Consumer Dispute Resolution

The Committee consisted of the following Members:

Chair: Katy Clark 

Blears, Hazel (Salford and Eccles) (Lab) 

Blomfield, Paul (Sheffield Central) (Lab) 

Crabb, Stephen ( Lord Commissioner of Her Majesty's Treasury )  

Dakin, Nic (Scunthorpe) (Lab) 

Harris, Rebecca (Castle Point) (Con) 

Hopkins, Kelvin (Luton North) (Lab) 

Lee, Dr Phillip (Bracknell) (Con) 

Murray, Ian (Edinburgh South) (Lab) 

Newmark, Mr Brooks (Braintree) (Con) 

Simpson, David (Upper Bann) (DUP) 

Smith, Henry (Crawley) (Con) 

Swinson, Jo (Parliamentary Under-Secretary of State for Business, Innovation and Skills)  

Uppal, Paul (Wolverhampton South West) (Con) 

Alison Groves, Committee Clerk

† attended the Committee

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European Committee C 

Monday 15 April 2013  

[Katy Clark in the Chair] 

Consumer Dispute Resolution

4.30 pm 

The Chair:  Does a member of the European Scrutiny Committee wish to make a brief explanatory statement about the decision to refer the relevant documents to this Committee? 

Henry Smith (Crawley) (Con):  I do indeed, Ms Clark, and it is a pleasure to serve under your chairmanship. It might help the Committee if I take a few minutes to explain the background to the proposals and the reasons why the European Scrutiny Committee has recommended them for debate. 

The directive has the aim of enhancing the use of alternative dispute resolution for consumer disputes in the EU. ADR refers to schemes available to help complainants resolve their disputes out of court, usually by arbitration or mediation. The directive’s main effect would be to increase the availability of quality ADR for contractual disputes between consumers and business. It would not require parties to use ADR; it would simply increase the supply of quality ADR by placing a requirement on member states to ensure that ADR that meets certain quality criteria is available for every possible contractual dispute between consumers and business. Member states would have to designate a competent authority to monitor standards of entities that provide ADR, or ADR entities. 

The aim of the online dispute resolution regulation is to establish a signposting service for disputes about online sales across EU borders that can direct disputing parties to a provider of ADR that meets the quality criteria set out in the proposed directive on consumer ADR. If adopted as proposed, the regulation would require the Commission to establish a European ODR platform, in the form of an interactive website, to be accessed electronically and free of charge in all official languages of the EU. The regulation would require member states to designate an ODR contact point. 

The Government supported both proposals in Council negotiations and successfully sought amendments to make them less onerous to implement, but in the First Reading negotiations, the European Parliament proposed an amendment—article 9c—that would require member states to amend limitation and prescription periods for bringing legal proceedings, so that they do not expire during ADR procedures. In policy terms, the amendment seems reasonable to the Government, but primary legislation will have to be amended to implement it and its practical impact will be limited, given that, in the UK at least, the disputes in question are unlikely to reach a court. More important, the Government think the amendment requires the addition of a title V legal base, through article 81 of the treaty on the functioning of the EU, which would give them a right to opt out of article 9c, but they are isolated in that view. Even though the Government have

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not succeeded in adding a title V legal base, they say they will apply their opt-in or opt-out rights regardless. They also say the UK will consider challenging the directive before the European Court of Justice, because of the absence of a title V legal base. 

The European Scrutiny Committee report of 13 March concluded: 

“We think the considerable administrative, financial and legal impact of the final drafts of these two proposals, weighed against the increased protection for consumers, could usefully be aired in a debate in European Committee C. The debate should also explore the unwelcome precedent set by a measure such as Article 9c, which will require a significant change to civil legal procedural rules, being adopted without a Title V legal base thereby removing the UK’s discretion not to be legally bound by it. We will be interested to know whether the Government will consider a legal challenge.” 

We therefore look forward to hearing from the Minister why it is in the UK’s interests to vote in favour of the proposals and what the Government will do about the lack of a title V legal base. On the latter point, a minuted statement by the UK in the Council will do little to impede the worrying consequences for the UK’s ability to opt out of EU civil legislation. A challenge before the European Court of Justice could be far more effective, particularly in light of the approach taken in the mediation directive. In any event, it would clarify the scope of article 81 of the treaty on the functioning of the European Union. 

4.35 pm 

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson):  It is a pleasure to serve under your chairmanship, Ms Clark, for what I believe is the first time. 

These proposals will be good for consumers and business. They are designed to promote access to quick, cheap and effective dispute resolution for consumer disputes and therefore enhance redress for consumers. The availability of simple, low-cost means of resolving disputes should strengthen consumer protection and improve consumer confidence. The proposals are a key component of the European Commission’s efforts to boost the single market. 

The proposals will oblige member states to ensure that ADR schemes meeting specified quality standards are available for any contractual dispute between a consumer and a business. ADR gives consumers the option of resolving their disputes outside court, and common forms of ADR are mediation, arbitration and ombudsman schemes. The proposals will also create an online platform to help to resolve disputes relating to online transactions. Concerns about being able to resolve complaints or problems have been identified by consumer groups as a major deterrent to shopping across borders. The online platform’s ability to identity ADR bodies in other member states and to translate any information exchanged during a dispute should prove to be an invaluable resource. 

The proposals will not make the use of ADR mandatory, although member states can continue to make ADR compulsory wherever they consider it appropriate. The UK already has compulsory schemes in place in areas such as financial or legal services, and many sectors have voluntary schemes in place such as the furniture ombudsman which several large retailers are signed up

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to. Although the provision of ADR in the UK is fairly strong it is almost non-existent in some other member states, so the proposals will improve the provision of ADR across the EU and ensure better protection for UK consumers shopping elsewhere in Europe. For example, a UK consumer buying electrical goods online from another EU country will be advised if that business is committed to using ADR to resolve disputes; the consumer will be provided with a link to an online platform which, in the event of a dispute, can transfer all documentation to the relevant ADR scheme and translate any documents sent in return. 

The UK supports the objectives of the proposals. Our approach during negotiations has been to ensure that the proposals will deliver benefits to consumers but not at disproportionate cost to business, ADR providers or public funds. We have also sought to ensure that the proposals do not hinder our existing highly regarded mandatory ADR schemes, such as the Financial Ombudsman Service. I believe that this balance has been struck, a view reinforced by the broad support expressed throughout negotiations by both business and consumer groups and by UK ADR providers. 

My Department remains concerned about certain aspects of the proposals, in particular that the information requirements that fall on business could create unnecessary burdens and cause confusion if they are not implemented effectively. We will continue to work closely with business and consumer groups throughout the implementation of the proposals to address that issue. We are also calling on the Commission to keep those requirements under review. 

Negotiations on the proposals drew to a close towards the end of 2012. The European Parliament approved the proposals in a recent vote, and the Council is due to vote on the proposals next week. Today’s debate is therefore timely, as it allows us to discuss some of the major issues considered during the negotiations before the Council vote takes place. I understand the European Scrutiny Committee’s interest centres on the question of the title V basis, which, as has been explained, the Government do not agree is necessary. At the same time, when asked whether we think a legal challenge is the best route forward, we have considered carefully the merits of opting in and the consequences of not doing so. 

We support the aim of the proposals, for the reasons I have outlined. We have worked out that the legislative changes required would be minimal, as would the impact of implementation, so we have decided that it is sensible to opt in and that a legal challenge would not be appropriate. We will, of course, maintain that we cannot be bound by a justice and home affairs obligation outside the scope of the opt-in protocol. We assert our right to opt in to the provision prior to the Council vote on 22 April. I hope that is useful information for the Committee. I am happy to answer questions. 

The Chair:  We have until 5.30 pm for questions to the Minister. I remind Members that they should be brief. It is open to a Member, subject to my discretion, to ask related supplementary questions. 

Ian Murray (Edinburgh South) (Lab):  It is a pleasure to serve under your chairmanship for the first time, Ms Clark. I have several questions for the Minister,

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most of them based on the directive itself. Given the introductory remarks from the hon. Member for Crawley, I believe the European Scrutiny Committee is more concerned about the title V issues, but we have the opportunity to raise some questions. 

The draft directive strongly implies that the objective is to ensure that all businesses offer ADR, but it is not abundantly clear that that will be the case. Will the Minister clarify what the position will be in the UK? 

I would like to ask several questions and then—depending on the answers I receive—come back to some supplementary ones, if I may, Ms Clark. 

The Chair  indicated assent.  

Ian Murray:  Thank you. 

Secondly, in the Government’s consultation, what concerns did the business community express about the costs that its members may incur as a result of the directive? 

Thirdly, who is the Government’s preferred competent authority? Should the competent authority approve ADR schemes against the EU criteria—both existing ADR schemes and those that come into existence as a result of the directive? 

Jo Swinson:  I am happy to answer questions on the specifics of the directive and regulations. As I said in my opening remarks, the proposed measure does not make the use of ADR mandatory, though member states will be able to make ADR compulsory if they wish. Requiring member states to ensure that ADR is available, even though individual businesses do not have to sign up to it, should expand its use. That is particularly important for countries that do not have a history of using ADR. The UK can offer long experience and great examples of good ADR schemes, some of which may expand into other countries. 

With regard to the competent authority, it is important to recognise that there can be one or more competent authorities designated to maintain and monitor a list of ADR providers meeting the required standards of the directive. If an ADR provider is found no longer to comply with the requirements of the directive, the competent authority must give warning before removing that provider from the list and notifying the Commission. 

We think that the directive will require no significant change in the UK. As I outlined, we already have a well developed set of ADR providers. Once the proposals are adopted, we have two years to implement the legislation by ensuring that we fill any gaps and that ADR is available in all sectors. 

As is often the case with any new regulation there are concerns about increased costs, and the costs of using ADR do tend to fall on businesses. That said, business groups recognise that ADR tends to provide a much lower cost alternative to going through the courts. If complying with ADR does not save significant amounts of money, businesses are unlikely to want to go down that route, so it is a matter of ensuring that ADR procedures are not costly and are seen as a better alternative to lengthy court proceedings. I hope that those answers are helpful. 

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Ian Murray:  That was very helpful, and allowed me to score off four further supplementary questions; I now have only two left. On the ODR, the Minister mentioned costs for businesses. Does she agree that the 30-day deadline for the ODR is an impractical time frame, and is inconsistent with the 90-day limit for an ADR? Will she confirm that a 90-day limit will now apply across the board for both the ADR and ODR schemes? Will she also enlighten the Committee about why the United Kingdom was the only country advocating that the measures should fall under the title V legal base, and why every other country in the European Union decided to reject that and go down the route that has been taken? 

Jo Swinson:  On the hon. Gentleman’s first point, I will happily confirm that the original 30-day deadline is now a 90-day deadline. That provides sufficient time for issues to be explored properly. 

It is sometimes the case that EU member states do not all agree on the legal base. As we are not in the majority of states that have the opportunity to opt out, such issues are often more relevant to the UK. In this particular case, only a very small part of the directive, article 9c, is relevant, but, in terms of justice and home affairs, it means that—for very good reason—we would need to amend the limitations on the time people have to undertake ADR and to go through a proper court process to consider whether a particular process has been fair. If an ADR is ongoing, we need to be able to pause that process, to make sure that the current six-year period for claimants does not include the time spent in ADR. That change seems very sensible, but as it has a relevance, albeit small, to the court system, in our view the title V base is relevant. Unfortunately, ours is a lone voice in Europe, but we will none the less make our statement, setting out the Government’s position clearly so that we do not prejudice any future situation in which a directive might be put forward that is not as benign in its impact on UK law. 

Kelvin Hopkins (Luton North) (Lab):  It is a great pleasure to serve under your chairmanship, Ms Clark; you are a good friend. In her introductory statement, the Minister said that Britain is relatively well advanced in ADRs and that other countries’ ADRs are either poor or non-existent. Does that mean that a British consumer who is having a dispute with a business in one of those countries is at a disadvantage? Are consumers from those countries at an advantage when having a dispute with a British company, because of the good ADRs in Britain? 

Jo Swinson:  The hon. Gentleman has hit the nail on the head, although I would say that any consumer, whether based in the UK or elsewhere, who is dealing with UK companies that are members of ADR schemes is in an advantageous position because of our alternative dispute resolution procedures; similarly, any consumer dealing with a company that is based in a country where there are not good ADR procedures will be at a disadvantage. In some ways, there is a great potential advantage for British business in this area: we already have not just well developed ADR but a very well developed online shopping and e-commerce sector, which has huge potential to grow. The rest of the European

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Union is, of course, a key market. Making sure that ADR procedures are more standardised will be helpful, but in many cases British companies are already leading the way. That is why I began by saying that the measures are good for consumers, who will have the additional enhanced protections when dealing with companies outside the UK that they currently have when dealing with UK companies. That is also good for business, as the reputation that British business has means we will be able to expand our online trade, and UK companies can take great advantage of that. 

On the EU more widely, newer member states tend to have less well developed consumer protection, so improving the positive operation of the single market generally will have wide benefits across the EU. 

Kelvin Hopkins:  It strikes me that these proposals will hopefully improve consumer protection across the whole European Union. I just wonder about language difficulties, because there are a large number of languages in the EU now. Will there be a significant cost involved in implementing the new proposals? 

Jo Swinson:  That is another very pertinent point. Language can be one of the significant barriers that consumers face. A consumer might find a product they want to buy on a website that is a little unfamiliar because they do not speak the language fluently. That can hold them back, particularly if they are concerned about what will happen if they get into a dispute. I remember trying to buy a wedding present for a friend, who was going to Italy on honeymoon. I wanted to buy a voucher so they could have a nice meal out. I tried to speak to the restaurant owner down the phone because my e-mail did not get through, but my attempts at Italian were rather poor, his attempts at English were not great, and so we settled on doing it in pidgin French. The language barrier is a genuine problem. 

The online dispute resolution proposal is helpful because it will provide a translation service. It will give consumers more confidence that they can buy something through a website, and if something goes wrong, the fact that they do not speak the language will not be a barrier because the online dispute resolution service will provide translation. It is an excellent service, and just the kind of thing that the EU does to support British business and the single market more generally. 

Kelvin Hopkins:  This is a pointed question. Will the Minister tell the Committee which countries have good consumer protection and which do not? It would be very interesting to hear the list. 

Jo Swinson:  The hon. Gentleman tempts me to make judgments about the merits of different countries. I hope he will understand if I decline to proclaim which are good and which are poor. As I said, newer member states tend to have less well developed ADR procedures in place. That is not necessarily out of a lack of enthusiasm; in some cases it is because free market principles have been applied for a shorter time, so it is not surprising. I do not wish to cause offence to countries elsewhere in the EU, so I will say no more than that. 

The Chair:  As no other hon. Members wish to ask questions, we will proceed to debate the motion. 

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4.53 pm 

Jo Swinson:  I beg to move, 

That the Committee takes note of Unnumbered Explanatory Memorandum dated 26 February 2013, submitted by the Department for Business, Innovation and Skills, relating to a draft Directive on alternative dispute resolution for consumer disputes and amending Regulation (EC) No. 2006/2004 and Directive 2009/22/EC (Directive on consumer ADR), and a draft Regulation on online dispute resolution for consumer disputes (Regulation on consumer ODR); and supports the Government’s general position to increase consumer confidence and enhance the internal market as intended by the proposed legislation. 

I am pleased to have been able to answer questions from members of the Committee. It is pleasing that Members are interested in ensuring that increased consumer protection progresses with the proposals, and that they are successful, balanced and proportionate. 

4.54 pm 

Ian Murray:  I shall not keep the Committee long. On page 114 of the papers from the European Scrutiny Committee there is a letter from the Chair of that Committee to the Minister about the basis for this debate, which refers to the title V legal base. The Minister has answered questions about why it has not been part of this process. The Opposition very much welcome the alternative dispute resolution procedure because, as the Minister said, the United Kingdom already has strong consumer protection. However, a lot of work still needs to be done. A recent Which? survey shows that 50% of people who complain feel that their complaint has not been dealt with properly. 

It would be wrong at this stage not to mention the Labour party’s consumer investigation, which looked in depth at some of the detriment to the UK. It showed there were still significant losses to the economy—not only to consumers, but to business—as a result of people not having proper redress. That is why we are looking at suggesting an opt-out system of collective action.

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There is lots of work to be done. The proposals are a step in the right direction, for not only people shopping in this country, but people using their pidgin French to book dodgy Italian restaurants in other countries. The Minister did not tell us whether she ultimately concluded her discussion with the restaurant, but perhaps she can when she replies. However, the Opposition support the proposals, understand why there is no title V legal base and hope we can move forward. 

4.55 pm 

Jo Swinson:  I thank the Committee for the opportunity to discuss this issue. The debate has been constructive and interesting, if brief. In response to the hon. Member for Edinburgh South, I should point out that the restaurant was not in any way a dodgy Italian restaurant, although the standard of my communication in trying to book it might have been slightly dodgy. However, he will be pleased to know that the outcome was that my friend had a wonderful honeymoon and a lovely, enjoyable evening at the restaurant, which I found with the help of guest ratings sites on the internet. It was a good consumer success. 

I welcome the hon. Gentleman’s comments about what still needs to be done to ensure consumers are protected. The Government are keen to ensure that that happens. As he will know, we have been looking at a wide range of issues relating to consumer law, and we are keen to introduce a Bill on consumer rights when that is possible, to take forward some of the matters on which the Government have consulted. 

I therefore hope that Members will agree that these proposals for alternative dispute resolution and online dispute resolution are sensible and that, in opting in, the Government are doing the right thing. I welcome the opportunity to discuss the proposals, and I thank the European Scrutiny Committee for allowing us to do so. 

Question put and agreed to.  

4.57 pm 

Committee rose.  

Prepared 16th April 2013