regulation, 14 Nov. 2007 (DT\Rome IENREV.doc), at p. 9/36, available at www.
europarl.europa.eu/meetdocs/2004_2009/documents/dv/juri_oj%282007%291119_romei_am_
/JURI_OJ%282007%291119_RomeI_AM_en.pdf.
[1993] OJ L095/29, 21 April 1993.
Id., Annex I, Terms referred to in Article 3(3).
Case C-168/05, Mostaza Claro v Centro Móvil Milenium SL, [2006] ECR I-10421, 26 October
2006.
C-40/08, Asturcom Telecomunicaciones SL v Cristina Rodríguez Nogueira, [2009] ECR
I-095796, October 2009.
The provisions set out in Directive 93/13 were mirrored in the Commission’s 2008 proposal
for a Directive of the European Parliament and the Council on consumer rights. Chapter V of
the proposed new Directive broadly reflected the provisions of Directive 93/13/EEC, and the
proposed new Annex II(c) mirrored Annex I(q) of Directive 93/13, but with an important
distinction. While Annex I of Directive 93/13 referred to “terms which may be regarded as
unfair”. Annex II of the proposed Directive, apparently acknowledging the ECJ’s opinion in
Mostazo Clara, listed contract terms that “are considered unfair in all circumstances”.
Accordingly, under Annex II(c) of the proposed Directive, contract terms which have the
object or the effect of “excluding or hindering the consumer’s right to take legal action or
exercise any other legal remedy, particularly by requiring the consumer to take disputes
Intersentia
The Unfriendly Intrusion of Consumer Legislation
into Freedom to Contract for Effective ODR
A number of other EU legal instruments have specific provisions on
alternative dispute resolution (ADR) and ODR.16 Additional instruments either
encourage the establishment of ADR systems,17 or require the establishment of
ADR systems.18
16
17
18
exclusively to arbitration not covered by legal provisions” would have been unfair in all
circumstances.
These stark changes to Directive 93/13 were not adopted, however. The resulting Directive
2011/83, in its Article 32, provides the following resolution of the issue:
Article 32. Amendment to Directive 93/13/EEC
In Directive 93/13/EEC, the following Article is inserted:
“Article 8a
1. Where a Member State adopts provisions in accordance with Article 8, it shall inform the
Commission thereof, as well as of any subsequent changes, in particular where those
provisions:
– extend the unfairness assessment to individually negotiated contractual terms or to
the adequacy of the price or remuneration; or,
– contain lists of contractual terms which shall be considered as unfair,
2. The Commission shall ensure that the information referred to in paragraph 1 is easily
accessible to consumers and traders, inter alia, on a dedicated website.
3. The Commission shall forward the information referred to in paragraph 1 to the other
Member States and the European Parliament. The Commission shall consult stakeholders
on that information.”
Thus, the resulting Directive continues the approach in Article 3 of Directive 93/13, focusing
on the unfairness of a particular contract term, but allowing each Member State to determine
specific types of terms to be considered to be unfair. Th is appears to allow Member State
implementation of Directive 2011/83 to include specific prohibition of pre-dispute arbitration
agreements in consumer contracts. Directive 2011/83/EU of the European Parliament and of
the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC
and Directive 1999/44/EC of the European Parliament and of the Council and repealing
Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the
Council, [2011] OJ L304/64, 22 November 2011.
Instruments dealing with ADR include Council Resolution of 25 May 2000 on a Communitywide network of national bodies for the extra-judicial settlement of consumer disputes,
[2000] OJ C155/1; Commission Recommendation 98/257/EC on the Principles Applicable to
the Bodies Responsible for Out-of-Court Settlement of Consumer Disputes [1998], OJ
L155/31; Commission Recommendation 2001/310/EC on the Principles for Out-of-Court
Bodies involved in the Consensual Resolution of Consumer Disputes, [2001] OJ L109, 56–61;
the Financial Services Complaints Network, FIN-NET, 2001; the 2004 European Code of
Conduct for Mediators, Commission Directive 2008/52/EC of the European Parliament and
of the Council of 21 May 2008 on certain aspects of mediation in civil and commercial
matters, [2008] OJ L136/3; and the January 2011 Commission consultation paper on the use
of Alternative Dispute Resolution as a means to resolve disputes related to commercial
transactions and practices in the European Union.
See, e.g., Distance Marketing of Financial Services Directive 2002/65/EC; Timeshare
Directive 2008/122/EC; E-commerce Directive (EC) 2000/31; Postal Services Directive EC)
2008/6 amending 97/67/EC; Insurance Mediation Directive 2002/92/EC; and the Markets in
Financial Instruments Directive (MiFID) (EC) 2004/39 on markets in financial instruments
amending 85/611/EEC, 93/6/EEC and 2000/12/EC and repealing 93/22/EEC.
See, e.g., Directive (EC) 2009/136 amending Directive 2002/22/EC on universal service and
users’ rights relating to electronic communications networks and services; Directive (EC)
2009/72 concerning common rules for the internal market in electricity and repealing
Directive 2003/54/EC, [2009] OJ L211/55; Directive (EC) 2009/73 concerning common rules
for the internal market in natural gas and repealing Directive 2003/55/EC; Directive (EC)
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Ronald A. Brand
This EU path toward ADR and ODR culminated for consumers in May 2013
in the promulgation of Regulation 524/2013 on consumer ODR,19 and Directive
2013/11 on consumer ADR.20 The ADR Directive, in recital 4, states that:
“[e]nsuring access to simple, efficient, fast and low-cost ways of resolving domestic
and cross-border disputes which arise from sales or service contracts should benefit
consumers and therefore boost their confidence in the market. That access should
apply to online as well as to offline transactions, and is particularly important when
consumers shop across borders”.21
Article 5 of the ADR Directive requires that Member States “facilitate access by
consumers to ADR procedures and… ensure that disputes covered by [the]
Directive… can be submitted to an ADR entity which complies with the
requirements set out in [the] Directive”.22 The Directive then proceeds to detail
the requirements such ADR systems must meet in order to establish expertise,
independence, and impartiality;23 transparency;24 effectiveness;25 fairness;26 and
liberty.27
Ultimately, the ADR Directive deals only with standards for ADR systems,
and does not directly address the process by which consumers agree to ADR.
These issues are addressed in the ODR Regulation. Recital 7 of the ODR
Regulation acknowledges that:
“[b]eing able to seek easy and low-cost dispute resolution can boost consumers’ and
traders’ confidence in the digital Single Market. Consumers and traders, however,
still face barriers to finding out-of-court solutions in particular to their disputes
arising from cross-border online transactions. Thus, such disputes currently are
often left unresolved”.28
19
20
21
22
23
24
25
26
27
28
370
2008/48 on credit agreements for consumers; Directive (EC) 2007/64 on payment services in
the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC; and Regulation
(EU) No 181/2011 on bus and coach passenger rights.
Regulation (EU) No 524/2013 of the European Parliament and of the Council of 21 May 2013
on online dispute resolution for consumer disputes and amending Regulation (EC) No
2006/2004 and Directive 2009/22/EC (Regulation on consumer ODR), [2013] OJ L165/1,
18 June 2013.
Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on
alternative dispute resolution for consumer disputes and amending Regulation (EC) No
2006/2004 and Directive 2009/22/EC (Directive on consumer ADR), [2013] OJ L165/63,
18 June 2013.
Id. recital 4.
Id., Article 5.
Id., Article 6.
Id., Article 7.
Id., Article 8.
Id., Article 9.
Id., Article 10.
Regulation on consumer ODR, supra note 20, recital 7.
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The Unfriendly Intrusion of Consumer Legislation
into Freedom to Contract for Effective ODR
Recital 18 details the purpose of the Regulation as follows:
“This Regulation aims to create an ODR platform at Union level. The ODR platform
should take the form of an interactive website offering a single point of entry to
consumers and traders seeking to resolve disputes out-of-court which have arisen
from online transactions. The ODR platform should provide general information
regarding the out-of-court resolution of contractual disputes between traders and
consumers arising from online sales and service contracts. It should allow consumers
and traders to submit complaints by fi lling in an electronic complaint form available
in all the official languages of the institutions of the Union and to attach relevant
documents. It should transmit complaints to an ADR entity competent to deal with
the dispute concerned. The ODR platform should offer, free of charge, an electronic
case management tool which enables ADR entities to conduct the dispute resolution
procedure with the parties through the ODR platform. ADR entities should not be
obliged to use the case management tool.”29
The ODR Regulation applies to “the out-of-court resolution of disputes
concerning contractual obligations stemming from online sales or service
contracts between a consumer resident in the Union and a trader established in
the Union.”30 It requires that the European Commission develop an ODR
platform,31 and make it available to both consumers and traders.32 Nonetheless,
it continues the EU approach that bars pre-dispute binding choice of forum by a
consumer:
“ODR is not intended to and cannot be designed to replace court procedures, nor
should it deprive consumers or traders of their rights to seek redress before the
courts. This Regulation should not, therefore, prevent parties from exercising their
right of access to the judicial system.”33
Thus, while the intent is clear to establish an ODR system available to consumers,
it appears that it will be available only after a dispute arises, when parties are
reasonably unlikely to agree to a specific dispute resolution method.
In the United States, the use of applicable law rules for consumer protection
purposes was considered in the 2001 revisions to the Uniform Commercial Code
(UCC). The original section 1–105 choice of law rule respected all choice of law
clauses so long as there was a “reasonable relation” between the transaction and
the state whose law was chosen.34 A new section 1–301 was proposed which
29
30
31
32
33
34
Id., recital 18.
Id., Article 2(1).
Id., Article 5(1). The Commission is to have the ODR platform tested by 9 January 2015. Id.,
Article 6(1).
See, id., Article 2(2).
Id., recital 26.
Uniform Commercial Code (1956 version) §1–105(1).
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Ronald A. Brand
would have deleted the reasonable relationship test in B2B contracts. It would
have retained the test for consumer contracts, and would have applied the
mandatory rules of the consumer’s home state to a consumer contract.35 The new
rule was routinely rejected in states’ adoption of the revisions to Article 1,
leading the Uniform Law Commissioners to change section 1–301 by deleting
the consumer-specific rules.36 Thus, while U.S. rules on applicable law include
some limits on party autonomy, they are not generally consumer-specific in
approach.37
US law largely respects party autonomy for both choice of forum and choice
of law in consumer contracts. This approach has been the subject of some
criticism, in particular for results such as that in Carnival Cruise Lines, Inc. v.
Shute,38 where the Supreme Court honoured a small print choice of court clause
on the back of a cruise ticket that required litigation of all disputes in Florida,
even for consumers from the state of Washington.39 Justice Blackmun’s majority
opinion sets forth an economic analysis to justify this approach as being
consistent with (1) the merchant’s interest in litigating all similar disputes in a
single forum, (2) merchant and consumer interests in predictability, and (3) the
general (public) interest of all consumers of such cruises in the lower price that is
assumed to result from upholding such clauses on the basis of the fist two
interests. The result has been a general lack of restrictions on choice of forum
and choice of law in consumer contracts.40
35
36
37
38
39
40
372
Uniform Commercial Code (2001 version) §1–301.
See American Law Institute, 85th Annual Meeting Program, 19–21 May 2008, p. 8.
For further discussion of US law in this regard, see Brand, Transaction Planning, supra note
8, at 155–163.
499 US 585 (1991).
Id. at 593–94.
In Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 US 614, 639 n 21 (1985), the
Supreme Court, referring to limits on agreements to arbitrate, stated, in a footnote,
“Doubtless, Congress may specify categories of claims it wishes to reserve for decision by our
own courts without contravening this Nation’s obligations under the [New York]
Convention.” Some U.S. statutes do limit the use of pre-dispute binding arbitration
agreements. See, e.g., 10 U.S.C. §987(e)(3) (“It shall be unlawful for any creditor to extend
consumer credit to a covered member or a dependent of such a member with respect to
which--(3) the creditor requires the borrower to submit to arbitration or imposes onerous
legal notice provisions in the case of a dispute”); 15 U.S.C. §1639c(e)(1) (“No residential
mortgage loan and no extension of credit under an open end consumer credit plan secured by
the principal dwelling of the consumer may include terms which require arbitration or any
other nonjudicial procedure as the method for resolving any controversy or settling any
claims arising out of the transaction.”); 15 U.S.C. §1226(a)(2) (“Notwithstanding any other
provision of law, whenever a motor vehicle franchise contract provides for the use of
arbitration to resolve a controversy arising out of or relating to such contract, arbitration may
be used to settle such controversy only if after such controversy arises all parties to such
controversy consent in writing to use arbitration to settle such controversy.”). Such limits
exist, however, only in legislation dealing with purely domestic oft linematters, thus saving to
the parties the ability to bring suit in US courts. They do not generally apply to cross-border
transactions.
Intersentia
The Unfriendly Intrusion of Consumer Legislation
into Freedom to Contract for Effective ODR
The Blackmun analysis places the focus on the transaction stage, at which full
party autonomy presents the consumer with the opportunity for a lower price and
enhanced access to goods and services – but provides no limitations on the fora to
which the consumer may be subjected. In contrast, the EU approach focuses on
the litigation stage, giving the consumer a presumed advantage if, and when, a
dispute arises, by saving to the consumer his home court and home law – but
often resulting in reduced (or no) access to goods and services and substantially
higher prices.41 Each focuses on a different consumer “advantage,” but at a
different stage of the relationship. While the US approach provides a benefit to all
consumers similarly situated through easier access to goods and services at lower
prices, the EU approach provides a potential benefit to a limited number of
consumers whose relationship with the merchant actually results in a dispute.
Thus, each represents a trade-off between benefits at the transaction stage and
benefits at the dispute resolution stage. For the consumer whose transaction does
not result in a dispute, the lower price and increased access to goods and services
is obviously an advantage. For the consumer whose transaction does result in a
dispute, the European approach necessarily assumes that retention of the
consumers home court and home law is a real advantage – without clear
demonstration of whether, as a practical matter, it is such an advantage.
3.
THE UNCITR AL ODR PROJECT
In July 2010, the United Nations Commission on International Trade Law
(UNCITRAL) assigned its Working Group III the task of undertaking “work in
the field of online dispute resolution relating to cross-border electronic
commerce transactions, including business-to-business and business-toconsumer transactions.”42 The project is based on the clear realization that
“traditional judicial mechanisms for legal recourse did not offer an adequate
solution for cross-border e-commerce disputes, and that the solution – providing
a quick resolution and enforcement of disputes across borders – might reside in a
global online dispute resolution system for small-value, high-volume businessto-business and business-to-consumer disputes.”43 The project was intentionally
directed at developing a system that would cover both B2B and B2C transactions,
on the realization that “it was practically and theoretically difficult to make a
distinction not only between business-to-business transactions but also between
merchants and consumers” in an online environment.44
41
42
43
44
See infra, note 51, and accompanying text.
Report of the Forty-third Session of the United Nations Commission on International Trade
Law (21 June 21–9 July 2010), A/65/17), § 257.
Id., § 254.
Id., § 256.
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Ronald A. Brand
The initial Working Group sessions assumed that the framework to be
created would include rules encompassing a three-step system. It would begin
with negotiation aided by an online platform that would coordinate the
communication between the two parties. This would be followed by facilitated
settlement in which the ODR platform and provider help move the parties
toward a consensual resolution. Ultimately, the process would end – for those
few cases that would require it – with binding arbitration creating a decision that
would be enforceable within the framework of the United Nations Convention
on the Recognition and Enforcement of Foreign Arbitral Awards (New York
Convention).45 While it was realized that actual enforcement of small claims
through the New York Convention process would probably be too expensive to
be practical in most cases, the ability to have a binding and enforceable decision
was key to the initial ODR framework discussions.46
While this approach toward the project continued through the November
2012 Session of Working Group III,47 at the May 2013 Working Group, the
European Union and its Member State delegations, apparently consistent with
the new EU Directive on ADR and Regulation on ODR,48 proposed “an ODR
system not modelled on arbitration.”49 The European proposal would create a
two-track system of ODR, with states having prohibitions on pre-dispute
binding arbitration agreements effectively dictating the process. Thus,
“merchants, at the time of the transaction, would generate two different online
dispute resolution clauses, depending on the jurisdiction and status (business or
consumer) of the purchaser (…) ensuring that consumers from certain
jurisdictions would not be subject to an arbitration track of the Rules, but rather
only to (…) a non-arbitral stage of proceedings.”50 The proposal would both
require a list of countries that prohibit pre-dispute binding choice of forum
45
46
47
48
49
50
374
Report of Working Group III (Online Dispute Resolution (Vienna, 13–17 December 2010), A/
CN.9/721, § 115(a).
“It was agreed that arbitration was a necessary component of ODR (since without it there
could be no fi nal resolution of those cases which were not settled in earlier stages) but several
delegations urged that in any ODR most disputes would need to settle prior to the arbitration
phase so that arbitration would occur in only a small percentage of cases that could not be
resolved otherwise.” Id., § 30. “It was generally agreed that decisions should be fi nal and
binding, with no appeals on the substance of the dispute, and carried out within a short time
period after being rendered.” Id., § 99. “There was a general consensus that it could be
assumed the New York Convention would be applicable to enforcement of arbitral awards
under ODR cases in B2B and B2C cross-border disputes, but that reliance on that mechanism
alone was insufficient…” Id., § 98.
See Report of Working Group III (Online Dispute Resolution (Vienna, 5–9 November 2012),
A/CN.9/762, §§ 26–35.
See supra notes 20–34 and accompanying text.
Online dispute resolution for cross-border electronic commerce transactions: draft
procedural rules – Proposal by the European Union observer delegation, A/CN.9/WG.III/
WP.121, at 7, 22 May 2013.
Report of Working Group III (Online Dispute Resolution (New York, 20–24 May 2013), A/
CN.9/769, §§ 21, 31.
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The Unfriendly Intrusion of Consumer Legislation
into Freedom to Contract for Effective ODR
agreements, and effectively mandate that every merchant doing business online
be able to determine the location of every purchaser, whether that purchaser is a
“consumer,” and whether a consumer’s location is in a state on such a list.
It does not take much thought to realize that such a system would be neither
effective (it could not produce binding, enforceable results) nor efficient. Studies
already have shown that cross-border electronic commerce in the European Union
suffers because merchants choose not to sell cross-border rather than subject
themselves to jurisdiction in 28 different states under 28 different sets of laws.51
If a merchant has to determine (1) the location of the purchaser, (2) whether
that purchaser is a consumer (which itself is not a simple determination given
that the same purchaser may buy for both business and consumer purposes), and
(3) whether the location of a consumer is in a state with a prohibition on predispute choice of forum agreements, before even making the decision to sell its
goods or services, the obvious transaction costs on high-volume, low-value
online transactions will either keep that merchant out of the cross-border market
or cause much higher prices to consumers.
Colombia, Honduras, Kenya and the United States responded to the EU
proposal at the November 2013 Working Group III Session with their own
Working Paper, proposing continued adherence to the original three-stage ODR
format.52 That document also highlighted the need to create an ODR system that
will promote access to global electronic commerce for micro and small
businesses, particularly from developing countries.53 The November 2013
Working Group Session ended without a clear path forward between these two
51
52
53
See, e.g., European Commission, A Common Sales Law for Europe: Factsheet for Germany,
available at http://ec.europa.eu/justice/contract/fi les/common_sales_law/sales_law_germany_
en.pdf (“At present, only 6% of German consumers buy online from other EU countries, while
47% do so in Germany. Legal barriers mean businesses sometimes refuse to sell to consumers
living abroad – around 3 million European consumers are affected each year in the EU, and
nearly 400,000 of them are in Germany.”); European Commission – Eurostat, E-commerce
statistics, available at http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Ecommerce_statistics (“In 2012 in the EU-28, while almost all enterprises making electronic
sales (17%) reported that they sold to the markets in their own countries (16%), only 7% of
enterprises made e-sales to other EU countries.”); Euronews, Europe to simplify cross-border
trade, available at www.euronews.com/2012/09/17/eu-to-simplify-cross-border-trade-rules
(“Less than one in ten Europeans buy online from other EU countries. For both consumers
and sellers, the process is simply too complicated. Legal differences between EU countries are
one of the remaining barriers to the internal market. To boost cross-border trade, cut costs and
give customers greater choice, the EU has drafted a Common European Sales Law. Maria
Baeva Petrunova, from Bulgaria, experienced these obstacles first hand: “Last year I tried to
buy a kindle online for my husband as a birthday present”, she says, “but unfortunately I wasn’t
able to. I did everything I was required to to complete my order, but despite that, in the end
they said they wouldn’t deliver to Bulgaria”).
Online dispute resolution for cross-border electronic commerce transactions: draft
procedural rules – Proposal by the Governments of Colombia, Honduras, Kenya and the
United States. A/CN.9/WG.III/WP.125, 5 September 2013.
Id., pp. 2–4.
Intersentia
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Ronald A. Brand
alternatives, but with drafting continuing on “track 2,” which would not include
arbitration at this point.54
The UNCITRAL ODR project has worthy goals, and is worth the effort if
those goals can be achieved. In order for an ODR system to be both efficient and
effective, however, it cannot be overburdened with rules that require numerous
determinations and the application of difficult definitions at the outset of a
transaction. The European Union proposal would impose such rules, and would
likely prevent market acceptance of the resulting ODR system. If the burden of
the system is at the transaction stage of the contract relationship, it will prevent
online commerce from occurring in the first place. If, on the other hand, the
rules are reasonably efficient and raise issues of the application of national or
regional rules outside the ODR framework and only at the end of the dispute
resolution process, they will not have the same inhibitory effect, either on
electronic commerce generally or on the use of ODR systems that have built-in
consumer protections.
Because the EU approach requires both the merchant and the consumer to
engage in difficult and inefficient decision-making in order to enter a crossborder electronic transaction, it is likely to prevent that commerce from
occurring in the first place. It also carries with it the continued application of
multiple rules on choice of forum and choice of law that have kept e-commerce
from occurring in Europe under existing conditions.55 The alternative, consistent
with the original approach of the Working Group, would place the intrusion of
national law at the end of the dispute resolution process, after a binding decision
has been rendered – while still allowing it to be considered at the outset, if the
parties desire to do so for practical purposes.56 This makes the most sense
precisely because current ODR practice has demonstrated that the vast majority
of disputes will be settled by consensual procedures, either through negotiation
or facilitated settlement.57 Thus, only a very small percentage of disputes will
54
55
56
57
376
While the official Report of the Working Group Session (A/CN.9/795 – Report of Working
Group III (Online Dispute Resolution) on the work of its twenty-eighth session (Vienna,
18–22 November 2013)), provides a review of decisions regarding language on a “track 2” that
would not include arbitration, the recordings of the session indicate the clear level of
disagreement on approach and confusion about just what track 2 would or should include.
See UNCITRAL: Working Group III (Online Dispute Resolution), 28th session, Speakers Log
with Audio Recordings, available at http://uncitral.org/uncitral/audio/meetings.jsp.
See supra note 52 and accompanying text.
Thus, the fear that a consumer will be subjected to binding and enforceable awards in favor of
a merchant is easily avoided for those states that prohibit binding pre-dispute arbitration
agreements. Any such award, at the enforcement stage, will be determined to violate public
policy, and the state with the prohibition will, under Article V(2)(b) of the New York
Convention.
See, e.g., Colin Rule, eBay Resolution Center Up for Dutch Innovating Justice Awards, June
2011, available at www.mediate.com/articles/vote.cfm, describing the eBay-PayPal system,
stating that “[m]ore than 90% of the disputes fi led are resolved without requiring the
intervention of a third party to render a decision.”
Intersentia
The Unfriendly Intrusion of Consumer Legislation
into Freedom to Contract for Effective ODR
require a binding and enforceable decision. If the end result has no international
enforcement value at all, the system will not have the channelling effect that will
encourage parties to opt in to ODR, to then reach consensual results, and
ultimately to respect final decisions because they are – in fact – binding.
The goal of the UNCITRAL ODR process should be to create a good system
of dispute resolution, and then allow all parties – particularly consumers, who
can benefit most – to have access to that system. Procedures that prohibit predispute binding choice of forum agreements may prevent agreement to bad
dispute resolution systems, but they also prohibit access to a good dispute
resolution system by the very parties most in need of that system. Negotiations
that began with the understanding that, for high-volume, low-value online
transactions, access to courts does not provide access to justice, should not end
by preventing access to effective non-judicial justice. Private international law
rules which prevent parties in need of simple, effective, and efficient dispute
resolution from having access to a system designed by states to provide just that,
clearly represent the most “unfriendly intrusion of mandatory rules into the
once free territory of the law of contracts,”58
4.
WHAT NEXT?
Effective online dispute resolution already exists in today’s global electronic
marketplace. It was reported early in the UNCITRAL Working Group III
process that the eBay and PayPal ODR system was effectively handling over 60
million disputes a year.59 This means that the marketplace does not need
UNCITRAL ODR rules in order to provide functioning and effective ODR. One
must ask, then: just why are states spending so much time and so many resources
negotiating rules for a global ODR system that will be in the form of
recommended procedures and rules, and will not be a binding set of legal rules?
Moreover, one must ask whether such procedures and rules will have any impact
if they are structured in a way that will be seen as completely undesirable to the
community that must choose to use them.
While preserving for consumers the advantages of their home court and
home law may appear to provide “protection” from egregious merchant
practices, this technique of using private international law rules to provide
substantive consumer protection has proved to prevent the establishment of
effective alternative dispute resolution procedures while providing no real
58
59
Erauw, supra note 1.
See, e.g., C. Rule, eBay Resolution Center Up for Dutch Innovating Justice Awards, June 2011,
available at www.mediate.com/articles/vote.cfm (“The eBay and PayPal Resolution Centers
resolve more than 60 million disputes per year in more than a dozen different languages
around the world.”).
Intersentia
377
Ronald A. Brand
benefits to consumers.60 “An effective policy and legislative response requires
more nuanced and varied approaches than (…) simply widening the doors to the
courts.”61
The manner in which the development within Europe of what is assumed to
be (but is not in reality) plaintiff-friendly, access-to-justice rules has had a
negative effect, not only on consumers, but on larger issues of dispute resolution
process as well. ECJ cases supporting prohibitions on pre-dispute binding
arbitration agreements have not been uniformly well-received as proper
development of the law. Professor Piers has noted that “the ECJ’s reasoning and
ultimate ruling in the Mostaza and Asturcom decisions are symptomatic of the
European union’s failure to recognize fully that arbitration forms part of the
reality of the European business world and its denial that it operates as a fullfledged alternative to state court proceedings.”62 Like the ECJ’s West Tankers
case, which virtually ignored Member State obligations under the New York
Convention, that Court’s cases on prohibitions on binding pre-dispute
arbitration agreements in consumer contracts have been similarly troublesome.63
Negotiating policy in international organizations based on those precedents, and
their extension in recent EU legislative instruments, risks expanding the
problems of this approach to a global scale.
As one European commentator has noted, “the special protection of
consumers (and in particular, the level of intensity to which it has been taken in
the EU) focuses only on the remedy of the consequences rather than on the
prevention of the causes.”64 The European proposals at the UNCITRAL Working
Group III sessions provide a clear example that, “[r]esolving the need for
consumer protection by (…) engaging in a crusade against any and all alternative
forms of the enforcement of businesspersons’ rights, is political window dressing
which (…) does not address the root cause of the problem.”65 The correct focus in
the Working Group should be on providing real benefits for consumers in the
60
61
62
63
64
65
378
See, e.g., Brand, Transaction Planning, supra note 8 at 191–217.
J. Malbon, Access to Justice for Small Amount Claims in the Consumer Marketplace: Lessons
from Australia (2012), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_
id=2056647.
M. Piers, “Spillovers of European Consumer Law: Validity of Arbitration Agreements… and
Beyond”, 22 The American Review of International Arbitration 625, 658 (2011) (“[T]he ECJ’s
reasoning and ultimate ruling in the Mostaza and Asturcom decisions are symptomatic of the
European union’s failure to recognize fully that arbitration forms part of the reality of the
European business world and its denial that it operates as a full-fledged alternative to state
court proceedings.”).
The West Tankers decision has been the subject of much criticism of the Court, and the
problem it created was the subject of consideration in the Recast of the Brussels I Regulation.
See Brand, Transaction Planning, supra note 8, at 185–187.
A.J. Bělohlávek, “Autonomy in B2C Arbitration: Is the European Model of Consumer
Protection Really Adequate?”, 2012 Czech (& Central European) Yearbook of Arbitration 17,
20.
Id. at 21.
Intersentia
The Unfriendly Intrusion of Consumer Legislation
into Freedom to Contract for Effective ODR
global marketplace, and not on the extension to the global level of one region’s
private international law rules that have proved ineffective in generating positive
substantive results for consumers.
UNCITRAL success in the realm of ODR will be judged by whether the
negotiations produce a set of soft law instruments that act as an appropriate
magnet and draw ODR providers and platforms to those instruments as the
source of accepted rules for their ODR systems. In order to have this magnet
impact, the UNCITRAL ODR rules must have three effects: (1) they must serve a
channelling function, causing ODR practitioners to adopt the UNCITRAL rules
and procedures as the common core of ODR practice; (2) they must enhance
ODR legitimacy by proving that ODR itself has become acceptable and legitimate
both in the marketplace and in the realm of state-sanctioned process; and (3)
they must provide a source of ODR platform and ODR provider legitimacy by
establishing a system for identifying and drawing consumers to reliable and
effective ODR providers and ODR platforms, while effectively identifying,
preventing, and ultimately sanctioning unreliable providers and platforms.
If the rules resulting from the UNCITRAL negotiations are overburdened
with required determinations of location and type of purchaser at the transaction
stage, they are not likely to be accepted by those who will necessarily determine
whether they will be used. The marketplace already has plenty of working,
effective ODR alternatives. It may well be that certain states and the EU would
like the UNCITRAL rules to be a mirror image of their existing consumer
legislation and private international law rules. When those rules have proved
themselves to be ineffective, and when their own political institutions have
acknowledged their effect as no more than “illusory,”66 that would be a result
that would only add to the list of international instruments that have no real
value beyond being fodder for academic debate. Working Group III should be
seeking something more than that.
In the November 2013 Working Group session, it became clear that the EU
Member State delegations and the European Union observer delegation had a
very different understanding of their own proposal than did most of the rest of
the delegations and observers in the negotiations. The EU observer explained
that the two-track system being proposed by it and its Member State delegations
did not, as others had assumed, include a three-stage track that ends in binding
arbitration and a two-stage track that stops with facilitated settlement.67 Rather,
the EU understanding of the second track presents a three-stage process that
ends in a different type of “binding” decision. This would, however, take that
binding decision out of the existing UNCITRAL regime for arbitration, and
make it “binding” but not “enforceable.” It was difficult for many (including this
66
67
Supra note 11.
See, e.g., Speakers Log with Audio Recordings, available at https://icms.unov.org/CarbonWeb/
Export.mvc/SpeakersRecordsXml/6de28131–889a-43ea-82d4–874060ebd22c, at 11:55–12:02.
Intersentia
379
Ronald A. Brand
author, who was an observer at the November 2013 session – and all earlier
sessions) to understand just what this meant. The explanations offered by the EU
in its Working Paper 121 and on the floor of the negotiations did not provide a
clear answer.
It may be that there can be a binding result without arbitration, but that has
not yet been demonstrated. One must ask, however, why it should be necessary
to establish the rather elaborate mechanism that would be necessary for such a
process when UNCITRAL already has decades of successful experience with
arbitration. The only impediment to the use of that successful experience is the
desire of some states to retain consumer legislation that “intrudes into the
territory of the law of contracts” in a manner that requires the retention of access
to courts when all the negotiations have, from the start, been based on the
fundamental understanding that, in high-volume, low-value online transactions,
access to courts is not access to justice. Working Group III has the opportunity
to create real access to justice for high-volume, low-value online disputes, but the
insistence on the unfriendly intrusion into soft-law ODR instruments of global
adherence to the consumer legislation of a few now appears destined to prevent
that result. Until that demand is removed, success in the ODR negotiations is
unlikely.
380
Intersentia

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