16 Alternative dispute resolution
for consumer disputes
| (a)
(33481)
17795/11
COM(11) 793
+ ADDs 1-2
(b)
(33482)
17815/11
COM(11) 794
+ ADDs 1-2
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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)
Draft Regulation on online dispute resolution for consumer disputes (Regulation on consumer ODR)
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| Legal base | Article 114 TFEU; co-decision; QMV
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| Department | Business, Innovation and Skills
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| Basis of consideration | Minister's letter of 15 September 2012 and SEM of 17 September
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| Previous Committee Reports | HC 86-iii (2012-13), chapter 11 (23 May 2012); HC 428-xlvi (2010-12), chapter 6 (11 January 2012)
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| Discussion in Council | 10 December 2012
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| Committee's assessment | Legally important
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| Committee's decision | Cleared; further information requested
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BACKGROUND
16.1 Alternative dispute resolution (ADR) refers to schemes
that are available to help complainants resolve their disputes
out of court. The most common forms are mediation, where an independent
third party helps the disputing parties to come to an acceptable
outcome, and arbitration, where an independent third party considers
the facts and takes a decision. Often this decision is binding
on one or other of the parties. Ombudsman schemes are another
widely recognised form of ADR. ADR can offer a low-cost and fast
alternative for consumers and businesses seeking to resolve disputes,
which they cannot resolve between themselves.
16.2 The Commission says that the diversity and uneven geographical
and sectoral availability of ADR in the EU prevents consumers
and business from fully exploiting their potential. Problems
with purchased goods or services therefore often go unresolved,
meaning that consumers are not obtaining adequate redress. In
particular it argues that consumers are reluctant to buy cross-border
through fear of inadequate protection for breach of contract,
legal avenues rarely being considered a viable solution. It suggests
that one way to improve redress in the internal market is to improve
the availability and make further use of ADR. It proposes to
achieve this through two separate legal instruments: (a) a draft
Directive on consumer ADR, which will ensure that quality ADR
schemes exist to deal with contractual disputes arising from the
sale of goods and the provision of services by traders; and (b)
a draft Regulation on consumer ODR (Online Dispute Resolution),
which will enable consumers and traders to access directly an
online platform which will help to resolve contractual disputes
arising from cross-border online transactions through the intervention
of an ADR scheme complying with the Directive.
PREVIOUS SCRUTINY
16.3 We first considered these proposals on 11 January,[67]
when we reported their contents in detail. The Government had
several concerns about whether the proposals were sufficiently
targeted to meet their stated objectives. In December it had
launched a Call for Evidence, which invited stakeholder views
on these proposals by 31 January 2012. These views would help
form the UK's negotiating position. We kept the documents under
scrutiny pending the Government's response to the consultation,
and an update on the negotiations.
16.4 On 23 May[68]
we noted from ministerial correspondence that significant improvements
to the texts of both proposals had been made, many of which addressed
the concerns raised by stakeholders in the Government's consultation.
This had led the Government to be able to support a General Approach
on them, which was due to be adopted by the Council on 30 May.
[69] We therefore
cleared both proposals for scrutiny.
MINISTER'S
LETTERS OF
15 SEPTEMBER
16.5 The newly appointed Parliamentary Under-Secretary at
the Department for Business, Innovation and Skills (Jo Swinson)
writes to say she is signing two Supplementary Explanatory Memorandums
on the above proposals. She hopes that they will provide the Committee
with all that it needs to understand the potential impacts of
the recent amendments to these proposals that have been put forward
by both the Council and the Internal Market and Consumer Protection
(IMCO) Committee of the European Parliament.[70]
16.6 She highlights the fact that two amendments proposed
by the IMCO Committee of the European Parliament to the Directive
on consumer ADR may contain obligations in the field of Justice
and Home Affairs (JHA) and as such may require an Article 81 TFEU
legal base. One of the amendments would require Member States
to enable courts to invite parties to use ADR and provide them
with certain information about ADR. The other would require Member
States to amend limitation and prescription periods so these do
not expire during ADR procedures. In policy terms, setting aside
the legal issues, these amendments seem reasonable but they would
take considerable legal effort to implement and their actual practical
impact would be limited given that, at least in the UK, the sorts
of dispute in question are unlikely to reach court.
16.7 The UK is arguing strongly during the trilogue negotiations
with the European Parliament that this Single Market legislation
should not include any JHA obligations and a number of other Member
States are also opposing the inclusion of these amendments (for
different reasons). However, it is possible that the trilogue
negotiations will nonetheless lead to the European Parliament
(following its expected plenary vote on 19 November) formally
submitting to Council a version of the legislation that contains
one or other amendment. If so, then the Minister has been advised
that the UK may want to consider its Title V Opt-in Protocol to
have been triggered.
16.8 Although, under the Title V opt-in Protocol the Government
should have a three-month period in which to consider the opt-in,
the Minister has been advised that under the circumstances described
above, the UK may want to opt into the legislation (if it is decided
that this is the right course of action) before it is put to the
Competitiveness Council on 10 December. This is because she expects
Member States to come under pressure to adopt this Single Market
measure by the end of 2012 to coincide with the 20th
anniversary of the Single Market. And the process for the UK to
seek to opt in to legislation after it is adopted is far more
complex.
16.9 The Minister writes in advance of the Title V opt-in
Protocol being formally triggered because she wants to ensure
that we have the normal eight-week period to give a view on this
potential opt-in despite the unprecedented circumstances so that
should, as the Government expects, the UK come under pressure
to waive its full three-month period, that is done without prejudice
to the Government's scrutiny commitments to the Houses.
16.10 Lastly, the Minister confirms she will keep us updated
as negotiations progress on all of the key issues for the UK and,
in particular, these amendments that may impose JHA obligations
on Member States.
SUPPLEMENTARY
EXPLANATORY MEMORANDUM
ON THE
DRAFT DIRECTIVE
ON CONSUMER
ALTERNATIVE DISPUTE
RESOLUTION
16.11 The Minister deposited a Supplementary Explanatory Memorandum
on the consumer ADR Directive on 17 September. She says the Directive
has the aim of enhancing the use of ADR for consumer disputes
within the EU. ADR refers to schemes that are available to help
complainants resolve their disputes out of court. The most common
forms of ADR in the UK are mediation and arbitration. The most
well-known ADR providers in the UK are Ombudsmen schemes, for
example the Financial Ombudsman Service. The Minister comments
that use of ADR is generally beneficial to all parties as, if
successful, it avoids the time and cost of court action.
16.12 As proposed, the main effect of this Directive 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. It would do this by placing a requirement on Member States
to ensure ADR, that meets certain quality criteria, is available
for every possible contractual dispute between consumers and business.
Member States would also have to designate a Competent Authority
to monitor standards of the entities that provide this ADR, so-called
"ADR entities".
16.13 The Directive, if adopted as proposed, would also increase
consumers' awareness of the availability of ADR by, amongst other
measures, imposing a requirement on businesses to inform their
consumers about the ADR entity by which they are covered. However,
the Directive would not require the business to use that ADR entity.
So, it could lead to situations where a consumer takes a dispute
to an ADR entity but the ADR entity is unable to help because
the business refuses to engage. Similarly there would be no obligation
on consumers to use ADR to attempt to resolve disputes. One of
the factors for both parties will be the cost of the procedure.
The Directive would limit costs to consumers to be "moderate"
but would place no limit on costs to business.
16.14 The Directive would not require all current organisations
that provide ADR to meet certain quality criteria; only those
that want to be recognised as "ADR entities" would have
to do so. The responsibility would fall to Member States to ensure
there is no gap in the availability of quality ADR. They could
fill any gap by establishing a "residual" ADR entity
rather than requiring the establishment of sector-specific ADR
entities.
POLICY IMPLICATIONS
16.15 This section lists the key areas in which substantive
amendments have been proposed either in the Council General Approach
or in the amendments agreed the IMCO Committee.
16.16 The Government supported the General Approach text as
it made important improvements to the proposed Directive not least
by including procedural rules (to allow ADR entities to dismiss
disputes that are not suitable for ADR to ensure the effective
functioning of the ADR entity); clarifying scope (both in terms
of types of dispute covered and types of ADR procedures included);
and reducing the burdens of consumer information/assistance requirements
(to be provided by business and other organisations).
16.17 Other substantive amendments in the General Approach
text were in the following key areas: relationship to other EU
legislation (which provisions on ADR should prevail); quality
criteria for ADR entities (both in terms of how they run their
procedures and reporting requirements); fairness (including rules
about procedures that impose or propose solutions); Competent
Authorities (who they should be and their precise role); co-operation
of ADR entities (with other ADR entities and national authorities);
implementation issues (including penalties and timing.)
16.18 The IMCO text included amendments in many of the areas
where there are substantive amendments in the General Approach
text and, in addition amendments in the following areas: publication
of exemplary ADR outcomes (in order to improve business practices);
support for ADR entities (including funding, training, a European
quality label and pan-European ADR entities); linkages to justice
systems (to encourage ADR instead of court action and to not limit
access to justice where ADR fails).
IMPACT ASSESSMENT
16.19 In summary, the Directive would have an impact on: all
businesses that sell goods or services to consumers in the EU
by making them provide information about ADR and deciding whether
or not to use it; providers of ADR that wish to be recognised
as ADR entities under the Directive as they need to meet certain
quality criteria; and consumers who may benefit from greater availability
of quality ADR (but only if more businesses agree to use it).
16.20 The Government's original Explanatory Memorandum of
15 December 2011 noted that further information on UK impacts
would be sought through a Call for Evidence to UK stakeholders
and through a small research study. In fact very little additional
quantitative information on impacts was forthcoming from stakeholders
through the Call for Evidence but many stakeholders felt the European
Commission had over-estimated both the potential benefits and
the likelihood of these being realised. In terms of the additional
impacts to the UK it was suggested that the Directive may also
lead to benefits in terms of better standards in customer care
by business through ADR entities giving information on repeated
problems to enforcers.
16.21 In terms of the costs of the proposed information requirements
on businesses, many stakeholders suggested that amending websites
would not be costly but providing information on invoices and
receipts could be. In terms of the costs of establishing a Competent
Authority, stakeholders suggested that having just one in the
UK could lead to duplication of functions and it would be better
to have different Competent Authorities for different sectors.
16.22 In relation to the proposed quality criteria for ADR
entities, most UK ADR providers who responded to the Call said
that they either already meet the proposed standards or could
do so relatively easily. In addition, stakeholders felt that there
would be benefits to UK ADR providers offering their services
to non-UK businesses; indeed some UK ADR providers are already
operating in other Member States.
16.23 In terms of existing coverage of ADR in the UK, stakeholder
views differed. Some felt there were gaps in certain sectors but
one ADR provider claimed to offer ADR for all consumer to business
disputes. A further assessment will be needed once the Directive
has been adopted to determine whether or not the UK would need
to establish additional ADR to meet the requirements of the Directive.
16.24 In relation to the number of consumer disputes that
are currently taken to court, a small research study was unable
to provide quantitative evidence. However, it did reveal existing
qualitative research that suggests the Small Claims Court in England
and Wales is used predominantly by companies chasing consumer
debt, as opposed to consumers seeking redress. So this may suggest
limited savings to businesses and the Court system from increased
use of ADR.
16.25 The small research study confirmed that the number of
cases handled each year by UK ADR providers varies enormously
from over 200,000 in 2010 by the Financial Ombudsman Service (FOS)
to just a few thousand in schemes run by the Ombudsman Services.
ADR schemes run by trade associations seemed to handle far fewer
cases. The small research study also could not quantify the number
of disputes that currently go unresolved that would be likely
to go to ADR if it were to be more available. However, it noted
2008 UK survey results[71]
that suggested only 48% of consumer problems are completely resolved.
16.26 The amendments that have been put forward in the following
areas would lead to the most significant changes of impact of
the Directive:
- Scope: Excluding from the scope of the Directive disputes
initiated by businesses against consumers will reduce the costs
for ADR entities, particularly for those that currently only provide
ADR for complaints from consumers against businesses, e.g. Ombudsman
schemes. Excluding from scope certain higher and further education
providers will reduce implementation costs in this sector.
- Procedural rules: Allowing ADR entities to dismiss
disputes that are not suitable for ADR ensures they can focus
their limited resource appropriately and thereby ensures their
effective functioning.
- Quality Criteria for ADR entities: Adding onerous
new requirements on ADR entities will increase the costs to some
ADR providers of becoming ADR entities.
- Consumer information/assistance: Removing requirements
for businesses and other organisations to provide new information
in written form, as opposed to on websites, will reduce the administrative
burden of these requirements.
FINANCIAL IMPLICATIONS
16.27 In broad terms these remain as in the original
Explanatory Memorandum. In summary there will be: costs to public
funds of designating a competent authority to monitor standards
of ADR; costs of enforcing the requirements on businesses to provide
certain information to consumers; and costs of filling any "gaps"
in the coverage of quality ADR in the UK.
16.28 The amendments that have been put forward
in the following areas would lead to the most significant changes
of the financial implications of the Directive:
- Procedural rules: Allowing
ADR entities to dismiss disputes that are not suitable for ADR
will prevent the UK Government from having to ensure there is
quality ADR available to deal with such disputes, something that
could be quite costly.
- Quality criteria for ADR entities: If quality
criteria become too onerous, existing UK ADR providers may be
deterred from choosing to become ADR entities under the Directive.
This may increase any "gaps" in ADR coverage in the
UK that the UK Government has to fill.
- Support for ADR entities: Any requirement for
Member States to provide training for ADR entities will add a
financial implication. Any constraints on funding ADR may increase
costs.
- Competent Authorities: Costs will be reduced
the more freedom Member States have to designate different Competent
Authorities for different sectors or geographical areas.
- Cooperation of ADR entities: Costs for national
authorities will be reduced if they only have to provide ADR entities
with information that is already available and which cannot be
obtained elsewhere.
- Implementation issues: Relying on removing ADR
entities from the notified list of ADR entities to enforce the
quality criteria, as opposed to laying down specific penalties
will reduce costs.
SUPPLEMENTARY
EXPLANATORY MEMORANDUM
ON THE
DRAFT REGULATION
ON CONSUMER
ONLINE DISPUTE
RESOLUTION
16.29 The Minister deposited a Supplementary
Explanatory Memorandum on the on 17 September. She explains that
the aim of the ODR Regulation is to establish an online signposting
service for disputes about online sales across EU borders that
would be able to direct disputing parties to a provider of ADR
that meets the quality criteria set out in the proposed Directive
on consumer ADR.
16.30 If adopted as proposed, the Regulation
would require the European Commission to establish a European
ODR platform which would take the form of an interactive website
to be accessed electronically and free of charge in all official
languages of the Union. It would be a single point of entry to
consumers and traders seeking the out-of-court resolution of contractual
disputes arising from the cross-border online sale of goods or
the provision of services between consumers and traders. The
Regulation would require Member States to designate an ODR Contact
Point containing at least two ODR facilitators to support the
resolution of disputes submitted via the platform.
16.31 The Regulation suggests that Member States
may confer responsibility for the ODR Contact Point on their centre
of the European Consumer Centre Network. European Consumer Centres
have a presence in every Member State and currently provide an
information and support service to consumers buying goods or services
from a trader based in another EU Member State.
16.32 As proposed, the ODR platform would not
progress a complaint if parties failed to either reply to the
platform or failed to agree to use a particular ADR scheme. Essentially
this means that a consumer would be unable to progress a complaint
against a business, unless the business agreed to use ADR.
16.33 Under the proposed Regulation, all businesses
engaging in online cross-border sale of goods or the provision
of services would be required to provide consumers with certain,
clear and easily accessible information about the ODR platform
as well as an electronic link to the ODR platform's homepage.
POLICY IMPLICATIONS
16.34 This section lists the key areas in which
substantive amendments have been proposed either in the Council
General Approach or in the amendments agreed by the IMCO Committee.
16.35 The Government supported the Council General
Approach text as it made several important improvements to the
original proposal. In particular in relation to: reducing the
risk of misleading consumers into thinking ADR is available when
it is not through amendments to both the process used by the ODR
platform and the information requirements on business; aligning
the Regulation with the Directive on ADR both in terms of definitions
and requirements on ADR entities; excluding from scope disputes
initiated by business against consumers; and clarifying the role
of ODR facilitators.
16.36 The IMCO text included amendments in many
of the same areas as the Council General Approach text. In addition
there are: amendments that would see a possible extension in scope
to cover disputes related to domestic as well as cross-border
online purchases; introducing a requirement to use the ODR platform
to conduct procedures to resolve a dispute; and amendments that
would increase the role of ODR facilitators.
IMPACT ASSESSMENT
16.37 In summary, the proposed Regulation was
expected to provide some benefits to consumers by making it easier
for them to resolve disputes about online, cross-border purchases,
including providing some translation of initial complaints forms.
The Regulation would impose costs to business (in terms of providing
information to consumers about the ODR platform) and costs to
ADR providers (in terms of providing the ODR platform with information
and meeting its requirements to interact with it). Likely costs
to the public sector are discussed in the "financial implications"
section below.
16.38 The original Explanatory Memorandum noted
that stakeholder views would be sought on the UK impacts of the
proposal through a Call for Evidence. Very little additional quantitative
information on impacts was forthcoming, although many stakeholders
questioned what benefits the ODR platform would actually bring.
Some stakeholders noted that the system would be useless if a
business could simply choose not to participate.
16.39 No comments were received on the likely
costs to business of the proposed information requirements. Many
stakeholders felt some of the additional requirements imposed
by the Regulation on ADR providers were unnecessary or unfeasible,
e.g. concluding procedures for disputes about online, cross-border
sales within 30-days.
16.40 The amendments that have been put forward
in the following areas would lead to the most significant changes
of impact of the Regulation:
- Scope: Aligning the scope to
that of the Directive, including excluding disputes initiated
by a trader against a consumer will reduce the costs for ADR entities,
particularly for those that currently only provide ADR for complaints
from consumers against businesses, e.g. Ombudsman schemes. Increasing
the scope to include disputes about domestic online sales as well
as cross-border online sales would increase costs on ADR entities
as they would have to provide more information to the ODR platform.
It is hard to see the benefits of increasing the scope in this
way, particularly as translation is not an issue for disputes
about domestic purchases. However, it may save businesses and
consumers from having to differentiate between domestic and cross-border
sales.
- Aligning the Regulation with the ADR Directive:
A better alignment of the two pieces of legislation in terms of
definitions and requirements will reduce costs, particularly for
ADR entities.
- Information requirements: Requiring information
about the ODR platform to only have to be provided by businesses
that commit to, or are obliged to, use an ADR entity for disputes
about online, cross-border sales will reduce the burden on business
and also the risk of misleading consumers into thinking that ADR
is available when this is only the case if the business agrees
to use ADR.
- Process used by ODR platform: Ensuring consumers
only have to choose between ADR providers that the business has
already indicated he would be willing to use will reduce the risk
of consumers being mislead into thinking there are more ADR options
available than there are.
- Requirement to use ODR platform: Requiring parties
to use the ODR platform for the duration of resolving any dispute
initiated through the platform unless the language of the procedure
is the same as the complainant party could lead to additional
costs for ADR entities as it may be more cost-effective for them
not to use the platform.
FINANCIAL IMPLICATIONS
16.41 In broad terms these remain as in the original
Explanatory Memorandum. In summary, there will be costs to Member
States of ensuring the existence of an ODR Contact Point and two
ODR facilitators and of enforcing other requirements of the Regulation,
such as the information requirements on businesses. The cost of
establishing the ODR platform itself will fall to the European
Commission.
16.42 The amendments that have been put forward
in relation to scope would lead to the most significant changes
of the financial implications of the Regulation. The IMCO proposal
to extend the scope to include disputes about domestic online
sales as well as cross-border online sales would increase the
volume of cases being processed. This would lead to increased
costs for the ODR platform (which would fall to the European Commission)
and the ODR Contact Points / ODR facilitators (which would fall
to Member States). Similar increases would occur if the General
Approach proposal to exclude disputes initiated by a business
against a consumer, is not adopted.
16.43 Finally, some of the IMCO amendments might
also lead to slight increases in costs for Member States. For
example by reducing the options Member States have for designating
a body to be the ODR contact point.
CONCLUSION
16.44 We thank the Minister for her letter and
Supplementary Explanatory Memoranda.
16.45 As neither version of the proposal is under
scrutiny, we would be grateful for versions of the texts reflecting
the first reading amendments to be deposited as soon as possible
after the plenary vote of the European Parliament on 19 November.
16.46 In relation to the suggested amendments
by the IMCO committee of the European Parliament in the JHA field,
the Minister says as follows:
"One of the amendments would require Member
States to enable courts to invite parties to use ADR and provide
them with certain information about ADR. The other would require
Member States to amend limitation and prescription periods so
these do not expire during ADR procedures. In policy terms, setting
aside the legal issues, these amendments seem reasonable but they
would take considerable legal effort to implement and their actual
practical impact would be limited given that, at least in the
UK, the sorts of dispute in question are unlikely to reach court."
16.47 We regard both amendments as having the
potential for significant impact on national civil law procedures.
They would require an additional Title V legal base to be added,
namely Article 81 TFEU; and they would require the passage of
three months before the Government had to indicate its opt-in
decision, and eight weeks in which Parliament could give its opinion
on the opt-in decision. We expect the Government to ensure that
the Council abides by the timetable set out in the opt-in Protocol,
and in undertakings to Parliament, and comment that these should
override a desire to adopt the proposals on 10 December to coincide
with the 20th anniversary of the internal market.
16.48 We are unable to give an opinion on the
opt-in now, in the absence of knowing whether such a legal base
will be added, and what form the provisions will finally take.
We therefore expect our eight-week period for scrutiny to run
from when the revised version of the ADR proposal is deposited
(if a Title V legal base has been added). We remind the Minister
that she herself says these amendments "would take considerable
legal effort to implement"; full and effective Parliamentary
scrutiny is therefore vital.
67 See headnote. Back
68
See headnote. Back
69
http://register.consilium.europa.eu/pdf/en/12/st10/st10622.en12.pdf Back
70
http://www.europarl.europa.eu/committees/en/imco/subject-files.html?id=20120424CDT43871#menuzone Back
71
http://www.oft.gov.uk/news-and-updates/press/2008/49-08 Back
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