Seminar Out-of-court resolution of consumer disputes Sava Centar, Belgrade, June 2013 Dr Christine Riefa

Consumer law is only as good as its enforcement Consumer law strengthened in the EU in past decade However, when rights are not respected European consumers do not always obtain effective redress – Court proceedings expensive, time-consuming, burdensome – Uncertain outcome – Consumers not always aware of their rights in the first place

Cost of lack of adequate enforcement mechanisms Substantial proportion of consumers encounter problems when buying goods and services (1 in 5). Yet, despite strong laws, problems remain unresolved – Losses incurred by European consumers because of unresolved problems is estimated at 0.4% of EU GDP. – Cross border shopping detriment to consumer estimated between €500 million and €1 billion.

ADR and access to justice Access to Justice is a human right in Europe – Access to justice and fair trial are guaranteed under Article 6 of the European Convention on Human Rights – Article 47 Charter of Fundamental Rights of the EU provides for the right to an effective remedy and to a fair trial. Access to justice is an international preoccupation – UNCITRAL (UN Commission for International Trade Law) is developing procedural rules on ODR – OECD report from 2006 highlight importance of cross- border dispute resolution mechanisms.

Consumer dispute resolution landscape Public enforcement undertakings Criminal Courts Private Enforcement Civil Courts Small claims Other Civil Courts Out-of-court Tribunals ADRODR

Historical background to ADR/ODR legislation 1998 Communication on out-of- court settlement of disputes 1998 Recommendation on the principles applicable to out-of-court settlement 2001 Recommendation on the principles for out-of-court bodies involved in consensual resolution 2001 EEJ-Net (ECC-Net from 2005) + consumer claim form to facilitate access to ADR FIN-Net (50 ADR schemes in financial services)

Historical background to ADR/ODR legislation 2002 Green Paper on Consumer ADR launched 2004 Voluntary European Code of conduct for Mediators 2007 Study on Consumer ADR and Comparative report 2009 ADR Study analysing use of ADR schemes in EU 2007 European Small Claims Procedure 2008 Mediation Directive

Historical background to ADR/ODR legislation 2011 Communication of 13 April from the Commission Legislation on ADR (with e- commerce dimension) is one of 12 levers to boost growth and strengthen confidence in Single Market 2011 Proposal for a Directive on ADR + Proposal for a Regulation on ODR Resolution of March to adopt Directive and Regulation at first reading – Awaiting Parliament’s vote

Main features of Directive on ADR for consumer disputes Goals? What disputes? How is ADR delivered?

An ADR Directive – what for? Achieve a high level of consumer protection Voluntary basis – National legislation can impose mandatory participation – But not a substitute to courts, but a viable alternative Harmonises quality requirements for ADR entities and ADR procedures in order to ensure that Consumers have access to high quality, transparent, effective, fair out-of-court redress mechanisms

Types of disputes subject to ADR Directive People Consumertrader Geography National disputes Cross-border (2 legs only) Contracts SalesServices

Types of ADR solutions subject to ADR Directive Types of disputes Not Procedures before consumer complaints handling systems operated by trader or direct negotiation between Trader and Consumer Not disputes between Traders or procedures initiated by Traders against Consumers (unless allowed by National law) Not procedures initiated in course of judicial proceedings Organisation Binding/ non-binding Public/ private funding Sectorial/ general competence Not health services Not public providers of further or higher education Exceptions: Art 2 (2) ADR person employed or remunerated by trader (MS can allow)

Obligations of Member States – facilitation & control of delivery Ensure availability of ADR entities – Sectorial – General Control information to consumers about ADR entities – Website information + durable medium, complaint forms, protection of personal data Discretion in disputes submitted to ADR – Can allow introduction of procedural rules allowing to refuse to deal with a dispute – Can allow setting of monetary thresholds – but not in way which significantly impair consumer access

Six main principles applicable to ADR Transparency Effectiveness FairnessLiberty Legality Independence and impartiality

Appoint persons with necessary expertise, independence and impartiality – Knowledge and skills of consumer disputes and general understanding of the law – Term of office of sufficient duration to ensure independence – Not subject to instructions from parties – Remuneration not linked to outcome of case – Disclosure of conflicts of interest (unless ADR entity = only one natural person) – appropriate action taken if conflict of interest exists Procedures where natural person is employed or remunerated exclusively by Trader – Collegial body – Period of office of minimum 3 years – No work for paying entity or affiliation for 3 years after – Clear separation between ADR entity and Trader paying – budget independence

Transparency Consumer informationAnnual activity reports Available on website or durable medium (upon request) or by any other means considered appropriate

Transparency – consumer information Contact details Compliance with Art 20(2) – notified and fulfilling criteria Person in charge of ADR, method of appointment and length of mandate Expertise, impartiality and independence if employed or remunerated by trader Membership in ADR network for cross-border disputes Type of disputes (including thresholds if applicable) Procedural rules Languages Rules used for dispute resolution Requirement to resolve issue amicably Withdrawal from procedure Costs Average length of procedure Legal effect of the outcome (binding / non-binding) Enforceability

Transparency – Annual activity reports Number of disputes & types of complaints Any systematic or significant problems that occur frequently and lead to disputes between C and T (can include recommendations) Rate of disputes ADR entity refused to deal with and % of types of grounds for refusal Analysis for disputes resolved with ADR entity employed or remunerated by Trader % of discontinued ADR procedures Average time for dispute resolution Rate of compliance with ADR decisions (if known) Cooperation of ADR entities within networks for cross-border disputes (if applicable).

Effectiveness Availability Ease of access Free of charge or nominal fee only 90 days maximum No need for lawyer But independent advice available Effectiveness

Fairness Argument, evidence, documents, expert opinions No need for lawyer but able to seek independent advice or be represented at any stage Notification of outcomes and grounds on which outcome is based communicated

Fairness in non-binding ADR Ability to withdraw from procedure at any stage Before agreeing to ADR solution, information about: – Choice of agreeing or following proposed solution – ADR solution does not preclude court proceedings – Court decision may lead to different outcome – Legal effects of the ADR solution Time to reflect before agreeing to ADR solution Prescription period extended to include ADR procedure (Art 12).

Liberty Pre-dispute clauses in contracts = NON BINDING (unfair term) Post-dispute agreement is only binding if parties informed of binding nature in advance

Legality in binding ADR No solutions imposed by an ADR entity shall result in the Consumer being deprived of the protection afforded to him by the provisions that cannot be derogated from by agreement by virtue of the law where the consumer is habitually resident.

Framework for effective ADR Consumer information Role of competent authorities Cooperation 6 principles for ADR

Consumer Information Consumers needs to know ADR exist to use it – wide dissemination strategy adopted Obligation on traders to inform consumers about ADR entity (ies) that cover them when trader committed or obliged to commit to ADR – Information in clear and comprehensible manner Assistance for consumers in cross-border disputes (ECC-Net centre or other body) List of ADR entities well publicised by ADR entities, ECC-Net and other bodies, encourage consumer associations, trade associations to disseminate Information about how to access ADR

Cooperation To improve provision, cooperation and exchanges between ADR entities enshrined in the Directive Cooperation between ADR entities and national enforcement authorities also essential (including information exchange)

Role of competent authorities Each MS designates at least one competent authority – When multiple authorities, designate one single point of contact Information to be notified to competent authority – Key info about ADR entity (including reasoned statement on why entity qualifies and complies with quality requirements) Role of competent authority – Assess if ADR entity qualifies and fulfils all quality requirements – List all ADR entities notified and fulfilling the conditions & makes list public – Notifies list to the EU Commission – Ensures compliance of ADR entities and acts if one no longer fulfil the requirements – Reports every 4 years on development and functioning of ADR entities

ADR in practice ADR in Europe today Case Studies Key recommendations

ADR in Europe today 750 ADR systems in place for the resolution of consumer disputes 95 consumer ADR systems in the UK Significant increase in last 5 years Gaps in coverage subsist (ADR Directive seeks to address them) Awareness of ADR amongst consumers and traders is low

Main models of ADR in Europe Public Regulation bodies Independent decision making bodies Trade association / code of practice

Sequencing of dispute resolution pathways Recommendation or Decision Mediation/ conciliation technique Direct negotiation

Case study – consumer ADR in the UK Consumer ADR highly developed in the UK Squatter of ADR models (no uniform model) Mostly sectorial ADR (95 schemes across 35 sectors) Main challenges: – Variability – Visibility

Case study – Consumer ADR in the Netherlands Unified system and well-established structure – The Consumer Complaint Commission – ADR processes overseen by Independent Foundation of Complaint Commissions High visibility Sectorial variations Separate structure for Financial services (KiFiD)

ADR mix in the UK Statutory Sectorial Ombudsmen Private Ombudsmen Code of Conduct ADR CEDR Dispute Group Ombudsman Services FOS (Financial Ombudsman Service) Legal Ombudsman Travel ABTA Code & Scheme OFT Consumer Code Approval Scheme (11 schemes from motor vehicles to carpets! )

Financial Ombudsman Service Complain to bank, insurance company or finance firm – 8 weeks to react – FOS can help by contacting business for the consumer and present their complaint 2. Ask FOS to look at unresolved complaint – Fill in complaint form – Call to get assistance with filling in the form 3. FOS deals with complaint – investigation to decision

Financial Ombudsman Service Funding? – Not government funded – Levy on industry required by law (from £100 to £30,000 depending on size of firm) – Case fees paid for by traders Compliance with 6 principles? – Independence guaranteed (necessary as paid by trader)

Case Study – consumer ADR in Slovenia Limited arrangements for consumer ADR Some mediation in business sectors as well as general consumer arrangements Some court driven initiatives (small claims and mediation) Main challenges: – Critical mass (small population) – Problems of cost and duration

Any questions?

Key bibliography Christopher Hodges, Current discussions on consumer redress: collective redress and ADR, ERA Forum (2012) 13: Hodges, Benöhr, Creutzfeldt-Banda, Consumer ADR in Europe, Civil Justice Systems, Hart, Beck, Nomos Cortes, Online Dispute resolution for consumers in the European Union, Routledge 2011.