Businesses must carefully consider opt-in to new kinds of dispute resolution, says expert

Out-Law Analysis | 07 Jul 2015 | 12:46 pm | 2 min. read

FOCUS: Businesses need to consider carefully whether and how to opt-in to a new alternative dispute resolution (ADR) regime being established across Europe for consumers because of the importance of good complaints handling and dispute resolution for their reputation.

New regulations come into force on 9 July that will establish a new framework for ADR across the EU, in response to reforms passed at EU level in 2013.

Under the scheme, selected 'ADR Approved Bodies' will provide ADR services to businesses and consumers who cannot resolve disputes between themselves. Outside regulated sectors businesses are not obliged to engage with the ADR scheme under the rules although, from 1 October this year, they will be required to tell consumers about the existence of ADR schemes and whether they intend to use them.

The new framework, which from January 2016 will also encompass a system of online dispute resolution (ODR), is aimed at promoting a cheaper and faster alternative to courts for resolving disputes between customers and business.

However, participation in the regime carries reputational risks for businesses. Consumer complaints handling and dispute resolution is a delicate issue that businesses cannot afford to get wrong. Companies can salvage relationships, avoid exacerbating problems and escape negative publicity on social media and other channels by resolving matters to customers' satisfaction in a swift and professional manner.

Under the new regime, ADR providers are to be selected by sector regulators in the regulated industries, such as Ofgem for energy companies and the Financial Conduct Authority for financial services. The Chartered Trading Standards Institute (CTSI) has been tasked by the government with appointing ADR providers that non-regulated businesses can engage with.

Currently there are only ten ADR Approved Bodies listed on the CTSI website. The current list includes respected bodies like ABTA and ADR providers designated for retailers, furniture sellers and car rental firms, among others. 

It is never a good idea to outsource a problem. Unless businesses have complete trust in the designated ADR providers, the processes they follow and the people ultimately taking decisions affecting their customers, then they are unlikely to be willing to give up control of complaints handling and to engage fully with the ADR regime. In all cases companies considering engaging with the ADR process should conduct due diligence, both into the processes the ADR providers follow, the qualifications and experience of the people they employ to take decisions and how decisions will be delivered and potentially enforced, if at all.

If businesses do not have confidence in the ADR providers but equally recognise that their own consumer complaints handling and dispute resolution processes can be improved, then they might consider applying, individually or in co-operation with other companies in the same sector, to become an ADR Approved Body. This would allow them to provide an ODR service whilst retaining an element of control over an issue as important to their reputation and brand.

The infrastructure sitting behind the new ADR and ODR regime is still in its embryonic stage in the UK at least. The idea of ODR in particular is an appealing one, given the efficiencies that online service provision has been able to facilitate in other contexts, from retail to banking. However, as a critique of ODR by the American Bar Association (ABA) makes clear, just because dispute resolution is pushed online does not necessarily mean it will be handled with due process and aligned with what most common law jurisdictions would regard as good quality justice.

As the ABA pointed out, the court system and arbitration has to have the confidence of participants. They need to trust the process, the skill of judges and other decision makers and that the outcome is legally fair. Can we have similar confidence that an ODR Approved Body is secure; it will respect confidentiality; be impartial and will follow due process? The question for businesses is whether, in this new and rapidly changing environment, they can afford to put their reputation at stake without taking care in outsourcing the dispute resolution of customer complaints.

Clive Seddon is a specialist in IT disputes resolution at Pinsent Masons, the law firm behind Out-Law.com.