May 1st, 2021

“Online Dispute Resolution, or ODR, in its broadest definition refers to the coupling of technology with ADR. It has been a growing force in the ADR movement for several decades—a fast-coming phenomenon of the future.”^[1]

• Harry N. Mazadoorian, Commercial Arbitration specialist, distinguished senior fellow in the Center for Dispute Resolution at Quinnipiac University School of Law

The application of technology in dispute resolution is no longer a rare occurrence. The notions of global trade and foreign investment are enshrined in the fundamental nature of international commercial arbitration and online dispute resolution. 2021, the year of hope,^[2] brought a capacity for greater employment and international investment. Due to the unprecedented reliance on virtual or digital technologies in 2020, entities such as companies, firms and lawyers started experiencing cyber-attacks.

While, the technological advancements have now come far enough for everyone to be aware that, up to a certain degree, data and privacy risks are invariably involved, the state of emergency in 2020 forced lawyers, clients and institutions towards remote working systems that are heavily dependent on online technology and services.

The Organisation for Economic Co-operation and Development, in 1999, published the Guidelines for Consumer Protection in the Context of Electronic Commerce.^[3] Through these guidelines, business players are encouraged to partner and collaborate with international counterparts in gaining meaningful access to fair, cost-effective and speedy dispute resolution. Innovation approaches were also encouraged through the implementation of ADR systems. Later, in 2000, the European Parliament issued the Directive on Electronic Commerce. The first clause of Article 17 of the said directive states that, “Member states shall ensure that, in the event of disagreement between an information society service provider and the recipient of the service, their legislation does not hamper the use of out-of-court schemes, available under national law, for dispute settlement, including appropriate electronic means.” Information society service provider is a concept under EU e-commerce which refers to any service normally provided for remuneration via electronic equipment, that involves processing, compression or retention of data, to an individual.

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards through its Article II clause 1 mandated the written form of an agreement on arbitration in international trade. Later, it was amended to add clause 2 which entailed that now, the parties may legally enter into an arbitration agreement through the exchange of independent statements of will, through letters or through fax systems or e-mails.

In India, an online arbitration clause in traditional and e-contracts is valid under Section 7 of the Arbitration and Conciliation Act of 1996 (the “Act”).^[4] This has unleashed the Pandora’s box of technical and legal complexities. Unsurprisingly, law firms have become a favorite target for such activities. Law firms operate in a system that is dynamic, non-static and multiple briefs are handled simultaneously by attorneys over emails and online documents.

Types of Disputes referred to Online Arbitration

In today’s date, there are various areas of commerce that could benefit from the ease offered by online arbitration as a mechanism. It is not only in international business-to-business and business-to-consumer disputes but many other areas of international trade such as employment, intellectual property, foreign investments, etc. that use ODR as a tool to resolve their disputes. Studies^[5] have shown that major online e-commerce retailers and online auction websites use ODR for settling over 60 million disputes annually out of which ninety per cent of financial cases were resolved without an arbitrator/mediator.

For instance, in the banking sector, ICICI Bank was the first to adopt a pilot project with SAMA, a Bengaluru based ODR service provider for resolving 10,000 disputes with their customers, that value up to INR 20 lakhs. This is a testament to the fact that due to the speedy, transparent and cheap alternative provided by the ODR service, large scale organizations are also keen to implement its use towards simplifying and automating the process of dispute resolution in small value cases.

Moreover, in the banking sector, ODR infrastructure was adopted through the Reserve Bank of India’s Notification issued in August 2020, embracing ODR systems for resolving disputes pertaining to digital payments using a system-driven mechanism with zero / minimal interference.

From the international perspective, online arbitration awards over international intellectual property disputes such as domain name disputes are also binding. Internet Corporation for Assigned Names and Numbers and Uniform Domain Name Dispute Resolution Policy (“UDRP”) are the two international policies governing domain name disputes internationally. The World Intellectual Property Organization is one of the UDRP ADR service provider for domain name disputes.

The international finance sector is also benefiting multitudinously from blockchain arbitration (“BA”) technology. BA evolved as an ODR mechanism through smart contracts. Blockchain is an incorruptible digital ledger of transactions that has the flexibility of being programmed to record anything of value such as, financial transactions to e-documents and are written in code instead of natural languages like English. In a smart contract between the owner of a mansion in California and a celebrity buyer, the smart contract would be coded so that it would automatically transfer the ownership of the mansion to the celebrity buyer once the consideration amount is paid. CodeLegit and Kleros are some of the upcoming blockchain arbitration companies.

While it is still unclear as to whether a smart contract containing an arbitration clause (in natural language) will fulfil the requirements under Article II paragraph 2 of the New York Convention which stipulates that the arbitration clause must be in writing. This issue can be overcome by the interpretation of paragraph 2 of Article II as per the doctrine of functional equivalence provided under paragraph 16 of the UNCITRAL Model Law on Electronic Commerce 1996. This interpretation is also supported by the New York Convention which includes UNCITRAL’s recommendation to interpret the writing requirement non-exhaustively. Smart contracts can also be tethered to a written agreement that sets out the seat of arbitration, the governing law and the choice of arbitral rules. This would ensure that the said requirement is complied with and would also eliminate any uncertainties about the lex arbitri in BA.

Entering into an Online Arbitration Agreement

Now, the question of the conclusion of a valid online arbitration agreement comes into play. Online arbitration, specifically, dispenses relief for disputes that do not rationalize the use of long and complex trials in cross-border frameworks.

The various ways by which parties enter into an online arbitration agreement are by:

• Mutually consenting to resolve any disputes through the online arbitration mechanism, and
• Consenting to an online arbitration clause by way of buying any product or service where the terms of buying provide so. The terms and conditions of every transaction are accessible by a hyperlink or are provided at the end of a webpage. The visibility of the said terms and conditions play a key role in analyzing the scope of an actionable / enforceable online arbitration agreement.

There are two types of websites when it comes to determining whether significant attention of the buyer was brought towards the condition of online arbitration or not:

• (i) Browse-wrap websites

These websites are of such nature that they assume consent to the hyperlinked terms and conditions by the buyer simply entering the website. Since the hyperlink is often obscure and sometimes assumed to be consented to, these terms and conditions are devoid of any online arbitration clauses.

• (ii) Click-wrap websites

Click-wrap websites require the buyer to do something to show that the buyer is consenting to their terms and conditions for the purchase.

Legal Validity of Online Arbitration in India

While Section 31 (1) of the Act provides that an arbitration agreement shall be in writing, it shall be read with Section 4 of the Information Technology Act, 2000 (“IT Act”) which states that where any law provides that any matter shall be in writing / type-written / printed, then, such requirement would be deemed satisfied if such matter is: (i) made available in an electronic form; and (ii) accessible so as to be usable for subsequent reference.

In online business relationships, the issue of verifying the identity of the opposing parties is quite common. One needs to be sure of the person’s identity with whom they are dealing. Section(s) 4 and 5 of the IT Act read with Section 65-B of the Evidence Act clarifies the legal recognition of electronic records and signatures. Such e-signatures are pivotal in ensuring the identity, authenticity and non-repudiation / validity of data communication, thus catalyzing trust.

Under the said sections, the Supreme Court, in State of Maharashtra v. Dr. Praful B. Desai, 2003 4 SCC 601, has also acknowledged the implementation of video conferencing systems to record witness statements. For the sake of uniformity, the guidelines issued by the International Chamber of Commerce may be followed.

The shadow of Law

Online arbitration and ADR in general takes place under the shadow of the applicable laws to the subject matter. The outcome from the applicable law where no agreement is reached (in an online arbitration proceeding) gives the parties involved a reasonably sound idea of their bargaining position in a dispute during the phase of strategizing in the arbitration proceedings. Therefore, a consistent and universal approach in dealing with the online case management systems for online arbitration remains to be in deficit.

The present law in India can be understood from two landmark Supreme Court cases, Trimex International FZE Ltd. v. Vedanta Aluminum Ltd., (2010) 3 SCC 1, and Shakti Bhog Foods Ltd. v. Kola Shipping  Ltd., AIR  2009  SC  12, wherein the hon’ble Court has upheld the validity and enforceability of an arbitration agreement in writing concluded through an exchange of emails and electronic documents that were signed by the parties.

How Online Arbitration is Conducted

The process and procedure of online arbitration must be detailed in the arbitration agreement / clause just as it is done in the traditional agreements. However, the form requirement in e-arbitration is not as important if the concerned e-document is sufficiently definite and sets up clear signs that can be read in future.^[7] For example, in Compagnie de Navigation et Transports SA v. MSC Mediterranean Shipping Company SA, BGE 121 III 38, 44, E.2c., the Swiss Supreme Court interpreted Article II (2) of the New York Convention broadly, taking into consideration that the phrase ‘exchange of letters or telegrams’ includes any other means of communication and hence, the form requirement was met since it was also equal to the form provided under Article 178 (1) of the Swiss Code on Private International Law.

Generally, in online arbitration, the ‘applicant’ party raises an objection before the relevant forum, after which the dispute is examined and the opposing party is notified automatically by the system. The hearing room is set up with computer screens displaying the online review bundle (a common data bundle accessible by either party and their legal representatives) to all parties, lawyers and witnesses. As per Norton Rose Fulbright, online hearings can be up to 25 to 30 per cent more time-effective than traditional hearings. The neutral third party for the hearings is appointed by the ODR platform after which the parties exchange their statement of claims and defense with either party through the ODR platform itself or through emails. The e-arbitrator helps the parties by considering their statements, evidences, recording witness statements, and suggesting plausible solutions to the parties. Once the final award is passed by the arbitrator, the said award can be executed or enforced by the award creditor. Often the place and seat of arbitration is already assumed through the usage of an ODR platform by the parties consenting to its rules and procedures. For instance, if you are to resolve your dispute via the services provided by an Indian company, SAMA, then as per Rule 27 of its 2021 Rules and Procedures, it is provided that, “in case of international commercial arbitration, unless otherwise agreed by the parties to an arbitration proceeding under Sama Rules in writing, the place and seat of arbitration…shall be Mumbai, Maharashtra, India.”

Section 31 of the Act provides that the award can be pronounced online, can be exchanged via the ODR service portal or emails containing scanned copies and the original document can be subsequently sent out via post.

A very pertinent issue that comes up most commonly during the stage of enforcement of an online arbitration award is the question, ‘what constitutes the place of the court, the place where the online Arbitration agreement was signed or the place where the arbitrators are sitting’.

Section 2 (e) of the Act defines ‘Court’ as the court in which the award will be enforced as per the subject matter of arbitration and not the place of the arbitrator’s seat, nor the place of announcement of the arbitral award. Furthermore, under Section 36 of the Act, the enforcement of the award would be as a decree of the court and the same would be enforced as per the Civil Procedure Code, 1908.

Trust in Online Arbitration

The function of trust and justice in online arbitration is complex and includes several factors which need due consideration. Due to online arbitration proceedings being virtual, it is difficult for the arbitrator to establish trust in and amongst the parties. In online arbitration, parties often have not even met the opposing party, let alone the arbitrator. This imposes a limitation on the understanding of the arbitrator regarding the parties involved, their relationship and background. The arbitrator misses out on the various behavioral cues and an opportunity to read the parties’ body language.^[8]

Concluding remarks

Notwithstanding the various cybersecurity and data privacy measures outlined above, cybersecurity breaches occur in high frequencies. Applicable laws and professional code of ethics impose an obligation on certain people in possession of sensitive data while providing remediation measures to the owners of such confidential data. ODR being valid and legal in India allows the Indian parties to consider online arbitration for small and medium value matters across various industries such as construction, intellectual property, banking and finance etc.