Hong Kong LawTech Development – Online Dispute Resolution
In view of Hong Kong’s participation in the Belt & Road Initiative and thriving global e-commerce, it is anticipated that there will be a growing need for Hong Kong to handle cross-border disputes as an international dispute resolution service centre.
A new form of dispute resolution, online dispute resolution (“ODR”), has attracted global attention in recent years. The European Union has already established an ODR platform for resolving cross-border consumer disputes. Likewise, Hong Kong is committed to setting up its own ODR platform to enhance the development of LawTech for dispute resolution, namely the Electronic Business Related Arbitration and Mediation (“eBRAM”) platform. The Government Budget 2019-2020 allocated funding of HK$150million (~US$19.23million) to support the development and initial operation of the ODR platform.
We highlight below what will be expected of the ODR platform when established and how the legal profession can help in the process.
What is Online Dispute Resolution (ODR)?
ODR is a mechanism allowing parties to resolve disputes through the Internet and web-based technologies, such as Neural Machine Learning on Translation, Artificial Intelligence, Internet of Things, Blockchain and Smart Contract. Parties to ODR could opt for complete electronic communications and online negotiation, mediation and/or arbitration procedures conducted through email, video-conferencing and/or other electronic means.
It is an alternative means to address the limitation of traditional litigation in court which often requires physical presence of all the litigating parties in a specific jurisdiction and the use of physical documents and materials during communications, regardless of the geographical locations of the parties involved and the nature of the dispute.
How does ODR operate to resolve a dispute?
ODR may take a variety of forms, depending on the detailed structure of the platform established. In general, the parties may go through the following stages to settle a dispute:
The negotiation stage: It begins when a claimant submits a notice through the ODR platform to the ODR administrator. Within a specified period of time, the parties can freely and directly negotiate with one another by electronic communications through the ODR platform with the assistance of the ODR administrator.
The facilitated settlement stage: If the parties fail to reach an agreement directly within the specified period of time, and with the parties’ mutual consent, they may move to the facilitated settlement stage, when a neutral third party will be appointed to conduct an expedited e-mediation or e-arbitration. E-mediation is a settlement negotiation process which may result in a settlement agreement between the parties, whereas e-arbitration is an adjudication process in which the arbitrator will make a decision on the merits and the quantum of a claim.
The final stage: If facilitated settlement process does not work out, the appointed neutral third party or the administrator will inform the parties on how the parties should proceed. Where e-mediation was used in stage (2), the claimant may conclude the ODR process and pursue the claim either through the courts or possibly arbitration proceedings. Where binding e-arbitration was already adopted in stage (2), the winning party could go straight to the Court and enforce the arbitral award made by the arbitrator.
The exact procedures of the ODR process may also depend on the dispute resolution agreement between the parties, especially the contents of the dispute resolution clause in a commercial contract.
What are the benefits of ODR?
The ODR platform will be particularly useful for disputes arising from cross-border commercial transactions, e.g. business to business or business-to-consumer transactions.
By opting for ODR, parties may be able to resolve their disputes with lower costs, in a more efficient and flexible manner in accordance with the parties’ agreement, and without travelling even if the parties are in different geographical locations. Confidentiality can also be preserved as ODR is not open to public and the documents and information shared during the process will be encrypted.
What are the disadvantages of ODR?
Despite all the benefits discussed above, there are disadvantages in ODR which a party should consider before confirming to attempt the same. These may include: the lack of opportunities to observe in person the demeanour of a party or a witness, the lack of public pressure as ODR cases are not open to public or technological differences of the locations each party is in.
How the legal profession may help?
The whole ODR process could operate with or without lawyers, mediators and/or arbitrators, depending on the complexity of the dispute and the parties’ choice. For simple and straight forward matters, there are cost-savings for the parties to negotiate themselves, taking advantage of the party-driven, casual and flexible nature of the ODR platform.
However, for relatively complicated disputes, or disputes with uncertainties, it is always advisable for a party involved to obtain legal advice on appropriate strategies in advance, including but not limited to the potential legal risks, the suitable dispute resolution mechanism to choose, the benefits of having formal legal representation, the settlement negotiation tactics and/or the enforceability of any agreement reached.
Way before any dispute arises, when negotiating a new commercial contract, it is also advisable to seek legal advice on the drafting of the dispute resolution clause, including:
whether ODR is appropriate in the context of the transactions between the parties;
whether it should be compulsory for the parties to attempt ODR (where or when it is available) before resorting to traditional court or arbitration proceedings;
whether e-mediation or e-arbitration should be used during ODR; and
in the case of e-arbitration, whether it should be binding or non-binding.
We are about to witness the transformation and modernisation of the international dispute resolution mechanism in Hong Kong once the platform and a pilot scheme for utilizing the platform is ready. The target roll-out of the eBRAM platform will be the end of 2019. We await further information to be released by the Government.
Stay in touch for further updates, and feel free to contact our Partner, Nigel Binnersley at firstname.lastname@example.org or our Senior Associate, Yolanda Kok at email@example.com for further information.