Online Arbitration:
Admissibility within the current legal framework
Rafal Morek
I. Introduction 3
II. General Characteristics of Online Arbitration 5
Background 5
Definition 6
Applicable regulations of international and domestic laws 8
III. Arbitration agreements 10
The “in writing” requirement in arbitration law 11
E-mails vis-à-vis traditional means of communication 14
An arbitration agreement by the click of a mouse? 19
The traditional requirements modernized 22
IV. Arbitral proceedings 29
Admissibility of electronic arbitral proceedings 29
Online proceedings 32
Electronic deliberations amongst arbitrators 36
The seat of arbitration 40
V. Arbitral awards 42
Admissibility of electronic arbitral awards 43
Notification of the award to the parties 48
Enforcement 49
VI. Conclusion 52
2
”Online Arbitration“
I. Introduction
Technological developments of recent years are significantly changing traditional arbitral practices and procedures. Electronic submissions by e-mails or videoconferencing are early harbingers of the technology-dense future of arbitration. Cyberspace with its array of new technological possibilities has already been described in legal literature as a new dimension challenge to the regime of international commercial arbitration.[1] Arbitration tends to involve more and more diverse online techniques. Arbitration agreements are concluded, and proceedings conducted, by electronic means in online settings. International arbitrators want to deliberate without leaving their hometowns and would gladly issue an arbitral award in an electronic form. The purpose of this article is to discuss how such technological innovations can be accommodated by the existing legislative framework and regime of international commercial arbitration.[2]
The main thesis of the article is that online arbitration is fully admissible and effective under the current legal framework, provided that certain requirements are met. In order to justify this thesis the key facets of online arbitration will be presented in the context of existing regulations. Prior to discussing specific legal obstacles that might be encountered, a general picture of online arbitration, including its background and definition, will be outlined. The later part of the paper is organised in a “chronological” fashion, proceeding through the steps of the arbitration procedure sensu largo. The arising issues will be divided into three major categories relating to: (i)arbitration agreements, (ii) arbitral proceedings, and (iii) arbitral awards.[3]
The first of these parts contains a detailed discussion of the validity of online arbitration agreements. In order to answer the question of whether an arbitration agreement formed by electronic means satisfies the formal requirements of the NYC and other relevant regulations, the requirement that it is “in writing” will be thoroughly examined. This analysis will include the arguments invoked both before and after the adoption of recent laws on electronic commerce and signatures, of course only to the extent that they remain valid.
The second part seeks to answer the question of whether, or more accurately, to what degree electronic means can be used to conduct arbitral proceedings. The view will be upheld that arbitration can be validly conducted despite the fact that parties and arbitrators do not meet in a single location. Then, the issue of whether arbitrators can deliberate by electronic means shall be discussed. Finally, we will tackle difficulties to determine the “seat of arbitration” with regard to such virtually delocalized arbitrations.
The last part of the paper addresses legal issues related to an arbitral award in online settings. Two major problems will be discussed in this section. Can an arbitral award be validly issued by arbitrators in an electronic form? Is such an electronically rendered arbitral award enforceable by national courts within the existing legislative framework of international commercial arbitration?
Prior to discussing these potential stumbling blocks or legal questions the online performance of arbitration may find on its path, some explanation on the background and definition of online arbitration is required.
II. General Characteristics of Online Arbitration
Background
Due to the increasing use of the Internet worldwide, the number of disputes arising from e-commerce, domain names registrations, and the like, is on the rise. Traditional mechanisms of dispute resolution, including “offline arbitration”, are often inappropriate to resolve them; they tend to be time-consuming, expensive and raise the serious problems related to jurisdiction and enforcement. Hence the point of departure for the development of online arbitration consists in saying: conflicts arising online should be resolved online[4]. Both practitioners and scholars claim that it has become increasingly necessary to design more efficient mechanisms for resolving “online disputes”. “Offline disputes”, on the other hand, can also be more effectively resolved with the use of arbitration when it takes advantage of diverse online techniques. In the light of the foregoing, we share the view that online arbitration may soon become an essential component of majority of international business interactions, both online and offline.
Definition
Online arbitration[5] (also called cyber-arbitration[6], cybitration[7], cyberspace arbitration[8], virtual arbitration[9], electronic arbitration[10], or arbitration using online techniques[11]) has attracted the interest of legal scholars since the middle of the nineties[12]. Some authors have emphasized the distinction between arbitrations used to resolve disputes that arise online and offline, and tended to narrow the scope of the term online arbitration only to the former. In this paper such an approach will not be followed. We hold that the major legal challenges faced by arbitration in online settings do not depend on the “origin” of a dispute. Indeed, “old fashion disputes”, that arise offline, may be submitted to arbitration by an exchange of e-mails, and then – by virtue of the consent of parties – resolved with the large involvement of diverse online techniques. Thus, for the purposes of this paper, online arbitration is understood in the broader meaning, as an arbitration procedure conducted, at least partly, through electronic means related to the advancement of the Internet.
It ought to be noted here that the term arbitration itself is sometimes situated in a fairly ambiguous context. This comment refers first of all to so-called “non-binding arbitration”, which must sound like a contradiction in terms, given the inherently binding nature of an arbitral award. A thesis was put forward in the literature that non-binding arbitration suits cyberspace better than traditional arbitration, “because it is effective without being subject to so many legal obstacles” (Schultz[13]). This paper takes a completely opposite stand. It seeks to examine legal difficulties on the path of online arbitration, to prove that under certain conditions online arbitration is fully admissible and effective within current international commercial arbitration regime.[14]
There is “an unfortunate tendency to think of online arbitration as a new form of ADR, administered by a new breed of techno-arbitrator, having little in common with its more traditional counterpart”, argued Manevy[15]. Also in our view, this tendency is not plausible: online arbitration certainly remains arbitration, though may be seen as its new type or dimension. An observation that online arbitration has got “some independence” thanks to new sets of rules it generated (Yu & Nasir[16]) also does not challenge the argument of necessity to reconcile online arbitration to the existing international commercial arbitration regime.
Applicable regulations of international and domestic laws
At this early stage, the legal regulation of online arbitration exists as “a collection of hybrid terms and rules of dispute resolution”[17]. A number of arbitration institutions have already opened the possibility to perform arbitration procedures online. Some of them are institutions with long traditions in providing dispute resolution services, e.g.: WIPO, ICC and the American Arbitration Association. Many others, exploring the potential of the Internet for dispute resolution by arbitration, are relatively unknown, e.g.: I-courthouse, Virtual Magistrate, Cybercourt, Online Resolution and IntelliCOURT.[18] A significant number of arbitration institutions have made an effort to either adapt their previous arbitration rules to the online environment, or to set up specific sets of rules for online arbitration.
The current legal framework for online arbitration, however, is provided by multiple layers of regulation. Besides institutional rules of arbitration and private contractual agreements, the regime of international commercial arbitration consists of international conventions, bilateral treaties, “soft” or model laws (such as UNCITRAL model laws) and national arbitration laws. The legal analysis in this paper is mainly concentrated on the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards[19] (hereinafter referred to as “New York Convention” or in short as “NYC”), because of its central role in international arbitration. The New York Convention must be taken as a starting point in order to answer the question of whether online arbitration is hampered by any requirements under the current legal framework. The formal requirements in the NYC mainly concern an arbitration agreement and an arbitral award (Sections III and V, respectively, of this article). The analysis of legal framework for online arbitration with respect to arbitral proceedings (Section IV) will mainly refer to UNCITRAL Model Law on International Commercial Arbitration[20] (“MAL”). A few other sources of international arbitration law, such as the European Convention on International Commercial Arbitration (“Geneva Convention”) of April 21, 1961[21], and the Inter-American Convention on International Commercial (“Panama Convention”) of January 30, 1975[22] supplemented by the Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards (“Montevideo Convention”) of May 8, 1979[23], shall also be mentioned in the paper. The analysis of the current legal framework for online arbitration will be completed by a few examples of solutions adopted in major national arbitration laws.[24]
III. Arbitration agreements
Arbitration agreements are more and more often concluded by modern means of electronic transmission, instead of traditional forms, usually involving paper covered with printing or handwriting and participating parties’ signatures. Yet the legal framework relevant for such agreements, including the New York Convention (1958), was established in large part well before the Internet age. Thus arises the problem of whether it is possible to validly agree on arbitration through electronic means, such as e-mail or by assenting to an offer on a website. The answer to this question depends mainly on the issue whether the electronic transmission can satisfy the “in writing” requirement set forth in the above regulations.
The “in writing” requirement in arbitration law
Most international and national legal sources require an arbitration agreement to be concluded in a written form. This principle can be seen in: Article II of the New York Convention (“NYC”) which stipulates that “[e]ach Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship”[25]; and also in Article 7(2) of the UNCITRAL Model Law on Arbitration (“MAL”) beginning with the sentence: “The arbitration agreement shall be in writing”, also in several national arbitration laws[26].
The principle that a valid arbitration agreement must be in writing has been established for several reasons. These reasons are broadly discussed in the scholarship concerning traditional arbitration[27]. Put simply, according to Yu and Nasir: “formalities such as writing and signature are based on the need for some physical evidence or authentication from the person who has given up his right to litigate in national courts. Written evidence is regarded as essential in order to ascertain such an intention”[28]. In other words, the importance of an arbitration agreement consists in the fact that by undertaking to submit arising disputes to an arbitral tribunal, the parties renounce the right to refer the disputes to state courts. Such commitment should therefore not be taken lightly, nor imposed by the drafter of the contract.[29] A "writing requirement" cautions the actors that they are entering a solemn matter, and it promotes deliberation and seriousness.[30]
In principle, other sources of international arbitration law follow the same approach as the NYC and the MAL. The Geneva Convention of April 21, 1961, a regional agreement that binds mainly European States, defines the arbitration agreement as: “either an arbitral clause in a contract or an arbitration agreement, the contract or arbitration agreement being signed by the parties, or contained in an exchange of letters, telegrams, or in a communication by teleprinter” (Article 1.2(a)). However, being more liberal than the NYC, the Geneva Convention states further “in relations between States whose laws do not require that an arbitration agreement be made in writing, any arbitration agreement [can be] concluded in the form authorized by these laws”. The Panama Convention of January 30, 1975 does not use the term “writing” at all, but instead it states that the arbitration agreement shall be set forth in “an instrument signed by the parties or in the form of an exchange of letters, telegrams or telecommunications” (Article 1).
Even the phrase “agreement in writing”, contained in both the most important sources of arbitration law, i.e. NYC and the MAL, may be diversely construed. Pursuant to Article II (2) NYC: “The term ‘agreement in writing’ shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams”. UNCITRAL Model Law on International Commercial Arbitration takes a different stand. Article 7(2) provides broader understanding of “in writing”: “An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provides a record of the agreement.”
Following the definition contained in the MAL, modern arbitration laws tend to be flexible in defining “in writing”.[31] Reflecting Article 7(2) of the MAL, such definitions include any method of communication that can serve as a record of the agreement. For example, the 1996 English Arbitration Act stipulates “writing” in section 5 (1) and defines “writing” in section 5 (6) to include "its being recorded by electronic means." Article 6(a) of the US Uniform Arbitration Act refers to “an [arbitration] agreement contained in a record”, whereas the ‘record’ means “information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form”. Article 1031 (5) of the German Code of Civil Procedure (Zivilprozessordnung) provides explicitly that the written form may be substituted by the electronic form pursuant to Section 126 a of the German Civil Code ("Bürgerliches Gesetzbuch – BGB"). This leaves open the question which electronic forms can constitute legally valid records, or more accurately, under which conditions such forms can be used to enter into arbitration agreements.