Does Online Dispute Resolution Need Governmental Intervention? the Case for Architectures of Control and Trust

• Publication year: 2004
• Citation: Vol. 6 No. 2004

Thomas Schultz⁰

Liberty in cyberspace will not come from the absence of the state. Liberty there, as anywhere, will come from a state of a certain kind. . . we build a world where freedom can flourish by setting it in place where a particular kind of self-conscious control survives.¹

. . . ODR, like all of e-commerce, needs to have mechanisms to build consumer trust in the goods or services— here legal services in the form of dispute resolution—and to ensure consumer protection. The regulation of legal services, including dispute resolution, need not be delegated wholly to the professional organizations that incorporate a degree of self-interest.²

I. Introduction

Many believe that cyberspace was born out of a world of no regulation.

And many believe that the future of dispute resolution lies in the absence of the state. The general view of online dispute resolution ("ODR") follows from these beliefs: it is a new and promising form of dispute resolution, and it takes place in cyberspace; consequently it should be left to self-regulation. It is this view that I want to challenge.

I contend that ODR requires governmental intervention to develop fully, to lessen the gap between its potential and its actual use—a gap that is huge. The argument for this assertion follows a simple path: ODR is in need of trust, trust can be provided through architectures of control, and such control should be in the hands of government in order to induce trust.

My article moves in two parts, the first descriptive, the second prescriptive. Part I provides that confidence is hardly present in the absence of control. I begin with an examination of the confidence problem ODR faces. I then propose a solution to that problem: control. The lack of control induces a lack of confidence in ODR. Control of ODR needs to be established. This entails setting in place an architecture of control of ODR in order to increase confidence. Only then will it be utilized on a large scale. Part II maintains that this control should be in the hands of the government. People will trust ODR only if the government controls it. My claim does not follow the ethical argument that only the government provides a real guarantee of certain fundamental values or that government intervention would make ODR fairer. Although I believe such an argument is true, I rather take a realist approach and argue that government intervention simply would be the best way to increase confidence in ODR. Part III finally illustrates how the government could construct an architecture of control for ODR. This shows, incidentally, from a structural perspective, how the government could regulate ODR.

Before these issues are addressed, it is helpful to reflect on what ODR actually consists of: a dispute resolution process that operates mainly online. This encompasses both online versions of alternative dispute resolution ("ADR") and cybercourts, the former being dominant. In other words, ODR relates to negotiation, mediation, arbitration, and court proceedings, whose proceedings are conducted online.³ Disputes submitted to ODR are mainly, but not exclusively, e-commerce business-to-consumer ("B2C") disputes.⁴

In online negotiation, the parties communicate bilaterally— or multilaterally if there are more than two parties to the dispute— over the Internet to reach a settlement using email or other more sophisticated communication technologies. When such sophisticated technologies are used, online negotiation is sometimes called assisted negotiation, mediated negotiation, or more aptly, technology-facilitated negotiation. A computer assists the negotiation, just as a person assists the negotiation in offline mediation. The computer's assistance can include setting up the communication, engaging in productive discussions, identifying and assessing potential solutions, or helping to draft settlement agreements. There are currently more than twenty providers of online negotiation. The most successful is SquareTrade, which has handled some 1,500,000 disputes in four years; and now oversees approximately 700,000 cases per year.⁵

Online mediation strongly resembles offline mediation, the principal difference lying in the conduct of the proceedings. Communications in online mediation are mainly textual and asynchronous because high quality videoconferencing systems are not yet easily affordable. The principal means of communication used in online mediation are thus email and web-based communications, i.e. chat rooms and bulletin boards. Statistics are difficult to establish because mediation is fundamentally a confidential process, allowing an open discussion between the parties and the mediator. More than twenty-five providers of online mediation exist, but the number of cases they actually resolve is unclear.

Online arbitration is the most powerful method of ODR. It has the greatest potential, but it also raises the most issues. Offline arbitration is often considered to be the most achieved form of ADR because of its judicial nature, the strict conditions of due process that are applicable, the binding character and enforceability of its awards, and the assistance that courts are legally required to provide in arbitral procedures.

Arbitration from afar has also been experimented with offline: Documents-only arbitration is often used for B2C disputes. Providing arbitration online raises new issues, however, due to the electronic form of the communications. In arbitration, the parties give up rights, and consequently legislation sets strict conditions that the arbitration agreement and the award be binding. Electronic documents and electronic communications often do not satisfy—or at least do not clearly meet—these conditions in the current state of legislation. Much work is being done to address these shortcomings, but it will take time to pass legislation clarifying the binding character of online arbitration and the enforceability of arbitral awards.⁶ Hence, the statistics for online arbitration show that although there are more than twenty-five providers of online arbitration, most of them have difficulty getting cases. The most successful provider of online binding arbitration seems to be the Chartered Institute of Arbitrators in London, which has handled approximately 400 cases, primarily in the field of B2C. In non-binding online arbitration, the caseloads are generally not much higher, except for the providers applying the Uniform Domain Name Dispute Resolution Policy ("UDRP"), under which approximately 10,000 cases have been resolved.

II. Confidence Requires Control

This Part analyzes the aspects of cyberspace that generate its notorious confidence problem. My assertion is that the same problems also affect ODR because it takes place in the same context. This argument suggests that the bedrock of the confidence problem is control—this is because people interacting in cyberspace are (or appear) less controllable, and as such it may be difficult to place confidence in them.

A. Architectures of Confidence in Cyberspace

Lack of confidence is one of the overarching features of cyberspace. It is a notorious problem, and over time it has become one of the prime concerns about the Internet, particularly in the field of e-commerce, where it has been one of the main priorities of stakeholders for a number of years.⁷

This lack of confidence has one major cause: the absence of the traditional points of reference by which we assess the trustworthiness of an offline situation.

When we consider engaging in a relationship, be it personal or commercial, we use points of reference or indicators of trust to assess the risks related to the relationship. For instance, when we intend to make a commercial transaction, we assess the risks of this transaction by examining the other party, the community in which the transaction is to take place, and what can be done if a problem occurs. We then engage in the transaction if we have confidence in it; this means that we either trust the other party to abide by the terms or rely on a third party to intervene should things go wrong.⁸ We have confidence in a given situation if the actors are within an architecture of confidence, an architecture that allows mutual trust between parties or mutual reliance on a third party.

We find it easy to have confidence in local stores because they are within such an architecture, and we find it more difficult to trust web traders because they are not. In cyberspace, most points of reference that usually allow us to do that have disappeared. That makes this environment unpredictable, and it hampers confidence. In cyberspace, such an architecture or such points of reference must be created to allow people to have confidence.⁹

The same problem exists with ODR. As Louise Teitz writes:

The users of ODR, be they consumer or business, have none of the normal channels to guarantee integrity and minimum standards of performance in the virtual world of ODR. If one hires a lawyer to resolve a dispute, one deals with a real person or a real office or a license—there is something connected to a physical existence.¹⁰

Additionally, if one does not trust normal e-commerce services, how can one trust ODR, where even greater rights are at stake than with traditional online services? When people on the Internet are deceitful, which is likely to have been the case when parties are faced with a dispute, this only serves to make further confidence in cyberspace more difficult. Even governments usually do not trust ODR, and this is one reason why there are no large-scale government-related campaigns informing people that ODR is available and should be utilized.

Online dispute resolution needs an architecture of confidence. But before we establish that, we need to analyze what exactly constitutes such an architecture. What follows is an analysis of the features of cyberspace that have generally destroyed the points of reference for confidence we...