New technologies make routine tasks easier, faster, more efficient. Now they are taking over court systems and traditional means of legislation. Online Dispute Resolution (ODR), a method of dealing with conflicts outside traditional courts, was super hyped at the dawn of the millennium. The most intriguing part was the fresh perspective on the access to justice, especially in rapidly developing cross-border e-commerce. Whether or not the system was to take off, the expectations were high.

The Know-How of ODR

The concept of online dispute resolution was born as an alternative way to resolve disputes between parties without conventional courts and judges. Basically, ODR is an amalgam of traditional dispute resolution practices with information and communication technology (ICT), also referred to as the “fourth” party.

ODR has been around for more than 20 years. In the mid-90s, when the first talks about the system emerged, the internet was still young. The incentive to develop an efficient way to address conflicts raised “with the surge in e-commerce, [when] more transactions were fostered online and, as a result, more reports of disputes were occurring.” Around that time, Jeff Bezos had just founded Amazon and Pierre Omidyar started eBay. Both platforms became the forerunners of e-commerce as we know it. Back then, various online marketplaces had to tackle the problem of trust between their prospective buyers and sellers. In response to this problem eBay introduced a feedback system for its users to share opinions about their experience with sellers on the platform. This, in turn, contributed greatly to eBay’s reputation.

The system was preemptive in its core, but it didn’t actually solve the disputes arising between the parties. What if the book ordered got damaged on the way? Or a birthday gift was not delivered on time? Since sometimes both parties were not at fault, they needed to mediate the conflict in an amicable way. With such cases in mind, eBay and the University of Massachusetts introduced SquareTrade. The project became the first online service to help customers resolve disputes with eBay sellers. Even though SquareTrade dealt with only 2 million disputes in its lifetime, it acted as a valuable proof of concept for the future ODR solutions.

SquareTrade was not the unique case. In the early 2000s, the dotcom boom gave life to projects like SmartSettle that uses artificial intelligence to tackle disputes with multiple parties involved, and the Uniform Domain Name Dispute Resolution Policy established by ICANN (Internet Corporation for Assigned Names and Numbers).

Typically, the process of online dispute settling consists of the following stages:

A customer initiates a case by filing a complaint on one of the available ODR platforms.

After the complaint is lodged, the receiving party is notified and prompted to take part in the resolution procedure;

The responding party is also offered to state their position regarding the major details of the complaint, such as the reimbursement they can agree to .

Subsequently, the dispute can go two ways: either the counterparty has the same vision on the retribution and the dispute is considered to be ultimately set right away, or the party disagrees with the complainant.

When the latter happens, the parties enter so-called communication stage.

The communication stage involves a third party, i.e. a conciliator, whose role may be different depending on the model used for the negotiation process. The two most widespread kinds of such processes are automated and assisted negotiation. In automated negotiation, this role is taken by a decision-making algorithm that helps the parties reach an agreement. In this case, the process is fully automated and is based on choose-and-react behaviour.

Automated negotiation may be exemplified by double-blind bidding. When the parties enter the dispute resolution process, they let each other know of their offers and demands. Then, the system compares the parties’ submissions to decide whether they are in mutually-agreeable limits. The procedure repeats until both parties reach a balance in their claims.

On the other hand, there are assisted negotiation systems (also known as negotiation support systems) designed to interpret the parties’ claims, match their interests, and find a solution. The technology also helps convert the parties’ claims into constructive and clear language. One might also say that in these examples the “fourth” party is merged with or substitutes the third party, therefore creating a more efficient way of communication.

Another example of ODR is a system involving live mediators and arbitrators who facilitate the dispute resolution by using a neutral internet platform, or a crowdsourcing type of conflict resolution, which one of such services sometimes describes as “a mashup of Judge Judy and American Idol.”

The variety of approaches to online conflicts has produced the variety of systems that help consumers, customers, vendors, clients, and all sorts of stakeholders to achieve the desired solution. Yet, different claims require different technical solutions on both private and state levels.

Who Is Who in the ODR World: Private and Public Solutions

The most notable projects among privately owned ODR platforms are Smartsettle and Cybersettle.

Smartsettle is a Canadian company with $4.4 million in annual revenue. The applicability of its solutions covers areas such as family law, real estate law and contract law. The Smartsettle’s system consists of six phases of handling a dispute.

Simply put, each party states what they want to accept as a settlement, and the least satisfactory terms they may accept. Then the algorithm defines the possible solution and presents it to the disputing parties.

While SmartSettle is an assisted negotiation platform utilizing visual blind bidding, CyberSettle, a US company with $3.4 million in funding, is a fully automated double blind bidding system. Its basic concept is more or less the same, but the platform reveals different parts of the terms to the parties during the bidding stage. In visual blind bidding, the parties state their initial proposals that are visible to each of them. Additionally, the parties set an acceptance margin, which is the least favorable solution they are willing to accept. The parties cannot see the acceptance margin; therefore, they need to adjust their positions until the agreement is reached.

In double blind bidding provided by Cybersettle, parties cannot see neither the initial proposal, nor the acceptance margin. Therefore, they act separately from each other and are only shown the end result. Both systems conduct the negotiation rounds until the agreement is set; otherwise, a facilitator steps in.

To a certain extent, the development of both those systems has stuck. Yet, the progress in this niche didn’t stop. As the hype around cryptocurrencies was reaching its peak, ODR systems found a new way of implementation in blockchain tech as seen in Codelegit and Kleros.

Codelegit is a Germany-based company devoted to “bridging the gap between blockchain technology and law” by providing arbitration solutions for smart contracts. The company has drafted its own Blockchain Arbitration Rules to be agreed upon by the parties to a certain smart contract. In such case, the Blockchain Arbitration Library is inserted into the code of a contract. When a party deems its counterpart to be in breach of a smart contract terms, it uses this Library as an emergency break to stop the execution of the contract in question. Once triggered, the smart contract sends the request to Codelegit, which, in turn, acts as the Appointing Authority for arbitral proceeding. Codelegit then chooses the arbitrator who settles the case.

Kleros is a French project offering a blockchain-powered dispute resolution layer that “provides arbitration for virtually everything.” Similarly to Codelegit, Kleros acts as an adjudication protocol in a smart contract. The difference is that it uses crowdsourcing to make a decision in a dispute: when a party claims a breach of a smart contract, Kleros triggers the settlement procedure by appointing jurors selected from the crowd by the protocol.

While these privately owned platforms are aimed at engaging an endless amount of stakeholders, government-backed systems mostly focus on consumer rights and seek to solve the issues with their legal enforcement.

The European Union has established its own independent platform based on the Regulation on consumer ODR that came into effect in 2016. The regulation establishes the rules governing contractual disputes between consumers and traders. It is applicable only to disputes arising from online purchases. Hopefully, the regulation will “encourage EU consumers to buy from traders in other EU states, knowing that there is a relatively easy way to resolve any problems that might arise without any language barriers.” Also, it obliges traders to provide the relevant information on their websites by simply linking it to the new platform.

The system itself works pretty simply. The complaint may be submitted if both parties are based in EU or EFTA (Liechtenstein, Luxembourg, Norway) countries. Once both parties agree to go for a settlement, they can choose a dispute resolution authority within 30 days. Afterwards, the parties are notified about the decision of said authority.

The criticism of the EU’s system is focused mostly on the lack of any obligations for a trader to enter the dispute resolution procedure, and the lack of respective authority to enforce compliance with the resolution authority’s decisions.

Similarly, UNCITRAL (UN Commission on International Trade Law) also got interested in regulating the field. In 2010, a dedicated working group was established in order to develop a sufficient system for cross-border e-commerce disputes to make resolution more accessible. Procedural rules — guidelines, minimum standards and enforcement mechanisms were to be developed. The result was a three-stage system that included negotiations, arbitration, and settlement with neutral mediators. The parties would proceed to the next stage if the previous stage was unsuccessful. Yet, the group didn’t manage to agree on the enforceability of the arbitration stage rulings. This, in turn, resulted in a two-track system with a binding decision and non-binding recommendations. Still, no agreement within the group was ever reached.

Since the working group could not agree on such matters, its purpose was amended. From that point on, it had to establish a non-binding framework reflecting the general concept of the ODR process. In 2016, the Group has released Technical Notes meant to facilitate the development of ODR systems “so as to enable the settlement of disputes arising from cross-border low-value sales or services contracts concluded using electronic communications.” The Notes include the first two stages of the process: negotiation and facilitated mediation. As for the third stage, it was left open. That is, the mediator on the previous stage would inform the parties about the upcoming stage, its form, and applicability. Hence, it would create a flexible way to follow the decision making process.

After 6 years of development, the initial plans of UNCITRAL were effectively abandoned. The commission’s work resulted in a paper that laid down in a “general and vague manner the basic concepts and elements of ODR proceedings. Given their non-binding and descriptive nature, it remains to be seen to what extent the Technical Notes will be of any practical relevance.”

On the local level, courts are simply trying to figure out whether the ODR actually works. Online systems utilized by Ohio Municipal Court, or Michigan District Court in the US, UK’s Claims Portal, British Columbia Civil Resolution Tribunal as Canada’s first online tribunal, or Dutch Rechtwijzer platform are just a few of numerous attempts to integrate online solutions with the traditional judiciary.

Yet, with a variety of ODR systems one might also wonder whether these systems actually provide realistic outcomes and if they are enforceable in the first place.

How to Enforce ODR

ODR systems seem to have a lot of advantages in comparison to conventional litigation. One of its most most significant benefits is the reduction of costs and time. In traditional methods of dispute resolution, attorney’s fees alone are quite high. Moreover, other expenses, like court administration charges, or travel costs, can add up and lead to a substantial check. At the same time, the proceeding itself might last for several months, or even years, before the decision is reached. On the contrary, ODR allows parties to deal with the issue in a rather inexpensive and time-efficient manner.

In theory, ODR is particularly efficient in cross-border disputes settlement. Services of this kind contribute to the “increased confidence in trading online and across borders.” Since the number of cross-border e-commerce transactions is steadily increasing, it becomes easier to trade with vendors from China, US, or any other jurisdiction accessible via the internet. Therefore, the number of potential online disputes is likely to increase as well. By eliminating the doubt of “what happens if,” ODR promises buyers rather quick restitution, no matter what jurisdiction, language, or applicable legislation is involved.

Besides, ODR may have a very substantial influence on access to justice. The European Parliament Committee on Legal Affairs and Human Rights (JURI) has addressed the positive implications of ODR application in their report on Access to Justice and Internet. ODR simultaneously tackles many obstacles by lowering economical barriers, increasing geographical coverage to rural areas, decreasing the time needed for proceedings to reach a conclusion, etc. All in all, ODR is not simply an online version of traditional litigation.

“Rather, the principles and values upon which ODR procedures are based differ from those of litigation in courts: the ODR/ADR model aims at achieving social harmony through consensual solutions,” the report reads.

In contrast to traditional justice, where the decision is bestowed on the parties and is authoritative, ODR seeks to reach a mutually beneficial agreement, where both of the parties are satisfied with their stance.

In fairness, ODR has some significant flaws as well. One of the persisting challenges is a very limited range of applicability: even though there are many cases where online resolution could be applied to conflicts of various nature, online dispute resolution systems might be quite rigid at times. There is an opinion that “limiting the final stage of negotiations to determining a dollar figure for compensation seemingly leaves out the possibility for innovative, interest-oriented, out-of-the-box negotiating that is the hallmark of many successful negotiations.”

ODR criticism also touches upon its impersonal nature. Traditional means of dispute resolution involve a judge who can see the parties, study their claims, determine everything from their arguments to tone of voice, and even do an external psychological assessment. “Cyber-mediation loses the dynamics of traditional mediation because it takes place at a distance and in front of computer screens, rather than with face-to-face communication.”

In addition, there is a limit on ODR accessibility. The need for continuous internet access may make the use of ODR quite inconvenient in certain areas and for certain demographic groups.

Yet, one of the biggest concerns with ODR systems is enforceability. Essentially, ODR is a self-regulated phenomenon. Without legal enforcement mechanisms, actual application of the outcomes is questionable. A non-binding decision is useless if one of the parties is not willing to comply. A relevant paper titled Online Dispute Resolution (ODR) as a Solution to Cross Border Consumer Disputes: The Enforcement of Outcomes by Maxime Hanriot suggests that it is “regrettable that both the UNCITRAL and EU did not address [enforceability] issues in their respective initiatives. They designed an ODR system that relies only on non-binding proceedings, to the exception of the European framework that proposes the implementation of a unilaterally binding procedure.” However, whether or not the rulings made via ODR systems can be enforced, non-binding dispute resolution might be more beneficial in cases where non-compliance with the decision may affect the reputation of the parties involved.

“The enforcement of non-binding outcomes relies on the creation of powerful incentives, such as trustmarks or chargeback systems. Once again, both UNCITRAL and the European Union ODR systems did not consider the creation of these incentives,” the paper reads.

At the same time, considering the fact that ODR is primarily a form of self-regulation in private sector, a close cooperation with the public segment is vital to ensure trust and enforceability of such systems. Simultaneously, stakeholders agree that governmental regulation in “setting and enforcing standards” is suitable to tackle the opacity and performance issues of ODR providers, and to ensure their neutrality and compliance.

“It is safe to say that self-regulation does work at a certain level but nonetheless a national policy towards ODR is required which enables the ODR centers to work on pre-defined principles and values,” the paper claims.

Still, such regulation should be stricter: framework legislation or model laws alone are arguably insufficient in challenging these issues.

Conclusion

The potential of ODR systems and their influence on the established judicial practices is beyond any reasonable doubt. ODR provides parties with an effective time-saving and inexpensive tool to reach out to each other and attain a ‘win-win’ agreement. ODR is the technology that gives people better access to justice, since a person can find a solution without even leaving their room.

However, ODR still has its issues and its convenience comes at a price. First of all, some disputes can’t be solved extrajudicially. Another downside is the loss of personal touch, as the decision is sometimes made by a sophisticated algorithm rather than a human. Besides, the lack of proper regulation creates a situation when you still need to go to court if the counterparty is not willing to comply with the reached outcome.

So far, the hype around the ODR has subsided. A really popular thing in 2000s gave way to all the new big data developments, privacy threats, and, of course, the blockchain “bubble.” However, the implications of the technology promise a whole new future for traditional litigation.

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