In the February/March issue of Computers & Law, Darin Thompson discussed two recent European Commission legislative proposals: (i) a Directive ensuring coverage, quality standards and information requirements on Alternative Dispute Resolution (ADR),[1] and (ii) a Regulation on Online Dispute Resolution (ODR) establishing a web-site platform that is expected to be fully operational by 2015.[2] Both proposals are due to be adopted into law by the end of 2012, and implemented in all Member States 18 months later. Darin noted that these initiatives aim to ensure a higher level of consumer protection, which is hoped to result in enhancing cross-border e-commerce within the Internal Market. But will they achieve their purpose or will consumer rights become sidelined in ADR processes? The aim of this article is to sketch a number of recommendations while considering the ongoing negotiations in the European Parliament[3] and the Council that will contribute towards a successful implementation of these two important initiatives.
The Commission Proposals on Alternative Dispute Resolution
The Directive on Consumer Alternative Dispute Resolution
The proposed ADR Directive will cover complaints between traders and consumers. Although the proposals allow complaints in both directions, under the present negotiations it is becoming less likely that the final text would allow a trader to bring a complaint against a consumer. This restriction would be based on the fact that traders already have sufficient means to resolve these complaints and existing ADR entities have been designed to take into account the disadvantageous position of consumer claimants. Member States are required to ensure the provision of ADR entities to resolve consumer complaints. They will be able to meet this obligation by either adapting the existing ADR entities to the requirements of the Directive or establishing a residual ADR entity that will deal with domestic and cross-border contractual disputes arising from the sale of goods and provision of services.
The proposed Directive describes ADR entities as adjudicative and consensual extra-judicial processes created on a durable basis. It excludes complaints handling mechanisms established by the trader, direct negotiation between the consumer and the trader and judicial settlement.
Under the Directive, traders will be legally obliged to inform consumers on their websites and in their T&C about the ADR entities that are competent to deal with potential disputes. Member States are required to monitor not only the traders’ information obligation, but also the performance of ADR entities and their compliance with the new Directive. In order to ensure compliance, Member States will be able to issue proportionate penalties to traders and ADR entities that do not comply with the information requirements.
The Directive guarantees confidentiality and data protection, and it encourages ADR entities to join European networks and to cooperate with the bodies entrusted with the enforcement of consumer protection laws. This is crucial as consumers may not be aware of competent ADR schemes or whether they are dealing with honest or rogue traders.
According to the Directive, all ADR entities must comply with the following procedural principles:
- Impartiality: neutral third parties must be truly impartial and have no conflict of interest, while collegial bodies, ie those governed by more than one person, must have equal stakeholder representation of consumers and traders. This principle is likely to be reinforced.
- Transparency: ADR entities must publish annual reports and must have a web site that displays information to the parties before they agree to participate in the process.
- Effectiveness: all ADR entities must meet the following requirements:
- offer easy access regardless of their location incorporating ODR technology –ie they must have a web site, allow online complaints and exchange information online;
- legal representation should not be required;
- ADR processes must be free of charge or at moderate cost for consumers;
- any dispute should be resolved within 90 days (30 days in e-commerce disputes, unless this is amended to 90 days as proposed by the European Parliament Rapporteur), though in complex disputes ADR entities will be able to extend this period.
- Fairness: Member States must ensure that parties are aware of their rights and the consequences of participating in an ADR procedure. Outcomes must be reasoned and given in writing or other durable manner. Significantly, the Directive requires that before consumers agree to a proposed settlement they must be informed (i) about their choice to agree to the settlement or reject it, (ii) that they could obtain a more favourable outcome in the courts, (iii) of their right to obtain independent legal advice, and (iv) of the effect of the agreement. They must be given an opportunity to reflect before they consent to an amicable solution.
In addition, the Commission and the Council are currently negotiating the inclusion of two more principles:
V. Liberty: This principle requires clear consent from consumers when accepting participation in a binding adjudicative process. The Rapporteur from the European Parliament has proposed a ban on pre-dispute arbitration clauses.
VI. Legality: According to this principle, processes that impose solutions cannot result in the consumer being offered a lower level of protection than the mandatory law. Although a consumer will be entitled to challenge the enforceability of an arbitral award that has not respected their rights, in practice the low value of these complaints will make these challenges very unusual, unless they are taken collectively in a class action.
The Regulation on Consumer Online Dispute Resolution
The proposed Regulation complements the ADR Directive; it establishes a EU-wide ODR Platform that will facilitate the resolution of consumer disputes related to the cross-border (and probably also domestic) online sale of goods and provision of services arising from e-commerce. In essence, the interface of the Platform will be a web site that will act as a hub to deal with complaints where parties will be invited to agree on using an ADR process to settle their disputes. Although traders will not be required to participate in an approved ADR scheme, they will have to inform consumers about the existence of the ODR Platform and when they are already adhered to an ADR scheme.
Consumers will be able to submit complaints free of cost and in their own language, but the subsequent ADR process may charge a reasonable fee and offer their services in a different language to that of the consumer. Two ODR facilitators per Member State will be linked to the European Consumer Centres to provide parties with technical and language support.
The Regulation establishes a shorter period than the Directive to resolve e-commerce disputes (30 days as opposed to 90 – but this shorter deadline might be amended in the final text to 90 days). This deadline may be realistic when parties use automated processes of dispute resolution, such as computer-assisted negotiation (which is excluded from the definition of ADR under the Directive), but it might be overambitious when neutral third parties are involved, particularly when different languages are used in a full-scale ADR process.
Keys for the Success of these Initiatives
These are two important and interrelated legislative instruments that indicate the commitment of the European Commission to promoting the use of online ADR –that is ODR– to enhance consumer redress outside the courts with the aim of boosting consumer confidence in the internal market. I have a number of suggestions which I hope will contribute towards a successful implementation of these two legislative initiatives.
Complainants Should Be Required to Participate in ‘Effective’ Internal Complaint Processes
According to best practices in dispute resolution, complainants should participate in the traders’ internal complaint processes when these are available and effective.[4] Requiring parties to use ‘effective’ internal complaint handling processes would not only comply with the principle of proportionality, settling complaints in the most convenient manner, but it would also remove the conflicts with the sector-specific legislation which frequently requires parties to employ these internal mechanisms before using external ADR schemes. Currently there are over 30 sector-specific laws in the EU that require Member States to provide ADR schemes, such as in telecoms, energy, insurance, financial services, transport, and postal services. The ODR Platform and ADR entities should, at least, have the discretion to require consumers to first participate in sector-specific in-house complaint services before they can access a fully fleshed ADR entity. There must however be safeguards for compliance with this requirement; the use of in-house complaint mechanisms should not impose additional burdens on a consumer’s right to obtain redress. Thus, traders must offer a complaint process set up in the language of the consumer and there must be a short deadline for the trader to reply to consumers’ complaints.
Automated Negotiation Should be Incorporated in the ODR Platform
Since the Regulation does not require parties to attempt to resolve disputes directly amongst themselves, traders are likely to find out about a complaint through the ODR Platform, which will automatically offer them the chance to agree on the selection of an ADR entity. It would be preferable if the Platform allowed parties the opportunity to negotiate a settlement without the intervention of neutral third parties. This approach would be in line with the model procedural rules that UNCITRAL is now developing for ODR.[5] The objective here again is to settle the dispute as early as possible. Indeed, that is how eBay resolves over 60 million disputes annually, without the intervention of neutral parties, employing automated negotiation tools that settle the majority of complaints between eBay buyers and sellers.[6] ODR tools can propose fair computer-generated proposals that are tailored to the complaints. If resolution of disputes is not highly automated, parties require sophisticated ad hoc translations, and each dispute is resolved with the intervention of neutral third parties, we will be replicating traditional ADR processes and making the whole system more costly and less effective. It should be noted that the cost of resolving a case through ADR is presently over 400 euros per unit (eg Financial Ombudsman Service in the UK and the Consumer Arbitration Scheme in Spain).[7]
Complaint Forms Should Be Coupled with Tailored Information on Consumer Rights
The ODR Platform should provide parties with information on consumer law relevant to their complaints. This information should be coupled with examples of the resolution of similar disputes –what the Rapporteur of European Parliament calls ‘exemplary decisions’, and it should be provided in a clear and targeted manner with the aim of filtering unmeritorious claims and promoting voluntary settlement. An effective negotiation tool could tailor the information into different types of complaints. The beauty of dealing with a high volume of e-commerce complaints is that there are bound to be many disputes that can be easily categorised: the bulk of disputes will be about goods that did not arrive in time or did not match the description or about services that have been poorly delivered or not delivered at all. Also the remedies for these disputes are limited, and, in many cases the law clearly prescribes legal entitlements. The ODR platform would be the best tool for helping the parties to settle the dispute as early as possible, and without the intervention of neutral third parties – acting as a ‘funnel’ that would save parties the cost of using more cumbersome ADR schemes.
Recognition of the Parties’ Pre-existing Commitment to Participate in an ADR Process
According to the ODR Regulation both parties must agree to an ADR process and, if they do not agree, the complaint will not be sent to the ADR entity. Although this approach would be appropriate for many disputes, there will be cases where the consumer would be able to pursue a complaint without agreement from the trader. In other words, there are ADR entities (mainly ombudsmen schemes) that process consumer complaints without the traders’ agreement to participate. This is, for example, the case with the legal ombudsman in the UK, which receives complaints about lawyers, and the Financial Ombudsman Service, which settles complaints related to financial services in the UK.
Requiring Traders to Inform Consumers about the Language in which the ADR is Offered
The Regulation provides for the creation of standard complaint and response forms in all the languages of the EU but, once a dispute escalates to an ADR entity, the Platform will simply inform the consumer about the language in which the available ADR procedure will be conducted. This could potentially be an insurmountable limitation if parties do not agree on the language. Although the Regulation designates ODR facilitators as the intermediaries to assist parties with language barriers, the manpower of this resource will obviously be quite limited. Indeed, a more useful role for ODR facilitators would be not to act as language interpreters but as true managers of the Platform, enabling ODR technology to assist parties’ settlements.
The ODR Platform Should Accept Domestic Complaints
The ODR Platform should also be available for domestic disputes, offering consumers a real single point of entry to resolve all complaints arising from e-commerce. MEP Roza Thun, the Rapporteur for the European Parliament’s IMCO committee, has recommended the inclusion of domestic complaints within the scope of the ODR Platform. Indeed, the use of the ODR Platform for both domestic and cross-border disputes will significantly increase the awareness amongst the parties who could benefit from it.
The ODR Platform Should Offer a Case Management Tool to ADR Entities
The ODR Platform should be something more than a web site that allows the consumer to submit a complaint which, when the other party agrees, is then redirected to an ADR entity. The ODR Platform should offer an automated negotiation tool to the parties and additional case management tools to all the approved ADR entities. It would be preferable if the ODR Platform became a one-stop shop for resolving consumer complaints rather than just forwarding complaints to ADR entities, which will then use their own interface systems. The ODR Platform should provide an optional case management tool for the ADR entities that would allow them to provide their ADR processes through the ODR Platform. In due course the ODR Platform could also help national ADR entities to develop common and interoperable standards in an organic manner.
Different Standards for Binding and Non-Binding Processes
In binding processes, in particular arbitration, the Directive should clarify under which circumstances a pre-dispute agreement is valid. It is proposed that there should either be a full ban (as proposed by the Rapporteur of the European Parliament) or, at a minimum, competent authorities should be able to grant the validity of these pre-dispute agreements on an ad hoc basis when arbitration providers could assure an adequate protection of consumer rights and when they are covered by the legal provisions that implement the ADR Directive. This approach would be in accordance with the Unfair Contract Terms Directive, the proposed Common European Sales Law and the case law from the European Court of Justice.[8] Furthermore, decisions in binding processes should also be published to ensure transparency in the resolution of disputes between parties with different bargaining power. Public decisions would also encourage parties to reach amicable settlements. Transparency however is not necessary in non-binding processes where parties can freely agree to an amicable settlement. The resolution of disputes should be like a pyramid – the majority of disputes should be settled voluntarily between the parties with the assistance of the technology (the fourth party) and only a small proportion of these should escalate to adjudicative processes where a neutral third party will resolve the disputes.
Built-in Incentives for Parties to Participate and to Settle
Perhaps, the weakest link in the proposals is that the use of ADR processes operates on a voluntary basis, so it is paramount to develop incentives for trader-respondents to participate. Presently, the proposals impose only information obligations on traders, but these will be more effective if coupled with, say, trustmarks for traders, quality labels for ADR entities (as proposed by the Parliament), and blacklists for recalcitrant traders.[9] Incentives should not only be used for traders to participate but also for parties to settle their complaints early. A combination of rewards and punishment in the form of incentives and swift enforcement are essential for promoting voluntary settlement between the parties. Also, allowing national courts discretion not to award legal costs to a litigant where an ADR option existed and where it was reasonable to use it, as well as case fees and a swift connection to enforcement agencies, will be a means of offering both carrot and stick to traders.
Close Collaboration between the ODR Platform and Consumer Enforcement Agencies
Enforcement agencies should have access to the information submitted in the Platform to indentify rogue traders at an earlier stage. Consumers will not be aware when filing a complaint if the trader is acting in good faith or not. However the ODR Platform could easily build-in technology that would allow identification of bad practices (eg a trader that never responds to complaints or where there are indications of fraud). Close cooperation between the ODR Platform and enforcement agencies is essential to ensure a quick response to fraudulent activity.
Conclusion
If successful, these initiatives will transform the provision of ADR and enhance consumer confidence, especially in the digital market, helping to boost cross-border e-commerce through the encouragement of trustworthy traders that are associated with ADR entities. Such traders would be favoured in an increasingly competitive internal market. However, since in practice it will be mostly traders who will choose and pay for ADR entities, there will be a risk of forum shopping. This begs the following question: would consumer ADR ensure a higher level of consumer protection or push consumers to reach settlements that disregard their legal rights? Only the effective monitoring of ADR entities by the competent national public authorities could ensure the former. Therefore, in these times of public cuts, it is hoped that governments will allocate sufficient resources to prevent traders from forum shopping so that an adequate level of consumer protection can be guaranteed.
Pablo Cortés is CSET Lecturer in Civil Justice, School of Law, University of Leicester and Gould Research Fellow, School of Law, University of Stanford.
[1] Commission, ‘Proposal for a Directive of the European Parliament and of the Council on Alternative Dispute Resolution for Consumer Disputes and Amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Directive on Consumer ADR)’ COM(2011) 793/2.
[2] Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on Online Dispute Resolution for Consumer Disputes (Regulation on Consumer ADR)’ C(2011) 794/2.
[3] Alternative and Online dispute resolution for consumer disputes were discussed during the last IMCO meeting on 8 May. Draft reports are available at http://www.europarl.europa.eu/committees/en/IMCO/all-announcements.html Last accessed 9 May 2012.
[4] OECD E-commerce Guidelines 1999 and OECD Recommendation on Consumer Dispute Resolution and Redress, July 2007. p. 8; A. Ramasastry “Technology, Values, and the Justice System: Government-to-Citizen Online Dispute Resolution: a Preliminary Inquiry” (2004) 79 Washington Law Review 164.
[5] United Nations Commission on International Trade Law (UNCITRAL) Working Group III (Online Dispute Resolution) Twenty-fifth session, ‘Online Dispute Resolution for Cross-Border Electronic Commerce Transactions: Draft Procedural Rules’ New York, 21-15 May 2012. Draft Article 5.
[6] T. Schultz, ‘The Roles of Dispute Settlement and ODR’ in K. Ingen-Housz, ed., ADR in Business: Practice and Issues Across Countries and Cultures (Kluwer, 2011) p. 135. Available at SSRN: <http://ssrn.com/abstract=1811890> (Accessed 30 March 2012).
[7] I. Benöhr and F. Weber, ‘Alternative Dispute Resolution for Consumers in Spain’ in C. Hodges, I. Benohr, N. Creutzfeldt-Banda ed. Consumer ADR in Europe (Civil Justice Systems) Beck/Hart (forthcoming, May 2012).
[8] Annex I[q] of the Unfair Contract Terms Directive 93/13/EEC L 095; Art. 84(d) of the Commission Proposal for a Regulation on Common European Sales Law COM(2011) 635 final. C-168/05 Elisa María Mostaza Claro v Centro Móvil Milenium SL. [2006] ECR I-10421 and joined Cases C-317/08 to C-320/08 Rosalba Alassini and Others v Telecom Italia SpA and Others ECR [2010] I-nyr.
[9] P. Cortés, ‘Developing Online Dispute Resolution for Consumers in the EU: A Proposal for the Regulation of Accredited Providers’ (2011) 19(1) International Journal of Law and Information Technology 1-28.
