Online and Offline Arbitration: What is the Difference?

Online arbitration can provide a very flexible means of dispute resolution that can be tailor-made in accordance with the parties’ needs, and at the same time, be recognized as a legally valid process.

Online arbitration differs from traditional arbitration not only because the process may be held online but some of the core elements can be different. Online arbitration’s main advantages are speed, accessibility, and cost-effectiveness. Mutual consent to arbitration, due process, and the binding decision will either not be present in online arbitration or they may be formed in a different way.

The common thought that online arbitration is just combining online mechanisms and traditional arbitration is not true. To define online arbitration accurately, it is helpful to look closely at the component elements of traditional arbitration from which it evolved. Naturally, there are many commonalities across the two forms and relevant differences in the details of the component elements of both. And, there are some component elements of each that are not shared with the other. 

For more on Alternative dispute resolution methods, What are the main types of Alternative Dispute Resolution – ADR and potential impact of Covid-19 on ADR methods, The Impact of Coronavirus on Arbitration and ODR

The following article is extracted from ” Online Arbitration Definition and Its Distinctive Features by Farzaneh Badiei”

The Two Most Common Elements of Online and Offline Arbitration

Arbitration elements often vary in different legal systems, so it can be challenging to provide an accurate and singular definition that applies everywhere. But some elements of arbitration are broadly similar. Numerous definitions exist for arbitration, but the following are of most use to us:

  1. According to “Law and Practice of International Commercial Arbitration” by Alan Redfern and Martin Hunter, “Two or more parties, faced with a dispute which they cannot resolve for themselves, agreeing that some private individual will resolve it for them and if the arbitration runs its full course … it will not be settled by a compromise, but by a decision.”
  2. According to “Arbitration in International Trade” by Rene David, “Arbitration is a device whereby the settlement of a question, which is of interest for two or more persons, is entrusted to one or more other persons – the arbitrator or arbitrators- who derive their power from a private agreement, not from the authorities of a State, and who are to proceed and decide the case on the basis of such an agreement.”

Gary Born in “International Commercial Arbitration” presents a definition of arbitration that draws from both definitions above. He defines arbitration as “a process by which parties consensually submit a dispute to a non-governmental decision-maker, selected by or for the parties, to render a binding decision resolving a dispute with neutral, adjudicatory procedure allowing the parties to be heard.”

So, for a process to be recognized as arbitration, it should have these elements:

  • Mutual consent to submit to arbitration
  • Choice of arbitrators
  • Due process
  • A binding decision

Other Discussions on online and virtual hearing cab be read at Offline or Online? Virtual Hearings or ODR?

Mutual consent is considered one of the fundamental principles of traditional arbitration, and it is crucial to the legitimization of the arbitration process. It is well-established that the parties should not be forced to arbitrate. Instead, they should freely agree to that particular mode of dispute settlement.

But, entering into an online (or non-traditional) arbitration agreement might not always be consensual. Sometimes, the participants may not have truly consented to the arbitration clause.

They may have been indirectly forced into entering into an arbitration agreement. Some commentators have even gone so far as to say that the freely consenting party is a legal fiction in many situations.

For example, such a lack of choice might happen where there is a monopoly of power or a pre-dispute arbitration clause in a Business to Consumers (B2C) agreement. The weaker party has to choose between entering into an arbitration agreement or forgo contracting in such cases.

Because of the power imbalance found in such cases, the parties may be considered to have been indirectly forced to enter into an arbitration agreement. We have to ask ourselves whether the non-existence of consent to arbitrate invalidates the arbitration clause.

It has been argued that where there is a lack of choice to enter an arbitration agreement, it is better to accept that consent to arbitrate does not exist because other requirements, such as fairness, may reasonably replace consent.

So, it is probably best not to emphasize the existence of true consent in such arbitration agreements and to focus instead on insisting on fairness in the process.

Choice of Arbitrators: Look for Independence and Impartiality

Arbitrators in traditional arbitration are not government representatives or state judges. Instead, they are funded by private means. Decision makers in arbitration are either chosen by the parties or on behalf of them. Those selected by, or on behalf of, the parties should be independent and impartial.

In “The Independence and the Neutrality of Arbitrators,” the term independent is defined as “one which measures the relationship between the arbitrator and the party’s personal, social, and financial relation. The closer the relation in any of these spheres, the less “independent” the arbitrator is from the party.

The independence of the arbitrator should be determined before the arbitration, and it is good to make sure the arbitrator chosen can do his job independently and that he dares to disappoint either party if necessary. Impartiality is the absence of bias in the arbitrator. 

Independence and impartiality are pivotal elements of any arbitration definition. This is due to arbitration being an adjudicatory process.

Arbitrators cannot be parties’ representatives, and they have to remain impartial and independent; otherwise, they cannot adjudicate between the parties with “full legal authority.”

The arbitrators’ independence and impartiality should be considered two of the main characteristics of arbitrators involved in online arbitration.

In any arbitration process, strict compliance with procedural principles is required, and independence and impartiality are so central to the process, that online arbitration cannot be characterized as true arbitration without them.

The independence and impartiality of arbitrators and such elements should not be compromised unless agreed to by both parties.

Due Process vs. Cost and Speed

Due process is a vital component of any arbitration definition. It is so essential, that a procedure lacking due process cannot be recognized as arbitration. Due process in arbitration has to do with the right to be heard, the right to adversary proceedings, and the right to be treated equally.

In online arbitration, however, complying fully with all the requirements of due process could have an adverse effect on the cost-effectiveness and speed of the online arbitration process. 

Speed and cost-effectiveness are two advantages that make online arbitration more desirable than litigation or traditional arbitration.

While due process is an essential element in online arbitration, keeping the process affordable and speedy is also an important factor. So, while due process is considered vital for any definition of online arbitration, the degree of compliance might vary.

Some “shortcuts” might be taken to keep the process from stalling and costs from rising. Some academics argue that due process is a flexible principle, and the degree of required due process may vary depending upon the case or category of cases and that the arbitration tribunal or institution can adjust the degree of compliance according to the nature of disputes.

Binding Decision

The binding decision, in traditional arbitration, is one of the most important elements that determine whether the procedure can be considered arbitration.

By agreeing on arbitration, the parties are assigning the arbitrators a judicial role. They will adjudicate between the parties and issue an award that is as effective as a court’s decision.

The binding decision distinguishes arbitration from other dispute resolution procedures, and it is the purpose of the whole process. To learn more about it, please read What is Binding Arbitration? Is it better than Court?

Decisions in online arbitration may not always be binding. The arbitration award may be non-binding for either of the parties, or it may be unilaterally binding.

When an online arbitration award does not bind either party, it cannot be recognized as a true arbitration. The decision is unlike a judgment because the arbitrator does not have a judicial role.

It could be considered a true arbitration if the party admits that the award has a binding effect after its issuance. Some legal systems explicitly allow the parties to agree that the arbitration awards have a different effect (i.e., be conditionally binding).

In other judicial systems, conditionally binding arbitration might be recognized as true arbitration if the procedural standards that apply to arbitration have been met.

Online Arbitration

An online arbitration proceeding can be conducted totally online, or it can be partly online with a combination of online and offline means.

In an entirely online arbitration, the entire process is conducted online using email, video conferencing, and web-based communications.

Partly online arbitration is conducted using a combination of the communications mentioned above plus offline features such as in-person hearings and other technology for the submission of evidence, communication between the arbitrators, and deliberation of the award.

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