Chargebacks as efficient enforcement mechanism in global e-commerce ODR

Zybnek Loebl

Key issue for success of any dispute resolution system is efficient enforcement. Without efficient enforcement any dispute resolution lacks basic attractivity for its potential users. The enforcement can be either public – through the enforcement of court decisions and arbitration awards by common courts,or private.

In traditional cross-border ADR public enforcement of foreign arbitrarial awards is relatively straightforward because of the existence of the international New York Convention of which absolute majority of countries are members. Nevertheless,it is questionable whether cross-border on-line dispute resolution which is made only electronically and where typically the arbitration agreement between the parties is comprised of several different unilateral electronic communications,fulfills formal requirements of the New York Convention.

If there are differing views by national courts about whether the New York Convention can be applied to the global e-commerce ODR,the new system would lack efficient public enforcement mechanism.

Therefore,key issue will be to implement within the new system efficient private enforcement mechanisms,most significant of which are probably chargebacks. Chargebacks already play important role in e-commerce transactions and provide globally efficient protection against unauthorized charges due to loss or theft and in some countries – principally in the USA – also against non-delivery or defective merchandise. Nevertheless,as mentioned by Prof. Mark MacCarthy during the recent Vienna UNCITRAL conference,cardholders in non-US jurisdictions often cannot bring a complaint to their issuing banks about non-delivery or defective merchandise. In addition,chargebacks are not used by all payment systems – e.g. mobile phones do not run chargebacks.

Globally applicable chargeback mechanism which would include non-delivery and defective products is in the best interest of the payment system providers,because it would encourage the increase of cross-border e-commerce transactions and bring bigger business for the payment systems.

There is an opportunity to implement such globally applicable chargeback rules as part of the procedural rules of the new global e-commerce ODR. Such rules should contain common consumer/e-commerce fact-based claims and simple procedures and remedies (similar approach was taken for the global UDRP rules for disputes related to top level domain names) and regarding chargebacks the rules should:

-include chargeback contractual undertaking for all participating on-line vendors;on-line vendors would accept to be bound by such chargeback undertaking when they opt-in the new global ODR system;
-exclude banks,payment system providers and other entities from liability related to the enforcement of the chargeback undertakings (similarly,registrars as enforcers of UDRP decisions enjoy contractual exclusion of liability in relation to the enforcement of UDRP decisions from all the domain name registrants) and
-provide mechanism by which different payment systems (international payment cards associations,mobile operators associtaions,companies like Paypal etc.) can recognize and accept to be bound by the chargeback rules of the new global ODR system,in addition to their already existing chargeback ODR. So the new ODR system would complement and be interlinked – but need not comrpise – the existing chargeback ODR mechanisms.

Different payment system providers can become efficient enforcers within the new global ODR system. It would be very interesting to hear their views how the new system might work.