A Fast Online Dispute Resolution Program to Resolve Small Manufacturer-Supplier Disputes: Using the ODR M-S Program
Online dispute resolution (ODR) could be the wave of the future for many kinds of disputes, especially recurring small disputes between manufacturers and suppliers. This article looks at the rules and issues relating to the AAA/ICDR ODR Program for domestic and international disputes between manufacturers and suppliers. and the successful results of the pilot program.
BY MARKUS ALTENKIRCH
Manufacturers and suppliers are repeatedly involved in conflicts with each other that turn on a few essential questions of fact, such as what was ordered and what was delivered. These claims tend to be too small to resolve efficiently and cost-effectively in court or in regular commercial arbitration proceedings. For this reason, the parties need a streamlined alternative way to rapidly conclude these disputes without jeopardizing their business relationship. In 2010, the American Arbitration Association (AAA) international division, the International Centre for Dispute Resolution (ICDR) introduced a completely online, paperless, two-step online dispute resolution (ODR) program to resolve these disputes in 66 days or less. The process, which involved online negotiation, and then, if the case did not settle, online arbitration, was designed as a pi lot program for an Italian manufacturer. In the first year of the pilot program, all 18 cases filed by the manufacturer were re solved. Five concluded by an award in online arbitration and 12 settled. One case was withdrawn. The dispute resolution process took 54.1 days on average.
The ODR M-S Program has been designed to control the cost of dispute resolution. A single claim cost $500 to resolve by online negotiation. If the online negotiation is unsuccessful and the case proceeds to online arbitration, it costs $1,500. The program allows a limited amount of aggregation of claims for an ad ditional fee. The cost is subject to allocation either by the parties in the negotiated settlement or by the arbitrator in the online award.
A Pilot Program No More
Given the success of the pilot program, the AAA and ICDR have decided to offer the ODR M-S Program as a regular service that manufacturers and suppliers, both domestic and international, can elect to use.
This article provides an overview of the governing rules in the ODR Protocol for Manu facturer/Sup plier Dis - putes (ODR M-S Protocol) and how both online processes work. It also discusses special issues of concern in inter - national online arbitration— having a grounded place of arbitration and a widely en - forceable award. Fi nally, it suggests contract language for manufacturers and suppliers that wish to use ODR M-S Program.
The ODR M-S Program is governed by the Protocol for Manufacturer-Supplier Disputes. In an international arbitration handled under this program, the ICDR Inter national Ar bitration Rules apply, but the protocol prevails in the event of a conflict. If the arbitration is domestic, the AAA Commer cial Arbitration Rules apply to the extent not in conflict with the protocol.
The following procedures are governed by the protocol.
Filing Claims, Defenses and Counterclaims
All claims, defenses, and counterclaims are filed online in a paperless process. The claim ant initiates the online process by completing a Notice of Arbi tration Form and uploading it via the AAA on line portal called AAA WebFile, together with the documents it wants to introduce in evidence.
There is an initial filing fee payable by the claim - ant via wire transfer in the amount of $500.
For claims that are so small in size that even ODR may not be attractive from a cost perspective, the claimant is allowed to aggregate claims arising out of three different contracts against the same respondent, if these two conditions are met: first, the total amount of the aggregated claims does not exceed $10,000, and second, the party filing the aggregated claims advances $300 in arbitrator fees for each additional contract referenced in the Notice of Arbitration.
Once the filing is completed, and the claimant has paid the filing fee, the Notice of Arbi tration is e-mailed to the re spondent with an invitation to upload a statement of defense via AAA Web File, along with any counterclaim it may have against the claimant.
The respondent has 12 days to respond with a statement of defense and counterclaim, but even if it fails to do so, all claims are deemed denied. If the respondent does respond, the claimant is automatically notified by e-mail that new documents have been up - loaded in the case, which can be read online. The claimant has 12 days from receipt to file a statement of defense to a counterclaim via AAA WebFile.
The Online Processes
Online Negotiation via Double-Blind Bidding
The online negotiation begins 12 days after the filing of the case, even if the respondent decides not to participate in the process. If a counterclaim is filed, the online negotiation be - gins 24 days after the filing of the case. The negotiation period lasts 12 days.
The online negotiation uses “double blind bidding,” a custom-made online system created by Cybersettle, with which the AAA has a strategic alliance. The ICDR case manager guides the parties through the blind-bidding process, which works as follows.
The claimant submits three online settlement demands at one time in descending order of value (in other words, the first demand is the highest, the second demand is lower and the third is the lowest sum the claimant is willing to accept). The respondent is invited to submit three online offers at one time in ascending order (i.e., the first offer is the lowest, the second is higher, and the third is the highest offer the respondent is willing to make).
The online system considers each demand and each offer to be a “bid” and it pairs the claimant's bids with the corresponding respondent's bid in the order in which they were made, with each pair being considered a round of bidding. Neither party knows what the other had bid. The system then compares the bids in each round against each other (e.g., round one compares the claimant's highest demand with the respondent's lowest offer, and so forth).
If in any round the claimant's bid is equal to or less than the respondent's bid the case settles automatically. All bids remain confidential, whether the case settles or not. If the case settles within the 12-day period for the online negotiation, the initial administrative fee shall be divided equally between the parties, unless they have agreed otherwise.
If the dispute does not settle within the 12 days allotted for the online negotiation, it proceeds to online arbitration once the claimant has advanced the $1,000 arbitrator/administrative fee. Then a sole arbitrator is appointed from a special panel. The parties are notified of the appointment and any arbitrator's disclosures of potential conflicts of interest via e-mail. The arbitrator's appointment may be challenged only within 48 hours. The AAA or ICDR will determine the outcome of any arbitrator challenge, depending on whether the case is domestic or international.
Absent party agreement, the arbitrator determines the language of the arbitration.
There is no information exchange and no evidentiary hearing in the online arbitration. The arbitrator decides the case solely on the basis of the documents the parties submitted online via AAA WebFile. The arbitrator is “to consider the pertinent facts and circumstances and be guided by the terms and conditions of this contract.” But “if a solution is not found in the terms of this contract, the arbitrator shall apply the Governing Law of the Contract.”
The award, which is final and binding on the parties, is to be issued via AAA WebFile. The arbitrator is required to state the reasons for the award and allocate the costs of the entire process between the parties. The deadline for issuing the award is 30 days after appointment. How - ever, the ODR M-S Protocol provides that issuing a late award “shall not constitute a basis for challenging the award.”
The features described above combine to provide a highly streamlined process, one that is easy to use, inexpensive, and extremely suitable for small, straightforward cases.
Special Issues Involving International Online Arbitration
Place of Arbitration
When arbitration takes place in cyberspace, there is no hearing location in the classical sense, and the parties and the arbitrator often reside in three different places, even in different countries. So the question is, where is the seat of arbitration?
Every arbitration proceeding, even one that is truly transnational in nature and takes place online, needs a place of arbitration. One reason is that the place of arbitration determines the procedural law of the arbitration (i.e. the lex arbitri), which might govern the validity of the arbitration agreement. Furthermore, national courts of the place of arbitration usually have jurisdiction to support the arbitration (e.g. through hearing applications for interim measures or for the exchange of information in aid of arbitration), and they alone have jurisdiction to confirm or set aside the final award. If there were no place of arbitration, doubts could arise as to whether the award would be enforceable under the United Nations Convention on the Recognition and En - force ment of Foreign Arbitral Awards (New York Convention), since Article I requires the award to be made in “a state other than the state where recognition and enforcement are sought.”
In view of these requirements, when the arbitration is international in nature, the ICDR en - sures that each online arbitration has a place of arbitration. The ODR M-S Protocol used in the pilot program made Florence, Italy the hearing locale. The ICDR encourages other parties that employ the ODR M-S Program to state the desired place of arbitration in their arbitration agreement. If they do not do so, and a dispute arises, and they are unable to agree on the place of arbitration, the ICDR will initially determine that location according to Article 13(1) of the ICDR International Arbitration Rules and the arbitral tribunal will later finally determine the lex arbitri.
Other Enforcement Issues
The rules governing the ODR M-S Program are designed to ensure that any international award resulting from the online arbitration process will satisfy other requirements of the New York Convention so as to be enforceable.
First, Article II's requirement that an arbitration agreement be in writing will be satisfied by the parties' written agreement containing an arbitration clause incorporating the ODR M-S Protocol.
Second, Article IV's requirement that the party seeking to enforce an award supply a duly certified copy of the award should not be a problem because, even though the award is issued in digital form, upon request from a party, the ICDR can provide a certified copy of the award via regular mail.
Article V(1)(b) of the New York Convention provides that recognition and enforcement may be refused if a party against whom the award is invoked was unable to present its case. U.S. courts have found that a tribunal must give the parties the opportunity to be heard at a meaningful time and in a meaningful manner. Courts have generally interpreted this rule to require arbitrators to provide the parties with a hearing on the evidence. However, the New York Con - vention allows parties to waive their rights both to a hearing and generous time limits. The parties' agreement to use the ODR M-S Protocol should constitute such a waiver.
Furthermore, the ODR process involves a decision based only on documents, which is not only common in international commercial arbitration, 32 it is expressly allowed by many arbitration rules and statutes, including Article 24(1) of the Model Law on International Commercial Arbitration United Nations Commission on International Trade Law.
How to Elect the ODR M-S Program
A manufacturer or supplier that would like to use the online program described above should first contact the AAA or ICDR, depending on whether their agreement would be considered domestic or international. It should also specify in the arbitration provisions that they have agreed to apply the ODR M-S Protocol.
The parties will have to make a decision as to the type of disputes they want to be handled under the protocol and which disputes should be addressed under regular arbitration procedures.
Here is a sample clause that calls for the ODR M-S Protocol to apply to disputes below a certain dollar value:
Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be determined by arbitration administered by the [International Centre for Dispute Resolution/American Arbitration Association] in accordance with its International Arbitra - tion Rules/Commercial Arbitration Rules]. In the event the total amount in dispute is below $50,000, the Online Protocol for Manufacturer/Supplier Disputes then in effect shall apply and the forementioned arbitration rules shall apply only to the extent not in conflict with said protocol.
Alternatively, the following clause could be used. It gives discretion to future claimant to decide whether to file the claim using the ODR M-S Protocol or regular arbitration rules.
Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be determined by arbitration administered by the [International Cen - tre for Dispute Resolution/American Arbitration Association]. A claimant may submit a claim under (1) the ICDR International Arbitration Rules, or (2) the AAA Commercial Arbitration Rules, or (3) the Online Protocol for Manufacturer/Supplier Disputes then in effect, supplemented by the rules described in subparagraph (1) or (2) above, to the extent not in conflict with this protocol.
This language allows the future claimant to take into consideration the amount in dispute as well as the complexity of the factual and legal issues.
The advantages of a paperless ODR program are clear. It is fast and economical. No one has to travel. All that is needed is a de - vice to send and receive electronic communication.34 Manufac turers and suppliers that want an online settlement or award within 66 days can agree to use the innovative ODR M-S Protocol. There is no doubt that it fills a gap in the range of dispute resolution services offered.
Reprinted by permission of the American Arbitration Association (AAA) originating from the Dispute Resolution Journal, published by Juris Publishing, 71 New Street, Huntington, NY 11743 USA.
Contact Mark Appel, Senior Vice President, International Centre for Dispute Resolution, AppelM@adr.org or visit www.icdr.org
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