Benefits of alternative dispute resolution exaggerated by Commission, Government says

Out-Law News | 08 May 2012 | 3:16 pm | 4 min. read

The European Commission has exaggerated the cost savings which alternative dispute resolution (ADR) schemes provide when dealing with consumer complaints, the Government has said.

In December the Commission published plans for a new draft Directive on ADR as well as proposals for the establishment of a new online dispute resolution (ODR) platform for dealing with cross-border disputes.

However, the Department for Business, Innovation and Skills (BIS) said the Commission had "distorted" the cost businesses face in dealing with consumer complaints on the basis of "a small number of high value claims" and had therefore calculated potential benefits of ADR incorrectly. Instead of the average cost being £250, the "median loss per complaint is nearer £15", BIS said Government economists had calculated.

BIS expressed the views in the Government's response (27-page / 216KB PDF) to the views stakeholders expressed to it on the Commission's plans.

"In view of stakeholder comments it seems unlikely that these proposals will deliver the benefits suggested by the European Commission," BIS said. "Firstly, although they may establish more ADR capability, there is no guarantee that this would lead to more use of ADR. Secondly, the Commission seem to have significantly over-estimated the potential benefits of greater use of ADR within the EU."

The Commission wants ADR to be available as a mechanism for settling any contractual dispute between consumers and business and announced the proposal in its draft Directive.

Under the Commission's plans all ADR bodies in the EU would have to be impartial experts that offer transparent information about their services, hear and determine the outcomes of complaints fairly and generally determine those outcomes within 90 days of receiving a complaint.

ADR mechanisms should be free or low cost for consumers to use and member states should be able to draw up national rules that force disputing parties to enter into ADR and make any decisions made binding upon them, the Commission said.

Stakeholders had complained that the Commission's draft Directive does not sufficiently encourage consumers to seek redress with businesses prior to seeking it via ADR. BIS said it was "important" that businesses should have the chance to settle disputes before ADR procedures are entered into.

BIS said ADR providers should have to deal with cross-border disputes, but should not be forced to do so in more than one language, nor be "knowledgable" about consumer protection laws in each EU member state.

"Indeed, in some forms of ADR in-depth knowledge about consumer law is not necessary at all as the aim is to achieve an outcome that is satisfactory to both parties," BIS said. "The Government’s view is that for cross-border cases it would generally be better to use an ADR provider in the country in which the trader is established."

The Government does not want ADR to be mandatorily available to consumers in every business sector, but in sectors where the "evidence suggests this would be a proportionate response" mandatory ADR "should be necessary," BIS said.

BIS also said that Commission plans for a new ODR framework also may not provide the benefits intended and may in fact mislead consumers, the Government has said.

Whilst there was support for a new ODR framework among "many stakeholders", some had said that the ODR framework would not enable disputes to be settled online and that instead it would only act to point consumers towards appropriate ADR schemes.

BIS said the Government would try to achieve changes to the Commission's proposals to make any new ODR system more effective and cost-efficient than it would be under current plans.

"The UK Government shares the concerns of stakeholders that the ODR platform may deliver only limited benefits and may confuse or even mislead consumers and will continue to press the European Commission for further clarifications," BIS said. "The UK Government will seek agreement from other Member States to amendments to enable the proposals to deliver real benefits whilst reducing the risk of consumer confusion and unnecessary costs."

In December last year the European Commission proposed a new free online dispute resolution platform through which traders and consumers could resolve disputes over online purchases.

Under the proposal consumers and traders would be able to submit complaints to registered alternative dispute resolution (ADR) "schemes" via a dedicated website. Complaints would be directed towards the "competent" ADR scheme for dealing with it and that scheme would then determine the outcome of the dispute within 30 days.

At the time the Commission said that a lack of effective redress available for cross-border online purchases hinders trade and that a new platform would save time in ending consumer disputes and "ease communication" between parties based in different countries.

The Commission plans intend for ODR platform facilitators to enable disputing consumers and traders to choose between ADR schemes in cases where more than one body is able to deal with the dispute, following the submission of complaints. Traders and consumers would not have to specify a choice but both would have to agree to the appointment of an ADR scheme before a complaint could be resolved.

Details of whether fees would apply for the use of an ADR scheme would have to be sent out to consumers and traders by the facilitators and whether the ADR scheme could require disputing parties to be physically present to resolve issues.

Most stakeholders that responded to the Government's call for evidence on the Commission's plans had said that responding to complaints submitted via the proposed ODR system within 30 days would be "unfeasible". BIS said it would seek to extend that deadline to 90 days, as is proposed in the Commission's draft ADR Directive.

"The Government will also seek to ensure the EU proposals do not undermine existing, effective mandatory schemes in the UK whereby businesses are required to use certain, specific ADR providers even when the complaint is from a consumer in another Member State," it said.