1. INTRODUCTION AND CONCEPT OF MANDATORY ARBITRATION
Mandatory arbitration is a privately controlled shadow justice system that resolves hundreds of thousands of B2C disputes every year. Millions of consumers have contractually agreed to binding arbitration, often without knowing, and with just a click on a checkbox. Once, two parties have contractually agreed on a mandatory arbitration to resolve their dispute, these disputes between them can no longer be resolved in public courts. Rather, their only resolution comes through a private process in which an outside-neutral arbitrator hears from both sides and makes a final decision. Not surprisingly, more and more holders of arbitration agreements have ended up in court, asking the courts to enforce the terms of the agreement and challenging the arbitral decision.1 Several forums recognized the contribution of mandatory arbitration to inherent vulnerability and injustice towards the consumer.
2. RELATIONSHIP BETWEEN CONSUMER DISPUTES AND MANDATORY ARBITRATION
Mandatory Arbitration is a part and parcel of hundreds of thousands of consumer relationships. Studies undertaken in 20042, revealed that about 1/3rd of the consumer relationships in the market (on an average) have a mandatory arbitration clause for dispute resolution in the fine print. In the recent times, non-negotiable adhesion contracts are the most common examples of contracts that contain mandatory arbitration clause for dispute resolution leaving the consumer a binary choice to either take it or do without the service or good.
2.1 Why Mandatory Arbitration?
Studies have established that mandatory arbitration can be an economical alternative and a speedy process to court litigation.3
When traditional court litigation and arbitration have been adjudged and compared side by side on certain criteria such as relevant costs and incurred expenses, time taken to resolve the dispute and burden on the adjudicator in terms of pending disputes;4 counsels have attested that a suit in a courtroom is billed five times as much as a parallel case in arbitration. Another astonishing advantage was the contrast in speed.5 The time taken for a dispute to be resolved by arbitration and the declaration of the award is approximately 1 year whereas a similar suit in a courtroom can take well over 2 years.6 While others have argued this increase in speed is largely a function of the smaller disputed dollar amounts involved, the temporal contrast remains impressive. Further, as a practical concern, the number of pending cases in the traditional court system makes it a less appealing option for dispute resolution making mandatory arbitration more practical and responsible choice.
2.2 Issues of Mandatory Arbitration
As evident from the above discussions, the presence of arbitration clause in agreements is very common especially by the insistence of corporations to insert the same.
At the time of contracting, most consumers do not object to dispute resolution clauses and sometimes they don't even pay attention to the same. Going to court is tedious, expensive as well as slow and carrying through a suit in the system is often intimidating. This does not mean that consumers enter into these contracts voluntarily or even negotiate these terms. These are often imposed on them by way of a click on the checkbox next to the "Terms and Conditions" clause. These clauses appear to be one thing and actually be another thing as they are part of the fine print7. These clauses appear in an easily missed "bill stuffer" or just inside the package with the product the consumer has already purchased. This results in a vicious circle of customer vulnerability, which often leads to exploitation.8
Although such clauses can be challenged in the court on the basis that they are unilateral and forced, these challenge petitions have limited scope by virtue of several decisions rendered by the courts on this concept. This in no way means that a decision cannot be overturned, but to pursue such an undertaking, the consumer is put through the test of the law where these awards can only be turned on the basis of "conflict with public policy".
This is an extremely difficult standard to meet as to set aside a decision, a party must show that the arbitration agreement was not followed by either of the parties; the award was in contravention of fundamental policy of India; it is in conflict with basic notions of morality or justice; it was affected by fraud or corruption; the decision provided a kind of relief that arbitrator was expressly precluded from awarding.9
2.3. Judiciary on the arbitrability of consumer disputes
he Indian judiciary per se does not prohibit arbitration of consumer disputes, however, this topic has gone through a series of discussions in the court. In A. Ayyasamy v. A. Paramasivam11, the court established that in cases of serious public policy concerns, the matter cannot usually be referred to arbitration as these make for actions in rem. The Supreme Court, later in the case of Vidya Drolia vs. Durga Trading Corporation10, set out a four-fold test where the subject matter of a dispute would not be considered arbitrable if – (1) it pertains to rights in rem and not rights in personam (that arise from rights in rem); (2) the dispute affects third party rights, has erga omnes effect, requires centralized adjudication and mutual adjudication; (3) the subject matter relates to sovereign and public interest functions of the State; (4) the dispute is expressly or by necessary implication non-arbitrable as per a mandatory statute.
The case of Emaar MGF v Aftab Singh12 was a landmark case where the consumer filed a case in the National Consumer Disputes Redressal Commission when a dispute arose between them. Emaar MGF filed an application under section 8 of the Arbitration Act, 1996 requesting referral of matter to arbitration. The court held that the remedy provided under the Consumer Protection Act, 1986 is in addition to the provisions of any other law for the time being in force. Thus, if an individual chooses to file a complaint in the first instance before the competent consumer forum, then such individual cannot be denied relief by invoking section 8 of Arbitration Act.
The Indian judiciary has upheld the validity of arbitration in consumer dispute but has given the option to the consumer to sort of "opt out" of the mandatory arbitration process. This development can be equated with the approach adopted by the USA as it does not assume each arbitration clause as inherently unfair. Arbitration Fairness Act was enforced which gives the right to the parties of a consumer dispute to "opt out" of pre-existing arbitration agreements and bring the matter before conventional courts. This puts the autonomy aspect back in equation and ensures that if an arbitration proceeding takes place then the parties are consenting to it.
3. CONCLUSION
In an agreement with mandatory arbitration clause, the parties are required to conform to a selected and binding approach of dispute resolution before the commercial transaction ensues between them. These contracts are binding and non-negotiable for consumers and requires surrender of certain legal rights in advance, frequently without understanding or choice. Mandatory arbitration contributes to the causes, experiences, and poor effects of consumer vulnerability. These clauses are prepared with language full of complicated legal jargon and are more often than not, hidden in the fine print which is not conducive to the understanding of non-expert audience i.e. the consumer. There is also a trend of little motivation for consumers to read the fine print earlier than agreeing to them. Mandatory arbitration clauses have tipped the scales far from the consumers and made this alternative method of dispute resolution into a bane. However, completely eliminating arbitration procedure from these kinds of consumer centric transactions can have a negative impact on the market. The regulators and policymakers would be in a better position to justify the use of such clauses if they are fashioned with a limited scope and by realignment of incentives in the market. Yet more in-depth studies and research is required to deal with the consequences of those coverage changes. Consumers might want the autonomy but to be forced with the choice of arbitration raises difficulties.
Arbitration is frequently used as the holy green approach of dispute resolution and consumers along with corporations would maintain the use without being pressured into it. The increasing use of consumer agreements especially online transactions, calls for a revision in terms of applicable laws. By setting the lid on the box, the advantages of arbitration that industrial events have come to cherish can stay intact.
Footnotes
1. Chandrasekher, A.C. and Horton, D. (2019), "Arbitration nation: data from four providers," California Law Review, (107) pp. 1-65.
2. Szalai, Imre S. (2019), "The prevalence of consumer arbitration agreements by America's top companies," UC Davis Law Revies Online, 52, 233-259.
3. Ware, S. J. 2013, "Is adjudication a public good? "overcrowded courts' and the private sector alternative of arbitration," Cardozo Journal of Conflict Resolution, 14 899-999.
4. Ware, S. J. 2013, "Is adjudication a public good? "overcrowded courts' and the private sector alternative of arbitration," Cardozo Journal of Conflict Resolution, 14 899-999.
5. Colvin, A. J. S. (2011), "An empirical study of employment arbitration: Case outcomes and processes," available at: http://digitalcommons.ilr.cornell.edu/articles/577
6. Fellows, M. 2006, "The same result as in court, more efficiently: Comparing arbitration and court litigation outcomes," available at: https://ccbjournal.com/articles/sameresult-court-more-efficiently-comparing-arbitration-and-court-litigation-outcomes
7. Reuben, R. C. (2003) "First options, consent to arbitration, and the demise of separability: restoring access to justice for contracts with arbitration provisions." SMU L. Rev. 56, 819-2355.
8. Schmitz, A. (2009), "Regulation rash? questioning the AFA's approach for protecting arbitration fairness," Banking & Financial Services Pol'y Rep, 28 (10) 16-35.
9. Section 34 of the Arbitration and Conciliation Act, 1996.
10. (2016) 10 SCC 386.
11. 2019 SCC OnLine SC 358.
12. 2018 SCC OnLine SC 2945.
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