Online Arbitration Master Thesis LLM Program

74 Pages·2010·0.8 MB·English

Online Arbitration

Master Thesis

LLM Program : Law a nd Technology

Tilburg University

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Student: Pablo Vera Prendes
Student Number: 1232285

Administration Number: 238752
ABSTRACT

Alternative Dispute Resolutions are mechanisms designed to solve disputes outside the scope of traditional
jurisdiction. New technologies may be incorporated to ADRs in order to facilitate the procedure and make
it more efficient and less expensive manner. In this thesis we study the specific case of arbitration
procedures that are conducted exclusively through electronic means of communication (Online Arbitration).

Online arbitration is an ideal dispute resolution mechanism to solve disputes arising from B2B transactions
for various reasons, among others, because it allows parties to select a specialist they both trust to solve the
controversy with an award that is binding for both parties, but that respect the minimum necessary
formalities of the procedure. Additionally, the use of electronic means of communication allows the
procedure to be conducted in a faster pace, from any location, and allowing parties to get access to the
documents of the procedure at any place at any time.

There is currently no legal framework designed specifically for the conduction of online arbitration
procedures; therefore, the rules for traditional commercial arbitration should be used. Even though the
rules of traditional arbitration allow the existence of the online version, due to its special characteristics,
online arbitration requires a set of rules designed especially for it.

Online arbitration requires a legal framework that regulates the use of electronic means of communication
in the procedure, the way in which notifications shall be performed and acknowledgement of receipt
granted. The legal framework should also prescribe the obligation of the parties to take the necessary
measures to ensure that the security and confidentiality of all the information exchanged in the procedure.
Finally, parties should be able to select the extra judicial mechanisms that they may deem convenient for
enforcing the award in an easy and fast manner.
List of abbreviations used in the Thesis

ADR Alternative Dispute Resolution

Agreement It means indistinctly to the arbitration agreement or clause

B2B Business to Business

B2C Business to Consumer

Convention The New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards

ECHR European Convention of Human Rights

ICANN Internet Corporations for Assigned Names and Numbers

IM Instant Messaging

Model Law UNCITRAL Model Law on International Commercial Arbitration

UDRP Uniform Dispute Resolution Policy

UNCITRAL United Nations Convention on International Trade Law
TABLE OF CONTENTS

INTRODUCTION ......................................................................................................................................................... 1

CHAPTER I ..................................................................................................................................................................... 5
Arbitration ........................................................................................................................................................................ 5
Advantages of Arbitration in comparison with traditional jurisdiction ................................................................... 6
Online Arbitration ........................................................................................................................................................... 8
Characteristics of Online Arbitration ....................................................................................................................... 8
Functional equivalence in online arbitration ........................................................................................................... 9
Advantages of Online Arbitration ......................................................................................................................... 10
Drawbacks of Online Arbitration .......................................................................................................................... 11
Online Arbitration as a suitable method for solving disputes arising from B2B transactions .......................... 12
Current legal framework applicable to arbitration ................................................................................................... 14
The Convention ........................................................................................................................................................ 14
The Model Law ......................................................................................................................................................... 15
Domestic legislation ................................................................................................................................................. 15
Are the central concepts of traditional arbitration applicable to online arbitration? .......................................... 16
The Agreement ......................................................................................................................................................... 16
Service and notifications .......................................................................................................................................... 17
The Procedure ........................................................................................................................................................... 18
Electronic Means of communication .................................................................................................................... 18
The Location of the Arbitration ............................................................................................................................. 18
The Award ................................................................................................................................................................. 19
Conclusion ................................................................................................................................................................. 19
Final Remarks ................................................................................................................................................................ 20
CHAPTER II ................................................................................................................................................................ 21
The Arbitral Agreement ............................................................................................................................................... 21
Requirements of the Agreement ............................................................................................................................ 21
Content of the Agreement ...................................................................................................................................... 22
Disputes to be solved ............................................................................................................................................... 23
Election of the arbitrators ....................................................................................................................................... 24
Electronic Mechanisms to be used in the arbitration .......................................................................................... 25
Procedure ................................................................................................................................................................... 25
Place to conduct the arbitration ............................................................................................................................. 25
Procedural Rules ........................................................................................................................................................... 26
Basic procedural rules .................................................................................................................................................. 26
Service ........................................................................................................................................................................ 27
Parties shall have the opportunity to defend themselves with sufficient time and means ............................ 27
Presentation of Evidence ........................................................................................................................................ 27
Documentary evidence ................................................................................................................................................ 28
Witnesses .................................................................................................................................................................. 28
Other kinds of evidence .............................................................................................................................................. 28
Interim Measures ...................................................................................................................................................... 29
The electronic communication mechanisms used in the arbitral process ............................................................ 29
Types of communications in the process.............................................................................................................. 31
Is there an ideal means of communication for an online arbitration procedure? ............................................................. 33
Confidentiality and security of electronic communications ................................................................................... 34
Choice of law ................................................................................................................................................................. 34
The Award ..................................................................................................................................................................... 35
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Enforcement of the award .......................................................................................................................................... 35
Voluntary Enforcement ........................................................................................................................................... 36
Automatic enforcement ........................................................................................................................................... 37
Enforcement by a judicial court ............................................................................................................................. 38
Final Remarks ................................................................................................................................................................ 38

CHAPTER III............................................................................................................................................................... 39
Main issues that require special regulation in online arbitration ............................................................................ 39
Harmonization of the Legal Framework for Online Arbitration .......................................................................... 40
International treaty or convention ......................................................................................................................... 41
Model Law ................................................................................................................................................................. 41
Advantages of having a model law for Online Arbitration .................................................................................... 42
Proposal of a model law for online arbitration ........................................................................................................ 43
Final Remarks ................................................................................................................................................................ 60

CONCLUSIONS ......................................................................................................................................................... 61

REFERENCES ............................................................................................................................................................ 65

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INTRODUCTION

The internet has become an accelerator of business transactions, allowing parties to enter into
commercial agreements in a faster and easier way. This situation has created an increase in the number of
online commercial transactions, many of which may result in disputes between the parties involved. Such
disputes require an effective dispute resolution method.

Given that e-commerce transactions come surrounded by certain special characteristics, traditional
jurisdiction may not always be the most efficient way to proceed. On the other hand, Alternative Dispute
Resolutions (“ADR”) may provide a more convenient means to solve e-commerce related disputes.

ADR are proceedings installed in order to solve controversies outside the scope of traditional
jurisdiction. These extra-judicial procedures present some advantages in comparison to traditional litigation,
such as confidentiality, impartiality, and the possibility of creating tailor-made procedural rules; these
advantages make ADRs an attractive option for parties involved in a dispute.

ADRs are evolving with new technologies, making it possible to solve a dispute through electronic
mechanisms, such as videoconferences, e-mails, skype, etc. They facilitate the possibility of solving disputes
involving parties who reside in different parts of the world (a problem which may be common in e-
commerce disputes). These on-line ADRs may be especially useful for disputes arising from e-commerce
transactions, as they require a fast mechanism that can be performed more quickly, more efficiently, and
without the physical presence of the parties involved.

We consider online arbitration to be an effective mechanism to solve disputes arising from B2B
transactions, as it is economical and effective. It allows parties to settle their disputes without having to
travel to different locations, saving them time and money. Online arbitration in fact allows parties to solve
their disputes in an economical, simple and flexible manner in which the basic formalities of a procedure are
respected.
Scope of the thesis

There are different kinds of ADR‟s such as arbitration, mediation, negotiation, or conciliation;
however, we will limit this study to online arbitration. Therefore, other ADRs will fall out of the scope of
this thesis.

We have chosen arbitration, as it is the most „formal‟ ADR. The other methods are more flexible in
their procedures, and, moreover, they do not have a binding result. Additionally, arbitration is regulated by
international rules that have been harmonized in most of the countries; therefore, it will be more interesting
to study if the rules applicable to traditional arbitration are applicable to online arbitration.

On the internet, we find two main kinds of business transactions from which a dispute may arise,
Business to Consumer transactions (“B2C”) and Business to Business transactions (“B2B”). B2C
transactions usually involve small amounts, disputes arising from such operations requiring a simplified and
economic procedure, while B2B transactions may involve considerable amount of money and in some cases
require some technical knowledge. For this reason, arbitration may be a suitable dispute resolution
mechanism for B2B transactions.

In consideration of the above, the thesis will focus on the study of online arbitration to solve
disputes arising out of B2B electronic transactions without taking into consideration small claims procedures
and other settlements or disputes resolution mechanisms designed specifically for solving consumer disputes
online.

Importance of the Subject

The subject of this thesis is of great importance, as e-commerce grows faster each day. Many
controversies concerning these transactions will arise and effective dispute resolution methods are required
to solve them. We will provide an adequate set of rules for online arbitration that will allow parties that
enter into online procedures to ensure a fair and efficient procedure.

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Taking into consideration the existence of new technologies and the possibility of conducting
arbitration procedures entirely online, it is necessary to study the norms that regulate this process and the
characteristics that this procedure should have. The first question that we will need to ask is whether the
rules for traditional arbitration are applicable to its online version, or whether that needs a new set of rules.
If the regulation for traditional arbitration is not applicable, or if it is convenient to have a special set of
rules, then we will study how online arbitration should be regulated.

Questions to be answered in the Thesis

The main question to be answered in the thesis is the following:
Is the current legal framework of traditional arbitration applicable to the online form?

Throughout the thesis, the following secondary questions will also be answered:
i) What are the provisions that an online arbitration agreement should have?
ii) What characteristics should an online arbitration procedure have?
iii) Does online arbitration require special rules?

Methodology

For the preparation of this thesis, we used two main sources:

i) Papers and articles written in connection with this subject, and
ii) Legal sources.

We will be focusing on two legal instruments that regulate arbitration:

a) The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the
“Convention”). This international instrument sets forth the characteristics that an arbitral process and award
should have in order to be enforceable. The Convention has been ratified by 105 countries which have
adapted its domestic legislation accordingly; therefore it is an important legal source.

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b) The UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”) which has
been implemented in most of the signatory parties of the Convention. The Model Law is an instrument
created in order to harmonize the domestic legislation on arbitration.

As we will be using the Model Law that has been adopted in numerous countries, creating a more or
less uniform system, we will not take into account domestic legislation made in specific countries.

Structure of the Thesis

In the first chapter we will study the concept of online arbitration and the characteristics that
differentiate it from traditional arbitration; we will also study the advantages that it represents in comparison
with other ADRs.

We will then examine the legal framework that is currently applicable for traditional arbitration and
check whether that is suitable for an online procedure, or if a special set of rules needs to be created.

In the second chapter we will study the requirements and characteristics that an online arbitration
process should have; how interested parties can enter into an online arbitration process; and how this
procedure should be conducted in order to guarantee the due process of law and equality between the
parties.

In the third chapter we will give our final conclusions to the questions proposed in this thesis, and
we will make the propositions for the necessary legal regulations that should be adopted in order to have an
efficient and fair online arbitration procedure. For this purpose, we will give a proposition for a model law
that regulates this procedure, which may be adopted by local legislative organs.

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