ADR: Increasingly Popular For Fixing E-Commerce Disagreements

Even more appealing is that ADR allows for disputes to be resolved from almost anywhere in the world, which produces savings by eliminating the need for travel.

ODR is also particularly helpful in international transactions when the individuals involved want to avoid the bureaucracy that comes with litigating in a foreign jurisdiction. This dispute resolution tool is being used across business sectors, from online retailers to the securities industry.

Why ADR Is Important To E-commerce

ADR is an attractive alternative for many businesses involved in e-commerce transactions because it is often less costly and faster than resolving a dispute through the usual trial process. Also, because many e-business models are built on long-term relationships in which trust has been carefully cultivated and maintained, a strong desire to work things out without destroying the relationship is typically present. For some businesses, confidentiality is the most attractive feature of ADR. ADR, unlike litigation, is not a matter of public record and so does not subject the parties involved to public scrutiny. Confidentiality in the dispute resolution process can be crucial, especially if the dispute the parties are trying to resolve results from breach of a security system or a major system failure. When a dispute involves sensitive subject matter, ADR is better than litigation because it allows the parties to resolve the dispute without experiencing unfavorable press coverage.

E-commerce poses a particular challenge for the court system because questions such as jurisdiction and choice of law are not easily answered. E-business will not reach its full potential until those parties who participate in e-commerce transactions feel confident that if a transaction goes badly, they will have accessible, enforceable remedies that do not require a courtroom appearance in some unknown locale.

Types of ADR

ADR takes many forms, but the two most common types are arbitration and mediation, though it's important to remember that ADR isn't limited to those options. The parties may agree in advance to ADR by stipulating in a contract clause that ADR will be pursued if a dispute arises, or they may agree to ADR once a dispute arises as a means of settling the problem in a way that will not require litigation. The court system has acknowledged the value of ADR. Courts frequently require parties to engage in some form of it prior to trial. Individuals involved in a dispute can choose ADR by contacting organizations such as the American Arbitration Association (http://www.adr.org/), Global Arbitration Mediation Association (http://www.gama.com/) or any local Center for Dispute Resolution.

Arbitration. This form of dispute resolution employs one or more neutral parties to arrive at a resolution to a dispute. The disputing parties control the proceedings and such items as the range of issues to be resolved during the arbitration, the procedural aspects to be employed and the scope of the relief that might be awarded. The parties can even decide whether the decision will be binding or can be appealed. Because the hearing is private, the decision remains confidential and out of public scrutiny, unless it is appealed. Various statutes govern the operation of arbitration. Some are The Uniform Arbitration Act, UNCITRAL Model Law of International Commercial Arbitration, and The Federal Arbitration Act.

Mediation. This is a voluntary private dispute process in which a neutral person helps the parties reach a negotiated settlement. The mediator has no power to make any final decision or award. Another party facilitates, rather than adjudicates, reaching an agreement between the two parties. Mediation is easy to arrange and is far less expensive than legal proceedings. And because the parties work toward a mutual settlement, the relationship between the parties is often preserved, which permits a continuing business relationship. Mediation negotiations are also confidential and shielded from the public forum.

Private court. This method involves a neutral adjudicator who resolves the dispute. Private court dispute resolution resembles the traditional court system in that it has rules of procedure and may involve a procedural conference to deal with discovery and other issues. It can involve a hearing that resembles a trial. Powers of the adjudicator may be similar to judicial powers, depending on the jurisdiction. Also, decisions can be appealed, which also depends on jurisdiction, and the order or award is usually enforceable in a court. Advantages are that it is typically faster than the court system, more flexible regarding procedure and features an emphasis on negotiation skills versus trial expertise.

Online dispute resolution. There are various ODR mechanisms. Some projects have been created, including the Virtual Magistrate (http://www.vmag.org/), which works to resolve disputes on worldwide networks. The project aims to establish online dispute resolution for disagreements that originate online. The project strove to provide a quick, low-cost and readily accessible dispute resolution mechanism. Another initiative is the Online Ombuds Office (http://www.ombuds.org/). This program offers mediation to help parties resolve any disputes originating online and also acts as a public resource for dispute resolution information. Other ODR projects offer mediation and arbitration to resolve disputes arising in cyberspace for those parties who agree to be bound by the resolutions.

ODR presents several obstacles to overcome. One is that the parties' ability to negotiate is limited to the hardware and software used. For instance, disputees mediating via the Internet may experience delays in receiving messages from all involved parties. ODR also lacks the spontaneity of real-time interaction. Many pieces of nonverbal communication are lost in the ODR process. One important element missing is that ODR participants cannot assess the body language of other participants, a tactic many attorneys use to determine a party's weakness or strength. Online communications also risk interception by hackers, even when the most sophisticated software is used. The parties, therefore, may not feel as free to express themselves for fear their communications might be intercepted by hackers who could post the information on the Internet for worldwide public inspection.

How ADR Affects E-commerce Lawyering

When dealing with e-commerce providers, advisers should ask clients to think about dispute resolution and how it integrates with their services. E-business decision-makers should consider how disputes will be resolved with their business partners, and those details should be clearly defined at the beginning of the contractual relationship.

Written agreements should contain a section on dispute resolution. When deciding which dispute resolution mechanism to choose, consider the following:

• Cost;
• Confidentiality;
• Location of the parties;
• Types of disputes that could arise;
• The nature of the parties' relationship; and
• Dispute resolution turnaround time.

If confidentiality is a high priority, then ADR should be strongly encouraged. The increase in ADR use means lawyers must be versed in more than just courtroom procedure. Knowledge of ADR options is essential to effectively advise e-commerce clients.

The Future Of ADR And E-commerce

E-commerce will continue to grow. To date, the ability to resolve e-commerce disputes hasn't had much impact on the industry's growth, but if e-businesses begin offering better, more effective dispute resolution options for e-commerce transactions, then those reluctant to use virtual methods might embrace e-commerce and facilitate the logical extension of the Information Superhighway for business destinations.

The jury remains out on the best way to resolve e-commerce disputes, but it seems clear that the e-business community recognizes the need for ways to manage and resolve the numerous disputes that will inevitably arise in e-commerce and that many see ADR, including ODR, as the way to patch problems as quickly and as affordably as possible.

Marie Flores, J.D., is assistant vice president and contracts department manager at Southwest Bank of Texas, N.A., in Houston.

Even though e-commerce has become a norm, businesspeople and consumers buy goods and services online without considering for a second how using the Internet has brought those goods and services to people and locations that would not have enjoyed these benefits a decade ago.

And, as e-commerce increases, so does the need for a dispute resolution mechanism that is faster, less costly and more convenient than the traditional court system.

Alternative dispute resolution (ADR) is attractive because it can be used to resolve any type of civil spat. ADR mechanisms, which range from mediation to the aptly named digital methodology of online dispute resolution (ODR), are limited only by the imagination of parties involved.

Even more appealing is that ADR allows for disputes to be resolved from almost anywhere in the world, which produces savings by eliminating the need for travel.

ODR is also particularly helpful in international transactions when the individuals involved want to avoid the bureaucracy that comes with litigating in a foreign jurisdiction. This dispute resolution tool is being used across business sectors, from online retailers to the securities industry.

Why ADR Is Important To E-commerce

ADR is an attractive alternative for many businesses involved in e-commerce transactions because it is often less costly and faster than resolving a dispute through the usual trial process. Also, because many e-business models are built on long-term relationships in which trust has been carefully cultivated and maintained, a strong desire to work things out without destroying the relationship is typically present. For some businesses, confidentiality is the most attractive feature of ADR. ADR, unlike litigation, is not a matter of public record and so does not subject the parties involved to public scrutiny. Confidentiality in the dispute resolution process can be crucial, especially if the dispute the parties are trying to resolve results from breach of a security system or a major system failure. When a dispute involves sensitive subject matter, ADR is better than litigation because it allows the parties to resolve the dispute without experiencing unfavorable press coverage.

E-commerce poses a particular challenge for the court system because questions such as jurisdiction and choice of law are not easily answered. E-business will not reach its full potential until those parties who participate in e-commerce transactions feel confident that if a transaction goes badly, they will have accessible, enforceable remedies that do not require a courtroom appearance in some unknown locale.

Types of ADR

ADR takes many forms, but the two most common types are arbitration and mediation, though it's important to remember that ADR isn't limited to those options. The parties may agree in advance to ADR by stipulating in a contract clause that ADR will be pursued if a dispute arises, or they may agree to ADR once a dispute arises as a means of settling the problem in a way that will not require litigation. The court system has acknowledged the value of ADR. Courts frequently require parties to engage in some form of it prior to trial. Individuals involved in a dispute can choose ADR by contacting organizations such as the American Arbitration Association (http://www.adr.org/), Global Arbitration Mediation Association (http://www.gama.com/) or any local Center for Dispute Resolution.

Arbitration. This form of dispute resolution employs one or more neutral parties to arrive at a resolution to a dispute. The disputing parties control the proceedings and such items as the range of issues to be resolved during the arbitration, the procedural aspects to be employed and the scope of the relief that might be awarded. The parties can even decide whether the decision will be binding or can be appealed. Because the hearing is private, the decision remains confidential and out of public scrutiny, unless it is appealed. Various statutes govern the operation of arbitration. Some are The Uniform Arbitration Act, UNCITRAL Model Law of International Commercial Arbitration, and The Federal Arbitration Act.

Mediation. This is a voluntary private dispute process in which a neutral person helps the parties reach a negotiated settlement. The mediator has no power to make any final decision or award. Another party facilitates, rather than adjudicates, reaching an agreement between the two parties. Mediation is easy to arrange and is far less expensive than legal proceedings. And because the parties work toward a mutual settlement, the relationship between the parties is often preserved, which permits a continuing business relationship. Mediation negotiations are also confidential and shielded from the public forum.

Private court. This method involves a neutral adjudicator who resolves the dispute. Private court dispute resolution resembles the traditional court system in that it has rules of procedure and may involve a procedural conference to deal with discovery and other issues. It can involve a hearing that resembles a trial. Powers of the adjudicator may be similar to judicial powers, depending on the jurisdiction. Also, decisions can be appealed, which also depends on jurisdiction, and the order or award is usually enforceable in a court. Advantages are that it is typically faster than the court system, more flexible regarding procedure and features an emphasis on negotiation skills versus trial expertise.

Online dispute resolution. There are various ODR mechanisms. Some projects have been created, including the Virtual Magistrate (http://www.vmag.org/), which works to resolve disputes on worldwide networks. The project aims to establish online dispute resolution for disagreements that originate online. The project strove to provide a quick, low-cost and readily accessible dispute resolution mechanism. Another initiative is the Online Ombuds Office (http://www.ombuds.org/). This program offers mediation to help parties resolve any disputes originating online and also acts as a public resource for dispute resolution information. Other ODR projects offer mediation and arbitration to resolve disputes arising in cyberspace for those parties who agree to be bound by the resolutions.

ODR presents several obstacles to overcome. One is that the parties' ability to negotiate is limited to the hardware and software used. For instance, disputees mediating via the Internet may experience delays in receiving messages from all involved parties. ODR also lacks the spontaneity of real-time interaction. Many pieces of nonverbal communication are lost in the ODR process. One important element missing is that ODR participants cannot assess the body language of other participants, a tactic many attorneys use to determine a party's weakness or strength. Online communications also risk interception by hackers, even when the most sophisticated software is used. The parties, therefore, may not feel as free to express themselves for fear their communications might be intercepted by hackers who could post the information on the Internet for worldwide public inspection.

How ADR Affects E-commerce Lawyering

When dealing with e-commerce providers, advisers should ask clients to think about dispute resolution and how it integrates with their services. E-business decision-makers should consider how disputes will be resolved with their business partners, and those details should be clearly defined at the beginning of the contractual relationship.

Written agreements should contain a section on dispute resolution. When deciding which dispute resolution mechanism to choose, consider the following:

• Cost;
• Confidentiality;
• Location of the parties;
• Types of disputes that could arise;
• The nature of the parties' relationship; and
• Dispute resolution turnaround time.

If confidentiality is a high priority, then ADR should be strongly encouraged. The increase in ADR use means lawyers must be versed in more than just courtroom procedure. Knowledge of ADR options is essential to effectively advise e-commerce clients.

The Future Of ADR And E-commerce

E-commerce will continue to grow. To date, the ability to resolve e-commerce disputes hasn't had much impact on the industry's growth, but if e-businesses begin offering better, more effective dispute resolution options for e-commerce transactions, then those reluctant to use virtual methods might embrace e-commerce and facilitate the logical extension of the Information Superhighway for business destinations.

The jury remains out on the best way to resolve e-commerce disputes, but it seems clear that the e-business community recognizes the need for ways to manage and resolve the numerous disputes that will inevitably arise in e-commerce and that many see ADR, including ODR, as the way to patch problems as quickly and as affordably as possible.

Marie Flores, J.D., is assistant vice president and contracts department manager at Southwest Bank of Texas, N.A., in Houston.