Private adjudication systems

Recent years have seen a pronounced trend toward incorporation of out-of-court conflict resolution processes in standardized agreements presented to consumers of goods and services. Some of these processes involve third party intervention in settlement negotiations, others involve binding arbitration. Such processes have the potential to be of significant value in making dispute resolution quicker, less costly and more satisfying14.

Yet because consumer contracts often do not involve arm's length negotiation of terms and frequently consist of boilerplate language presented on a take-it-or-leave it basis by suppliers of goods or services, there are legitimate concerns regarding the fairness of consumer conflict resolution mechanisms required by suppliers. This is particularly true in the realm of binding arbitration, where the courts are displaced by private adjudication systems.

In such cases, consumers are often unaware of their procedural rights and obligations until the realities of out-of-court arbitration are revealed to them after disputes have arisen15. While the results may be entirely satisfactory, they may also fall short of consumers' reasonable expectations of fairness16 and have a significant impact on consumers' substantive rights and remedies17. In 1997, the American Arbitration Association (AAA) announced the establishment of a National Consumer Disputes Advisory Committee. The stated mission of the Advisory Committee is:

"To bring together a broad, diverse, representative national advisory committee to advise the American Arbitration Association in the development of standards and procedures for the equitable resolution of consumer disputes". This Advisory Committee sought to develop principles which would establish clear benchmarks for conflict resolution processes involving consumers while recognizing that a process appropriate in one context may be inappropriate in another. Fifteen principles were developed but for our present purposes, we will look at eight.

"Providers of goods or services should undertake reasonable measures to provide Consumers with full and accurate information regarding Consumer ADR Programs. At the time the Consumer contracts for goods or services, such measures should include (1) clear and adequate notice regarding the ADR provisions, including a statement indicating whether participation in the ADR Program is mandatory or optional, and (2) reasonable means by which Consumers may obtain additional information regarding the ADR Program.

After a dispute arises, Consumers should have access to all information necessary for effective participation in ADR". Consumers are entitled to know what tasks the neutral may perform and what tasks they are expected to perform in the course of a particular dispute resolution service. It is the responsibility of private programs offering dispute resolution services to define clearly the services they provide and provide information about the program and Neutrals to the parties. At a minimum, Consumers should be provided with (or have prompt access to) written information to explain the process.

"At the timely request of either party, the arbitrator should provide a brief written explanation of the basis for the award. To facilitate such requests, the arbitrator should discuss the matter with the parties prior to the arbitration hearing". Review of arbitration awards is very limited under modern arbitration statutes. Courts are very reluctant to vacate awards or to second-guess the decisions of arbitrators on matters of procedure or substance. Arbitrators can misconstrue contracts, make erroneous decisions of fact and misapply law, all without having their awards impeached.

While some members of the Advisory Committee expressed concerns regarding the current state of the law, it was generally agreed that finality was a primary objective of arbitration and that it would be inappropriate to recommend more rigorous judicial review for Consumer arbitration awards than for other arbitration awards. At the same time however, the Advisory Committee concluded that the rules should specifically direct arbitrators to follow pertinent contract terms and legal principles.