(Commissie voor Consumentenaangelegenheden Alternatieve geschillenbeslechting in de EU (2012/3)

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1 Abstract of Advisory Report: Alternative consumer dispute resolution in the EU (Commissie voor Consumentenaangelegenheden Alternatieve geschillenbeslechting in de EU (2012/3) 1. Introduction At the end of 2011, the European Commission presented two complementary proposals intended to help consumers resolve disputes with businesses without needing to have recourse to the courts. One proposal is for a directive regarding the alternative resolution of consumer disputes ( ADR ); the other is for a regulation regarding the online resolution of such disputes ( ODR ). The Commission considers that both consumers and businesses will benefit from these measures because they will enable them to resolve disputes quickly, simply, and effectively without recourse to the courts. This can increase consumer confidence where cross-border transactions are concerned, and thus promote the operation of the internal market. In the present Advisory Report, the Committee for Consumer Affairs (CCA) of the Social and Economic Council (SER) responds to a request for advice from the Dutch Government. The CCA is made up of members representing consumers and businesses, as well as independent experts. In Section 2, the CCA provides a general review of the matters concerned. In Section 3, it deals with specific components of the proposals. Section 4 deals with the ODR regulation. General review 1.1 Promotion of operation of the internal market Value of the proposals The Netherlands and the other EU Member States will benefit from effective ADR for consumer disputes in all European countries. However, some passages in the proposals may create the incorrect impression that the directive and the regulation will mean that consumers can submit all their disputes to ADR. The European Commission s proposals mean that there will be provision for ADR in each sector, but not that every business must be registered. The proposed directive merely provides that governments should arrange a system of ADR, with businesses being able to register for it regardless of the sector within which they operate. A consumer s access to ADR depends on the possibility and preparedness on the part of the business to submit the dispute to an ADR entity. Legal basis The proposals are based on the internal market Article 114 of the Treaty on the Functioning of the European Union (TFEU), with reference also being made in the recitals to Article 169(1) and (2)(a) TFEU (the EU contributes to ensuring a high degree of consumer protection). The CCA wishes to make a number of comments in this regard. For the present, the Commission has not provided any convincing arguments as to why it is these provisions and not Article 169(2)(b) TFEU (consumer policy to support,

2 2 supplement, and monitor the policy pursued by the Member States) or Article 81(1) TFEU (judicial cooperation in civil matters having cross-border implications, for example developing alternative methods of dispute resolution) that provide the right legal basis. The CCA urges that clear arguments be given as to which Treaty provision provides the right legal basis for the proposals. It is also important that the Member States should be able to maintain or create rules in certain respects that go further than what is provided in the proposed directive, for example additional quality requirements for ADR entities. Article 114 TFEU provides scope for this but is subject to strict conditions. The CCA calls on the Government to ensure that the directive explicitly provides that there is minimum harmonisation. 1.2 Scope for diversity A clearer approach The European Commission s proposals are intended to bring about a clearer approach. A recent study of ADR shows that there are numerous differences between the various systems: 1 the extent to which a ruling is binding, the extent of involvement on the part of private parties, etc. Best practices can be designated in certain respects but it is too early to create a single model that is applicable in all situations. The authors rate the Dutch system very highly (see box), but they also point out that that model cannot simply be copied everywhere: The Geschillencommissie system is an outstanding success, and one of the leading European examples of ADR. The system operates within a distinct national culture of collaboration and achieving pragmatic solutions. The question for other states is whether such a culture is a pre-requisite for a successful ADR system. The CCA considers that the directive should provide scope for diversity. A clearer approach can be achieved above all by imposing minimum requirements for ADR entities. Extrajudicial dispute resolution by the SGC The Netherlands has a number of different systems for extrajudicial dispute resolution. In the consumer context, the binding opinion [bindend advies] plays an important role. There is a central portal for this in the form of The Disputes Board [De Geschillencommissie] (SGC). This was set up in 1970 as a partnership between the Dutch Consumers Association [Consumentenbond] and a number of sector organisations. The SGC now comprises fifty consumer boards and 5 commercial boards. The SGC s disputes boards are generally appointed on the basis of bilateral general conditions. The financial sector also has the Financial Services Complaints Authority [Klachteninstituut Financiële Dienstverlening, KiFiD]. Banks, insurance companies, pension funds, intermediaries, and other financial services providers are legally obliged to register with a financial services complaints authority. For consumers, the costs involved in dispute resolution via the SGC are relatively low. Moreover, a consumer that is ruled against does not need to pay the other party s costs. Efficient management means that the proceedings are also usually relatively swift. The costs for consumers who take a case to the disputes board can be kept low because businesses contribute a relatively large amount. ADR also has advantages for businesses. Registering with a disputes board can be a significant way for a business to distinguish itself. Moreover, proceedings are not always held in public. Neither the dispute nor its outcome can be made public without the consent of the parties; if this is done, it is without their names being mentioned. SGC provides a number of specific advantages of scale and quality guarantees: - Dispute resolution via the SGC does not require parties to be represented by a lawyer, although that is possible. 1 Christopher Hodges, Iris Benöhr and Naomi Creutzfeldt-Banda (eds) (2012), Consumer ADR in Europe; Civil Justice Systems, Oxford.

3 3 - Registering with De Geschillencommissie ensures that matters are streamlined as regards rulings, proceedings, etc. Consumers and businesses can also consult a digital database of rulings. - The various boards consists of experts in a particular field of consumer products and services. The independent member proposed by the sector organisation generally works (or has worked) within the sector concerned. - The marginal test of reasonableness [marginale toetsing] by the courts is possible. - The SGC regulations comply with the basic principles of due process and consequently also comply with the recognition scheme of the Ministry of Security and Justice. The regulations also comply with the 1998 and 2001 recommendations by the European Commission regarding ADR arrangements for consumers. The SGC plays a role in the Government s plans for reducing the pressure on the courts and on subsidised legal aid. The Minster of Security and Justice therefore provides the SGC with an annual subsidy. Ensure implementation by means of self-regulation The proposed directive obliges Member States to create legislation to implement the directive proposals. The Netherlands has an effective system of alternative dispute resolution in consumer matters which is primarily based on self-regulation. The CCA considers that even if the directive is introduced the division of responsibilities between government, consumer organisations, and the commercial sector should basically remain as it is at present. The CCA endorses the position of the Dutch Government that this Dutch system of extrajudicial dispute resolution complies to a very large extent with the requirements of the proposed directive. That is confirmed by the European Commission s Impact Assessment, which classifies the Netherlands as one of the nine Member States that already have an ADR system offering full coverage. 2 It can therefore be concluded that the Netherlands can restrict itself to setting up a safety net board (see below). The CCA considers it essential and a condition for accepting the proposed directive that the Dutch system of self-regulation can be incorporated into it. So as to avoid the unnecessary risk of being surprised by rulings by the European Court of Justice, the CCA considers it necessary to set forth the option of implementation by means of selfregulation in the directive. It is important, however, that such self-regulation should be of high quality. In the view of the CCA, this requires changes to be made to a number of the recitals in the preamble and in the text of Article 22 of the directive. The CCA refers to the example of previous directives regarding package tours, unfair conditions, sale and guarantees, consumer credit, and agreements concluded remotely that specify disputes boards as a means of enforcement. 1.3 Increased level of coverage According to the proposed directive, the Member States will be obliged to make it possible for all businesses in all sectors of the consumer market to register with an ADR body. They can comply with that requirement by setting up an ADR entity that acts as a safety net. Consumers and businesses can approach this disputes board if there is no specific disputes board for the sector concerned. A consumer can only successfully call upon that disputes board if the enterprise has voluntarily registered with it. The advantage of a safety net is that it becomes possible for enterprises to register with an ADR body for all disputes, regardless of the sector. It also saves the investment of time and money in sectors where it is not an obvious step to set up a sector-specific disputes board. In some sectors, most of the transactions are simply too insignificant in a monetary sense. For those sectors, a safety net board would, however, be worthwhile. 2 European Commission, Impact Assessment, Brussels, 29 November 2011, SEC(2011) 1408 final, pp. 18 and 48.

4 4 The existence of a safety net can lead to businesses seeing fewer advantages in setting up a sector-specific disputes board via a sector organisation. A free ride problem may arise if businesses can benefit from certain advantages of ADR at either no cost or much lower cost. In the view of the CCA, a safety net must not become a hammock. Retention of the Dutch system assumes the retention of a financial incentive for enterprises to set up a sector-specific disputes board themselves. At the same time, the safety net must remain sufficiently attractive for businesses for them to submit disputes to it. The safety net must cover its costs. The lack of any contribution from a sector organisation will mean that the costs for businesses will be higher than in the case of a sector-specific board. 2. A closer look at the directive 2.1 Scope of the proposed directive The CCA concludes from the explanatory memorandum accompanying the proposed directive that it will apply to all types of extrajudicial resolution of disputes between consumers and businesses. The proposed directive restricts itself to ADR entities that are set up on a permanent basis. The CCA notes, and agrees, that the proposed directive does not apply to company systems for dealing with consumer complaints, nor to dispute resolution entities within which the natural persons in charge of resolving disputes are employed exclusively by the business. The proposed directive does not apply in the view of the CCA, rightly to direct negotiations between parties. The Dutch system of SGC and KiFiD provides that consumers who wish to submit a dispute for adjudication must first have complained to the business concerned. The CCA considers that that requirement should continue to apply. 2.2 Quality of ADR entities Quality requirements for disputes boards The proposed directive aims to guarantee that ADR entities comply with the quality principles of expertise, impartiality, transparency, effectiveness, and fairness. The CCA can to a very large extent endorse the quality principles that the proposed directive prescribes in the form of minimum harmonisation. They are in line with the principles that the SGC and its disputes boards apply. Independence and impartiality The CCA endorses the importance of expertise and impartiality of the natural persons in charge of alternative dispute resolution. It wishes to make a number of comments regarding the ramifications thereof. One comment concerns why Article 6 of the proposed directive refers solely to expertise and impartiality. The 1998 and 2001 Recommendations also specified independence as a requirement to be complied with by the natural persons in charge of alternative dispute resolution. The CCA believes that the requirement of independence should be included in the proposed directive. A second comment concerns Article 6(2). The CCA considers it unnecessary for the directive to include provisions regarding the composition of the ADR entity. There are various ways of creating a balance. It is important for the consumer and sector organisations involved to agree on the composition of the board. The CCA recommends that a procedural agreement to that effect be laid down in the directive. A third comment concerns the requirements that the directive sets regarding impartiality. According to Recital 17 of the proposed directive, the natural persons in charge of alternative dispute resolution should only be considered impartial if they cannot be subjected to pressure that potentially influences their position as regards the

5 5 dispute. The CCA considers that reticence is necessary as regards this point. In the view of the CCA, for example, the mere fact that a natural person in charge of alternative dispute resolution works for an institution that contributes to financing the ADR entity should not lead to the automatic conclusion that the necessary impartiality (and independence) is consequently threatened. What should be decisive is that the ADR entity that resolves disputes should prepare and take its decisions in a manner that complies in full with the quality principles of expertise, impartiality, independence, transparency, effectiveness, and fairness as set forth in the proposed directive. 2.3 Period for resolution of disputes The CCA takes note of the fact that the proposed directive sets a period of in general 90 days for the resolution of a dispute. It agrees with the addition that ADR entities may extend that 90-day period in complex cases and recommends that it should also be possible to extend that period for other valid reasons. The CCA also recommends that the proposed directive should provide that that period should not commence until the ADR entity has been provided with all the necessary documentation. The CCA also considers that swift processing of disputes as intended by the proposed directive is made possible mainly by means of efficient management. ADR entities will need to make efforts to achieve this. It is important as intended by the proposed directive that those efforts should be monitored and that not only the progress but also the quality of the ADR entities should be subject to permanent monitoring. A sufficient measure of transparency regarding the progress of the proceedings also provided for in the proposed directive can contribute to the quality requirements that can be set for ADR proceedings. The CCA does consider it important, however, that in the case of complex disputes the parties involved should consider whether ADR is in fact the appropriate method of resolution. In such cases, it is advisable for a party that wishes to approach an ADR institution to give serious consideration to submitting the dispute to the courts instead. The CCA notes that a European small-claims procedure is available. 2.4 Supervision The Member States must designate a competent authority that will be charged with monitoring the ADR entities. The CCA notes that the Netherlands already complies with these obligations by means of the monitoring arrangement between De Geschillencommissie and the Ministry of Security and Justice that comprises both supervision (i.e. supervision according to the test of reasonableness) and the provision of information. 2.5 Obligations regarding the provision of information Obligations for businesses to provide information The CCA agrees with the European Commission that consumers must be able to determine quickly whether ADR entities are empowered to deal with their dispute, and if so which entities can do so. It is important in this connection that the consumer should have that information prior to any transaction. The CCA supports the proposal in the directive to the effect that consumers must be able to find the information concerned on the business s website or, if there is no website, via general terms and conditions which may in turn refer to other websites. The CCA considers it important that both businesses and consumers focus their information-providing or information-seeking behaviour, respectively, on digital information. The CCA recommends that active measures should be taken to make digital information available regarding registered businesses and other ADR matters. The SGC website can then function more than it does at present as a special ADR portal which consumers but also businesses can approach with all their questions and for information regarding ADR. A campaign to achieve this, with a great deal of attention being paid to

6 6 the ADR portal and the information provided there, can be extremely helpful for consumers and businesses. Consideration can also be given to the introduction of a specific ADR certificate (a sticker), perhaps even internationally. Opinions differ within the CCA regarding whether it should be mandatory for businesses to notify consumers that they are not in fact registered with an ADR body. Some members of the CCA 3 are of the opinion that such an obligation is necessary for the effective provision of information to the consumer and that its also constitutes a desirable incentive for businesses to register. Other members 4 believe that imposing such an obligation on businesses is inappropriate given the (generally) voluntary nature of ADR, has a negative connotation, and would lead to an administrative burden that is not in proportion to the importance of information (which the consumer can also acquire elsewhere). Obligations for ADR entities to provide information Article 16 of the directive requires ADR entities to provide certain information to the competent authority. That information is primarily of a factual nature and concerns, for example, the entity itself, its funding, and the procedure for dealing with complaints. The CCA notes that in the Netherlands the SGC already complies with these requirements. The relevant information can be found on the SGC s website. The CCA recommends that the Government inform the European Commission that the Netherlands consequently already complies with the directive by means of selfregulation and that legislation regarding this point is superfluous where this country is concerned. Article 16(2) requires that ADR entities, amongst other things, notify the competent authority, at least once a year, of the percentage of ADR procedures that have been discontinued before an outcome was reached. The CCA considers that that percentage does not in itself mean very much, and it recommends that an addition be made to that provision to the effect that the notification should be placed in context by giving the reasons why procedures were discontinued. Obligations for competent authorities /other bodies to provide information Article 17 of the draft directive requires that each competent authority establish a list of the ADR entities registered with it that comply with the conditions and must forward that list to the European Commission. The Commission and the competent authorities will publish the consolidated list and changes to it. The competent authority will do that on its website and by any other means it considers appropriate. The CCA considers that the competent authorities should be allowed to restrict publication to their websites. This will make the information quickly and easily available to consumers and will limit the administrative burden and the cost of paper versions. Article 12 extends the obligation to publish the list of approved ADR entities to a number of other bodies: The ADR entities, consumer associations, business associations, the centres of the European Consumer Centre network and bodies designated to provide legal assistance for consumers. The organisations referred to must make the list publicly available at their premises and on their websites. The CCA sees no point in this. It repeats that it is important for digital information to be provided and acquired in the pre-contractual phase. ODR regulation Value of the regulation In addition to the proposal for ordinary alternative dispute resolution, the European Commission has put forward a proposal for online resolution of consumer disputes ( ODR ). The ODR platform will take the form of an interactive website that provides a single point of access for consumers and businesses. The facilitators of the platform will 3 4 The consumer representatives and two independent members. The members representing businesses and one independent member.

7 7 determine whether a dispute can be dealt with and will request parties consent to forward the dispute to the national ADR entity that is competent to deal with it. Although the name ODR platform might suggest otherwise, the ODR platform is no more than a conduit to existing national ADR entities. The CCA believes that the platform should definitely not itself be an ADR entity, and recommends that that should also be made clear in the name. ODR desk or ODR portal would seem to be a more appropriate name. At the moment, the European Consumer Centre (ECC) fulfils that role. The CCA believes that ODR alongside the European small-claims procedure can be a useful and inexpensive addition to the range of possibilities for recovery. A quick online procedure can meet a need, but there may turn out to be a trade-off between speed and due care. The European Commission refers to a 30-day period for dealing with disputes. It is not clear when that period will commence. The CCA considers that 30 days will not always be realistic for hearing both sides of the dispute and for a proper, high-quality assessment and ruling. It is up to the consumer and the business to determine whether a dispute is too complex to be resolved by means of this procedure. The CCA recommends that the SGC, KiFiD, and the Dutch ECC should be involved in implementation in the Netherlands, for example by means of a pilot. The aim of the pilot would be to develop a link so as to prevent fragmentation and to act as a model for other Member States. Financial consequences The CCA considers that the costs are low when compared with the benefits. The Commission will cover the cost of setting up the interactive website (a one-off sum of EUR 2 million) and the annual maintenance and operating costs (EUR 300,000 annually). The Member States will cover the cost of the facilitators for each Member State. The costs for translation and interpreting are as yet unclear. In order to ensure that the costs remain proportionate, one might decide to have only the most relevant documents translated. That is the approach currently followed, for example, by the ECC. The European Commission proposes that users should not be required to pay to use the ODR platform. The CCA notes in this connection that access to the ODR platform can perhaps be free of charge but that this does not mean that certain costs will not be involved in the consumer having access to the ADR entities to which the platform leads. The CCA considers that the cost for the consumer (the fee for filing a complaint) and for the business should be in proportion to the amount that the dispute concerns. In the view of the CCA, it is reasonable to provide translations in languages that the business uses on its website. The infrastructure of the ECC network already offers the relevant possibilities. A different language can be selected if desired, but payment may then need to be made. Social and Economic Council. All rights reserved. Material may be quoted, providing the source is mentioned. Translation: Balance, Maastricht/Amsterdam