The Role of Consumer ADR in the Administration of Justice : New Trends in Access to Justice under EU Directive 2013/11 [1 ed.] 9783866536098

Citation preview

| The Role of Consumer ADR in the Administration of Justice

© sellier european law publishers www.sellier.de

© sellier european law publishers www.sellier.de

| The Role of Consumer ADR in the Administration of Justice New Trends in Access to Justice under EU Directive 2013/11

edited by

Michael Stürner Fernando Gascón Inchausti Remo Caponi

s|e| l |p sellier european law publishers

© sellier european law publishers www.sellier.de

ISBN (print) 978-3-86653-289-2 ISBN (eBook) 978-3-86653-609-8

The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available on the Internet at http://dnb.dnb.de.

© 2015 by sellier european law publishers GmbH, Munich All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of the publisher. Production: Karina Hack, Munich. Printing and binding: AZ Druck und Datentechnik GmbH, Kempten. Printed on acid-free, non-ageing paper. Printed in Germany.

© sellier european law publishers www.sellier.de

Preface The landscape of alternative dispute resolution in consumer cases (CADR) is about to change profoundly. With the advent of Directive 2013/11/EU on ADR and Regulation (EU) No 524/2013 on Online Dispute Resolution a new way to settle disputes is advocated as a tool to enhance the internal market. The ADR system implemented by these instruments is designed to provide for speedy and low-cost out-of-court dispute settlement procedures between consumers and traders arising from the sale of goods and services. However, many questions remain open, namely the impact of the CADR system on the adjudication by state courts. The role CADR can play in the administration of justice is yet to be defined. In the present volume which is based on the presentations given at an international symposium at the Universidad Complutense de Madrid in November 2013, renowned experts of civil procedure and ADR shed light on a newly emerging branch of law. The symposium was made possible through the generous support of the German Academic Exchange Service (DAAD) within the Framework of the “Programm Hochschuldialog Südeuropa 2013” as well as the Spanish Ministry for Economy and Competitiveness, in the context of the Research Project “El proceso civil en la jurisprudencia del Tribunal Europeo de Derechos Humanos: Bases para la armonización del Derecho Procesal Civil en Europa” (DER 2012-33378). The Rector of the Universidad Complutense de Madrid was kind enough to host the event. The publication of the conference proceedings in this volume was generously funded by the DAAD. The editors wish to express their gratitude also to Ass. iur. Jonas Kotzur, who was in charge of editing the manuscripts, and to Michael Encke, J.D., both University of Konstanz, who provided linguistic support. Last, but by no means least, the editors would like to thank sellier european law publishers for their excellent editorial support. Firenze, Madrid and Konstanz, September 2014

Remo Caponi Fernando Gascón Inchausti Michael Stürner

v

© sellier european law publishers www.sellier.de

© sellier european law publishers www.sellier.de

Table of Contents

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

v

I. Setting the Scene Alternative Dispute Resolution for Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

Naomi Creutzfeldt ADR and Adjudication by State Courts: Competitors or Complements?

11

Michael Stürner Specific Problems of Cross-Border Consumer ADR: What Solutions? . . . . 31

Fernando Gascón Inchausti A Conflict-of-Laws Approach for Cross-Border ADR? . . . . . . . . . . . . . . . . . . . . . . . 59

Jonas Kotzur Consumer ADR – Academia and the Field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Christof Berlin

II. Institutional Aspects of Consumer ADR Impartiality and Independence of the Persons Entrusted with Consumer ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Enrique Vallines García The Role of ADR Institutions: Mere Secretariat or Supervisory Body – Lessons Learned from Institutional Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Nathalie Hofmann Linking ADR Discourses – Nine Lessons Learned from Mediation Development for the Implementation of the EU Directive on Consumer ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Ulla Gläßer

vii

© sellier european law publishers www.sellier.de

Table of Contents

III. Consumer ADR Proceedings and Result On Minimum Standards in Consumer ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

María Luisa Villamarín López Agreements Resulting from Mediation: Judicial Review, Avoidance, and Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

Remo Caponi

IV. The Wider Picture Long Term Commercial Contracts and the Need for Relational Intelligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

Paola Lucarelli

viii

© sellier european law publishers www.sellier.de

List of Authors Christof Berlin Dr. iur. (Frankfurt/Oder), Lawyer and Mediator, Head of Aviation Team at the German Conciliation Body for Public Transport (SÖP); Author of the study „Alternative Streitbeilegung in Verbraucherkonflikten“ (2014) Remo Caponi Dr. iur. (Bologna); Professor of Civil Procedure, University of Florence; Senior Global Research Fellow, New York University School of Law Naomi Creutzfeldt ESRC Research Fellow, Fellow of Wolfson College, Center for socio-legal studies, University of Oxford Fernando Gascón Inchausti Dr. iur., Professor of Procedural Law, Complutense University of Madrid Ulla Gläßer Dr. iur., LL.M. (Berkeley); Associate Professor of Mediation and Dispute Resolution, Europa-Universität Viadrina Frankfurt (Oder) Nathalie Hofmann A graduate from Humboldt University Berlin (1st State Examination: 2010, 2nd State Examination: 2013), Nathalie Hofmann is currently writing a doctoral thesis supervised by Prof. Michael Stürner on a topic concerning institutional arbitration Jonas Kotzur A graduate from Eberhard Karls University Tübingen (1st State Examination: 2010, 2nd State Examination: 2012), Jonas Kotzur is currently writing a doctoral thesis supervised by Prof. Michael Stürner on a topic in the field of alternative dispute resolution Paola Lucarelli Professor of Commercial Law, International Commercial Law, Conflicts Mediation, University of Florence Michael Stürner Dr. iur. (München), M.Jur. (Oxon), Professor of Private International Law, University of Konstanz; Judge at the Higher Regional Court of Karlsruhe ix

© sellier european law publishers www.sellier.de

List of Authors

Enrique Vallines García Dr. iur. (Complutense of Madrid), Professor of Procedural Law, University Complutense of Madrid María Luisa Villamarín López Dr. iur. (Complutense of Madrid), Professor of Procedural Law, University Complutense of Madrid

x

© sellier european law publishers www.sellier.de

I. Setting the Scene

© sellier european law publishers www.sellier.de

© sellier european law publishers www.sellier.de

Alternative Dispute Resolution for Consumers Naomi Creutzfeldt A. Introduction This paper provides an outline to the field of alternative dispute resolution for consumers in Europe. Alternative dispute resolution for consumer matters is a distinct area that has been developing silently and is now in the spotlight due to recent EU legislation. This paper comprises key findings of the ‘Oxford study 2012’1 and subsequent publications on consumer dispute resolution in Europe. Recent EU legislation requires each member state to have a consumer ADR body for all consumer disputes2 with the aim to establish an EU-wide framework for consumer dispute resolution schemes by 2015 and a platform for online dispute resolution (ODR) by 2016. This forces member states to revisit their existing consumer ADR models and in some cases to modernize their structures or to create them. Many member states face challenges to reform existing systems by the directives implementation.3 Consumer ADR has existed in parts of Europe for some decades, but has only recently become important at the level of European dispute resolution policy. Consumer ADR, when designed and operated properly, has the power to transform existing dispute resolution and regulatory systems, and to form a distinctive and effective European approach. This paper will provide an overview of consumer ADR, the development of current legislation and highlight the diversity of the current consumer ADR landscape through some national examples. The paper concludes with comments about implementation of the directive and potential future direction.

B. What CDR is, and ADR is not A specific architecture of dispute resolution to resolve consumer-to-business (c2b) disputes has developed in Europe.4 That architecture typically involves inhouse customer care functions and external ombudsmen or dispute resolution schemes that form part of business sectors’ codes of practice. The new architec1 2 3

4

C. Hodges / I. Benöhr / N. Creutzfeldt-Banda, Consumer ADR in Europe (2012). Except for healthcare and education. Directive 2013 / 11 / EU O.J. 2013 L 165 / 63. For an overview see: Hodges / Benöhr / Creutzfeldt-Banda, Consumer ADR in Europe (2012). See ibid: C. Hodges / I. Benöhr / N. Creutzfeldt-Banda, Consumer-to-Business Dispute Resolution: The Power of CADR (2012), ERA Forum, pp. 199 et seq.

3

© sellier european law publishers www.sellier.de

I. Setting the Scene

ture has been referred to as ‘Consumer ADR’, but since use of the acronym ADR in that context can give rise to confusion over whether what is being described is court annexed ADR, it is preferable to use a different name. Accordingly, in this paper the acronym CDR (Consumer Dispute Resolution) is embraced for the new architecture. Almost all of the ‘ADR techniques’5 can be found in the CDR schemes. Indeed, in many CDR models, there is a tiered structure of procedures, in which techniques are escalated, such as from direct negotiation, to mediation, with a final option of arbitration.6 The process is influenced by the nature of a decision, and whether it is binding or non-binding on the parties.7 From the consumer perspective, CDR provides a swift, cheap and userfriendly means of resolving disputes with traders, which typically has small financial value and might not be worth spending time on, or further cost. Under many CDR systems, the CDR case-handler or ombudsman effectively assumes the role of an active intermediary, minimizing the complainant’s effort. This can be particularly useful where the dispute involves legal provisions that are unfamiliar to consumers or characteristically complex. There is both diversity of different approaches, architectures and techniques of CDR models across the EU, however, also similarities.8 The current position is a kaleidoscope, but one that Member States are agreed, offers considerable potential for effective dispute resolution and hence for supporting the vibrancy of the EU market.9 A major watershed has been reached with the EU legislation on consumer ADR10 and online dispute resolution (ODR).11

C. EU legislation on CDR and ODR CDR is assuming increasing importance in EU law. In addition to the Mediation Directive12 , a series of regulatory measures have included references to CDR. These have firmed up over the past decade from encouraging CDR to requiring 5 6 7 8

9

10

11

12

E.g. mediation, arbitration, conciliation, adjudication. Hodges / Benöhr / Creutzfeldt-Banda, Consumer ADR in Europe, pp. 29 et seq. For different models see ibid, pp. 406 et seq. Klaus J. Hopt / Felix Steffek, Mediation: Principles and regulation in comparative perspective (2012), p. 16. For an overview see: N. Creutzfeldt, The origins and evolution of consumer dispute resolution systems in Europe, in Hodges / Stadler (eds.) Resolving Mass Disputes (2013), pp. 223 et seq. COM(2011) 793 final, Proposal for a directive on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006 / 2004 and Directive 2009 / 22 / EC (Directive on consumer ADR) COM(2011) 794 fi nal, Proposal for a regulation on online dispute resolution for consumer disputes (Regulation on consumer ODR). Directive 2008 / 52 / EC, O.J. 2008 L 136 / 3.

4

Naomi Creutzfeldt

© sellier european law publishers www.sellier.de

Alternative Dispute Resolution for Consumers

traders to belong to a CDR scheme. Measures that encourage Member States to establish CDR schemes are: the e-commerce Directive13, the Postal Services Directive14 , and the Markets in Financial Instruments Directive (MiFID)15. More recent EU legislation requires that adequate and effective CDR schemes are put in place in: the telecom sector16 , the energy sector17, the Consumer Credit Directive18 , and the Payment Services Directive.19 The Services Directive20 requires service providers to provide consumers with information if they are members of a CDR scheme. On 29 November 2011 DG SANCO issued a Communication21 and two legislative proposals, one a draft Directive on ADR22 and the other a draft Regulation on ODR.23 The Commission’s objective was ‘to improve the functioning of the retail internal market and more particularly to enhance redress for consumers’. Both proposals are based on Article 114 TFEU. The ADR directive The three main problem areas that the ADR directive addresses are: (1) Gaps in the coverage of ADR entities at both sector-specific and geographical level; (2) Lack of awareness and insufficient information preventing consumers and businesses from using ADR entities; and (3) Variable quality of ADR: a significant number of ADR entities are not in line with the core principles laid down by the two Commission Recommendations.

13 14 15 16 17 18 19 20 21

22

23

Directive No 2000 / 31 / EC, OJ, 2000 L 178, p. 1. Directive No 2008 / 6 / EC, O.J. 2008 L 52, p.3. Directive No 2004 / 39 / EC, O.J. 2004 L 145 / 1, p. 33. Directives No 2009 / 136 / EC and No 2009 / 140 / EC, O.J. 2009 L337, p. 11 & 37. Directives No 2009 / 72 / EC and No 2009 / 73 / EC, O.J. 2009 L 211, p. 55 & 94. Directive No 2008 / 48 / EC, O.J. 2008 L 133, p.66. Directive No 2007 / 64 / EC, O.J. 2007 L 319 / 1, p. 32. Directive No 2006 / 123 / EC, O.J. 2006 L 376, p. 36. Communication from the Commission. Consumer solutions in the Single Market, COM (2011) 791 / 2. Proposal for a Directive of the European Parliament and of the Council on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006 / 2004 and Directive 2009 / 22 / EC (Directive on consumer ADR), COM(2011) 793 / 2. Proposal for a Regulation of the European Parliament and of the Council on online dispute resolution for consumer disputes (Regulation on consumer ODR), COM (2011) 794 / 2.

Naomi Creutzfeldt

5

© sellier european law publishers www.sellier.de

I. Setting the Scene

In 2013 legislation on ADR24 and ODR25 was passed, and are to be implemented by July 2015 and January 2016 respectively. The 2013 legislation formalizes the communications discussed above and requires all EU member states to have full CDR coverage by 2015.26 The legislation includes guidelines and procedural requirements for CDR schemes that member states have to comply with.27 The aim is to establish full CDR coverage in all the EU member states and building upon that, an ODR platform shall follow. Online dispute resolution (ODR) The Internet has created the world of online trade and e-commerce. This constantly growing market28 , like any other market, relies on consumer satisfaction and trust to work effectively. However, there are perceived difficulties in resolving complaints relating to online transactions (domestic and cross-border) that are obstructing the growth of the market.29 One of the key issues addressed in the Digital Agenda for Europe30, launched by the Commission in 2010, is consumer protection. Within this, one objective is to improve ADR systems and propose an EU-wide online redress tool for e-commerce and improve access to justice online.31 ODR32 developed out of, and is based on, ADR, in particular arbitration; ODR represents the merging of IT and ADR. Common ODR methods for b2c disputes involve automated negotiation, assisted negotiation, mediation, arbitration and small claims court procedures. For both ADR and ODR alike there is no single method that would be applicable to all types of consumer complaints. This produces a variety of approaches and different methods throughout the member states. ODR is widely used by private online companies such as eBay, PayPal and Amazon.33 Arguably, they would not have been so successful 24

25 26 27 28

29

30 31 32

33

Directive 2013 / 11 / EU, O.J. 2013 L 165 / 63 and amending Regulation (EC) No 2006 / 2004 and Directive 2009 / 22 / EC (Directive on consumer ADR) O.J. 2009 L 110 / 30. Regulation (EC) No 534 / 2013, O.J. 2013 L 159 / 11. The legislation excludes health and education. Berlin, Alternative Streitbeilegung in Verbraucherkonfl ikten, 2014. Commission Staff Working Document Report on cross-border e-commerce in the EU SEC(2009)283 fi nal. P. Cortes, Developing Online Dispute Resolution for Consumers in the EU: A Proposal for the Regulation of Accredited Providers, (2010) International Journal of Law and Information Technology, Vol. 19, 1. COM(2010) 245, A digital agenda for Europe. Ibid 13. J. Hörnle, Cross-Border Internet Dispute Resolution (2009); P. Cortes, Online Dispute Resolution for Consumers in the European Union (2011). C. Rule, Online Dispute Resolution For Business: B2B, E-Commerce, Consumer, Employment, Insurance, and other Commercial Confl icts (2002).

6

Naomi Creutzfeldt

© sellier european law publishers www.sellier.de

Alternative Dispute Resolution for Consumers

without the confidence-building support of an online DR system to support the online trading system. Therefore the European Commission has adopted ODR as an idea because it strongly wants to support the development of digital trading within the EU. A detailed impact assessment (IA) analyzed a range of policy options for ‘ADR coverage, information and quality’ and ‘ODR for cross-border e-commerce transactions’. The IA concluded that only a combination of two instruments on ADR and ODR can ensure access to impartial, transparent, effective and fair means to resolve domestic and cross-border consumer disputes out-of-court. In particular, a Framework Directive is the most appropriate way to ensure full ADR coverage in all Member States, to inform consumers about ADR and to ensure that ADR entities respect specific quality principles. Full ADR coverage will create the required framework on the basis of which an EU-wide ODR system can effectively deal with disputes relating to cross-border e-commerce transactions. The legislation applies to procedures for the out-of-court resolution of contractual disputes arising from the sale of goods or provision of services by a trader established in the Union to a consumer resident in the Union. Thus, it would cover and accept both domestic and cross-border disputes. It does not apply to in-house dispute resolution services operated by traders, to direct negotiation, or to judicial attempts at settlement. The main elements of the legislation are: 1. Ensuring that ADR procedures exist for all consumer disputes. 2. Information on ADR and cooperation. Consumers must be able to quickly identify which ADR entities are competent to deal with their dispute. Traders will have to inform consumers on whether or not they commit to use ADR in relation to complaints lodged against them by a consumer. This obligation will act as an incentive for traders to use ADR more frequently. Member States may delegate responsibility for this task to their ECC-net offices. ADR entities will be encouraged to become members of networks of ADR entities in sector-specific areas. The proposal encourages cooperation between ADR entities and national authorities entrusted with the enforcement of consumer protection legislation. 3. Quality of ADR entities. ADR entities must respect the quality principles of impartiality, transparency, effectiveness and fairness, which are laid down in the two Commission Recommendations, and are given binding effect. The proposal requires that disputes should be resolved within 90 days, and that ADR procedures should remain accessible to all consumers by being free of charge or of moderate costs for consumers. 4. Monitoring. In each Member State, a competent authority will be in charge of monitoring the functioning of ADR entities established on its territory. The competent authorities will publish regular reports on the development and functioning of ADR entities. This new legislation is simple and bold. It establishes a vision of capturing issues between consumers and businesses, solving them and using the inforNaomi Creutzfeldt

7

© sellier european law publishers www.sellier.de

I. Setting the Scene

mation to improve practice and markets. If consumers can be taught to ‘think ADR’ whenever they encounter a problem, the problem can be sorted out. Many problems will simply revolve around communication of further information, and not be ‘disputes’. But disputes can also be resolved quickly and cheaply if consumers think ‘ADR’ instead of ‘courts’ or ‘lawyers’. CDR systems have huge potential to deliver not only effective, cheap and quick solutions to b2c disputes, thereby solving access to justice issues, but also to provide valuable market information that will enhance competition, innovation and safety.34 CDR systems thereby challenge the traditional role of the courts. Some may be concerned by this.35 But others will support the development of a new relationship and function between the courts and private sector ombudsmen. One model would be that courts decide issues of law, and ombudsmen apply settled law to the facts of individual disputes. Hence, there should be a rational transfer of cases between courts and ADR providers. In the 21st century, the civil justice system may change dramatically.

D. Some Examples of varied coverage of CDR There are differences between European Member States in the national architectures of CDR systems, in the way that individual schemes operate, in the number of sectors that are covered by individual schemes, and in whether coverage is comprehensive.36 A brief overview of selected European member states CDR models follows and is based on the findings of the ‘Oxford study’37. Most member states have CDR sector-specific coverage, as required by EU legislation (see above). These are typically in the financial service sector, telecoms and energy. France has sectorial complaint mechanisms for financial services, energy and telecoms. A network of local government-located complaint systems is mandated in France, but does not exist because the local procedures are only funded in three of the ninety-six départements. Germany has com34

35

36

37

C. Hodges, Consumer Redress: ideology and Empiricism, in K. Purhagen / P. Rott (eds.), Varieties of European Economic Law and Economic Law and Regulation, Festschrift for Hans Micklitz (2014) (forthcoming). See the critical stance of P. H. Lindblom, ADR – The Opiate of the Legal System? Perspectives on Alternative Dispute Resolution Generally and in Sweden, (2008) 1 European Review of Private Law 63-93; H. Eidenmüller / M. Engel, Against False Settlements: Designing Efficient Consumer Rights Enforcement Systems in Europe. EUI Conference on ‘The transformation of Enforcement’ in Florence (27 & 28 June 2013). Available at: http: // papers.ssrn.com / sol3 / papers.cfm?abstract_ id=2290654. Models in ten Member States have been examined in Hodges / Benöhr / Creutzfeldt-Banda, Consumer ADR in Europe (2012). Ibid.

8

Naomi Creutzfeldt

© sellier european law publishers www.sellier.de

Alternative Dispute Resolution for Consumers

plaint schemes operated and based in regulatory bodies, such as telecoms in the Bundesnetzargentur and financial services to the Bundesbank. Additionally sectorial complaints systems, an example is ombudsmen, are growing in the insurance, energy, banking and transport sector. By contrast, Sweden has a single national CDR body, the ARN (Allmänna reklamationsnämnden). The ARN deals with claims covering all sectors; there are some sectorial boards for insurance and financial services. In the Netherlands, disputes may be referred to one of an extensive network of CDR boards (geschillencommissie), which all operate on the same model and are administered by a single national private sector foundation (DGS). There is a separate CDR system for financial services disputes (KiFiD). The United Kingdom has a wide sector coverage of CDR bodies, however these models vary considerably and some sectors have more than one CDR body (e.g. telecoms). The main models in the UK are statutory ombudsmen (pensions, lawyers and financial services); private sector ombudsmen (energy, housing, telecoms) and some private sector dispute resolution schemes, usually run by business codes of conducts (motor vehicles transport). This brief snapshot of the diversity in CDR models throughout the EU demonstrates the challenges ahead when implementing the new consumer ADR legislation.

E. Implementation of CDR Directive As outlined above, Member States tend to have different national architectures and models of CDR. How can full coverage be provided? The following are some suggestions for how models might evolve to provide full coverage.38 The member states vary in size and population, a country that does not have an advanced CDR system and a small population might think about establishing a single national entity. This structure has the advantage of simplicity, would be easy for consumers to remember and access. Another area to consider is whether to keep CDR bodies separate from national regulatory authorities to ensure independence. Also, research has shown that statutory CDR bodies seem to have more difficulties changing and evolving to current demands. Countries should remember that they may need CDR expertise in specialist areas, and that they could consider outsourcing CDR functions to bodies located in other Member States. Thus, the UK Financial Ombudsman or Telecom Ombudsman; the Energy Ombudsmen in Belgium or Catalonia; the Insurance or Transport Ombudsmen in Germany; the Geschillencommissie Stichting in the Netherlands; or ARN in Sweden (to name only a few) might be candidates for providing outsourced services. 38

See C. Hodges / N. Creutzfeldt, Implementing the EU consumer ADR directive (2013), available at: http: // www.fljs.org / content / implementing-eu-consumeradr-directive.

Naomi Creutzfeldt

9

© sellier european law publishers www.sellier.de

I. Setting the Scene

Some Member States may already have a structure in which there is a national residual CDR body and also a number of sectoral CDR bodies that cover the main specialist areas (financial services, telecoms, energy, utilities, etc.). In this case, full coverage already exists. This is the case in the Nordic states. In states such as the UK, Germany, Ireland, and France, there exist some sectoral CDR bodies, but they are not joined up into a coherent single national structure, and there is not full coverage. Various options are possible here. One option may be to merge a number of smaller CDR bodies. A second would be to create a general consumer ADR body, whether it stands ‘above’ or alongside other CDR bodies. In summary, implementation of the directive in some countries may have to evolve in stages. For example, a first stage might create a network of interconnected CDR bodies that formally satisfy the requirements of the Directive. The merging or rationalization of individual CDR bodies into a structure that is tighter, more coherent, and easy for consumers to remember could be done at the same time or later.

10

Naomi Creutzfeldt

© sellier european law publishers www.sellier.de

ADR and Adjudication by State Courts: Competitors or Complements? Michael Stürner A. Access to justice (only) by access to courts? There is a rather fatalistic saying about adjudication: before the courts and on the high seas, we are in God’s hands. Surely that could be said for many jurisdictions. It is for procedural law to provide for a fair balance between the parties. Moreover, well-trained judges are needed. However, the main problem seems to lie elsewhere: Potential claimants have to get access to courts in the first place before they can resort to God’s hands.

I. Restrictions on access to courts Typically access to courts is restricted by a number of explicit and implicit factors: – Parties (mostly) have to hire a lawyer; – Claimants have to pay court fees up front or apply for legal aid; – Parties have to spend time (and money) to prepare for trial; – Claimants are not inclined to go to court if minor sums are at stake; – Some parties may feel inferior towards a mighty opponent and therefore choose not to sue. Consequently, the court door is in fact closed for a significant number of potential claimants. In the 1970s prominent academics like Mauro Cappelletti and Bryant Garth made access to justice a key topic of procedural law.1 It still is an issue. Many reforms in the field of civil procedure aim to enhance access to justice. Just to give one example: The last major reform of the English Civil Procedure in 1998 was introduced on the basis of the so-called Woolf Report entitled “Access to Justice”.2

1

2

Cappelletti / Garth (eds.), Access to Justice. 4 Volumes, 1978 / 1979. See the review by Sarat, 94 Harvard L. Rev. 1911 (1981). Lord Woolf, Access to Justice. Interim Report to the Lord Chancellor, London 1995; Access to Justice. Final Report to the Lord Chancellor, London 1996.

11

© sellier european law publishers www.sellier.de

I. Setting the Scene

II. Facilitating access for the “weak” party In that context, the stereotype of a weak party fighting against a mighty enemy has served as a blueprint for the reform efforts. Consumer law can be seen as a paradigm of that approach. Many attempts have been made to improve procedural consumer protection, and to provide speedy and efficient procedural remedies for so-called small claims. (1) There are special procedures for small claims in most jurisdictions. Pursuant to sec. 495a of the German Code of Civil Procedure, “the court may decide at its equitably exercised discretion on how to implement its proceedings if the value of the claim does not exceed the amount of EUR 600,-”. In the UK, the small claims track provides a special procedural regime for claims up to GBP 5000,-. On a European level, the Small Claims Regulation3 has introduced procedural rules for cross-border claims up to EUR 2000,-.4 (2) There are special jurisdictional provisions for consumer contract cases, namely Articles 15-17 Brussels I Regulation for cross-border issues. The European Court of Justice does what it can to enlarge the scope of application of the jurisdiction over consumer contracts.5 National jurisdictions sometimes offer similar protection; see e.g. sec. 29c of the German Code of Civil Procedure which contains a specific jurisdiction for doorstep sales. (3) Furthermore a number of steps have been taken to grant better access to justice by means of collective actions, e.g. in the Directive of 19 May 1998 on injunctions for the protection of consumers’ interests.6 Most commentators, however, think that this is not enough.7 Still it seems difficult, if not impossible,

3

4

5

6

7

Regulation (EC) No. 861 / 2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims Procedure, O.J. No. L 199 of 31 July 2007, p. 1. On that Regulation see M. Stürner, Europäisches Bagatellverfahren, in Leible / Terhechte (eds.), Europäisches Rechtsschutz und Verfahrensrecht, EnzEuR Vol. 3, 2014, § 21 (p. 783). On 19 November 2013 the EU Commission has issued the proposal for an amendment of the Small Claims Regulation, COM(2013) 794 fi nal. The Commission suggests, among other things, to extend the scope of the Regulation to cross-border claims up to EUR 10.000. See recently e.g. CJEU, 17 October 2013, Case C-218 / 12 – Emrek v Sabranovic where the Court held that Article 15(1)(c) of the Brussels I Regulation “does not require the existence of a causal link between the means employed to direct the commercial or professional activity to the Member State of the consumer’s domicile”. Directive 98 / 27 / EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests, O.J. No. L 166 of 11 June 1998, p. 51. For a comparative survey, see the papers in Hodges / Stadler (eds.), Resolving Mass Disputes – ADR and Mass Claim Settlements, 2013.

12

Michael Stürner

© sellier european law publishers www.sellier.de

ADR and Adjudication by State Courts: Competitors or Complements?

to get a common position on the best way to achieve uniformity in Europe.8 The latest emanations of the EU Commission on collective redress bear witness of that.9

III. A structural problem Despite all those efforts, consumers still do not go to court. A Eurobarometer survey done in 2010 (“Consumer Empowerment”) has shown that almost 50 % of all consumers throughout Europe would not go to court for a sum at stake up to EUR 500,-.10 On the other hand more than 20 % of all consumers said that they had encountered a problem with a good, a service, a retailer or a provider, for which they had legitimate cause for complaint.11 Only 16 % of those consumers, however, complain at a consumer organization or take the case to court.12 There seems to be a structural problem: In consumer cases there are typically relatively low sums of money involved. Many consumers are not prepared to go to court even in clear-cut cases and even though it might not cost them anything. The psychological barrier seems to be too high to overcome. Consequently the courts’ doors remain shut.

B. Access to ADR rather than access to courts? As a consequence, a different playing field has been entered by the EU Commission: Alternative Dispute Resolution. Certainly that path is not entirely new.

8

9

10 11 12

Cf. the papers in Brömmelmeyer (ed.), Die EU-Sammelklage – Status und Perspektiven, 2013. See the package of three documents issued on 11 June 2013: (1) Communication from the Commission “Towards a European Horizontal Framework for collective Redress”, COM(2013) 401 / 2; (2) Commission Recommendation C(2013) 3539 / 3 on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union Law; (3) proposal for a Directive on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, COM(2013) 404 final. A critical assessment of these proposals is given by Stadler, Die Vorschläge der Europäischen Kommission zum kollektiven Rechtsschutz in Europa. Der Abschied von einem kohärenten europäischen Ansatz?, Zeitschrift für das Privatrecht der Europäischen Union (GPR) 2013, 281. 43 %: Consumer Empowerment Survey, Eurobarometer No. 342, 2010, p. 217. 21 %: Consumer Empowerment Survey, Eurobarometer No. 342, 2010, p. 169. Consumer Empowerment Survey, Eurobarometer No. 342, 2010, p. 191.

Michael Stürner

13

© sellier european law publishers www.sellier.de

I. Setting the Scene

ADR techniques have been used for a long time already.13 The goal has always been to settle disputes without incurring unreasonable cost.14 Mostly courts were seen as a last resort.15 But not until very recently have such efforts lead to hard and fast rules. Now the landscape of alternative dispute settlement is about to change profoundly. The EU has discovered ADR as a mechanism to enhance the internal market, to boost economic growth, as is made explicit by recital No 9 of the ADR Directive.16 To be more precise, ADR is regarded as “one of the twelve levers to boost growth, strengthen confidence and make progress towards completing the Single Market”.17 That is a rather new way to regard dispute resolution, as the (possible) collective impact of ADR is the basis for legislation.

I. First steps: non-binding instruments Already 20 years ago the topic was addressed by the Green Paper entitled “Access of Consumers to Justice and the Settlement of Consumer Disputes in the Single Market”.18 It was followed by the 1996 Action Plan on consumer access to justice and the settlement of consumer disputes in the internal market.19 In 199820 and 200121 the Commission had issued two (non-binding) recommendations on ADR. While slightly different in scope of application and content,

13

14

15

16 17

18 19 20

21

For a brief historical overview, see G. Hager, Konflikt und Konsens. Überlegungen zu Sinn, Erscheinung und Ordnung der alternativen Streitschlichtung, 2001, pp. 3 et seq. For an excellent overview of the different systems of consumer ADR in the EU see Hodges / Benöhr / Creutzfeldt-Banda (eds.), Consumer ADR in Europe, 2012. See Bundesverfassungsgericht (BVerfG) 14.2.2007, Neue Juristische Wochenschrift Rechtsprechungs-Report (NJW-RR) 2007, 1073, 1074; H. Koch, Prozeßrechtslehre aus Anwaltssicht – Ein Plädoyer für den Perspektivenwechsel in der Juristenausbildung, Juristische Schulung (JuS) 2000, 320, 321. See note 24. See Commission Communication of 13 April 2011 entitled “Single Market Act – Twelve levers to boost growth and strengthen confidence – Working together to create new growth”, COM(2011) 206 fi nal, p. 9-10. Green Paper, 16 November 1993, COM(1993) 576 fi nal. COM(1996) 13 final of 14 February 1996. Commission Recommendation 98 / 257 / EC of 30 March 1998 on the principles applicable to the bodies responsible for out-of-court settlement of consumer disputes, O.J. No. L 115 of 17 April 1998, p. 31. Commission Recommendation 2001 / 310 / EC of 4 April 2001 on the principles for out-of-court bodies involved in the consensual resolution of consumer disputes, O.J. No. L 109 of 19 April 2001, p. 56.

14

Michael Stürner

© sellier european law publishers www.sellier.de

ADR and Adjudication by State Courts: Competitors or Complements?

both recommendations stress the principles of impartiality, transparency, effectiveness, and fairness of ADR procedures.

II. Binding rules In 2008 the Directive on Mediation22 was adopted which sets up minimum standards for cross-border mediation; it is in force since 21 May 2011. That Directive applies when two parties involved in a cross-border dispute voluntarily agree to settle their dispute using an impartial mediator.23 Earlier in 2013 two more legal instruments on ADR have been adopted: The so-called ADR Directive,24 and the ODR Regulation.25 While the ADR Directive has to be transposed into the law of the member states by 9 July 2015 (Article 25), the ODR Regulation will mainly apply from 9 January 2016 (Article 22). The ADR system implemented by these instruments is designed to provide for speedy and low-cost out-of-court dispute settlement procedures between consumers and traders arising from the sale of goods and services.26 The ADR Directive follows 22

23

24

25

26

Directive 2008 / 52 / EC of the European Parliament and of the Council of 21 May 2008 on certain aspects of mediation in civil and commercial matters, O.J. No. L 136 of 14 May 2008, p. 3. See Wagner / Thole, Die europäische Mediations-Richtlinie. Inhalt, Probleme und Umsetzungsperspektiven, in Festschrift für Kropholler, 2008, p. 915. Directive 2013 / 11 / EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006 / 2004 and Directive 2009 / 22 / EC (Directive on consumer ADR), O.J. No. L 165 of 18 June 2013, p. 63. Regulation (EU) No 524 / 2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes and amending Regulation (EC) No 2006 / 2004 and Directive 2009 / 22 / EC (Regulation on consumer ODR), O.J. No. L 165 of 18 June 2013, p. 1. A number of articles have been published on the topic in Germany: see G. Hirsch, Außergerichtliche Beilegung von Verbraucherstreitigkeiten – ein alternativer Zugang zum Recht entsteht, Neue Juristische Wochenschrift (NJW) 2013, 2088; H. Roth, Bedeutungsverluste der Zivilgerichtsbarkeit durch Verbrauchermediation, Juristenzeitung (JZ) 2013, 637; Eidenmüller / Engel, Die Schlichtungsfalle: Verbraucherrechtsdurchsetzung nach der ADR-Richtlinie und der ODR-Verordnung der EU, Zeitschrift für Wirtschaftsrecht (ZIP) 2013, 1704; G. Wagner, Die Richtlinie über Alternative Streitbeilegung – Law Enforcement statt mediativer Konfliktlösung, Zeitschrift für Konfl iktmanagement (ZKM) 2013, 104; Rühl, Die Richtlinie über alternative Streitbeilegung und die Verordnung über Online-Streitbeilegung. Verbesserter Rechtsschutz bei grenzüberschreitenden Verbraucherverträgen?, Recht der Internationalen Wirtschaft (RIW) 2013, 737; Rühl, Alternative und Online-Streitbeilegung in Verbrauchersachen – Neues aus Brüssel, Zeitschrift für

Michael Stürner

15

© sellier european law publishers www.sellier.de

I. Setting the Scene

the idea of minimal harmonization and leaves ample scope for the member states to implement rules which are more consumer friendly than those prescribed by the Directive.

III. The regulatory concept behind the ADR Directive Pursuant to Article 5 of the ADR Directive, “Member States shall facilitate access by consumers to ADR procedures and shall ensure that disputes covered by this Directive and which involve a trader established on their respective territories can be submitted to an ADR entity which complies with the requirements set out in this Directive”. The Directive sets out a number of minimum quality principles in order to ensure that all ADR entities and the dispute settlement mechanisms are impartial, transparent and efficient. The ADR system will be supplemented by an online dispute resolution platform, an interactive website free of charge in all languages of the Union designed to facilitate access to an ADR mechanism. An ADR procedure should come to a settlement (if possible) within three months. It is important to see the political background of that initiative. It is not an act of judicial co-operation under Article 81 of the TFEU (like the Brussels Regulations, or the Rome Regulations). The Directive is based on Article 114 TFEU which concerns the functioning of the internal market. Some commentators question the legitimacy of that approach.27 Nevertheless, it is precisely the interaction with in-court adjudication that should be an issue.

IV. What is the difference between ADR and adjudication by state courts? The aim of this paper is to compare the way justice is being administered by state courts and by ADR mechanisms. What are the main characteristics of adjudication by state courts, and should ADR institutions have these alike? Do both branches compete for consumer cases? By way of simplification, I would

27

Rechtspolitik (ZRP) 2014, 8; Rühl, Die Richtlinie über alternative Streitbeilegung: Handlungsperspektiven und Handlungsoptionen, Zeitschrift für Zivilprozess (ZZP) 127 (2014), 61-98; Meller-Hannich / Höland / Krausbeck, “ADR” und “ODR”: Kreationen der europäischen Rechtspolitik. Eine kritische Würdigung, Zeitschrift für Europäisches Privatrecht (ZEuP) 2014, 8. Some commentators think that the ADR Directive is ultra vires, given the primacy of Article 81 TFEU over Article 114 TFEU, the former being restricted to cross-border cases, see Eidenmüller / Engel, ZIP 2013, 1704, 1706-1707; H. Roth, JZ 2013, 637, 642 (referring to the principle of subsidiarity in Article 5 TEU); Meller-Hannich / Höland / Krausbeck, ZEuP 2014, 8, at 16.

16

Michael Stürner

© sellier european law publishers www.sellier.de

ADR and Adjudication by State Courts: Competitors or Complements?

mainly see two characteristics of adjudication: An individual and a collective aspect.28 (1) The most prominent task of state adjudication is the enforcement of individual rights – if possible, speedily and efficiently (“justice delayed is justice denied”). As states reserve the monopoly of power, adjudication serves to give parties what is due to them under substantive law. (2) But there is a second goal, mostly referred to as being ancillary to the first: the clarification and development of law,29 “to secure the peace and repose of society by the settlement of matters capable of judicial determination”30 which leads to legal certainty.31 Individual litigation ultimately serves a higher goal, namely the collective idea of developing rules of law (and thus, in some jurisdictions, to set precedents32). There’s no judge-made law without litigation. Individual cases serve to build a body of rules.33 Does ADR help serve these goals? Quite clearly, the Directive tries to avoid any explicit interference with the courts system, as it states that “ADR procedures should not be designed to replace court procedures and should not deprive consumers or traders of their rights to seek redress before the courts. This Directive should not prevent parties from exercising their right of access to the judicial system.”34 But are the two systems really complementary?35 Does ADR just remedy the shortcomings of our court systems? Does it in any way interfere with the functions of adjudication just identified? Should it rather be seen as a competitor, even a rival? The more features of adjudication by state courts the ADR system contains, the more such a connotation would be plausible.

28

29 30

31 32

33 34 35

See the profound analysis by Münch, Grundfragen des Zivilprozesses, in Bruns / Münch / Stadler (eds.), Die Zukunft des Zivilprozesses, 2014, p. 5, at 35 et seq. The German terms are Rechtsbewährung and Rechtsfortbildung. See Southern Pacific Railway. Co. v. United States, 168 U.S. 1, 49 (1897); Nevada v. United States, 103 S.Ct. 2906, 2917 f. (1983). In German: Rechtsfrieden durch Rechtssicherheit. See Woolf, Access to Justice Final Report, 1996, Ch. 14 para. 2 (p. 153); Bowman, Review of the Court of Appeal (Civil Division), 1997, p. 25. See M. Stürner, Die Anfechtung von Zivilurteilen, 2002, p. 35 et seq. See Recital 45 of the ADR Directive. For an evolutive approach to ADR and the court system see Breidenbach, Außergerichtliche Streiterledigung – Sinn und Zusammenspiel mit den Gerichtsverfahren, in Gottwald (ed.), Aktuelle Entwicklungen des Europäischen und internationalen Zivilverfahrensrechts, 2002, p. 117, 124.

Michael Stürner

17

© sellier european law publishers www.sellier.de

I. Setting the Scene

C. Enforcement of rights through ADR mechanisms Let me first turn to the individual aspect of the enforcement of rights. In how far are the ADR mechanisms prescribed by the ADR Directive prepared and suited to enforce individual rights?

I. Mandatory ADR? The characteristic feature of adjudication by state courts is their mandatory nature: Defendants have to respond to an action brought against them, or otherwise a default judgment may be handed down against them. States enforce judgments, if necessary with coercive means. To what extent is the ADR system introduced by the Directive comparable to that?

1. Full ADR coverage …

The ADR Directive prescribes that member states must ensure full ADR coverage for all disputes falling within the scope of application of the Directive.36 Consequently, member states are under an obligation to set up or maintain a system of consumer ADR for all disputes between a consumer and a trader arising from the sale of goods or the provision of services. That only applies, however, to disputes which involve a trader established in the respective member state. Moreover, member states may permit ADR entities to maintain and introduce procedural rules that allow them to refuse to deal with a given dispute under certain conditions pursuant to Article 5 (4) ADR Directive. Accordingly, ADR entities may introduce a monetary threshold; they may set time limits for complaints or refuse to deal with frivolous or vexatious complaints.

2. … but on a voluntary basis

Pursuant to Article 1 (1) ADR Directive cases may be submitted on a voluntary basis. This is reiterated by recital 49: “This Directive should not require the participation of traders in ADR procedures to be mandatory or the outcome of such procedures to be binding on traders, when a consumer has lodged a complaint against them.” Complaints by consumers may thus be futile as the trader is in a position to refuse to participate in the ADR proceedings.

36

Article 5 (1) of the ADR Directive as well as recital 24: “… in order to ensure full sectoral and geographical coverage by and access to ADR”. See also the Explanatory Memorandum, COM(2011) 793 fi nal, at p. 4.

18

Michael Stürner

© sellier european law publishers www.sellier.de

ADR and Adjudication by State Courts: Competitors or Complements? 3. State-induced mandatory ADR

However, member states may make such participation mandatory provided that the constitutional right of access to justice is not undermined. Recital 49 is obviously designed in a way to direct member states towards a mandatory model: “In order to ensure that consumers have access to redress and that they are not obliged to forego their claims, traders should be encouraged as far as possible to participate in ADR procedures.” (Emphasis added.) At least in Germany, mandatory ADR would be possible under the German constitution. While access to justice is a basic right – it follows from the rule of law under Article 20 (3) GG –, even a mandatory ADR mechanism was held to be constitutional as it does not restrict the right of access to justice in a disproportionate manner.37 The German Constitutional Court (Bundesverfassungsgericht) even held that under the rule of law it is preferable to solve a dispute in a consensual manner in the first place.38 The European Court of Justice has decided in a similar manner in Alassini.39

4. Mandatory ADR by means of standard terms?

Regardless of that, it is by no means clear that traders will try to avoid ADR at any cost. Some traders may indeed view ADR as a positive thing. They may want to lay the ground for the best possible outcome in disputes with consumers. So is it possible for traders to stipulate the use of ADR mechanisms on a contractual basis? Would it be advisable for a trader to integrate a mandatory ADR clause in their terms and conditions? Would it at least be permitted in standard terms to choose which ADR body shall be competent if a consumer brings a complaint?

37

38

39

See BVerfG NJW-RR 2007, 1073. The case dealt with the constitutionality of Article 15a EGZPO, a provision which provides that mandatory ADR may be prescribed by local legislation for small claims, i.e. up to EUR 750,-, for disputes between neighbours, and for libel cases. For details see Deckenbrock / Jordans, Die obligatorische Streitschlichtung nach § 15a EGZPO: Eine aktuelle Bestandsaufnahme, Monatsschrift für Deutsches Recht (MDR) 2013, 945-948. BVerfG NJW-RR 2007, 1073, 1074: “Eine zunächst streitige Problemlage durch eine einverständliche Lösung zu bewältigen, ist auch in einem Rechtsstaat grundsätzlich vorzugswürdig gegenüber einer richterlichen Streitentscheidung.” CJEU, 18 March 2010, Joined Cases C-317 / 08, C-318 / 08, C-319 / 08 and C-320 / 08, ECJ Rep. 2010, I-2213. See G. Wagner, Private law enforcement through ADR: Wonder drug or snake oil?, Common Market Law Review (CML Rev.) 51 (2014), 165, at 171 et seq.

Michael Stürner

19

© sellier european law publishers www.sellier.de

I. Setting the Scene

While the Commission proposal was silent towards such ideas,40 Article 10 (1) of the Directive states that “an agreement between a consumer and a trader to submit complaints to an ADR entity is not binding on the consumer if it was concluded before the dispute has materialised and if it has the effect of depriving the consumer of his right to bring an action before the courts for the settlement of the dispute”. But surely it would be compatible with that provision to “invite customers to submit their complaint” to a given ADR institution. It seems even possible for traders to include a standard term saying that all disputes should be brought before a certain ADR institution, but explicitly leaving open direct access to justice.41 Furthermore, it would be conceivable under the ADR Directive for a trader to answer a complaint issued by a consumer with a standard letter saying that all disputes are referred to a certain ADR body. In case there are competing ADR institutions the choice of the consumer would be curtailed.42

II. Which ADR entity is competent? Another important feature of a system of adjudication by state courts is the notion of jurisdiction. The Brussels I Regulation contains precise rules on jurisdiction for cross-border civil and commercial cases. Every national system of civil procedure has similar rules for remaining cases outside the scope of application of Brussels I. Is there a similar system of competence for consumer ADR? The ADR Directive is again silent in that respect. Not that the notion of competence was alien to the Directive, to the contrary. There are many instances where it refers to the “competent ADR entity”.43 However, the ADR Directive does not spell out which ADR entity is competent for which dispute. Rather the ADR institution itself may determine what kind of disputes it shall be competent to decide. This is implicitly spelled out e.g. in Article 7 (1) (h) ADR Directive. Each member state has to ensure that every dispute within the scope of the Directive can be submitted to an ADR entity (Article 5 (1) ADR Directive). This can be done e.g. by establishing a residual ADR entity (Article 5 (3) ADR Directive). 40

41

42 43

See M. Stürner, Außergerichtliche Streitbeilegung – Anforderungen aus Sicht des Verbraucherschutzes, in Bundesministerium für Ernährung, Landwirtschaft und Verbraucherschutz (ed.), Alternative Streitbeilegung – Reden statt Klagen, 2013, p. 9, 13-14, 21. Some authors even argue that Article 10 (1) of the ADR Directive only bans standard terms which (like arbitration agreements) permanently barr access to justice, see Eidenmüller / Engel, ZIP 2013, 1704, 1707. Such interpretation, however, seems to be contrary to the wording and the intention of the Directive. On the idea of a competition between ADR bodies see below at II. See recitals 24 and 47 as well as Article 5 (3) and (7), Article 6 (2) (b), Article 7 (1) (f), Article 14 (1), and Article 15 (4).

20

Michael Stürner

© sellier european law publishers www.sellier.de

ADR and Adjudication by State Courts: Competitors or Complements?

The system of competence can roughly be compared to that of state adjudication, the residual competence being the seat of the defendant (Article 2 (1) Brussels I Regulation), and the difference lying in the fact that every ADR entity has the right to define their field of competence out of their own power. Consequently, there may – at least in theory – be competition among ADR entities.44 Member states are obliged to provide ADR only with effect against traders with their seat on that state’s territory. Thus there is no obligation to provide for a residual ADR procedure for complaints against a foreign trader. Consequently, consumers who have a complaint against a foreign trader have the choice to go to the state of the seat of the trader (via the ODR platform), or they find an ADR institution in their territory which deals with cross-border cases. These, in turn, may exclude such cases from their portfolio (as seems to happen frequently45). Thus consumers have to bring a complaint in that particular member state in which the trader has his seat. In that state, pursuant to Article 5 (2) (e) ADR Directive, member states must ensure that ADR entities accept both domestic and cross-border complaints. Such a result runs counter to the principles of the Brussels I system of consumer protection in civil litigation. But it follows from the principle of voluntariness of ADR. Not much help can be expected from the ODR platform: In case there are several ADR bodies “competent” to hear the dispute, such information will be passed on to the parties together with the information “whether the trader commits to, or is obliged to use, a specific ADR entity to resolve disputes with consumers” (Article 9 (3)(c) ODR Regulation). Clearly, it will be almost impossible for the consumer not to agree on the ADR entity chosen by the trader.46

III. Procedural guarantees Adjudication by state courts knows a number of procedural safeguards: First and foremost, there’s the rule of law which guarantees that all parties are equal before the law. Other fundamental guarantees include the right to be heard, the right to a fair trial, the right to an impartial tribunal, and others. Article 6 (1) of the European Convention of Human Rights, as interpreted by the Strasbourg Court, guarantees these fundamental rights for the judicial systems of all Convention States. These are the pillars on which the maxim of res judicata rests. 44

45

46

The situation is comparable to ad hoc arbitration, where litigants can choose between various institutions. See Rühl, Die Vorschläge der Europäischen Kommission zur außergerichtlichen Streitbeilegung und die besonderen Probleme grenzüberschreitender Verbraucherverträge, in Bundesministerium für Ernährung, Landwirtschaft und Verbraucherschutz (ed.), Alternative Streitbeilegung  – Reden statt Klagen, Berlin 2013, p. 26, 31 with references. In a similar sense Meller-Hannich / Höland / Krausbeck, ZEuP 2014, 8, at 30.

Michael Stürner

21

© sellier european law publishers www.sellier.de

I. Setting the Scene

ADR is different, at least as long as the result is not binding. Nevertheless the ADR Directive contains a number of procedural safeguards, namely the independence and impartiality of the person entrusted with the ADR (Article 6 (1) ADR Directive), and the right to be heard (Article 9 (1) (a) ADR Directive: fairness). These safeguards resemble the principle of fair trial. They show how much the ADR Directive views the ADR proceedings as a procedure where justice is being done.

IV. Which language for the ADR procedure? For court proceedings each member state may set a default language. In Germany the position is simple and straightforward: “Die Gerichtssprache ist deutsch.” (sec. 184 Gerichtsverfassungsgesetz – GVG).47 ADR entities set the default language – just like the competence – out of their own power, see Articles 7 (1)(h) and 19 (1)(f) ADR Directive. A foreign party will be given a translator to be able to follow the court proceedings. The language issue is particularly intricate in cross-border disputes. Consumers may not be inclined to bring their complaint to an ADR body in a foreign language. Will cross-border consumer ADR fail only because every state provides only ADR in one language and traders refuse to adhere to ADR? Language is hardly ever an impediment for consumer actions before state courts as Articles 15-17 Brussels I Regulation give the consumer mostly a forum in the state of his habitual residence. In ADR cases the resolution of the dispute could fail just because the parties cannot agree on an ADR institution. The ODR platform does little to remedy that situation. Pursuant to Article 5 (2) ODR Regulation it serves as a “single point of entry for consumers and traders seeking the out-of-court resolution of disputes”. The ODR platform “shall be an interactive website which can be accessed electronically and free of charge in all official languages of the EU”. Thus, the aim of the platform is to facilitate the search for an ADR institution which suits both parties.48 It applies only “to the 47

48

But see the recent efforts to establish English speaking court divisions (on the possible reform of sec. 184 GVG, see the bill BT-Drs. 17 / 2163), e.g. at courts in Cologne, Bonn, and Aachen (see OLG Köln, Press Statement of 13 January 2010, Verbraucher und Recht (VuR) 2010, Nr. 2, III-IV). Cf. generally Ewer, Das Öffentlichkeitsprinzip – ein Hindernis für die Zulassung von Englisch als konsensual-optionaler Gerichtssprache?, Neue Juristische Wochenschrift (NJW) 2010, 1323-1326; Armbrüster, Fremdsprachen in Gerichtsverfahren, Neue Juristische Wochenschrift (NJW) 2011, 812-818. The scope of application of the ODR platform is not limited to cross-border disputes, see recital 11. The limitation to cross-border disputes contained in the Commission proposal had been criticized for being too narrow; see M. Stürner, in Bundesministerium für Ernährung, Landwirtschaft und Verbraucherschutz (ed.),

22

Michael Stürner

© sellier european law publishers www.sellier.de

ADR and Adjudication by State Courts: Competitors or Complements?

out-of-court resolution of disputes concerning contractual obligations stemming from online sales or service contracts between a consumer resident in the Union and a trader established in the Union” (Article 2 (1) ODR Regulation). The scope of application is thus narrower than that of the ADR Directive. The ODR platform merely serves as a broker in order to facilitate the agreement of the parties with respect to an ADR entity. The procedure itself, however, is left to the ADR entity. That includes the language issue. Suggestions to make use of internet-based programmes such as Google Translate seem rather unhelpful.49 Some ADR entities seem to get translation help from the ECC network.50

V. A binding result? It is one thing to make the participation in ADR mandatory. It is quite another to enable the ADR body to impose a binding solution on the parties. The Directive leaves that point open. Thus the default position is that the result of consumer ADR is non-binding. Both trader and consumer may or may not accept the proposal of the person entrusted with ADR. In case either of them rejects that proposal, both parties are free to go to court.

1. ADR body does not have the power to impose a solution

The accepted proposal does have a binding force: that of a contract between the parties. Under German law, such contract could be viewed as a settlement in the sense of sec. 779 BGB. Such settlement is a “contract by which a dispute or uncertainty of the parties with regard to a legal relationship is removed by way of mutual concession”. One would expect that the parties comply with that contract in due course. However, if that doesn’t happen, the party entitled (mostly the consumer) may want to seek enforcement. As there’s only a contract between the parties, and not a judgment of a court, there’s no foreclosure proceedings on the basis of the agreement between the parties. Consequently, the winning party will have to

49

50

Alternative Streitbeilegung – Reden statt Klagen, 2013, p. 9, 12. However, the question of competence arises as contracts without cross-border elements do not have any impact on the internal market, see above at note 27. See Cortés / de la Rosa, Building a Global Redress System for Low-Value Cross-Border Disputes, 62 (2013) International and Comparative Law Quarterly (ICLQ) 407, at 417 (noting that such translation soft ware does not produce optimal results). Such as the German Schlichtungsstelle für den öffentlichen Personenverkehr (SÖP). That information has been kindly provided by Christof Berlin of the SÖP.

Michael Stürner

23

© sellier european law publishers www.sellier.de

I. Setting the Scene

obtain a title issued by a state court. Besides, national law may determine that such contracts are directly enforceable under certain conditions.51

2. A binding outcome under national legislation

However, the Directive states in Article 2 (4) that member states may determine that ADR entities established on their territory are to have the power to impose a solution. That is another instance of minimal harmonization. In case member states do allow ADR procedures which impose a binding solution on the parties, Article 10 (2) ADR Directive further requires that the parties “were informed of its binding nature in advance and specifically accepted this. Specific acceptance by the trader is not required if national rules provide that solutions are binding on traders.” Already now binding ADR schemes exist: In the Netherlands, the geschillencommissies52 can impose solutions which are binding on both parties (vaststellingsovereenkomst).53 In the United Kingdom, decisions of the Financial Ombudsman Service (FOS)54 are binding, but only on the trader, as the consumer is free to accept the outcome or not.

3. Redress?

But what happens if the proposal is accepted? Can parties seek redress against the binding solution? Certainly the doctrine of res judicata (in its respective national shape) does not apply. Recital 45 of the ADR Directive stresses that access to justice should not be curtailed.55 But in the same recital the EU legislator makes very clear that this holds true only for unsuccessful ADR procedures, the outcomes of which do not have binding force.56 One can infer from Articles 2 51

52 53

54 55

56

For German law, see sec. 794 (1) No 1 ZPO (settlements concluded before an ADR entity established or recognised by the department of justice of a federal state – Landesjustizverwaltung), as well as sec. 794 (1) No 5 ZPO (enforceability of a notarial deed). Cf. Rühl, ZZP 127 (2014), 61, at 92 / 93. See http: // www.degeschillencommissie.nl / home. See Articles 7:900 to 7:906 Burgerlijk Wetboek. On the legal nature of these solutions see Mom, Kollektiver Rechtsschutz in den Niederlanden, 2011, p. 64 et seq. See http: // www.fi nancial-ombudsman.org.uk / . See Recital 45: “[…] ADR procedures should not be designed to replace court procedures and should not deprive consumers or traders of their rights to seek redress before the courts.” “In cases where a dispute could not be resolved through a given ADR procedure whose outcome is not binding, the parties should subsequently not be prevented from initiating judicial proceedings in relation to that dispute.” See G. Hirsch, NJW 2013, 2088, at 2092-2093.

24

Michael Stürner

© sellier european law publishers www.sellier.de

ADR and Adjudication by State Courts: Competitors or Complements?

(4) and 10 (2) ADR Directive that the idea of finality is accepted once the parties know what they do. That seems to indicate that there should be no means of redress to state courts against binding ADR decisions.57 By contrast, the Dutch model provides judicial review against decisions of the geschillencommissies.58

D. The administration of justice through ADR mechanisms The second characteristic of state court justice has a collective dimension: the clarification and the development of the law as well as the maxim of legal certainty.

I. Do ADR mechanisms have to abide by the law? It goes without saying that all courts have to abide by the law.59 Individual rights cannot be properly enforced if the court decision does not reflect the position of substantive law. By the same token, the function of clarification and development of the law can only be fulfilled under the condition that courts follow the rules of the game.

1. Non-binding ADR

In ADR proceedings where no solution is imposed on the parties there is no rule of law in the strict sense. The person entrusted with the resolution of the dispute does not necessarily have to abide by the rules of consumer protection. The goal is simply to regard the “true interests” of the parties.60 That inter-

57

58

59 60

Under German law, an action might be regarded as inadmissible (unzulässig) for want of legitimate interest in suing (Rechtsschutzbedürfnis), provided that the settlement contains a lawsuit waiver (materiellrechtlicher Klageverzicht) or unfounded (unbegründet) because the settlement has been validly concluded. But how intensely will the court look at the settlement? Is it to be regarded void because of procedural flaws (e.g. violations of the right to be heard) or disregard of consumer protection according to Article 11 ADR Directive? A close monitoring of the ADR proceedings might render the binding effect of the ADR futile and thus affect the effet utile of the Directive. On the Dutch model see Weber / Hodges, The Netherlands, in Hodges / Benöhr / Creutzfeldt-Banda (eds.), Consumer ADR in Europe, 2012, 129. For Germany, see Article 20 (3) Grundgesetz. See G. Wagner, CML Rev. 51 (2014), 165, at 176 (“law enforcement light”).

Michael Stürner

25

© sellier european law publishers www.sellier.de

I. Setting the Scene

est-based approach is well-known from mediation.61 It represents absolutely the opposite of what state court adjudication stands for. However, even there legal disputes quite often end with a settlement. Such in-court settlements need not necessarily reflect the legal situation as between the parties.62

2. Binding ADR

In case the outcome of the ADR is binding on the parties according to national legislation enacted pursuant to Article 2 (4) ADR Directive, Article 11 ADR Directive provides a twofold regime of law-abidance: In cases without cross-border elements, “the solution imposed shall not 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 of the Member State where the consumer and the trader are habitually resident”. In cases with cross-border elements the rather complex Article 6 Rome I Regulation applies, which means that “the solution imposed by the ADR entity shall not 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 of the member state in which he is habitually resident”. Thus the ADR institution can move only within the framework of mandatory consumer law.63 Those ADR proceedings are sort of rights-based. It is unclear, however, if that rights-based approach applies to any other part of the law than that mentioned in Article 11 ADR Directive.64 Consequently, in a consumer sales case, the ADR body would be bound by the national law transposing the Consumer Sales Directive. It would be free, however, to disregard the rules on the formation of contract.

61

62

63

64

The classic piece of literature is Mnookin / Kornhauser, Bargaining in the shadow of the law, 88 Yale Law Journal 950 (1979). From a German perspective see e.g. Leiss, Zur Effi zienz außergerichtlicher Verfahren im Wirtschaftsrecht. Eine empirische Untersuchung von Verhandlung und Mediation, 2005. For German law, see § 779 BGB. Settlements are explicitly encouraged by procedural law, see sec. 278 (1) ZPO: “In all circumstances of the proceedings, the court is to act in the interests of arriving at an amicable resolution of the legal dispute or of the individual points at issue.” See the parallel case of arbitral awards ex aequo et bono or amiable composition, but see for a case of denial of such an award OLG München Zeitschrift für Schiedsverfahren (SchiedsVZ) 2005, 308. Cf. also G. Wagner, CML Rev. 51 (2014), 165, at 177.

26

Michael Stürner

© sellier european law publishers www.sellier.de

ADR and Adjudication by State Courts: Competitors or Complements?

II. Are persons entrusted with ADR capable of developing the law? Another issue closely linked to the legality of the solution is that of the qualification of the persons entrusted with ADR. Which skills do such persons have to have? Article 6 (1)(a) ADR Directive specifies as follows: Any natural person in charge of ADR possesses “the necessary knowledge and skills in the field of alternative or judicial resolution of consumer disputes, as well as a general understanding of law”. Is a general understanding of law enough to deal with the ramifications of European consumer law as required by Article 11 ADR Directive?65 To understand the conflict-of-laws approach in Article 6 Rome I Regulation, which could well imply a comparison of two legal orders in case of a choice of law? I rather doubt it is. Consequently, it would be advisable for member states to set higher standards at least for cases in which the ADR institution may impose a solution on the parties.66

III. A duty to decide consistently in ADR? In any case, a bulk of cases will emerge, certainly enough to ask the question if there is such a thing as binding precedent in ADR. In the context of adjudication by state courts, precedents serve mainly two functions: First, the respect for precedents helps build up authority as courts do not decide in an inconsistent manner. Second, precedents create predictability and thus legal certainty. Think of a lawyer advising his consumer client. Will he advise them to resort to ADR before (or, indeed, instead of) going to court? He can only do that if he has reason to believe that this is the safest and quickest way to get what is due to the client. Clearly, a system of authoritative precedents cannot be expected to evolve in ADR. However, the quality of outcome of an ADR entity will be measured 65

66

See the discussion in Breidenbach / Gläßer, “Befähigung zum Schlichteramt”? – zum Erfordernis einer qualitätssichernden Ausbildung aller im Rahmen des neuen § 15a EGZPO tätig werdenden Streitmittler, Zeitschrift für Konfl iktmanagement (ZKM) 2001, 11. E.g. conciliators working at the German Versicherungsombudsman are fully qualified lawyers (Volljuristen). Eidenmüller / Engel (ZIP 2012, 1704, 1709) make the proposition that only fully qualified lawyers be entrusted with ADR. As opposed to that, Reich (F.A.Z. of 16 July 2013, p. 30) and Rühl (ZZP 127 (2014), 61, at 86 with note 80) argue that such requirement were contrary to recital 36 of the ADR directive. In any case, as the ADR Directive does not force member states to set up ADR entities which may impose binding solutions on the parties, at least for those mechanisms a certain legal qualification can be made mandatory under national legislation.

Michael Stürner

27

© sellier european law publishers www.sellier.de

I. Setting the Scene

according to the extent its decisions are consistent. If successful, consumer ADR will be a mass phenomenon. If there is no need to follow earlier decisions, to decide consistently, there will be no trust in ADR. Consumers (or, rather, consumer associations) will need to know which ADR institution decides how. The database to be created pursuant to Article 11 of the ODR Regulation seems not to tackle this problem in a satisfactory way as the information contained therein will not be accessible to the public.67

IV. Consequences of ADR as a mass phenomenon The more successful ADR gets, the greater the danger that the collective function of the state court adjudication will no longer be properly exercised. Admittedly the sum at stake in consumer ADR cases will mostly be comparatively marginal. But these cases could still be important in terms of the legal problems they raise. Landmark cases like Quelle68 or Weber and Putz69 might have ended up in an ADR settlement and would never have reached the European Court of Justice. Surely ADR institutions may decline to accept cases which raise fundamental legal issues. But how do they determine such issues without profound knowledge of the law? We might witness the emergence of a parallel system of adjudication. For at least two reasons such a development could have a profound impact on the administration of justice as we know it. First, the way private law is being developed will change. In countries like Germany, where consumer law is still part of the general law of obligations, the potential impact on the coherence of the system of private law could be immense. Consumer law and general law of obligations will drift apart. Second, the advent of consumer ADR as a mass phenomenon might give governments a pretext not to enhance the administration of justice by state courts anymore. By the same token, the possible success of ADR might also divert attention on a European level from making more efficient consumer rights through the enforcement of cross border small and mass claims.70 67

68

69

70

But see recital 30 ADR Directive: “Member States should nevertheless ensure that ADR entities make publicly available any systematic or significant problems that occur frequently and lead to disputes between consumers and traders. The information communicated in this regard could be accompanied by recommendations as to how such problems can be avoided or resolved in future, in order to raise traders’ standards and to facilitate the exchange of information and best practices.” CJEU, 17 April 2008, Case C-404 / 06  – Quelle AG . / . Bundesverband der Verbraucherzentralen und Verbraucherverbände, ECJ Rep. 2008, I-2685. CJEU, 16 June 2011, Joined Cases C-65 / 09 and C-87 / 09 – Gebr. Weber . / . Wittmer; Putz . / . Medianess Electronics GmbH, ECJ Rep. 2011, 5257. See Eidenmüller / Engel, ZIP 2013, 1704, 1708-1709.

28

Michael Stürner

© sellier european law publishers www.sellier.de

ADR and Adjudication by State Courts: Competitors or Complements?

The problem of cases escaping the judiciary is well-known. In insurance law insurers mostly tend to settle a case as soon as they realize that they are likely to lose.71 In large B2B disputes the overwhelming majority of cases is resolved by way of arbitration. The advent of consumer ADR requires close scrutiny as it might engender an erosion of the necessary bulk of cases for the development of the law.

E. Is ADR a rival to state court adjudication or rather a complement? Consumer ADR can help complement the shortcomings of state adjudication. Present examples of good practise show how successful ADR is in specific areas.72 But ADR is now used as a political tool to enhance the internal market. It remains doubtful, to say the least, if the system of ADR established by the ADR Directive and the ODR Regulation will really boost growth and strengthen consumer confidence in the internal market. Moreover, the impact on the juridical system is as of yet unknown and potentially dangerous. A parallel system of “adjudication” will emerge – the term “ombudsprudence” has already been coined for that “case law”. Consumer rights will not necessarily be better enforced. The main concern will be that member states no longer invest in their civil justice systems but rather privatize adjudication by way of seemingly cheap, but binding ADR mechanisms. Recital 15 of the ADR Directive reads like an explicit encouragement in that sense:73 If you don’t manage to reform your court system, just forget about it and provide some kind of consumer ADR instead. Such a policy approach would be unacceptable for an area of freedom, security and justice. It also casts doubt on the merits of the dogma of mutual confidence so mantra-like repeated in the context of judicial cooperation in the EU.

71

72

73

Cf. G. Hirsch, Revision im Interesse der Partei oder des Rechts?, Zeitschrift für Versicherungsrecht (VersR) 2012, 929. See Berlin, in this volume, at p. 67; G. Hirsch, Die Praxis des Versicherungsombudsmanns, Verbraucher und Recht (VuR) 2010, 298; Wolst, Schlichtung in der Energiewirtschaft , in Bundesministerium für Ernährung, Landwirtschaft und Verbraucherschutz (ed.), Alternative Streitbeilegung – Reden statt Klagen, Berlin 2013, p. 51. Recital 15 reads: “[…] The dissemination of ADR can also prove to be important in those Member States in which there is a substantial backlog of cases pending before the courts, preventing Union citizens from exercising their right to a fair trial within a reasonable time.”

Michael Stürner

29

© sellier european law publishers www.sellier.de

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions? Fernando Gascón Inchausti A. Consumer ADR in the Context of Access to Justice: Some Previous Considerations in the Light of Directive 2013 / 11 / EU The starting point of this contribution must be general: before focusing on specific issues related to cross-border Consumer ADR it is necessary to define what role ADR mechanisms are called to play in the overall context of what can be designated as “access to justice”. Article 6.1 of the European Convention on Human Rights (ECHR) as well as Article 47 of the Charter of the Fundamental Rights in the European Union (CFREU), just like many national constitutional provisions,1 recognize the fundamental right of access to justice, which results in the State’s duty to grant relief to infringed individual rights by means of the application of law to every single case. This duty of State’s courts to apply the law in each particular case serves, of course, to resolve disputes between individuals but, beyond this, it is also linked to one of the essential powers and attributes of the State, that is, it is linked to the notions of Justice, Rechtsstaat, legal certainty and social peace. Those are commonly accepted ideas, which will not be dealt with here for obvious reasons. Traditionally, the State has complied with its duty to ensure “access to justice” through its courts and through the judicial process. For several decades, however, ADR mechanisms claim their space not only as alternative techniques to get to the resolution of the dispute, but, more broadly, as alternative techniques to ensure “access to justice”, i.e., as proper tools to achieve the main scope of Justice (with a capital “J”).2 1

2

See, for instance, Article 103 (1) of the German Constitution (“Vor Gericht hat jedermann Anspruch auf rechtliches Gehör”); Article 24 I of the Italian Constitution (“Tutti possono agire in giudizio per la tutela dei propri diritti e interessi legittimi”); and Article 24.1 of the Spanish Constitution (“Todas las personas tienen derecho a obtener la tutela efectiva de los jueces y tribunales en el ejercicio de sus derechos e intereses legítimos, sin que, en ningún caso, pueda producirse indefensión”). Th is idea was first – at least clearly – suggested by Mauro Cappelletti, Alternative Dispute Resolution Processes within the Framework of the World-Wide Acces-to-Justice Movement, (1993), 3 The Modern Law Review 56, 287 et seq. Much more recently, see also Christopher Hodges / Iris Benöhr / Naomi Creutzfeldt-Banda,

31

© sellier european law publishers www.sellier.de

I. Setting the Scene

This is not the place to dwell on considerations about what ADR systems are, nor about their advantages and disadvantages compared with the ordinary jurisdiction of State’s courts.3 Certain ideas, however, shall be recalled or emphasized now. a) The field of consumer litigation is possibly one of the areas of legal life where the existence of alternatives to courts and to judicial process can be more justified.4 It would be unfair to argue that courts and judicial process are “hostile” to consumer disputes: on the contrary, at both the domestic and the European level much has been done to facilitate and simplify consumer litigation and to place consumers in those procedures in a proper position, which compensates for the disadvantages they certainly find when they intend to engage in a civil action (for instance, reducing costs and fees, or reversing the burden of proof in favor of the plaintiff ). But the impression may survive – and in consumer matters impressions are especially important – that a judicial process is not always “worth it” in terms of cost, duration and effectiveness. Many ADR schemes, designed with consumer disputes in mind, may offer procedures that are more “consumer friendly”, for many reasons related precisely to the above mentioned issues. The terms and acronyms “Consumer Alternative Dispute Resolution” (CADR) or, directly, “Consumer Dispute Resolution” (CDR) are starting to be used to designate the multiplicity of ADR schemes specifically created to solve consumer disputes “off-court”. What is not so clear, however, is whether in the more specific sector of consumer cross-border disputes ADR schemes are also more “consumer friendly” than court proceedings or whether, on the contrary, the cross-border nature of the dispute generates in this ADR sector a certain sort of “hostility” and some difficulties similar to those caused by “traditional” cross-border court litigation (although again it would be unfair to say that nothing has been done in this area, especially at a European level: e.g., with the special jurisdiction rules in Brussels I Regulation or with the European Small Claims Procedure). This is, of course, the main concern of this contribution. b) The world of ADR and CADR is very heterogeneous, including systems that combine in many possible ways many different elements, for instance: public or private creation and / or funding of the system and the institution; binding

3

4

32

Consumer ADR in Europe, 2012; Felix Steffek / Hannes Unberath (eds.), Regulating Dispute Resolution – ADR and Access to Justice at the Crossroads, Hart Publishing, Oxford 2013. For a critical approach, from the England and Wales point of view, see Hazel Genn, (2012) What Is Civil Justice For? Reform, ADR, and Access to Justice, Yale Journal of Law & the Humanities: Vol. 24: Iss. 1, Article 18. In fact, it has been suggested that ADR is already providing better access to justice for consumers than court litigation (see Hodges / Benöhr / Creutzfeldt-Banda, p. 397).

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions?

or non- binding outcome of the procedure; mandatory or voluntary for traders; and sectoral, multi-sectoral or general coverage.5 This is mainly due to the fact that CADR has emerged mostly in spontaneous and sectoral manners, and the possible combinations of the above mentioned elements lead to certain consequences and advantages, usually sought by those establishing the CADR schemes. The EU Directive 2013 / 11 of 21 May 2013 (Directive on consumer ADR) is aware of the complex contents lying under those terms and therefore defines them in a very broad way as “procedures for the out-of-court resolution of (…) disputes (…) through the intervention of an ADR entity which proposes or imposes a solution or brings the parties together with the aim of facilitating an amicable solution” (Article 2.1). c) The attitude of public authorities in relation to ADR and, more specifically, to CADR has also changed profoundly.6 In many cases – or levels –, the attitude of governments regarding ADR has been of mere tolerance towards a phenomenon that arises spontaneously outside of their normal scopes of activity: public authorities take care of State’s courts and judicial procedures, not what happens outside their boundaries. In fact, this is still the dominant attitude regarding many sectors of ADR – of course, after the EU CADR Directive, not any longer in those that are linked to consumer disputes. Obviously, public authorities do regulate certain kinds of ADR, albeit for different reasons. In the case of arbitration, legal regulation has been traditional – probably due to the initial consideration of arbitration mainly as a contract; additionally, it is also unavoidable to “regulate cohabitation” between arbitration and judicial process. By contrast, in the case of mediation, recent legal regulation in most European countries has been considered mandatory, since Member States were forced to comply with the 2008 Directive.7 Moreover, in the specific sector of consumer disputes, and at least in some countries, regulation

5

6

7

For an accurate overview, see DG SANCO – Study on the use of Alternative Dispute Resolution in the European Union – Final Report Submitted by Civic Consulting of the Consumer Policy Evaluation Consortium (CPEC), October 2009 (hereinafter DG SANCO-Study), available at http: // ec.europa.eu / consumers / redress_cons / adr_study.pdf, pp. 33-40 (accessed 27.6.2014); and, with much more detail, Hodges / Benöhr / Creutzfeldt-Banda, passim. Within the notion of “public authorities” today, and especially in this area, both the national and the European authorities shall be encompassed. For a very complete and clear overview, see Klaus J. Hopt / Felix Steffek (eds.), Mediation. Principles and Regulation in Comparative Perspective, Oxford University Press 2012.

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

33

I. Setting the Scene

has been associated with the fact that certain CADR schemes were directly linked to public institutions.8 A step beyond, however, would be that public authorities were obliged not only to regulate, but to ensure the existence of ADR systems available to litigants, similarly to the way they are also required to establish a judicial system. This is the step forward made by EU Directive 2013 / 11 of 21 May 2013 (Directive on consumer ADR).9 Once transposed (by 9 July 2015 at the latest, according to Article 25), EU Member States will be required to assure consumers of the existence of an alternative system that meets the quality standards established in the Directive, in order to resolve disputes concerning contractual obligations stemming from sales contracts or service contracts between a trader established in the Union and a consumer also resident in the Union (Article 2). Within the scope of application of the CADR Directive, the European legislator’s aim is to turn the CADR in a tool – in the proper sense – to ensure access to justice for consumers. The CADR schemes shall no longer be a secondary alternative to the judicial process and will be placed on an equal footing, as a real alternative for the State to comply with its obligation to ensure access to justice. It can be said, therefore, that access to justice will only be ensured if the consumer has access to two equivalent ways: the judicial, or “classical” one, and the “alternative” one, represented by CADR schemes created or accredited by Member States. It shall be noted, therefore, that the specific sector of consumer disputes will benefit from a duplicated access to justice in the proper sense: since the use of ADR procedures can never be imposed on consumers – such a clause should be considered unfair or vexatious (see Articles 1 and 10) –,10 there will always be a 8

9

10

34

A good example of this, in fact, is Spain, with its consumer arbitration system, organized from the government. But also many other countries, as shown in DG Sanco-Study, pp.  64-95. See also the 2011 Study Cross-Border Alternative Dispute Resolution in the European Union, European Parliament, Internal Market and Consumer Protection (hereinafter IMCO-Study), pp. 19-20, available at http: // www.europarl.europa.eu / meetdocs / 2009_2014 / documents / imco / dv / adr_study_ / adr_study_en.pdf (accessed 27.6.2014). Previously to Directive 2013 / 11, the European legislator had already encouraged or required Member States to establish adequate and effective out-of court dispute resolution procedures in specific sectors: see, for instance, Directive 2009 / 136 amending Directive 2002 / 22 on universal service and user’s rights relating to electronic communications networks and services; Directive 2008 / 48 on credit agreements for consumers; or Directive 2007 / 64 on payment services in the internal market. Article 1 of the Directive establishes that “Th is Directive is without prejudice to national legislation making participation in such procedures (= CADR) mandatory, provided that such legislation does not prevent the parties from exercising their right of access to the judicial system”. More specifically, Article 10(1) states that

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions?

choice for them to use courts and judicial procedures or, rather, to first use – or, at least, “explore” – the field of CADR. This duplicity may engender costs for the States – if private funded CADR institutions do not bring coverage to any possible consumer dispute against any trader established in each State – and should be, of course, endorsed: EU institutions find this justification in the need to deepen the construction of the internal market through the attainment of a high level of consumer protection (Articles 26 and 169 of the Treaty on the Functioning of the European Union, TFEU). EU Member States will therefore have to be held responsible for the existence and quality of both systems – judicial and CADR –, but with an important difference. While access to “court justice” is a task that must be organized and developed directly by the State, ensuring access to “alternative consumer justice” is different in that States are also allowed to use “outsourcing” techniques: the CADR Directive does not require that CADR schemes are organized or financed by public authorities, but also admits that CADR entities can be private and / or separated from authorities, provided that they are always under the Government’s control (through verification that they meet the quality requirements). In any case, coverage must be general: if for a particular sector there is no CADR entity competent to deal with consumer complaints, the State should create one (see Article 5). This is undoubtedly a shocking conclusion. However, it should be noted that the European Court of Human Rights (ECtHR) itself has recognized on several occasions that access to justice through ADR systems is compatible with the ECHR, provided that the ADR procedure meets the minimum standards set by the Convention itself.11

11

“Member States shall ensure that an agreement between a consumer and a trader to submit complaints to an ADR entity is not binding on the consumer if it was concluded before the dispute has materialised and if it has the effect of depriving the consumer of his right to bring an action before the courts for the settlement of the dispute”. See also Annex 1 (q) of Council Directive 93 / 13 / EEC of 5 April 1993 on unfair terms in consumer contracts, considering as such “excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions (…)”. In the case law of the European Court of Justice it is also worth mentioning at least three cases: Alassini (joined cases C-317 / 08 to C-320 / 08, 18 March 2010) ECR I-2213, Claro v Centro Móvil Milenium (C-1685, 26 October 2006) ECR I-10421 and Asturcom Telecomunicaciones v Cristina Rodríguez Nogueira (C-40 / 08, 6 October 2009) ECR I-9579. For arbitration procedures under the scrutiny of the ECtHR see, for instance, R. v. Switzerland (4 March 1987); Osmo Suovaniemi and others v. Finland (Application No. 31737 / 96), Judgment of 23 February 1999; Transado – Transportes Fluviais do Sado S.A. v. Portugal (Application No. 35943 / 02), Judgment of 16 December 2003; Fragner v. Austria (Application No. 18283 / 06), Judgment of 23 September 2010. Dealing with the more specific issue of arbitration as a means for granting access

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

35

I. Setting the Scene

B. Specific Problems of Consumer ADR when Dealing with Cross-Border Disputes We must start, then, from the overall appreciation that the European legislator wants to raise CADR schemes to the category of tools to ensure access to justice in consumer matters. In order to meet this goal it has forced States to ensure that there will be CADR systems of sufficient quality available to consumers. Furthermore, the Directive insists on noting that CADR has to be available for cross-border disputes in the same way it is available for domestic litigation (Articles 2.1 and 5.1). This means that the duplicity – courts and CDR – must be available not only in domestic cases, but also for cross-border disputes. The legal basis for the regulation contained in the CADR Directive is to be found in Articles 169(1) and 169(2)(a) TFEU, providing that the Union has to contribute to the attainment of a high level of consumer protection through measures adopted pursuant to Article 114 TFEU.12 As a broader basis, of course, Article 38 CFREU has to be mentioned, which provides that Union policies are to ensure a high level of consumer protection. This link to the EU powers in consumer matters has made it possible for the Directive to cover both cross-border and domestic disputes; in other words, it has been allowed to circumvent a limit that would have arisen if the EU regulation had been sustained solely on the EU powers ex Article 81 to build an European space of civil justice [especially taking account of points (2) (e) (“effective access to justice”) and (2)(g) (“the development of alternative methods of dispute settlement”)].13 This decision to regulate domestic and cross-border disputes might be criticized or even challenged; but it is sure that, in any case, cross-border cases would fall within the scope of EU law-making powers.

12 13

36

to Justice, see Lithgow and others v. United Kingdom (Applications no. 9006 / 80; 9262 / 81; 9263 / 81; 9265 / 81; 9266 / 81; 9313 / 81; 9405 / 81), Judgment of 8 July 1986; Suda v. Czech Republic (Application No. 1643 / 06), Judgment of 28 October 2010; Day S.R.O. and other v. Czech Republic (Application No. 48203 / 09), Judgment of 16 February 2012; and Kolgu v. Turkey (Application no. 2935 / 07), Judgment of 27 August 2013. See also Susan Schiavetta, The Relationship Between e-ADR and Article 6 of the European Convention of Human Rights Pursuant to the Case Law of the European Court of Human Rights, 2004 (1) The Journal of Information, Law & Technology (JILT). See Recitals 1, 2 and 60 of the CADR Directive’s preamble. This limitation is now established in Article 81(1) TFEU, stating that “The Union shall develop judicial cooperation in civil matters having cross-border implications”. Dealing with this issue, see also Hodges / Benöhr / Creutzfeld-Banda, pp. 6-7.

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions?

Before turning to other issues, it is necessary to clarify what is to be understood as a “cross-border dispute”. A legal answer can be found in Article 4.1 (f) of the CADR Directive, according to which “‘cross-border dispute’ means a contractual dispute arising from a sales or service contract where, at the time the consumer orders the goods or services, the consumer is resident in a Member State other than the Member State in which the trader is established.” Hence, the cross-border nature of the dispute arises from the diversity between consumer’s residence and trader’s establishment. However, it is important to note that both places shall be within the EU. Of course, if any or both of them were different and located outside the EU, the dispute would still be cross-border. But it would not be a cross-border dispute falling within the scope of the CADR Directive and, therefore, EU Member States would not have the duty to ensure access to an ADR procedure in order to resolve it. In the context of this contribution, only EU cross-border disputes will be considered. Choosing diversity between consumer’s residence and trader’s establishment as the key element to decide whether a dispute is cross-border can be seen as the right decision, because this fact will be ordinarily linked to the place where the ADR procedure is to be conducted. As a general rule – we will turn back to this point shortly –, the CADR procedure will take place in the country where the trader is established, because this is the place where coverage has to be ensured by Member States. As a result of this, a cross-border case will be a case in which one of the parties will have to “litigate” or “participate”14 abroad. This is, in my view, the most relevant factor in cross-border dispute resolution and this is the origin of most of the problems associated to it:15 it is more easy to imagine those problems from the consumer’s point of view, but they can also affect the trader, since he must decide if it is worth participating in a non-mandatory CADR procedure that will take place in another country. Furthermore, according to the Directive, the relevant moment to determine the cross-border nature of the case is related to the time in which the contract is performed (more precisely, “the time the consumer orders the goods and servic14

15

I am taking here the liberty to use the term “litigate” in a very broad sense, encompassing the notion of “participating” in a CADR procedure. In fact, this is the criterion to defi ne the cross-border nature of a case in “court” contexts, such as the European order for payment procedure or the European Small Claims Procedure, where a cross-border case “is one in which at least one of the parties is domiciled or habitually resident in a Member State other than the Member State of the court or tribunal seised” [Article 3(1) of both Regulations, i.e., Regulation (EC) No 1896 / 2006 of the European Parliament and of the Council of 12 December 2006 creating a European order for payment procedure (OJ L 399, 30.12.2006, p. 1-32) and Regulation (EC) No 861 / 2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims Procedure (OJ L 199, 31.7.2007, p. 1-22)]. In the absence of a legal determined court – and that is what happens in ADR – such a rule is not feasible.

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

37

I. Setting the Scene

es”) and not the time in which the dispute arises. However, as a matter of fact, it will be relevant to know if this diversity still exists when a dispute resolution procedure is envisaged: if, at this second stage, trader and consumer happen to be located in the same country (e.g. because the consumer has changed residence), the dispute might still be cross-border according to Article 4.1 (f) of the CADR Directive, but in practice its resolution will not face the problems usually associated with cross-border cases. European and national legislators must be aware of the problems faced in trying to turn CADR into a tool that really serves to satisfy the access to justice also for cross-border disputes and, hence, to provide solutions for them. This is, in the long term, the challenge for CADR and especially for the European authorities, much more than for national governments: offering tools to solve disputes where the “participating-in-a-procedure-abroad-factor” should become more and more irrelevant. Common sense, practical experience and, above all, many empirical studies conducted according to the methods of the social sciences16 have been used to detect the problems faced by ADR schemes when they have to deal with cross-border disputes – or, if preferred, with abroad dispute resolution. In order to make a proper diagnosis it is important to distinguish between the problems associated with the fact that we are dealing with consumer disputes, on the one hand, and, on the other, the problems associated with the fact that the disputes have a cross-border nature (although sometimes the dividing line may not be very clear).

I. Specific problems of “consumer” dispute resolution, which are aggravated in cross-border cases First, we can detect a number of difficulties associated with the fact that we are dealing with consumer disputes: those are, of course, the sort of problems a CADR system has to solve, and which domestic legislation has had to face when dealing with judicial processes in consumer matters. These problems exist in domestic CADR, but they get aggravated or exacerbated when the dispute is cross-border.17 We can mention now at least the following:

16

17

38

Apart from the aforementioned IMCO-Study and DG SANCO Study see also Consumer Redress in the European Union: Consumer Experiences, Perceptions and Choices – Aggregated Report (August 2009), European Commission, Qualitative Study (hereinafter Qual-Study), available at http: // ec.europa.eu / consumers / redress_cons / docs / cons_redress_EU_qual_study_report_en.pdf (accessed 27.6.2014). See IMCO-Study, pp. 31, 48-51, 86-87; DG Sanco-Study, pp. 112-114; Qual-Study, pp. 29-32.

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions? 1. Cost

There is, in the first place, a general problem of cost, in a very broad sense. Very often, consumer disputes have a reduced amount, so that if consumers do not find a simple solution, they give up bringing their claims to a court or before an ADR scheme. It is therefore assumed that the economic cost of staking a claim (lawyers, evidence) does not outweigh the benefit that can be expected of the judicial process or the ADR system. If the procedure is cross-border, there is a perception that the cost will be even higher (lawyers in two countries, translations into another language, possible travels abroad), and this has a deterrent effect on any attempt to access justice. A special concern in this “costs section” is, in my view, the difficulty of satisfying the burden of proof. Getting reliable evidence will often be difficult, for instance if the consumer only notices that the product is defective after having purchased it or when the poor service’s performance occurs at the consumer’s home. In other words, consumers make a hypothetical assessment of the objective difficulties they face in terms of costs – both financial and personal – and decide not to litigate. One might think that this attitude benefits companies and traders, but the fact is that in the medium to long term, consumers who decide not to litigate also decide not to purchase goods or services from the same company or trader. This fact explains why many CADR schemes have been founded upon initiative of trader’s organizations.

2. Lack of knowledge

Secondly, there is a problem of lack of knowledge or lack of awareness, which is specific to many CADR schemes. More often than desirable, consumers do not know that they have at their disposal an affordable and acceptable alternative to resolve their dispute. These problems of knowledge and awareness are clearly aggravated when the dispute is cross-border: how can the consumer know if there is an entity in the trader’s country that can solve the case? Or an entity in the consumer’s country that can take care of a cross-border dispute concerning a trader established abroad?

3. Lack of trust

When the existence of CADR schemes is known, there is a general problem of lack of trust in them. This lack of trust stems from many grounds: the heterogeneous nature of CADR procedures, the different structure and financing of CADR entities, the more or less complex nature of the steps that have to be folFernando Gascón Inchausti

© sellier european law publishers www.sellier.de

39

I. Setting the Scene

lowed to have the dispute resolved, the binding or non-binding nature of its outcome, independence and impartiality of the persons entrusted with the CADR (e.g. if the ADR system is funded in whole or in part by a business sector), or the rules used to decide on the merits (the same legislation that would be applied in a judicial proceeding, equity or fairness, codes of best practices?). Obviously this feeling of mistrust increases if the dispute is cross-border and, especially, if the CADR procedure will not take place in the consumer’s own state.

II. Specific problems of “cross-border” dispute resolution Reducing costs and achieving a higher level of awareness and trust in ADR schemes are the challenges faced when designing a CADR system that can efficiently resolve disputes between consumers and businesses. However, even if these elements were not problematic, some specific difficulties with cross-border disputes would still exist, arising precisely from their cross-border nature.

1. The source of the problem: the “place” of CADR procedures and the lack of rules concerning “jurisdiction”

One of the main issues in cross-border court litigation concerns jurisdiction, i.e., determining the country where the dispute is going to be solved. The problem of cross-border CADR lies in the fact that there are no fixed rules allowing the parties to know where the ADR procedure is to be conducted, in case they decide to start it. The classical approach of international procedural law, consisting in creating a set of jurisdiction rules, is not useful – nor possible – in this context, since State’s powers are not at stake. Rather, the question here is to know what ADR institution will consider itself competent to deal with a case. It is therefore a coverage problem, i.e., a problem of knowing where an ADR institution is to be found, which will retain the dispute in order to solve it. Of course, since many ADR institutions can define by themselves what their scope of coverage can be, it is also possible to find different ones, potentially established in different EU Member States, that could handle the same cross-border case. But, in many situations, it will be more than probable that coverage to a cross-border dispute will be offered by a CADR institution established in a country different from the one in which the consumer  – or the trader  – is resident or established. As mentioned previously, the main source of problems for cross-border consumer dispute resolution arises from the fact that it is an “abroad” dispute resolution, without legal certainty of where or for which of the involved parties it will be “abroad”. Depending on who – in each particular case – carries the burden of having to participate in a CADR procedure abroad, the problems may differ. The European and national legislators seem to be more worried when it is the consumer 40

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions?

party that has to participate in a procedure conducted in a different country. But it is also important to emphasize the importance of the trader’s point of view. On the one hand, mandatory ADR procedures require the previous adherence of the trader to a specific ADR scheme, which will be located in a country: traders will balance this element when making their decisions and might tend to assure themselves a “home” ADR – since they are no longer in a position to assure themselves home court litigation.18 On the other hand, voluntary ADR procedures also rely on the trader’s acceptance of the ADR institution and, again here, the “abroad” element will be relevant for the proposal’s success.

2. Main concerns

Thus, many specific concerns can arise directly from the cross-border nature of a consumer dispute; the most important, in my view, are noted now: – The lack of coverage for cross-border cases by many already existing CADR schemes: very often, the systems do not accept cross-border cases, because they come out of their routine operating procedures, or because they are more expensive and the entities have no budget or lack sufficient human resources to deal with them.19 This issue could leave consumers without an alternative procedure in many cases and may therefore lead to an infringement of the CADR Directive. – The language barrier: for one of the parties the ADR procedure will take place abroad and, probably, in a language that he or she has not mastered. Dispute resolution in another language does not only pose difficulties by being an additional cost factor (due to translations), but it also becomes an obstacle to access to justice and to place confidence in the system (as a consumer does not feel safe in a context where he does not fully understand what is going on; and the same can apply to a trader asked to participate in a non-mandatory CADR procedure). – The possibility of having to travel to another country if the ADR system requires the physical presence of the complainant in some kind of hearing or meeting: again it is not just an issue of cost, but of general distrust and also of inconvenience in the daily lives of many consumers. – The legal disparities, i.e. the fear that in a foreign state rules or criteria are applied other than national ones and also covertly the fear of chauvinism in solving the dispute, so that the system benefits the national trader against the foreign consumer (or vice versa). – Doubts about the effectiveness of the decision or difficulties in its enforcement, if favorable. The consumer may get a favorable outcome from a 18

19

Taking into account that, as previously mentioned, jurisdiction clauses in consumer contracts are usually considered unfair. See DG Sanco-Study, pp. 62-63 and 110-112.

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

41

I. Setting the Scene

CADR entity in another country but then many questions may arise: how does he get a binding decision or an agreement to be complied with or enforced? Will another procedure – a judicial one, this time – be necessary if the trader does not comply voluntarily? Will it be necessary to go through an exequatur or similar proceeding? Or not even that? All these factors lead to a heightened perception of lack of trust (if preferred, the feeling that it is not a sure thing having to litigate or participate abroad, even in CADR schemes) and the impression that it is not worth making a cross-border consumer claim – or, from the trader’s point of view, that it is not worth accepting a non-mandatory ADR procedure if the dispute is cross-border. At this point, the court litigation has taken a huge step, making it so that the procedure could take place in the country of the consumer, through the system of allocation of jurisdiction established by the Brussels I regulation – soon, Brussels Ia regulation. Litigation “at home” avoids many of the above mentioned concerns, at least from the consumer’s point of view. It is thus an advantage that the CADR must recover somehow. Let us see how the European institutions suggest doing so, since they are the ones that force EU Member States to deal with this problem.

C. Solutions to Cross-Border Consumer ADR Problems in Directive 2013 / 11 The best path to reach effective cross-border dispute resolution is by having efficient and reliable domestic systems of dispute resolution: in other words, the solutions to cross-border consumer ADR start by improving national consumer ADR. That is why the first set of solutions is to make CADR schemes more attractive, efficient and respectful to the rules of due process of law. Thus, solving the difficulties faced by CADR systems comes down to a purely internal level. This is the essential starting point to solve specific problems of cross-border CADR, since it would be absurd dealing with them as if the domestic ones did not exist. This is, no doubt, the general objective of Directive 2013 / 11: raising the minimum quality standards of CADR systems and trying to eliminate obstacles which internal CADR systems may have encountered so far. Let us mention now just two examples of this: – Regarding costs, the Directive ensures that the ADR procedure is free of charge or available at a nominal fee for consumers [Article 8 (c)] and it also ensures that the parties have access to the procedure without being obliged to retain a lawyer or a legal advisor [Article 8(b)]. It is also necessary to take account of Article 7(1)(l) – ADR entities must make publicly available information on possible costs to be borne by the parties, including any rules on awarding costs at the end of the procedure –, 42

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions?

Article 19(1)(d) – ADR entities have the duty to inform the State authority of their fees, in order to be accredited as a CADR entity complying with CADR Directive – or Article 20(2)(d) – the fees are included in the information provided by the Article 20 list. – Regarding the speed of the procedure, Article 8(e) sets as a rule that the outcome of the ADR procedure is to be made available within a period of 90 calendar days from the date on which the ADR entity has received the complete complaint file (see also recital 40 of the preamble). In connection with this, transparency and accreditation standards also require reporting the average duration of litigation [Articles 7(1)(m) and 19(1)(e)]. Yet the Directive also deals more specifically with the particular problems of cross-border CADR, although it does not always provide clear and effective solutions, but rather indirect ways or tools of soft law. As just outlined above, in many cases those “indirect ways” and soft law tools are to be found in the Directive’s rules on transparency and on accreditation of ADR entities. According to Article 7, Member States shall ensure that all ADR entities have websites providing public information and annual activity reports on many issues, which are indicative of their “quality” (upon request, these facts must also be made available on a durable medium). Some of the information that has to be published and included in the annual reports is related to cross-border disputes: if the entities deal with them and, if so, how and under what requirements. Articles 19 and 20 deal with a sort of “accreditation” or “certification” of some ADR entities. Member States have to assess if ADR entities qualify as ADR entities falling within the scope of the Directive and if they are in compliance with the quality requirements set out in it and in national provisions implementing it – even if those go beyond the requirements of the Directive itself. There is, therefore, a sort of accreditation or certification of being a “Directive entity”, which is in fact a quality mark and which ensures that the entity will be included in a list submitted by each Member State to the Commission and published by it.20 In order to make this assessment possible, any interested ADR 20

Th is “accreditation” or “certification” to create a European list is, therefore, a step beyond to the existing “notification” to the European Commission of ADR schemes according to Recommendation 98 / 257 / EC (on the principles applicable to the bodies responsible for the out-of-court settlement of consumer disputes) and Recommendation 2001 / 310 / EC (on the principles for out-of-court bodies involved in the consensual resolution of consumer disputes). Th is notification is only possible for ADR schemes complying with those Recommendations. According to the DG Sanco-Study (pp. 32-33) and to the IMCO-Study (p. 16), in 2009 only about 60 % of the identified 750 ADR schemes had been notified to the European Commission.

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

43

I. Setting the Scene

entity must notify – and keep updated – the competent authority in its Member State of a great deal of information, some of which is linked to cross-border disputes and to the problems associated to them; part of this information will be additionally included in the list published by the Commission.

I. Coverage and “jurisdiction” problems The primary aim of the EU Directive is to correct coverage problems for cross-border cases. There must be, therefore, at least one ADR entity which can be considered “competent” to deal with each possible consumer dispute within the EU. As a “competent ADR entity” we shall understand a “Directive entity”21 that, taking account of the way it has defined its scope of activity, must deal with the resolution of a specific dispute submitted to it – unless exceptional rules of Article 5(4) allow the entity to refuse to deal with it. As already mentioned above, in the context of consumer ADR it is not possible to establish a set of jurisdiction rules that could be used to determine the competent entity to deal with a given case. In a very different way, it will be necessary to look carefully at the landscape of ADR entities operating within the EU and to their scopes of activity.22 The issue, therefore, is not jurisdiction, but rather coverage, in order to provide real access to alternative justice. That is why the starting point is the general rule established in Articles 2(1), 5(1) and 5(3): Member States have the duty to ensure that CADR is available for cross-border cases in the same manner as it is for domestic disputes. At this point, the general rule arises from the wording of Article 5(1) of the Directive: Member States will have to “facilitate” access for consumers to CADR; but they are only obliged to “ensure” that a CADR procedure is available when a trader established in its territory is involved in the dispute. The general rule, therefore, is that the competent ADR entity is normally to be found in the trader’s State, since States have the duty to ensure coverage to disputes concerning them, even if they have cross-border nature: in that sense, Article 5(2)(e) requires States to ensure that ADR entities accept both domestic and cross-border disputes. In other words, the normal basis for the functioning of the system – as far as cross-border disputes are concerned – is to ensure that domestic CADR schemes accept claims against traders established in their country, even if those claims come from consumers that are resident abroad. The inclusion of this requirement within the scope of the items that States must ensure leads to an important consequence: accepting cross-border dis21 22

44

Article 4(1)(h) of the Directive. It is not a simple or easy task, especially in cross-border situations, for many reasons that need no further mention here (language or “digital gap”, for instance). Article 14 of the Directive, therefore, tends to ensure that consumers get appropriate help and assistance.

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions?

putes shall be regarded as a condition to be “accredited” by the State as a “Directive ADR entity”. If ADR entities want to benefit from the advantages of being included in the “Commission’s list”, they should take the necessary steps in this sense. But, moreover, the main implications fall on the Member States: they must ensure general coverage to all consumer disputes concerning traders established in their territories by entities complying with the Directive. If there are no entities qualifying as “Directive ADR entities” to ensure this full coverage – which includes cross-border disputes –, then the States shall have the duty to create (and fund) subsidiary or residual ADR schemes that cover cross-border cases. This risk should lead States to “stimulate” existing ADR entities to expand their scope of activities to cross-border disputes (e.g., through funding them so they can assume the additional costs arising from these sort of cases). The burden, however, is not as heavy as it might appear at first glance. First, because what is needed for accreditation is only that the ADR entity accepts solving cross-border disputes – in practice, accepting to deal with complaints coming from foreign consumers against national traders; but in order to include an ADR entity in the list mentioned in Article 20 it is not necessary to verify that it has the means to overcome all obstacles that may appear to consumers in cross-border disputes. For example, it would not be necessary to offer the possibility of conducting the ADR procedure in other languages. In any case, the Directive is aware of the problems that Member States can encounter when ensuring full access to consumer ADR, including, of course, cross-border disputes. For this reason, and in order to be released from their duties, Article 5(3) allows Member States to rely on ADR entities established in another Member State or to rely on regional, transnational or pan-European dispute resolution entities, where traders from different Member States are covered by the same ADR entity. Certainly, the most common rule in practice is that CADR schemes do not accept claims against traders established outside their territory, usually because they are not related to their structures. However, there are also entities that, on the basis of a so-called “voluntary jurisdiction”, accept claims against foreign traders. The British Financial Ombudsman System (FOS) and the German Conciliation Body for Public Transportation (Schlichtungsstelle für den öffentlichen Personenverkehr, SÖP) are good examples of the latter.23 There are, in fact, important traders that have agreed to abide by these structures.24 23

24

See IMCO-Study, pp. 35-36 and 40-41. The German SÖP is attempting to expand its voluntary jurisdiction and aspires to become a pan-European ADR scheme covering all modes of transportation (IMCO-Study, p. 41). For instance, PayPal, a Luxembourg established firm, has joined the voluntary jurisdiction of the British FOS (IMCO-Study, p. 36); some Belgian traders, which have a lot of Dutch customers, have committed themselves to ADR procedures

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

45

I. Setting the Scene

As pan-European ADR entities the European Car Rental Conciliation Service,25 the European Direct Selling Association (SELDIA)26 and the European Energy Ombudsman Group27 can be mentioned now, since they handle disputes made by consumers in one Member State against traders established in other Member States. This sort of cooperation can be essential for the proper functioning of cross-border CADR and to ensure full coverage for these kinds of disputes. It is a smart and realistic solution that, like the whole Directive, seeks to promote best practices in CADR that have been created so far. In order to use those foreign and transnational entities it is necessary, of course, that there are networks that encompass national and transnational CADR systems, so that each claim can be forwarded to a competent ADR entity. The most representative are the European Consumer Centres Network (ECC-Net)28 and FIN-NET for the specific sector of financial cross-border disputes.29

25 26 27

28

29

46

provided by the Dutch Foundation for Consumer Complaints Boards (IMCO-Study, p. 33). http: // www.ecrcs.eu / ; see also Hodges / Benöhr / Creutzfeldt-Banda, pp. 355-356. http: // www.seldia.eu / ; see also Hodges / Benöhr / Creutzfeldt-Banda, pp. 356-358. http: // www.energyombudsmen.com / ; see also Hodges / Benöhr / Creutzfeldt-Banda, p. 358. http: // ec.europa.eu / consumers / ecc / . The European Consumers Centres Network is an official network depending on the European Commission and involving all Member States plus Iceland and Norway. Each Members State shall designate its European Consumer Centre that will operate as a reference body to assist and inform consumers having cross-border complaints. As such, each national ECC is not an ADR entity, but the first step they take when receiving a complaint is contacting with the trader to communicate the consumer’s complaint in view of an amicable settlement. If no settlement is reached, then the ECC will inform the consumer of other possibilities to solve the case and will direct him / her, where possible, to the appropriate ADR scheme (See IMCO-Study, pp. 41-44; Hodges / Benöhr / Creutzfeldt-Banda, pp. 13-15). http: // ec.europa.eu / internal_market / fi nservices-retail / fi nnet / . FIN-NET (Network for settling cross-border fi nancial disputes out of Court) depends also on the European Commission, but it does not involve Member States: it encompasses ADR entities competent in handling disputes between consumers and fi nancial services providers, like banks, insurance companies and investment firms. Apart from helping finding the appropriate ADR scheme in the trader’s State, FIN-NET also seeks to ensure that consumers, involved in an ADR procedure abroad, receive assistance from an ADR entity that covers fi nancial services in their own country (see IMCO-Study, pp. 44-46; Hodges / Benöhr / Creutzfeldt-Banda, pp. 1517).

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions?

But it shall be kept in mind that it is not sufficient to refer to networks or to foreign or transnational entities, since the goal is to ensure complete coverage. The scenario, then, could be this one: a consumer resident in a Member State “A” wants to file a complaint against a trader established in Member State “B”. Full coverage pursuant to Article 5(3) would mean the following: (i) the consumer turns to its national European Consumer Center or to an ADR entity established in Member State “A”, which is included in a network that forwards cross-border cases to an appropriate ADR scheme in State “B”, or to a regional, transnational or pan-European dispute resolution entity; (ii) the national ECC or the national entity effectively send the complaint to the “competent” ADR entity in State “B” – or to a transnational entity to which the trader has adhered; (iii) a guarantee is provided so that the ADR entity in State “B” or that the transnational entity will assume the dispute resolution.30 In other words, it is necessary to predict (i) that the case will be received by an entity or a “point of entry” in the consumer’s State; (ii) that the case will be forwarded from there to a CADR entity in the trader’s State; and (iii) that it will be taken over by the entity to which it has been addressed. This last requirement means, from the trader’s State’s point of view, that Member States must ensure that their national CADR schemes admit claims coming from foreign consumers when these entities are directly asked to do so, as if the request would be coming through a network like ECC-Net or FIN-NET. In this regard, it is important to note that, according to Article 14, consumers will receive assistance in finding the CADR entity of another country which is “competent” to intervene in “their” cross-border dispute, i.e., the one that is going to keep and deal with the case. This task shall be referred by Member States through their centers of the European Consumer Center Network, to consumer organizations or to any other body. Networks such as the ECC-Net or FIN-NET are called to play a very significant role in cross-border consumer ADR, as follows from Article 14(2), that has just been mentioned (Member States can entrust to them the task of assisting the consumer to find a competent entity to solve a cross-border dispute). In a similar sense, Article 16 seeks to foster cooperation of ADR entities in the solution of cross-border disputes, to encourage ADR entities joining networks facilitating the resolution of cross-border disputes and to promote the exchange and dissemination of the best practices and experiences of those entities and networks. 30

In fact, some ADR schemes seem to accept claims against foreign traders, even if those have not agreed to accept their “voluntary jurisdiction”. An example of this seems to be the case with the Polish Insurance Ombudsman: it accepts complaints from Polish consumers regarding insurance providers, including those established in other Member States. However, in such cases the Ombudsman does not solve the case, but rather attempts to forward it through FIN-NET to a competent ADR entity in the provider’s Member State (IMCO-Study, p. 49).

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

47

I. Setting the Scene

To facilitate the full coverage of cross-border ADR through cooperative means, some other provisions in the Directive are relevant: – Article 7(1)(e), establishing the ADR entities’ duty to publish if they participate in international networks that facilitate cross-border CADR; – Article 7(2)(h), including the ADR entities’ duty to publish reports on activity in cross-border cases, including participation in networks; – Article 20(1), according to which information concerning cooperation through networks to solve cross-border cases is one of the items to be assessed in order to get included in the European list of CADR entities. These rules are peripheral tools that help to verify whether or not the State is ensuring in a sufficient manner –or not– the coverage for cross-border CADR. However, these networks alone are not enough, because for the moment they only ensure coordination between the ADR systems associated to them, but by themselves they do not ensure coverage to any possible consumer cross-border claim. For this reason, States have to be clear that in case of failure to achieve the aim of full coverage of cross-border CADR through “outsourcing” techniques, they should create subsidiary ADR schemes to cover them. Full coverage of cross-border CADR will be more feasible through cooperation and reciprocity, according to criteria that can differ in each country and / or sector, because CADR structures in each country and / or sector are very different. Finally, special attention must be drawn to Article 5(4), which allows Member States to authorize ADR entities to refuse to deal with a given dispute, among other reasons, because (f) “dealing with such a type of dispute would otherwise seriously impair the effective operation of the ADR entity”. When this happens, according to Article 5(6), the State is free from its Directive duties and shall not be required to ensure that the consumer can submit his complaint to another ADR entity. For this reason, it is important to make clear that such an ambiguous provision should not be interpreted to include the cross-border character of the matter as legitimate grounds to refuse to deal with a case; otherwise it would be circumventing the provisions of Articles 2(1) and 5(1). The last paragraph of Article 5(4) might have the aim to reassure us in this conclusion, when it states that “such procedural rules shall not significantly impair consumers’ access to ADR procedures, including in the case of cross-border disputes”; however, it still grants a place to situations in which consumers’ access to ADR would be undermined in a “non-significant” way … and this would force us to find where the dividing line is between significant and non-significant impairment.

II. Language Turning now to more specific issues, it is obvious that the first barrier that must be overcome to achieve effective cross-border CADR is language. In the current 48

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions?

scenario, this is one of the key elements that determine why certain CADR systems have a high rate of cross-border cases. The UK FOS, for instance, supports the complete processing of the case in several languages; other systems, in a more modest way, accept claims in other languages (such as the Lisbon Arbitral Court), but they do not ensure that the procedure will develop in them. If an ADR entity accepts the submission of complaints and the conduct of the proceedings in languages other than the official language of the State in which it is established, it will be more likely that traders from other countries adhere to them through what has been called “voluntary jurisdiction”. For this it is required that the persons involved in handling and resolving CADR procedures possess the appropriate language skills. At this point, however, the Directive is not overwhelming, but rather acts indirectly. Article 7(1)(h) obliges CADR entities to publicize the languages in which complaints can be submitted to them and in which the ADR procedure is conducted. This information, according to Article 19(1)(f), must be provided to the State by entities who want to be accredited and that, consequently, according to Article 20(2)(c), must appear in the Commission’s list of CADR entities. But there is no specific requirement that an ADR entity can manage cases in different languages – at least, in more than one language –, in order to qualify as a “Directive ADR entity”.31 However, Member States could set more strict rules when implementing the Directive and, therefore, include language requirements to ADR entities willing to be accredited and included in the Commission’s list. It is clear that, from the perspective of national CADR entities, language is the main barrier to taking on cross-border cases, since the difference of languages increases the cost: there is a risk, therefore, that an entity manifests that it is willing to process claims from abroad, but that it also indicates that all complaints and procedures will be conducted in their national language. Thus, the additional cost arising from language (translations) would be transferred to consumers, creating a deterrent effect on them. The Directive, however, does not provide a clear solution to this risk: the assistance foreseen in Article 14 is not of a generic kind (which would allow for the inclusion of language assistance within its scope), but seems limited, as noted above, in its access to an entity operating in another State.

31

Additionally, Article 6(1)(a), in a somewhat disappointing way, does not mention explicitly language skills when referring to the knowledge required to natural persons in charge of ADR; and this issue is not mentioned either by Article 6(6), which addresses what training should be encouraged of Member States to provide to these persons.

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

49

I. Setting the Scene

In practice, fortunately, ECC-Net has been playing a crucial role to overcome language barriers, ensuring translations of complaints and relevant documents in cross-border cases (apparently on the basis of more or less formal agreements between ADR entities and national ECCs).32

III. Effectiveness of the outcome of a CADR procedure The Directive does not provide direct solutions to the difficulties or doubts raised by the effectiveness of the outcome of a CADR proceeding. It is, in fact, something that the Directive could not have regulated, because the European legislator has assumed the heterogeneity of previously existing CADR systems and of their solutions. All that could be done is what has been done: requiring ADR entities to provide information on three matters: – The legal effect of the outcome of the ADR procedure, including the penalties for non-compliance in the case of a decision having binding effect on the parties, if applicable [Article 7(1)(n)]. – More specifically, the enforceability of the ADR decision, if relevant [Article 7(1)(o)]. – The rate of compliance, if known, with the outcomes of the ADR procedures (this information shall be included in the annual activity reports and embrace both domestic and cross-border disputes) [Article 7(2)(g)].33 In cross-border disputes it is particularly important to determine whether the legal effect of the outcome of the ADR procedure can be transferred to a State other than the one in which it was obtained. It is, however, a question that the Directive has not addressed, possibly because of the disparity of possible outcomes of CADR procedures. In fact, the Directive does not even offer specific rules when the outcome is a decision having binding effects on the parties. Consequently, for the “circulation” of such outcomes or decisions it will be necessary to use, when they are applicable, other legal texts. For instance: – If the ADR procedure’s outcome is an arbitration award, it will have a binding effect and will be enforceable in other countries according to the rules set forth by the 1958 New York Convention. – If the ADR procedure leads to a mediation agreement, it shall also be binding to the parties and should be enforceable in other EU Member States

32

33

50

IMCO-Study, pp. 44 and 51. FIN-NET does not seem to be so committed in linguistic issues (IMCO-Study, p. 46). The DG Sanco-Study (pp. 54-55) provides interesting information on compliance rates, which are very high among ADR schemes that had collected them: the median compliance rate for entities issuing non-binding recommendations (in 2008) was 90 %; the rate is almost 100 % for schemes that take binding decisions.

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions?

using the applicable tools established therein in order to implement the 2008 Directive. – If the outcome is included in a settlement approved by a court34 or in an authentic instrument, the consumer can use enforcement tools under Brussels I Regulation, Brussels Ia Regulation or the European Enforcement Order Regulation. Conversely, if the settlement does not qualify for cross-border circulation, enforcement might have only a domestic reach. It might also be possible that the outcome is not binding (e.g. a proposal, a recommendation), which means that no enforcement is available, neither domestic nor cross-border: but this is something also in accordance with the notion of ADR and, hence, the EU Directive does not require that “alternative access to Justice” through CADR leads to outcomes that are 100 % equivalent to a judicial decision. A first – but unsuccessful – attempt to access to Justice through CADR does not always exclude, therefore, the possibility of getting access to justice by the courts.35 Even if ADR has been successful for the consumer, judicial relief might still be necessary if the trader doesn’t comply with a binding decision and enforcement is needed, since this sort of relief can only be granted through the judiciary.

IV. Other specific concerns Concerning other specific difficulties of cross-border CADR, the Directive keeps the focus on providing information to be taken into account by possible complainants, but it does not impose a clear solution. So it is with the problem of having to “participate” in a CADR procedure abroad, where the baseline is in Article 8(a), which requires States to ensure that “the ADR procedure is available and easily accessible online and offline to both parties irrespective of where they are”. Recital 40 of the Directive’s preamble brings, additionally, the interpretation of the reasons why a case should be considered complex, so the ADR entity would be allowed to exceed the ordinary term of 90 days: “where one of the parties is unable, on justified grounds, to take part in the ADR pro-

34

35

And this should be rare, because the Directive does not apply to attempts made by a judge to settle a dispute in the course of a judicial proceeding concerning that dispute [Article 2(2)(f)]. That is why, according to Article 12, “Member States shall ensure that parties who, in an attempt to settle a dispute, have recourse to ADR procedures the outcome of which is not binding, are not subsequently prevented from initiating judicial proceedings in relation to that dispute as a result of the expiry of limitation or prescription periods during the ADR procedure”.

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

51

I. Setting the Scene

cedure”. This provision does not override the duty to attend a hearing,36 but at least it permits foreign complainants to manage time requirements in a more flexible way. More specifically, it is necessary to provide information about whether the physical presence of the parties is required to conduct proceedings. On this point the Directive is quite shocking: it is an item that should be included in the Commission’s list of CADR entities, according to Article 20(2) (f), but it is not something that should be specified directly by the entities on their websites (Article 7), nor something on which entities requesting accreditation should specifically provide (Article 19). It seems, then, that it is a question covered within the generic information on the procedure to be offered by CADR entities. The Directive offers a more specific answer to the problems posed by the divergence in the applicable legislation. Article 11 deals with this issue, aiming to prevent consumers from being deprived of the application of mandatory protective rules, when the outcome of the ADR procedure is a decision that is imposed on the consumer.37

D. Specific Solutions for E-Commerce Cross-Border Disputes: the ODR Regulation It is convenient to deal separately with the specific solutions to cross-border consumer disputes that have been proposed for a particular sector: that of consumer disputes arising from electronic commerce.38 For them, the European legislator has chosen to adopt a specific policy instrument, the Regulation 524 / 2013 on Online Dispute Resolution, closely linked to Directive 2013 / 11.39

36 37

38

39

52

See DG Sanco-Study, p. 103. For more details concerning the way the rule of law applies in consumer ADR, see Hodges / Benöhr / Creutzfeldt-Banda, pp. 412-416. The ODR sector is also being dealt by UNCITRAL, which is in the process of developing procedural rules for online dispute resolution (Hodges / Benöhr / Creutzfeldt-Banda, pp. 3 and 365-366). See Lilian Edwards / Caroline Wilson, Redress and Alternative Dispute Resolution in EU Cross-Border E-Commerce Transactions, International Review Of Law, Computers & Technology 21, no. 3 (November 2007): 315-333 [Academic Search Premier, EBSCOhost (accessed 04.02.2014)]. A very accurate and complete set of online publications and resources on this matter is available at UNCITRAL web page under http: // www.uncitral.org / uncitral / publications / online_resources_ODR.html (accessed 27.6.2014).

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions?

The key to this ODR system is the creation of a platform for online out-ofcourt resolution of disputes between consumers resident in the EU and EUbased traders concerning contractual obligations stemming from online sales or service contracts; the dispute resolution must be entrusted to an ADR entity listed in accordance with Article 20(2) of the CADR Directive [see Articles 2(1) and 4(1)(e) of the ODR Regulation for a more specific definition of its scope]. The European Commission shall be fully responsible for the ODR platform. Although the list in the ODR Regulation is much longer, the platform will have two main functions: a) it will serve as a tool for consumers and traders to formalize the beginning of a CADR procedure; b) if the CADR entity wants to, it will also be used to conduct proceedings electronically. For both purposes, the use of a digital platform and of ODR techniques will help to improve or even to overcome many of the deficiencies faced by CADR and, more specifically, by cross-border CADR.40

I. The ODR platform and the “first step” in consumer ADR The platform, once it operates (from 9 January 2016), will assist in eliminating a major barrier to access CADR in cross-border cases: how and before whom to give the “first step”. First, the ODR platform meets one of the objectives, repeatedly suggested by all the studies dealing with cross-border consumer ADR: the need for the existence of a single entry-point for the consumer to submit his complaint,41 without having to make inquiries about the “optimal” addressee for his claim [Article 5(2) of the ODR Regulation]42 . To grant accessibility to this entry-point, the Commission will use its websites which provide information to citizens and businesses in the Union and, in particular, the “Your Europe portal” [Article 5(3)]. As a complement to the single entry-point the ODR Regulation has decided to set an electronic complaint form, which can be filled in directly on the ODR platform webpage by the complainant [see for further details Articles 5(4)(a) and 8, as well as the Annex to the ODR Regulation]. It is a function of the platform to provide this complaint form and to make it available to anyone who wishes to submit a complaint.

40

41 42

A good example on excellent ODR performance is the Uniform Domain Name Dispute Resolution Policy (UDRP), on recommendation of the World Intellectual Property Organization (WIPO) (see also Hodges / Benöhr / Creutzfeldt-Banda, pp. 360-364). IMCO-Study, p. 87. “The ODR platform shall be a single point of entry for consumers and traders seeking the out-of-court resolution of disputes covered by this Regulation.”

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

53

I. Setting the Scene

In close relation to this, the ODR Regulation also faces the problems of coverage: it is a function of the platform, in view of the complaint, to determine the ADR entity or entities included in the lists of Article 20 of the CADR Directive who is competent – i.e., the ODR platform will direct the consumer to a “Directive ADR entity” –; and it is also a function of the platform to transmit the complaint to that entity if the parties agree (or at least, if the claimant agrees, in case that the claimed party is linked to that entity) [see Article 5(4)(c)]. In fact, the platform also serves to facilitate the complainant and the opponent to come to agree that the dispute will be solved through CADR and, if so, to which entity it will be forwarded, if there are several possible.

II. Proceedings conducted through the ODR platform and cross-border issues Using the ODR platform will not be mandatory for ADR entities dealing with e-commerce disputes: they can also use other platforms or other appropriate means to conduct the ADR procedures.43 However, conducting proceedings using the European Commission’s Platform will bring many advantages, since it will help circumvent many of the problems linked to cross-border dispute resolution in a more efficient way than that offered by the CADR Directive. In addition to what will be said, it is important to note the existence of a special tool, the feature of the “ODR contact point”, designated in each Member State and which shall host at least two ODR advisors [Article 7(1) of the Regulation]. The task of these contact points is to support all the persons and entities involved in the resolution of a complaint submitted through the ODR platform, provided that the dispute has a cross-border nature. The functions of these ODR contact points and advisors are very detailed in Article 7(2), but the overall goal is to facilitate the application of the ODR Regulation and to encourage the use of the platform.

1. Language

The ODR Regulation yields solutions for the language problem. This is possible due to the combination of two factors: – All activities are performed through the platform, so all the information can be translated, if necessary, before it reaches the recipient. This allows fulfilling the commitment, set out in Article 5(4)(e) of the Regulation, that the platform shall have the function to provide the parties and ADR entity 43

54

It is important to note that proceedings must not be necessarily conducted online [Article 10 (d) of the ODR Regulation].

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions?

with the translation of information which is necessary for the resolution of the dispute and is exchanged through the ODR platform. – The European Union has taken the political and economic decision of financing the translation of information flowing through the platform, as expressly mentioned by Article 5(1) of the Regulation. Let us now see with a little more detail how the ODR platform deals with language issues: – The consumer fills in the electronic complaint form in his own language. – The platform transmits the information to the respondent party, promptly and in an easily understandable way, “in one of the official languages of the institutions of the Union chosen by the party” [Article 9(3) of the Regulation]. This provision is not easy to interpret, because the how and the when of the language option are unclear. The Annex to the Regulation states that the complaint form may include a reference to the language of the respondent party, if known. Should the respondent party be a trader, it is logical to assume that this language will be the official language of the State in which the trader is based. But it is also logical to think that the system, when transmitting the complaint, could offer the possibility to change or choose the language. – The respondent party must answer indicating whether it accepts that the dispute is resolved through ADR (if it has that option) and, if so, to which ADR entity the dispute should be entrusted, whereupon the claimant consumer will be required to communicate in turn whether he accepts the proposed ADR entity. This information has to be given to the claimant in the official language of the EU for which he has opted (in his original complaint, at least). – The system informs the parties of the language or languages used by the ADR entity to conduct the procedure. As the proceedings are to be conducted through the platform, this will have to translate all the information which is necessary for the resolution of the dispute without charging any fees to the parties or to the ADR entity [Article 5(4)(e) of the Regulation]. It is important to note that this means that the platform (and, of course, the European Commission) assumes the duty to translate not only the forms but also the documents attached in support of the complaint [Article 8(2) and (5) of the Regulation]. And there may be several different languages at stake: each of the parties might have a different one, which could all differ from the language of the procedure. As may be seen, the language barrier disappears, but only due to the fact that the European Commission has decided to assume the costs, and provided that the CADR entity consents that proceedings are conducted through the platform, as the platform’s duty of translating only affects the information transmitted through it. When the translation costs fall upon the parties, the ADR entities or Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

55

I. Setting the Scene

national governments (through their ECC) there is no guarantee that the language barrier will be overcome and, as we have seen, the CADR Directive does not ensure it either. If CADR entities want to benefit from this “subsidy” in the case of e-commerce and become a sort of reference for cross-border cases, then they will have no choice but to accept the procedure to be conducted online and, of course, under the eyes of the European Commission.

2. Personal appearance of the consumer

The ODR Regulation also expressly guarantees the removal of an obstacle to cross-border CADR: the need for the parties to appear in person. Article 10 (b) of the Regulation states, for cases in which the CADR entity has accepted to deal with the dispute in accordance with the ODR procedure, that it will not require the physical presence of the parties or their representatives, unless its procedural rules provide for that possibility and the parties agree.

E. Final Remarks We are witnessing the institutionalization of a parallel system of justice for consumers: it is not just that there are ADR techniques that are particularly suitable for consumer matters, or that public authorities foster them and ensure they meet minimum quality standards. We have reached the point in which the State is obliged to ensure that they exist and that they meet all requirements in order to be considered genuine tools of access to justice in terms of Articles 6.1 ECHR and 47 CFREU. When it comes to cross-border consumer disputes, the CADR – just like traditional court litigation – faces specific obstacles that are not easily overcome, especially if States, operating in the current context of the financial crisis, resort to techniques of outsourcing in order to comply with their obligations to ensure access to cross-border CADR. The solutions proposed by the ADR Directive involve the adoption of the best practices that have been detected, but they do not ensure in any way that cross-border CADR reaches the same level of acceptance and development which in the medium term can be expected for domestic CADR. The ODR Regulation, as we have seen, will probably be much more effective in the future, but because it will be based on very specific requirements that, unfortunately, are not easily extrapolated to all areas of CADR. Again, we can see how access to justice and due process of law – or “due process of ADR”  – are adversely affected by borders. The barriers faced by cross-border litigation would certainly be knocked down with a strong economic investment, which may not be considered rational in consumer disputes. In current times, States seem unwilling to make any strong investment 56

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

Specific Problems of Cross-Border Consumer ADR: What Solutions?

for cross-border court litigation, nor for cross-border ADR.44 For the moment, only the European Commission has decided to accept it, for the scope of e-commerce. Meanwhile, let us expect that a better functioning of domestic consumer ADR and of cooperation among ADR entities – both goals stimulated by the Directive – contribute, step by step, to a better performance of the redress mechanisms of consumer’s rights in cross-border situations.

44

Alerting from the needs of important investments, see also Hodges / Benöhr / Creutzfeldt-Banda, pp. 22-23 and 434.

Fernando Gascón Inchausti

© sellier european law publishers www.sellier.de

57

© sellier european law publishers www.sellier.de

A Conflict-of-Laws Approach for Cross-Border ADR? Jonas Kotzur A. Alternative Dispute Resolution in comparison with regular court litigation Many small claims are not taken to court since the consumers are afraid to litigate or are simply not able to file their cases. The major problem concerning ADR schemes is that ADR is not sufficiently and consistently developed in Europe, even though it offers major advantages compared to regular court litigation.1 By installing a simple, fast and low-cost out of court solution, the European legislator is trying to enable consumers to access their rights.2 One of the major goals of the new Directive is to define certain standards for Alternative Dispute Resolution proceedings, based on which the development of ADR schemes all over Europe can be enhanced.3 However, consumers will only use ADR if they trust this new unknown mechanism. Hence the question is how this trust can be built? Two aspects need to be taken into consideration: first, the advantages of ADR and, secondly, to what extent these advantages must be developed, so that the majority of consumers will trust, and therefore use, out of court dispute resolution.

B. The Advantages of Alternative Dispute Resolution I. Flexibility Especially in complex cases, the flexibility of ADR can be a huge advantage, especially since there are no strict rules similar to those in litigation. Using the 1

2

3

Deutlmoser / Engel, Ein neues Streitbeilegungssystem für Europa, Multimedia und Recht (MMR) 2012, 433, 434 et seq. describe the current inconsistent situation of ADR schemes in Germany. Directive 2013 / 11 / EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006 / 2004 and Directive 2009 / 22 / EC, Official Journal of the European Union, L 165 / 63. Davies, How well placed is the optimism surrounding the new ADR / ODR proposals?, Zeitschrift für Europäisches Unternehmens- und Verbraucherrecht (euvr) 2012, 63, 64 agrees, that consumers can benefit from ADR schemes, but questions, if the new directive can be a significant “break-through”.

59

© sellier european law publishers www.sellier.de

I. Setting the Scene

advantages of ADR, different conflicts, which for example arise in complex economic transactions, can be handled easily and effectively.4 But also for so called “small claims” the use of ADR schemes can be very attractive due to the high amount of flexibility. Unlike in regular court proceedings with strict rules such as how to file an application, the consumer will more likely be able to file his complaint on his own in an informal ADR procedure. Many current ADR schemes in Germany provide, for example, the possibility to file the complaint by using a printed form.5

II. Efficiency Due to the capability to flexibly react to arising conflicts, ADR can resolve legal issues much more efficiently than regular litigation. There are no specific rules on how a resolution of a conflict has to be built, or what content it must include. This variety of opportunities gives ADR an efficiency that should be very attractive to most consumers willing to pursue their claims.

III. Duration of Proceedings The proceedings under the ADR Regulation are generally to be finished within 90 days. This period of time is quite short compared to the duration of court proceedings in some Member States.6 This fast and efficient way to solve cross border disputes will encourage consumers to enforce their legitimate claims, since the risk of interminable courts proceedings decreases under these conditions.

IV. Risks of Flexibility Besides all the advantages of flexibility and efficiency it has to be considered that the acceptance (and therefore the success) of ADR depends on the trust of the consumers. Trust can only be built if the consumer can at a minimum foresee

4

5

6

Braun, (Außergerichtliche) Streitbeilegung in Unternehmensnetzwerken: eine Herausforderung für das Konfl iktmanagement, Die neue Zeitschrift für Schiedsverfahren (SchiedsVZ) 2013, 274 describes the possibilites for ADR in complex economic corporations. The “Schlichtungsstelle Energie e.V.” e.g. provides such a form on their website: http: // www.schlichtungsstelle-energie.de / index.php?id=23 Berlin / Creutzfeld-Banda, Verbraucher-ADR in Europa wird gestärkt, Zeitschrift für Konfliktmanagement (ZKM) 2012, 57, 58.

60

Jonas Kotzur

© sellier european law publishers www.sellier.de

A Conflict-of-Laws Approach for Cross-Border ADR?

a framework of the alternative dispute procedure. The major question is how this framework should be designed.

C. Legal certainty as a developing factor No matter how attractive the ADR might be, it can only become a successful instrument if consumers trust in the resolution procedure. One of the major reasons why consumers shy away from court litigations is that they believe the outcome to be unpredictable.7 A German saying goes: “On the high seas and in court you are in God’s hands”. Still there are God’s hands, which one can believe in. In order to strengthen the ADR, the procedure itself should therefore have at least the same predictability in certain aspects as court litigation.8 The need for development can be demonstrated by using the question of jurisdiction as an example:

I. The rules of the ADR Directive and ODR Regulation The consumer should be able to anticipate where the expected proceedings will take place. Consideration number 26 says that the directive allows traders established in a Member State to be covered by an ADR entity which is established in another Member State. However, the ADR directive states in Article 5 (1) that the Member States shall ensure that disputes covered by the directive which involve a trader established on their respective territories can be submitted to an ADR entity which complies with the requirements set out in the directive. The consequence is that there is no obligation for the Member States to create an ADR entity which covers disputes involving a trader that is not established on their territory. That is why the procedure will not usually take place in the Member State of the consumer, since there won’t be a competent ADR entity. The main issue here will be the foreign language in which the procedure will be held. Since there is no obligation in the directive that the procedure be in the language of the consumer or a language he can easily understand, the procedure

7

8

Other reasons are that consumers tend to consider court litigation as too expensive, ineffective, and interminable, Isermann / Berlin, Außergerichtliche Streitbeilegung in Verbraucherangelegenheiten – Bestandsaufnahme und Maßnahmenpaket der EU für 2014 / 2015, Zeitschrift für Wirtschafts- und Verbraucherrecht (VuR) 2012, 47, 48. The crucial points for the consumer usually are where the proceeding takes place, how the process is designed, and if there is a possibility to enforce the agreement of the procedure.

Jonas Kotzur

61

© sellier european law publishers www.sellier.de .

I. Setting the Scene

will consistently be held in the language of the competent entity.9 The trust of the consumer in a simple and efficient way of resolving cross border disputes will therefore be reduced. Since the aim of the directive is to ensure consumers initiate ADR this outcome cannot be intended.

II. The need for a jurisdiction system in cross border ADR This is why there is a need for a jurisdiction system in cross border ADR procedures. By implementing a jurisdiction system that determines the competent ADR entity in cross border disputes, consumers’ trust in ADR can be strengthened, since it can offer the possibility of ADR proceedings in the Member State of the consumer under certain conditions. The existing rules in ADR and Online Dispute Resolution (ODR) are not able to ensure the attractiveness of out of court dispute resolution. First, the ODR Regulation10 as a procedural instrument supplementing the ADR directive does not cover all cases of the ADR directive. Second, the given rules only apply in the stage of finding an entity in another Member State, but do not help to solve the problem of the consumer’s fear that he will be faced with a procedure which he can’t fully understand. First, the scope of the ADR directive and the ODR regulation are not identical. The ODR Regulation only covers the out of court resolution of disputes concerning contractual obligations stemming from online sales or service contracts according to Article 2, Section 1. Second, the ODR regulation only provides the service of identifying the competent ADR entity and transmitting the complaint in Article 5, Section 4, Subsection c). According to Article 5, Section 2 the complaint can be filed in all the official languages of the institutions of the Union. Furthermore, the network of ODR contact points helps the consumer according to Article 7, Section 2, Subsection a) lit. i) by assisting with the submission of the complaint and relevant documentation. The given help in Article 9, Section 4 which is given in an easily understandable way, only covers certain information on the ADR entity, but does not cover the procedure itself. Due to this and given the fact that the competent entity will often be in the Member State of the trader (and therefore in a language foreign to the consumer), the consumer is faced with similar problems as in litigation. Since there is 9

10

Rühl, Die Richtlinie über alternative Streitbeilegung und die Verordnung über Online-Streitbeilegung, Recht der internationalen Wirtschaft (RIW) 2013, 737 also points out, that the “language problem” still has to be solved. Regulation (EU) No 524 / 2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes and amending Regulation (EC) No 2006 / 2004 and Directive 2009 / 22 / EC (Regulation on consumer ODR), Official Journal of the European Union L 165 / 1.

62

Jonas Kotzur

© sellier european law publishers www.sellier.de

A Conflict-of-Laws Approach for Cross-Border ADR?

no obligation to translate the relevant documents during the procedure the consumer will probably have less trust in the ADR than in regular court litigation.11 An out of court resolution will therefore usually be prevented. The problem of the foreign language arises regardless if the proceedings are only written proceedings or if oral hearings are involved. In both situations the consumer can’t express himself the way he needs to and is usually not able to fully understand what happens during the procedure.12

D. A conflict-of-laws approach Therefore, the conflict-of-laws rules can be taken as a role model to solve this issue. For example, the Brussels I Regulation (on jurisdiction), which governs jurisdiction over consumer contracts, establishes in Article 15 a balance between the interests of parties in litigation. The risks for the consumer, including proceedings in a foreign language which he doesn’t understand, an unknown legal system and the risk of higher costs because of proceedings in another state, are the same risks as in a cross border ADR. The regulation takes into consideration whether one party needs specific protection due to the characteristics of the claim or the party. Due to the high risks and the intended consumer protection, the consumer receives special treatment in the form of an additional jurisdiction under certain conditions.13 Especially if the trader actively approached the consumer in “his” Member State, it is considered reasonable to grant jurisdiction in this state.14 This solution seems to be the most acceptable for both parties involved in the ADR procedure. Since the entire procedure is optional and not mandatory, it needs to be attractive for both sides in order to be successful. Therefore, the trader should only be obliged to participate in an ADR procedure in another Member State if he could foresee that based on his activities in other Member States or relationships towards other Member States, the possibility of proceed-

11

12

13

14

Which is familiar with the idea of translating certain important documents; a good example can be found in Article 6 (3) of the EU Small Claims Regulation. Th is problem can usually only be solved with the help of a translator, who will himself arouse new costs, which could prevent the use of ADR schemes in cross-border confl icts. Since Article 15 Brussels I Regulation is an exception to the basic rule of actor sequitur forum rei, it can only apply under certain conditions, Stadler in Musielak, ZPO, 10th ed. 2013, Article 15 EuGVO para 1. The trader therefore has to direct his activities towards the member state of the consumer, Art. 15 (1) (c). To determine if the trader directed his activities, cf. ECJ, 7 December 2010 – C-585 / 08 and C-144 / 09, Pammer and Hotel Alpenhof, ECJ Rep. 2010 I-12527.

Jonas Kotzur

63

© sellier european law publishers www.sellier.de

I. Setting the Scene

ings out of his state exists.15 On the other hand, it is also reasonable for the consumer to enforce his claim in another Member State if he was the one who sought the contact with a trader who does not usually do business with consumers in other Member States. In these situations a comprehensible amount of trust in having an ADR procedure in his own Member State can’t be admissible in favor of the consumer.16

E. Killing flexibility by a conflict-of-laws approach? Usually ADR needs a high amount of flexibility, since it is applied in a variety of different areas. These areas, such as intellectual property law or procedural law in global economic issues, need to be very flexible, since most of the arising conflicts can’t be foreseen. However, the scope of the ADR directive is much narrower; only conflicts concerning contractual obligations stemming from sales contracts or service contracts can be resolved by the rules of ADR. Since these conflicts will mostly concern the warranty for defects or reversal of contracts, the flexibility won’t usually play a major role in the procedure. These claims are often not as legally and factually difficult as other topics might be, so in these cases a very high level of flexibility won’t likely be needed.17 In addition, the conflict-of-laws approach will only provide a framework, for example concerning jurisdiction. All other issues that are ruled in the directive won’t be touched by the approach, so that there is still more than enough flexibility for the Member States to develop their own ADR procedures. Finally, the trust of consumers all over Europe will be enhanced if it’s known that no matter which entity will take care of the case, the basic rules and the

15

16

17

Clausnitzer, Case Note to ECJ, 7 December 2010  – C-585 / 08 and C-144 / 09, Pammer and Hotel Alpenhof, ECJ Rep. 2010 I-12527 Europäische Zeitschrift für Wirtschaftsrecht (EuZW) 2011, 98, 105 points out that three out of four European trades do not direct their activities towards other Member States due to suspected legal problems. Summarizing, the issue that needs to be solved is the balance of interests between the trader and the consumer. On the one hand, consumer protection is one of the major goals of the ADR Directive, but on the other hand a simple reference to consumer protection as an argument to place all ADR proceedings in the consumer’s member state does not replace the need for an appreciation of values between both parties involved. Therefore, a jurisdiction system needs to be installed. If complex legal problems emerge, the ADR entity should have the possibility to terminate the proceedings and urge the parties to take their conflict to court; this “opt-out” solution seems to be the only appropriate way to secure the development of European and domestic law.

64

Jonas Kotzur

© sellier european law publishers www.sellier.de

A Conflict-of-Laws Approach for Cross-Border ADR?

consumer protection within these rules will be guaranteed in each and every single procedure.18 In addition one has to point out that even if Member States decide to apply substantial law rules during the ADR proceedings, the risks and disadvantages for the trader involved in an ADR procedure are not as high as they might seem at first glance. Since most of the consumer protection rules refer to EU Regulations and Directives, there are comparable standards in all Member States concerning the level of consumer protection. The trader might be faced with an unknown legal system at first sight, but the rules, which usually will apply during the ADR procedures under the Directive, are practically the same in terms of content in all Member States.19

F. Conclusion: The three major advantages of a conflict-of-laws approach The trust of the consumer will be strengthened since he knows that the legal protection concerning the question of jurisdiction, which is guaranteed in court litigation, will also be available in the ADR procedure. The development of ADR will benefit from a conflict-of-laws approach, since the same standards concerning the question of jurisdiction will be guaranteed in every ADR entity. Due to this, a high standard of consumer protection will be established in the out of court scheme. The work of the ADR entity will be relieved, since a conflict-of-laws approach will establish a framework for the everyday work of every entity. Each entity knows whether or not the complaint is within its jurisdiction. Within the framework the entity is still able to follow the substantive rules of each Member State, so that the necessary amount of flexibility is still guaranteed.

18

19

The directive itself provides a certain amount of consumer protection with the principle of legality in Article 11; however, the scope of the Article does not apply in case of jurisdiction. The latest directive on consumer rights harmonization, which will have a significant impact, is the Directive 2011 / 83 / EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93 / 13 / EEC and Directive 1999 / 44 / EC of the European Parliament and of the Council and repealing Council Directive 85 / 577 / EEC and Directive 97 / 7 / EC of the European Parliament and of the Council.

Jonas Kotzur

65

© sellier european law publishers www.sellier.de

© sellier european law publishers www.sellier.de

Consumer ADR – Academia and the Field Christof Berlin1 A. Introduction The ADR directive 2013 / 11 / EU2 entered into force on 9th July 2013. European Member States have to implement the legal framework and with it particular structures and schemes for consumer ADR within 24 months. Many Member States have very limited experience and knowledge about consumer ADR. Therefore, questions arise: What consumer ADR is in place already and how does it work? How does it relate to other forms of dispute resolution, such as negotiation and court procedures? And what is the added value of consumer ADR? Research on consumer ADR is still a very young and developing field. Despite some comparative studies from Stuyck et al. (2007),3 Alleweldt et al. (2009 and 2011)4 and Hodges et al. (2012)5, the actual functioning of consumer ADR is still relatively unexplored, a “hidden world”.6 1

2

3

4

5 6

The author is a conciliator and head of the fl ight team at the German Conciliation Body for Public Transport (SÖP). He just published a study on how to implement the ADR directive’s quality criteria, Alternative Streitbeilegung in Verbraucherkonfl ikten. Qualitätskriterien, Interessen, Best Practice, Baden-Baden 2014. As part of a PhD project at Europa Universität Viadrina (Frankfurt / Oder), he was working with the Centre of Socio-Legal Studies at Oxford University on Consumer ADR. By analysing seven case studies of Consumer ADR schemes in Europe (Netherlands, Sweden, UK, Austria and Germany), he aims to collect empirical data on the concrete functioning of consumer ADR in order to identify good practice. Directive 2013 / 11 / EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006 / 2004 and Directive 2009 / 22 / EC (Directive on consumer ADR), Official Journal, 18 June 2013, L 165, p. 63 ff. Stuyck et al., An analysis and evaluation of Alternative means of consumer redress other than redress through ordinary judicial proceedings, 2007 (Stuyck et al. 2007). Alleweldt et al., Study on the Use of Alternative Dispute Resolution in the European Union, 2009 (Alleweldt et al. 2009); Alleweldt et al., Cross-Border Alternative Dispute Resolution in the European Union, 2011 (Alleweldt et al. 2011). Hodges et al., Consumer ADR in Europe, 2012 (Hodges et al. 2012). See conference title “The Hidden World of Consumer ADR: Redress and Behaviour”, Oxford, 28th October 2011, http: // www.csls.ox.ac.uk / TheHiddenWorldofCon sumerADRRedressBehaviour.php.

67

© sellier european law publishers www.sellier.de

I. Setting the Scene

This paper gives a schematic overview of how consumer ADR works. Firstly, the variety of procedures under the umbrella term “consumer ADR” will be explained and illustrated (B.I.). Secondly, the example of the German conciliation body for public transport will provide a more detailed picture of how consumer ADR works in practice (B.II.).

B. Academia and the Field I. The diversity of consumer ADR In the following, the existing labels for ADR techniques will be described and briefly discussed (1.). Thereafter, the ADR directives functional classification will be explained (2.). Finally, several short examples from existing ADR schemes will illustrate the great variety of ways in which consumer ADR presents itself (3.).

1. Labels for ADR techniques

The spectrum of ADR techniques is very broad.7 The following classification corresponds to a common German understanding of alternative dispute resolution ranging from direct negotiation between the conflicting parties on the one hand, to formal court procedures on the other hand: – Mediation (mediation) is characterized by a very moderate intervention of the third party who “only” supports the conflicting parties to find a solution for themselves. – Schlichtung (conciliation) is a procedure where the third party makes its own suggestions for a possible settlement. – Schiedsverfahren (arbitration) is most similar to a court procedure where the third party gives a binding decision. However, there is no shared understanding of those “labels” in Germany. Sometimes they are used synonymously. The confusion increases even more in an international context, as Hopt and Steffek point out: “Sometimes English language terminology is borrowed, but is then used in a manner that has a different meaning.”8 7

8

See Hodges et al. 2012, p. xxiv et seq.; q.v. Gläßer, Teil 1, Hintergründe, Einführung, in Klowait / Gläßer (Hrsg.), Mediationsgesetz Handkommentar, 2014, note 28 et seq. See J. Hopt / Steffek, Mediation: Principles and Regulation in Comparative Perspective, 2013, p. 15 (Hopt / Steffek 2013); q.v. Hodges et al. 2012, p. 37.

68

Christof Berlin

© sellier european law publishers www.sellier.de

Consumer ADR – Academia and the Field

Furthermore, Stuyck et al. refer to “the relative unimportance of labelling”.9 They argue that the label is not helpful due to the lack of standardized definitions. Hopt and Steffek therefore suggest a functional distinction: “A productive classification of the procedures requires moving beyond aspects of terminology to focus on functional distinctions.”10 These issues have been taken into account in the ADR directive. It adopts a functional approach.

2. The ADR directive’s functional approach

The ADR directive 2013 / 11 / EU acknowledges that ADR procedures are highly diverse across the Union and within Member States. It therefore follows a functional approach. The scope of the directive includes procedures where the ADR entity – brings the parties together with the aim of facilitating an amicable solution, or – proposes a solution or – imposes a solution.11 Furthermore, “hybrid” procedures are possible, i.e., combinations of two or more procedures.12 This functional approach, put into the context of everyday ADR procedures and practice will be discussed below.

3. Practical examples

As shown below (Diagram 1), consumer ADR in practice is even more diverse than its definitions. The following short examples from within ADR practice reflect the three aforementioned types of procedures described above. – Facilitated amicable solution: Some ADR schemes facilitate amicable solutions as a first and somewhat informal step, thereby forming a hybrid “pyramid” of increasing intervention and formality. Some examples of this approach follow.

9 10 11 12

See Stuyck et al. 2007, p. 5. See Hopt / Steffek 2013, p. 16. See ADR directive, recital 21. See also ADR directive article 2 para 1. See ADR directive, recital 21.

Christof Berlin

69

© sellier european law publishers www.sellier.de

I. Setting the Scene

The online request form of the German Schlichtungsstelle für den öffentlichen Personenverkehr (SÖP)13 asks flight passengers to put a monetary value to number their claim.14 All incoming conciliation requests are then forwarded to the airline facing the complaint. The airline can then choose to immediately accept the claimed amount of money, which ends the conciliation procedure at this early stage without the intervention of a conciliator. If the airline does not immediately accept the claim, the SÖP procedure will continue on the next level (see below). Similarly, the Dutch De Geschillencommissie15 first asks the parties to find a solution amongst themselves. For this, the parties can use a database on the Geschillencommissie’s website in order to gain some impression of settlements in similar cases. If the parties agree on a solution, they record their settlement by completing a form sheet and send this “protocol” to the scheme.16 – Proposed solution The Swedish Allmänna Reklamationsnämnden (ARN)17 assesses the consumer claim and then proposes a solution to the parties. This recommendation is sent to both parties and it is up to them to agree to the proposal or not. A formal reply to the scheme is not necessary. The German Schlichtungsstelle für den öffentlichen Personenverkehr (SÖP) also issues non-binding recommendations to the parties. However, the parties have to declare to the scheme if they agree with the proposal or not. Only if both parties agree within 14 days, is a contractual settlement between the parties achieved. If only one party sends his or her acceptance, the conciliation procedure has failed. – Imposed solution Some ADR schemes impose solutions on one or both parties. Usually, those imposed solutions are the last resort in a hybrid chain and are only used if no amicable settlement could be achieved at an earlier level. The British Financial Ombudsman Service (FOS)18 makes decisions that are legally binding only for the trader. By contrast, the consumer is free to accept or to decline the “decision”. The Dutch De Geschillencommissie can impose a solution on both parties. Furthermore, the parties have to provide a security – such as a bank guarantee – beforehand, which ensures that they will follow the scheme’s decision.

13 14 15 16

17 18

See https: // soep-online.de / . See https: // soep-online.de / beschwerdeformular_flug.html. See http: // www.degeschillencommissie.nl / home. See http: // www.degeschillencommissie.nl / userfi les / Diversen / schikkingsmodel_ 130516.pdf. See http: // www.arn.se . See http: // www.fi nancial-ombudsman.org.uk / .

70

Christof Berlin

© sellier european law publishers www.sellier.de

Consumer ADR – Academia and the Field

After having briefly presented the functional approach and how this is applied in different settings, the following looks at a specific example in more detail. Dispute resolution procedures – Practical examples

Decision (binding only for trader) Recommendation Recommendation (with reply) (without reply) Settlement Acknowledgement (recorded) (immediate)

Decision (binding only both parties)

Impose solution

Propose solution

ion ent

Facilitate amicable solution

erv -int arty

p rd-

Thi

Gemeinsam Lösungen finden

Diagram 1: The spectrum of consumer ADR in practice

II. A practical example: The Conciliation Body for Public Transport (SÖP) This part will provide some key facts about SÖP (1.) and the relevance of ADR for air passengers (2.). Then the SÖP procedure will be described (3.) and some examples of consumer feedback to the SÖP will be provided (4.).

1. Key facts about SÖP

The German Conciliation Body for Public Transport (“SÖP” – Schlichtungsstelle für den öffentlichen Personenverkehr) started its work in December 2009.19 SÖP is a private ADR scheme, founded and driven by a private association (“Trägerverein”). It is financed by its members (almost 200 transport companies) and is free of charge for travellers. However, SÖP is strictly neutral and independent. Its advisory board has equal representation of consumers and companies. Furthermore, the German Federal and Regional Governments, as well as academia, 19

For an overview about SÖP, see also Hodges et al. 2012 and Alleweldt et al. 2011.

Christof Berlin

71

© sellier european law publishers www.sellier.de

I. Setting the Scene

are represented in the board. SÖP is directed by Edgar Isermann, a former judge and president of a Higher Regional Court who has wide experience in independent dispute resolution. All the conciliators are fully qualified lawyers, which guarantees a high level of expertise. SÖP offers an “intermodal” ADR service for rail, flight, ship and bus companies and their customers (travellers). With SÖP the consumer does not have to deal with the question of who is responsible for journeys with different modes of transport, but they are able to just deal with one scheme (one-face-to-the-customer approach). During the first years, the scheme’s focus was on rail passengers rights. Since winter 2013 / 14, the aviation unit is growing rapidly, dealing with air passengers rights (see below). Typically, conciliation requests are about delays and missed connections, train and plane cancellations, damaged or lost luggage, faulty information, tickets, and / or bad service. The main task of SÖP is casework. This means settling individual disputes between travellers and transport companies. In this way, SÖP also helps to strengthen customer satisfaction with the transport company. The conciliation is voluntary, which also means that the participation of the parties is non-mandatory and the outcomes (conciliation proposals) are non-binding.20 In the following the conciliation procedure between airlines and flight passengers will be discussed.

2. Conciliation between airlines and their passengers

Flight passenger claims are different from other consumer complaints. For example, the largest number of all complaints to the European Consumer Centres’ Network 2013 (ECC-Net) is about air transport (18.3 % in the year 2013).21 However, there are very few consumer ADR schemes in Europe which deal with air passenger rights.22 For many years, airlines expressed strong opposition to participation in ADR. Since 2009, SÖP has received thousands of conciliation requests from flight passengers but has only been able to settle the conflict in a handful of very specific cases. In general, airlines were very sceptical. In November 2013, new German legislation entered into force, making participation in ADR mandatory (only) for the airlines in consumer-to-business 20

21

22

See Berlin, Verbraucher-ADR: Freiwilligkeit der Teilnahme und Verbindlichkeit des Ergebnisses im Lichte der AS-Richtlinie, Zeitschrift für Konfliktmanagement (ZKM), 4 / 2013, p. 108-111. See http: // www.europe-consommateurs.eu / fi leadmin / user_upload / eu-consommateurs / PDFs / PDF_EN / 02_14_FINAL-infograph-ECCnet_2013.pdf. See Berlin, Schlichtung im Luft verkehr als Alternative Streitbeilegung, RRa 5/2014, p. 210-215; Isermann / Berlin, Durchsetzungsstellen und Schlichtungsstellen für Fluggastrechte in Europa, Reiserecht aktuell (RRa), 5 / 2010, p. 207-212.

72

Christof Berlin

© sellier european law publishers www.sellier.de

Consumer ADR – Academia and the Field

conflicts.23 The airlines can choose between the private SÖP or a public (residual) scheme. Most airlines have already become members of SÖP. Considering that flight passenger claims are the number one consumer claim in Europe (see above), it is not surprising that SÖP expects a very high workload that will greatly exceed its previous volume of cases.

3. The conciliation procedure

Travellers always have to contact the company first and try to settle the claim directly (see Diagram 2, step 1). Only if the traveller is not satisfied with the company’s reply or doesn’t get an answer at all, can he or she make a conciliation request to the SÖP (see Diagram 2, step 2). SÖP will then forward the matter to the company in order to give them the opportunity for an immediate reaction (see above) or for a statement of their view of the circumstances (see Diagram 2, step 3). SÖP then assesses the case. This is a legal examination of the facts. However, due to the limited amount of evidence collection, doubts might remain about the facts. Furthermore, there are characteristically layers of the conflict that do not refer to law but to business and communication issues. Therefore, SÖP aims to identify and to consider the most important interests involved in order to find a good solution for both parties (see Diagram 2, step 4). Once this process is finalized, SÖP produces a written recommendation for an amicable settlement. This rather formal recommendation contains the most important facts, an exhaustive explanation of the legal assessment and a final balance of the interests involved (see Diagram 2, step 5). As mentioned above, the recommendation is not legally binding. The recommendation is only binding if both the complainant and the transport company agree to it. Each side is free to decide to take their case to court at any time of the process. In 2013, more than 80 per cent of recommendations were accepted by both parties. This shows that a satisfying settlement can be achieved by non binding, “proposed” solutions (see Diagram 2, step 6)

23

See sec. 57 et seq. Luft verkehrsgesetz (LuftVG).

Christof Berlin

73

© sellier european law publishers www.sellier.de

I. Setting the Scene Practical example söp – The conciliation procedure

1. Complaint to the company not successful 2. Conciliation request to söp 3. Statement of the company (if no immediate acknowledgement) 4. Examination of individual case by söp – Legal aspects and other facts – Request for additional information/documents – Consideration of possible solutions 5. Conciliation proposal (sent to both parties) 6. Acceptance of conciliation by both parties (2013: >80%) or failure Gemeinsam Lösungen finden

Diagram 2: The ADR procedure at SÖP

4. Procedural justice leads to satisfaction

The SÖP approach is not only about finding a solution. It is also about settling disputes in a fair, transparent and understandable way. It is about procedural justice.24 Experience with thousands of cases shows that not only the outcome but also the procedure itself can make the difference. The following quotes show how important the procedure itself is for the satisfaction of the consumers: – “We are grateful for your support … at every moment, we perceived the procedure as very clear and transparent.” – “The detailed examination and information was much more than we expected. Your conciliation work makes us believe in humanity and the rule of law.” – “The successful conciliation procedure will increase my customer loyalty with the transport company.”

24

See Tyler, Procedural Justice Research, Social Justice Research 1 / 1987, p. 41-65; Creutzfeldt, How Important is Procedural Justice for Consumer Dispute Resolution? A Case Study of an Ombudsman Model for European Consumers (forthcoming).

74

Christof Berlin

© sellier european law publishers www.sellier.de

Consumer ADR – Academia and the Field

Even if a conciliation proposal is rejected on merits, consumers show their gratitude: – “Thank you … I appreciate very much the comprehensible explanations which help me to understand the legal background.” – “What a pity that my request was not successful. However, I like your ideas and statements!” – “I didn’t understand the technical term XY and was not aware about the special conditions. After reading your letter, I can better accept the company’s decision.” To sum up, this section has shown that it is important how customers perceive they are treated in an ADR procedure. Even if consumers do not receive the outcome that they had hoped for, they might accept the outcome because someone took the time to explain why.

C. Conclusion Consumer ADR is much more than only one procedure. It is a broad variety of different techniques with lesser or greater intervention by a third party. The ADR directive follows a functional approach and classifies three types of ADR: procedures that (a) facilitate amicable solutions, (b) propose solutions or (c) impose solutions. The experience of existing schemes shows that the procedures are even more diverse in practice. Hybrid procedures combine different techniques in order to settle the consumer-to-business-conflict at the earliest possible level. As a last resort, some schemes impose solutions, which makes the procedure very similar to court procedures. The implementation of the ADR directive by 9th July 2015 will increase discussions and research on consumer ADR. The “hidden world of consumer ADR” will be more and more explored. Therefore, it is important to add an empirical dimension to inform the theoretical debate.

Christof Berlin

75

© sellier european law publishers www.sellier.de

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

© sellier european law publishers www.sellier.de

© sellier european law publishers www.sellier.de

Impartiality and Independence of the Persons Entrusted with Consumer ADR* Enrique Vallines García A. Introduction I. Impartiality and independence as principles of due process Impartiality and independence of the persons dealing with a dispute are well known principles of due process of law before the Courts of Justice, proclaimed in the Universal Declaration of Human Rights (UDHR), the International Covenant on Civil and Political Rights (ICCPR), the European Convention of Human Rights (ECHR) and the European Charter of Fundamental Rights (EChFR), as well as in many national Constitutions. Indeed, Article 10 of the UDHR, Article 14(1) of the ICCPR, Article 6(1) of the ECHR and Article 47 of the EChFR state that, in the determination of one’s civil rights and obligations or of any criminal charge against him / her, “everyone is entitled” to “an independent and impartial tribunal”.1 Distinguishing impartiality and independence is not an easy task, since they tend to go together and mix with each other. In legal literature many opinions may be found as to where the line between independence and impartiality must be drawn, but I believe this paper is not *

1

Th is contribution has been made possible with the support of the Spanish Ministry for Economy and Competitiveness, in the context of the Research Project “El proceso civil en la jurisprudencia del Tribunal Europeo de Derechos Humanos: Bases para la armonización del Derecho Procesal Civil en Europa” (DER 201233378). Under Article 10 of the UDHR, “everyone is entitled in full equality to a fair and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him”; Article 14(1) of the ICCPR declares that “in the determination of any criminal charge against him, or of his rights and obligations in a suit at law, everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law”; Article 6(1) of the ECHR establishes that “in the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law”; and Article 47 of the EChFR states that “everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal previously established by law”.

79

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

the right place to go through them in detail. Very briefly, I would just say that, under my understanding: – someone is impartial when he or she is not a party to a dispute, that is to say, when he or she occupies a distinct position of absolute neutrality towards the persons and the things involved in the dispute; – and someone is independent when he or she enjoys an ‘absolute sovereignty’ within a dispute resolution procedure, namely because he or she is immune to the orders or the suggestions coming from any other person or body. Eventually, the prohibition of ‘conflict of interest’ comes into play, sort of gravitating between impartiality and independence, to emphasize that the outcome of a dispute resolution procedure should never produce benefits, neither direct nor indirect, to the person entrusted with that procedure. Anyway, no matter how the differences between independence, impartiality and the prohibition of conflict of interest are finally outlined, I would add that those three principles tend to achieve that judges (or, generally speaking, any person conducting a dispute resolution procedure) deal with disputes devoting themselves exclusively to the applicable rules and the applicable expertise; and nothing besides those rules and expertise. Of course, it is very important that a judge is truly impartial and independent; but, as important as being impartial and independent is, so it is looking impartial and independent before an external observer’s eyes. Indeed, the European Court of Human Rights (ECtHR) has said: “As to the question of ‘impartiality’ for the purposes of Article 6(1), there are two aspects to this requirement. First, the tribunal must be subjectively free of personal prejudice or bias. Secondly, it must also be impartial from an objective viewpoint, that is, it must offer sufficient guarantees to exclude any legitimate doubt in this respect. Under the objective test, it must be determined whether, quite apart from the judges’ personal conduct, there are ascertainable facts which may raise doubts as to their impartiality. In this respect even appearances may be of a certain importance. What is at stake is the confidence which the courts in a democratic society must inspire in the public and above all in the parties to proceedings”, since “justice must not only be done, it must also be seen to be done”. “Thus, any judge in respect of whom there is a legitimate reason to fear a lack of impartiality must withdraw”.2

2

See, among many other cases: Kleyn and others v. The Netherlands [GC], app. nos. 39343 / 98, 39651 / 98, 43147 / 98 and 46664 / 99, ECtHR 6 May 2003, § 191; Micallef v. Malta [GC], app. no. 17056 / 06, ECtHR 15 October 2009, § 98; and Rudnichencko v. Ukraine, app. no. 2775 / 07, ECtHR 11 July 2013, § 115.

80

Enrique Vallines García

© sellier european law publishers www.sellier.de

Impartiality and Independence of the Persons Entrusted with Consumer ADR

II. Impartiality and independence as principles of ADR procedures Must the impartiality and independence principles also apply to ADR proceedings? In other words, must the person entrusted with an ADR procedure be, like a judge, impartial and independent? In theory, a negative answer may be given to this question without putting human rights at risk. As a rule, ADR schemes have not replaced state courts – at least, generally speaking, this seems to be the case until now; we have not ‘privatized’ courts yet –,3 and, therefore, if a citizen wants an impartial and independent tribunal he or she can always skip ADR and knock on the door of the long-established Justice system instead. However, in practice, everything leads to impose impartiality and independence in ADR proceedings too. Usually, since ADR schemes are to work on a voluntary basis only, they need to ‘sell’ their fairness, and that includes the impartiality and independence standard: no potential user of an ADR mechanism would employ it – would buy it – if he or she fears that the person in charge will share the same interests of the opponent or will be subject to the instructions of someone with conflicting interests in the dispute.4 Especially when the voluntary ADR procedure is to end with a binding solution, the issue of impartiality and independence seems more relevant, for, after the binding solution has been granted, the parties will have no access to the traditional and, by definition impartial and independent, state courts.5 3

4

5

Although anything can happen in the future, in my view, the privatization of the Justice system as a whole is not acceptable. On the one hand, under the general principles of constitutional law, the judicial power of the State is to be vested in public institutions (as well as the legislative power and the executive power are to be given to public bodies too). On the other hand, I believe that the administration of justice, which regards not only the ruling of law in particular cases but also the development of the law, shall not eventually be subject to the profit and loss account of a private company. Indeed, the Justice system “is a public good that serves more that private interests” (see H. Genn, What is Civil Justice For? Reform, ADR and Access to Justice, Yale Journal of Law & the Humanities, 2012, vol. 24, Iss. 1, Article 18, p. 1, available at: http: // digitalcommons.law.yale.edu / yjlh / vol24 / iss1 / 18; visited 12.02.2014). “Indeed disputants will not opt for alternatives to the court if they are not confident that the system is fair” (S. Schiavetta, The Relationship Between e-ADR and Article 6 of the European Convention of Human Rights pursuant to the Case Law of the European Court of Human Rights, The Journal of Information, Law and Technology (JILT), 2004 / 1, p. 7, available at: http: // www2.warwick.ac.uk / fac / soc / law / elj / jilt / 2004_1 / schiavetta / ; visited 12.02.2014). “For those procedures which are binding in nature and affect the parties’ ability to go to court de novo the need for procedural guarantees is more significant as their

Enrique Vallines García

81

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

Furthermore, if ADR schemes are ever to replace state courts in dealing with certain types of disputes, by way of making the use of ADR mandatory and establishing the binding effect of the imposed solution to the dispute (as it happens in some States with the compulsory arbitration that applies to special labour disputes), it appears clear that the persons in charge of those schemes will have to be fully impartial and independent in order to comply with international law on human rights, namely with Article 10 of the UDHR, Article 14(1) of the ICCPR, Article 6(1) of the ECHR and Article 47 of the EChFR.6

III. Impartiality and independence as principles of Consumer ADR in the EU European Union law on Consumer ADR seems to have taken into account these reasons, since independence and impartiality are among the main principles governing ADR procedures dealing with consumer to business (C2B) disputes. The two European Commission’s Recommendations on the principles of Consumer ADR, dated in 1998 and 2001, stressed the importance of independence and impartiality locating these two principles at the top of the list.7 Then, in 2004, the European Code of Conduct for Mediators emphasized the need

6

7

use has graver consequences. Hence governments must fi nd ways to ensure that binding ADR systems operating within the private arena conform to due process principles” (Schiavetta, JILT 2004-1, p. 8). “Given the importance attached to the right to a fair trial if court action is ever substituted with ADR it is important to establish that this does not result in a breach of the European Convention on Human Rights”; and where “compulsory ADR systems see the replacement of the court system institutionally with other bodies, the rights stemming from Article 6 [of the ECHR] must still be guaranteed” (Schiavetta, JILT 2004-1, pp. 5 and 11). In this regard, see Suda v. the Czech Republic, app. no. 1643 / 06, ECtHR 28 October 2010, § 49; and Kolgu v. Turkey (dec.), app. no. 2935 / 07, ECtHR 27 August 2013, § 40. In these cases, the ECtHR held: “A distinction must be drawn between voluntary arbitration and compulsory arbitration. Normally, Article 6 poses no problem where arbitration is entered into voluntarily. If, on the other hand, arbitration is compulsory, in the sense of being required by law, the parties have no option but to refer their dispute to an Arbitration Board, and the Board must offer the guarantees set forth in Article 6(1).” Commission Recommendation of 30 March 1998, on the principles applicable to the bodies responsible for out-of-court settlement of consumer disputes (98 / 257 / EC) (OJ 1998, L 115 / 31); and Commission Recommendation of 04 April 2001, on the principles for out-of-court bodies involved in the consensual resolution of consumer disputes (2001 / 310 / EC) (OJ 2001, L 109 / 56).

82

Enrique Vallines García

© sellier european law publishers www.sellier.de

Impartiality and Independence of the Persons Entrusted with Consumer ADR

for mediators to be impartial and independent;8 and later on, in 2008, the Mediation Directive stated that mediators should conduct mediation proceedings in an “impartial way”.9 Finally, the Consumer ADR Directive insists, in many of its articles, paragraphs and subparagraphs, on the so called “requirements” of impartiality and independence.10

B. Impartiality and Independence in the Consumer ADR Directive This paper is dedicated to the analysis of those “requirements” of impartiality and independence, as set out in the Consumer ADR Directive. In this regard, four preliminary points should be made clear.

I. The Consumer ADR Directive only establishes a minimum standard First, it must be recalled that the Directive imposes on EU Member States the obligation to ensure the existence of “ADR entities”, which are to put in place “procedures for the out-of-court resolution of domestic and cross-border disputes concerning contractual obligations stemming from sales contracts or service contracts between a trader established in the Union and a consumer resident in the Union” [see Articles 1, 2(1), 5(1) and 5(2) of the Directive]. These entities and these procedures must comply with the “harmonized quality requirements” established in the Directive, in order to “ensure that consumers have access to high-quality, transparent, effective and fair out-of-court redress mechanisms” [Article 2(3)]. But those “harmonized quality requirements” are just a minimum standard for Consumer ADR schemes falling within the Directive’s scope, so that nothing prevents national legislation from establishing a stricter standard. In this respect, Article 2(3) of the Directive finishes saying: “Member States may maintain or introduce rules that go beyond those laid down by this Directive, in order to ensure a higher level of consumer protection”.

8

9

10

European Code of Conduct for Mediators, available at: http: // ec.europa.eu / civiljus tice / adr / adr_ec_code_conduct_en.pdf (visited 12.02.2014). See Article 3(b) of the Directive 2008 / 52 / EC, of the European Parliament and of the Council, of 21 May 2008, on certain aspects of mediation in civil and commercial matters. Directive 2013 / 11 / EU, of the European Parliament and of the Council, of 21 May 2013, on alternative dispute resolution for consumer disputes.

Enrique Vallines García

83

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

Indeed, among the “harmonized quality requirements” foreseen in the Directive, several can be found in relation to impartiality and independence; and, hence, under the general rule of Article 2(3), the Directive just sets out a minimum standard of impartiality and independence that may be improved by national legislation. It should be added that the potential enhancement of the impartiality and independence standard seems to be of great importance, because, in my opinion, there are some shortcomings in the regulation of the Consumer ADR Directive.

II. The standard applies to all kinds of ADR procedures, no matter if the outcome is binding or not The second preliminary point is that the Directive demands impartiality and independence to all kinds of ADR procedures, regardless of whether the outcome is binding or not. When a binding solution is to be produced by an ADR scheme, the issue of impartiality and independence arises more strongly. On the other hand, when an ADR mechanism leads to a non-binding solution (such as a proposal, a suggestion or a recommendation), that issue appears to be less relevant, because, at the end of the day, parties will always be free to go to the impartial and independent state courts for relief. This reasoning would explain, for instance, why, in the UK, in the Consumer Codes Approval Scheme (CCAS), the ‘degree’ of independence and impartiality is lower at early stages of proceedings (where mediation is carried out by a body that is hosted by a trade association), but is higher at the final stage (where a Consumer ADR body that is completely independent of the sector takes on the dispute in order to give a binding solution).11 Had the Consumer ADR Directive followed this way of thinking, I may well be writing about two different standards of impartiality and independence, conditional on the binding or non-binding nature of the outcome of the ADR procedure. But the truth is that the Directive makes no distinction at all and, therefore, there is just one common standard of impartiality and independence (or rather, a common set of rules on impartiality and independence) applying to all ADR schemes that are to be created under the Consumer ADR Directive.

11

See C. Hodges / I. Benöhr / N. Creutzfeldt-Banda, Consumer ADR in Europe, 2012, p. 442.

84

Enrique Vallines García

© sellier european law publishers www.sellier.de

Impartiality and Independence of the Persons Entrusted with Consumer ADR

III. The standard also applies to both entities and natural persons The third preliminary point is that, under the Directive, impartiality and independence are requirements that should be met by both entities and natural persons entrusted with ADR proceedings. Normally, independence and impartiality concerns regard the natural person involved as third party in a dispute resolution procedure, i.e., the ‘conductor’ of the procedure (a judge, an arbitrator, a mediator …). However, practice shows the need to tackle the issue of impartiality and independence of ADR entities too, because there may be circumstances (“legitimate doubts” or “legitimate reasons”, in the ECtHR’s words) to fear bias and prejudices of the entities themselves (not only of the natural persons in charge of ADR proceedings).12 I will just give an example of what happened in Spain with the so called “European Association of Law and Equity Arbitration”. This is a Spanish private institution that had worked for a Telephone Company and had added on to the pre-formulated standard contracts that were given to the Telecom’s clients for signature, including an arbitration clause submitting future disputes to the above mentioned Association. When dealing with these disputes, Spanish Courts held that the arbitration agreement was void, among other reasons, due to the lack of impartiality and independence of the institution in charge of the arbitration procedure, since the so called “European Association of Law and Equity Arbitration” had been employed by one the parties and had altered the very same contracts that might have been contested within the arbitration process.13 Indeed, the text of the Directive is not very clear on this point, since many of its articles seem to link the requirements of impartiality and independence to natural persons only. But, after a second reading, one can find out that impartiality and independence also apply to ADR entities. In this sense: – In recital 22 of the preamble, this sentence can be read: “provided that those entities are in complete conformity with the specific requirements on independence and impartiality laid down in this Directive”; – Recital 32 of the preamble starts by saying that “the independence (…) of ADR entities is crucial in order to gain Union citizen’s trust”;

12

13

When dealing with the “requirements of impartiality and independence” within Consumer ADR, Hodges / Benöhr / Creutzfeldt-Banda (p. 440) state that “the requirements apply both to the individual who makes the decision and to the body that supervises the process”. See, among others, Judgment of the Provincial Court of Madrid (Sec. 11) 251 / 2004, of 16 February 2004 (reasonings 3, 4 y 5); Judgment of the Provincial Court of Madrid (Sec. 14) 609 / 2005, of 28 July 2005 (reasoning 5); and Ruling of the Provincial Court of Barcelona, (Sec. 15) 192 / 2007, of 28 June 2007 (reasoning 3); all available through the web: http: // www.poderjudicial.es / search / indexAN.jsp.

Enrique Vallines García

85

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

– When regulating “independence and impartiality”, Article 6(3)(d) requires that “the dispute resolution entity does not have any hierarchical or functional link with the trader and is clearly separated from the trader’s operational entities and has a sufficient budget at its disposal, which is separate from the trader’s general budget, to fulfil its tasks”. – And, what appears to be more important, many articles that literally provide for impartiality and independence of natural persons actually deal with impartiality and independence of entities. For instance, where Article 6(1) (d) states that natural persons in charge of ADR are to be “remunerated in a way that is not linked to the outcome of the procedure”, it must be read that “Consumer ADR entities must remunerate their ADR ‘conductors’ in a way that is not linked to the outcome of the procedure”.

IV. General and particular views of impartiality and independence Ultimately, the fourth and last preliminary point is that under the Consumer ADR Directive compliance with impartiality and independence may be analyzed not only from a particular point of view (i.e., in relation to a specific dispute between two already known parties), but also from a general point of view (i.e., not taking into account any specific dispute). From a general view, the Directive imposes certain abstract requirements to Consumer ADR entities and natural persons in order to achieve impartiality and independence. If those requirements are not met then those entities or persons should not be considered as part of the high-quality Consumer ADR system that the Directive intends to establish, and, hence, they should neither be in the list of entities mentioned in Article 20(2) (this is the list that every Member State must produce and notify the EU Commission of), nor in the lists of natural persons indicated in Article 7(1)(c) (these are the lists made by each Consumer ADR entity containing the names of natural persons potentially being in charge of ADR proceedings within the entity). From a particular view, when the Consumer ADR entity or natural person in charge of specific ADR proceedings lacks impartiality or independence, the entity or person affected must step aside and leave the path clear for a different entity or person to deal with the dispute. Some provisions of the Directive focus on the general view, other rules deal with the particular view and, eventually, many provisions may have effects both in general and in particular. A summary of these provisions will be given now, distinguishing the general view, on the one hand, and the particular view, on the other.

86

Enrique Vallines García

© sellier european law publishers www.sellier.de

Impartiality and Independence of the Persons Entrusted with Consumer ADR

C. Impartiality and Independence in General I. General view of impartiality and independence of entities: impartiality and independence as requirements to become a ‘listed’ Consumer ADR entity under Article 20(2) I am going to start by referring to the provisions of the Consumer ADR Directive aiming at impartiality and independence of Consumer ADR entities from a general point of view (i.e., without regard to any particular dispute).

1. The issue of funding and the three types of Consumer ADR entities

One of the main issues here is that of the funding of the Consumer ADR entity. When an ADR entity’s budget is supported by public funds, there are not many general concerns about the impartiality and independence of the entity itself, since public institutions are usually presumed to pursue the common good and be fair. However, when an ADR entity is privately funded (by businesses or by consumers) that entity is likely to serve better those who pay for its existence, and, therefore, its impartiality and independence would be at risk when dealing with disputes where its payer is one of parties. In today’s Europe, the majority of privately funded Consumer ADR schemes are supported by businesses, rather than by consumer associations. That explains why in a thorough study on the use of ADR in the European Union that was published in 2009 the following passage can be found: “On occasion consumer associations considered that the independence of some schemes is questionable where the ADR is a privately established scheme, either part of the organisational structure of a business association or directly linked to a particular business and not legally separated from it. There is greater risk in such cases perceived by some stakeholders that the loyalty of the decision makers could be with their paymasters and that this could prevent reaching a fair judgment”.14 For these reasons, consumer associations that participated in the “Public consultation on the use of ADR in the EU”, held in 2011, “stressed more clearly that public funding (…) better respects the independence of the ADR scheme”.15 However, most of the respondents who participated in the “Public consultation” “were of the opinion that the best way to fund ADR schemes is a mixed 14

15

F. Alleweldt et al., DG SANCO – Study on the use of Alternative Dispute Resolution in the European Union, 2009, pp. 18 and 128; available at: http: // ec.europa. eu / consumers / redress_cons / adr_study.pdf (visited 12.02.2014). Public consultation on the use of alternative dispute resolution (ADR) as a means to resolve disputes related to commercial transactions and practices in the EU – Summary of the responses received, p. 8; available at http: // ec.europa.eu / consumers / redress_cons / Feedback_Statement_Final.pdf (visited 12.02.2014).

Enrique Vallines García

87

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

system, where funds are provided by the national authorities and the business sector”.16 Following this latter way of thinking, the Directive has not been radical and, hence, it has not excluded privately funded Consumer ADR schemes from its scope. But neither has the Directive been blind to impartiality and independence concerns regarding funding and, indeed, it has tried to address these issues distinguishing three different types of Consumer ADR entities [see Article 2(2) (a) and Article 6(4)]: Type a): Consumer ADR entities funded exclusively by an individual trader, i.e., “entities where the natural persons in charge of dispute resolution are employed or remunerated exclusively by the individual trader”, as said in Article 2(2) (a) of the Directive. These entities are also known as “in-house entities”, since they are hosted by the individual trader that pays for their existence. Type b): Consumer ADR entities funded exclusively by a professional organisation, by a business association or by a consumer association. These are the entities indicated in Article 6(4) of the Directive, i.e., entities “where the natural persons in charge of ADR are employed or remunerated exclusively by a professional organisation or business association of which the trader is a member”. Note that Article 6(4) just refers to a “professional organisation” or a “business association”, but, in my opinion, analogy demands that entities exclusively funded by consumer associations must also be included within this category of ‘type b)’ entities. Indeed, the concerns on impartiality and independence will be of the same kind: a Consumer ADR entity exclusively funded by a professional organisation or by a business association is likely to favour the traders; and a Consumer ADR entity exclusively funded by a consumer association is commonly expected to show preference for the consumer. Type c): The rest of Consumer ADR entities, which would include, for instance, entities funded partially by an individual trader, by a professional organisation, by a business association or by a consumer organisation; or entities funded exclusively by the public treasure. The Directive has established a set of general requirements on impartiality and independence applicable to the three types of entities; a set of requirements applicable to type b) only; and, finally, a set of requirements applicable to type a) only. 16

Public consultation …, p. 7.

88

Enrique Vallines García

© sellier european law publishers www.sellier.de

Impartiality and Independence of the Persons Entrusted with Consumer ADR 2. General requirements applicable to all types of Consumer ADR entities

Paragraphs 1, 2 and 5 of Article 6 set out the general requirements which are applicable to all sorts of Consumer ADR entities, no matter how they are to be funded. These requirements amount to seven. – Knowledge, skills and general understanding of law of natural persons in charge of ADR procedures First, Consumer ADR entities must only nominate and appoint as ‘conductors’ of ADR proceedings natural persons who “possess the necessary knowledge and skills in the field of alternative or judicial resolution of consumer disputes, as well as a general understanding of law” [Article 6(1)(a)]. As I said, impartiality and independence are instruments to ensure that a dispute resolution procedure is carried out with exclusive devotion to the applicable rules and the applicable expertise – and nothing other than those rules and expertise –; and that is one of the reasons why no Consumer ADR entity is to qualify under the Directive if its potential conductors of proceedings are lacking the necessary knowledge. In addition, it should be noted that national laws must make clear what is actually meant by “necessary knowledge and skills” and “general understanding of the law”. – Sufficient duration of term of office and non-removability of natural persons in charge of ADR procedures Second, the entities must ensure that natural persons to be listed as potential ‘conductors’ of ADR proceedings “are appointed for a term of office of sufficient duration to ensure the independence of their actions, and are not liable to be relieved from their duties without just cause” [Article 6(1)(b)]. As it may be noticed, national legislators are to determine the minimum period that can be regarded as of “sufficient duration to ensure the independence of their actions”; and also national legislators should define what types of “just causes” can lead to the removal of a natural person in charge of ADR proceedings. Anyway, under my understanding, if full independence is to be achieved, the duration of the term of office of an appointed ADR ‘conductor’ shall be exactly the same as the duration of the proceedings which he or she is entrusted with; and that means a minimum period of “ninety calendar days from the date on which the ADR entity has received the complete complaint file”, plus the extensions that the entity may add to that period [see, in this regard, Article 8(e) of the Directive]. – Non-subjection of ADR ‘conductors’ to parties’ instructions Third, the entities must rule that natural persons in charge of ADR proceedings “are not subject to any instructions from either party or their representatives” [Article 6(1)(c)].

Enrique Vallines García

89

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

As it may be seen, the Directive limits this provision to certain types of “instructions”, i.e., those coming from the parties or their representatives. That could mean that Consumer ADR entities would not contravene the Directive if they make their ADR ‘conductors’ subject to other kinds of instructions. In particular, it seems as though the Directive wants to leave up to Member States the issue of whether or not a natural person in charge of ADR proceedings must be subject to the instructions coming from the very entity for which he or she is working. In this regard, it is interesting to notice how Article 2(1) of the Directive says that it is “an ADR entity” (not a natural person working for an ADR entity) that “proposes or imposes a solution or brings the parties together with the aim of facilitating an amicable solution”, so that the entity would be the one ultimately responsible for ADR proceedings and their outcome. Such a view could well justify a subjection of ADR ‘conductors’ to the instructions given by the managers of the entity for which those ‘conductors’ are working: since the entity is the one ultimately responsible, natural persons working for the entity are to abide by the entities’ instructions. However, in my opinion, just in the same way judges are not subject to the instructions coming from judiciary governing bodies, full independence will require the law saying that ‘conductors’ of ADR proceedings will not be subject to any instructions at all, no matter where they come from (including, of course, those issued from the entity for which they are working); and perhaps some national legislators will dare to do so. Indeed, it must be recalled that, under Article 2(3) of the Directive, national laws may go beyond the Directive’s minimum standards in order to achieve a higher level of consumer protection. – Remuneration of ADR ‘conductors’ not linked to the outcome of ADR proceedings Fourth, the entities shall remunerate natural persons entrusted with ADR procedures in a way that is not linked to the outcome of those procedures [Article 6(1)(d)]. Obviously, if the contrary were allowed, the entities would be encouraging their ADR ‘conductors’ to lead the procedures to the very outcome that would make them earn more, rather than to a fair solution to the dispute, given impartially and independently. – Duty to disclose any circumstances potentially affecting impartiality or independence of natural persons entrusted with ADR proceedings Fifth, the entities must set up an obligation on the natural persons in charge of ADR proceedings to disclose to the entity “any circumstances that may, or may be seen to, affect their independence and impartiality or give rise to a conflict of interest with either party to the dispute they are asked to resolve” [Article 6(1)(e)]. I will come back to this point later, when dealing with impartiality and independence of natural persons from a particular point of view. But, still, 90

Enrique Vallines García

© sellier european law publishers www.sellier.de

Impartiality and Independence of the Persons Entrusted with Consumer ADR

something can be told in advance: for reasons of fairness, I would urge national legislators to improve the Directive by demanding each Consumer ADR entity to include a provision whereby the disclosure of such “circumstances” affecting impartiality and independence is to be made not only to the entity but also to the parties in dispute. – Specific procedural consequences in case of circumstances potentially affecting impartiality or independence of natural persons entrusted with ADR proceedings Sixth, in case circumstances affecting impartiality or independence appear within on-going ADR proceedings, the entities must foresee procedures in order to achieve one of the following consequences: either the replacement of the natural person conducting the proceedings; or, failing that, the substitution of the entity managing the dispute for another competent Consumer ADR entity; or, failing that, the continuation of the proceedings under the same natural person and entity but with the parties’ consent [Article 6(2)]. Here, the Directive imposes on the Consumer ADR entities the duty to foresee specific procedural consequences when doubts over impartiality and independence arise. I will also come back to these procedural consequences later on. – Collegial bodies dealing with ADR proceedings shall be composed by an equal number of representatives of consumers and of representatives of businesses Lastly, seventh, the entities must provide that where the natural persons in charge of dispute resolution are to form part of a collegial body, that body shall be composed by an equal number of representatives of consumers’ interests and of representatives of traders’ interests, i.e., a collegial body where forces are balanced [Article 6(5)]. After the 2011 “Public Consultation” on ADR, “a large number of respondents” considered this requirement as one of “the best ways to achieve independence and impartiality”;17 however, it has been criticized because it may encourage the existence of collegial bodies and increase costs of ADR proceedings.18 These seven are the general requirements applicable to all types of Consumer ADR entities willing to enter the list referred to in Article 20(2) of the Directive: if they fail to give sufficient evidence of compliance, they will not be in the list and, consequently, they will be considered to be out of the high-quality European Consumer ADR system.

17 18

Public consultation …, p. 8 Hodges / Benöhr / Creutzfeldt-Banda, pp. 444-445.

Enrique Vallines García

91

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR 3. Requirements applicable to type b) Consumer ADR entities only

Let us move on now to the requirements only applicable to type b) Consumer ADR entities, that is, those entities exclusively funded by a professional organisation or a business association, and, by way of analogy, also those entities exclusively funded by a consumer organisation. Under subparagraph 1 of Article 6(4) of the Directive, they may qualify as listed Consumer ADR entities of Article 20(2) if they comply (i) with the seven general requirements, and, moreover, (ii) with the additional requirement of having “a separate and dedicated budget at their disposal which is sufficient to fulfil its tasks”. Literally, Article 6(4), subparagraph 1 states: “Where the natural persons in charge of ADR are employed or remunerated exclusively by a professional organisation or a business association of which the trader is a member, Member States shall ensure that, in addition to the general requirements set out in paragraphs 1 and 5, they have a separate and dedicated budget at their disposal which is sufficient to fulfil their tasks”. According to rules of syntax, “they” refers to “the natural persons …” and not to a Consumer ADR entity; hence, it should be argued that the additional requirement of “separate and dedicated budget …” would apply to the natural persons rather than to the entities. Yet, a systematic construal of Article 6(4), that takes into account the text of the Directive as a whole, would lead to what, in my opinion, is a most accurate conclusion, that is to say, that “they” is, in truth, referring to Consumer ADR entities (to be more precise, Consumer ADR entities exclusively funded by a professional organisation, a business association or a consumer association) willing to enter the list of Article 20(2). However, under subparagraph 2 of Article 6(4) of the Directive, this additional requirement (that of “separate and dedicated budget …”) may be skipped if the exclusively-funded-by-an-organisation-entity establishes that ADR proceedings will always be conducted by “a collegial body composed of an equal number of representatives of the professional organisation or business association” funding the Consumer ADR entity “and of consumer organisations”. Article 6(4), subparagraph 2, also raises a question of interpretation. Literally, it states: “This paragraph shall not apply where the natural persons concerned form part of a collegial body composed of an equal number of representatives of the professional organisation or business association by which they are employed or remunerated and of consumer organisations.” Indeed, if one sticks to the letter of the provision, it may be concluded that no separate and sufficient budget will be necessary for the entity to qualify under Article 20(2), if the internal rules of the entity proclaim that ADR proceedings may be entrusted to a single natural person that belongs to such collegial body (but not to the body itself). But I believe this conclusion will be against the principles of independence and impartiality, since that single appointed natural person will be a representative either of business associations or consumer organisations, 92

Enrique Vallines García

© sellier european law publishers www.sellier.de

Impartiality and Independence of the Persons Entrusted with Consumer ADR

without a counter-balance partner to represent the interests of the other side. That is why, in my view, this subparagraph can only mean that the additional requirement of subparagraph 1 will not apply, when the entity always entrusts ADR proceedings to a group of natural persons forming a collegial body with equal representation of both sides (consumers and businesses).

4. Requirements applicable to type a) Consumer ADR entities only

Finally, we must turn to the requirements that only apply to type a) Consumer ADR entities, i.e., to those funded exclusively by an individual trader (also known as in-house entities). They are, in principle, presumed partial and dependent and, hence, they will not qualify to be listed entities under Article 20(2) of the Directive. However, in order not to make some existing in-house Consumer ADR schemes disappear, the Directive will let them qualify if the following six conditions are fulfilled [Article 6(3)]: 1) One, that national law explicitly allows exclusively-funded-by-an-individual- trader-entities to fall within the scope of the Directive. 2) Two, that the in-house entity meets the seven aforementioned general requirements. 3) Three, that the in-house entity provides that the “nomination” of its potential ‘conductors’ of ADR procedures is vested in “a collegial body composed of an equal number of representatives of consumer organisations and of representatives of the trader”; and that the in-house entity also provides that the “appointment” of an actual ‘conductor’ of an ADR procedure occurs “as the result of a transparent procedure”. In my opinion, the distinction between “nomination” and “appointment” must be emphasized, where “nomination” means “election of potential ADR ‘conductors’ that will be included in the entity’s own list”, and “appointment” means “designation of a particular natural person of that list in order to conduct ADR proceedings in regard to a specific dispute”. At the end of the day, the Directive is demanding that exclusively-funded-by-an-individual-trader-entities shall outsource (externalize) the task of nominating their prospective ‘conductors’ of ADR proceedings to an independent body (such as that of a “collegial body composed of an equal number of representatives of consumer organisations and of representatives of the trader”); and, moreover, they shall be crystal clear when appointing someone to deal with a specific dispute. Of course, there is work to be done by national law here, as the nominating bodies should be identified in each Member State and additional national provisions may contribute to clarify what is the precise meaning of “transparent procedure”. Eventually, this condition will not need to be satisfied if the ADR procedures are not to be entrusted to one natural person alone, but to an independent collegial body of the same aforesaid kind, i.e., to a “collegial body composed Enrique Vallines García

93

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

of an equal number of representatives of consumer organisations and of representatives of the trader”. The text of the Directive is not too clear on this matter, but I believe that this is what it wants to mean when Article 6(3)(a) states “or form part of …”. 4) Four, that the in-house entity grants the nominated natural persons to be in charge of dispute resolution “a period of office of a minimum of three years to ensure the independence of their actions” [Article 6(3)(b)]. In my view, this requirement amounts to prohibiting someone from being removed from an entity’s list within three years of him or her being nominated by the independent body. Once someone has actually been appointed to deal with a specific dispute, then the general requirement would also apply as to give the appointed natural person a new “term of office of sufficient duration to ensure the independence of their actions” for the time necessary to deal with that dispute [Article 6(1)(b)]. 5) Five, that the in-house entity ensures that natural persons in charge of dispute resolution will sign a commitment “not to work for the trader or a professional organisation or business association of which the trader is a member for a period of three years after their position in the dispute resolution entity has ended”. Obviously, with this condition, the Directive intends that the individual trader exclusively supporting the entity is less tempted to offer ADR ‘conductors’ a fine job in the future, in exchange for an outcome of the ADR procedure that is favourable to him (i.e., to the trader). 6) Ultimately, six, that the in-house entity shall “(i) not have any hierarchical or functional link with the trader”; (ii) it shall be “clearly separated from the trader’s operational entities”; (iii) it shall have “a sufficient budget at their disposal to fulfil their tasks”; and, finally, (iv) its budget shall be “separate from the trader’s general budget”. In sum, the Directive demands that the exclusively-funded-by-an-individual-trader-entity must be completely independent of the trader and enjoy a separate and sufficient budget of its own.

5. Enforcement of the provisions setting out impartiality and independence requirements to become a ‘listed’ Consumer ADR entity under Article 20(2)

Once the Directive has introduced its provisions on the requirements of impartiality and independence applying to Consumer ADR entities willing to join the list referred to in Article 20(2), a further question inevitably arises: how are these provisions to be enforced? Indeed, this issue belongs to a broader topic, such as the enforcement of all the provisions of the Consumer ADR Directive. However, a brief overview might be interesting for those reading these lines. 94

Enrique Vallines García

© sellier european law publishers www.sellier.de

Impartiality and Independence of the Persons Entrusted with Consumer ADR

a) Compliance through the competent authorities Mainly, compliance with general impartiality and independence requirements of Consumer ADR entities may be enforced through the national “competent authorities”. Under Article 20(1) of the Directive, these authorities must assess whether a Consumer ADR entity qualifies to enter the list foreseen in Article 20(2). In addition, under Article 20(2), subparagraph 4, they must also assess whether an already listed Consumer ADR entity must be disqualified and excluded from the list. In regard to those assessment tasks, it may be discussed if the competent authorities have investigation powers in order to check the accuracy of the information given by the Consumer ADR entities. The Directive is a bit obscure on this matter. Recital 55 of the preamble states that competent authorities must be created for the purpose of “closely monitoring” Consumer ADR entities, suggesting that investigation powers will have to be vested in the authorities to achieve that monitoring. But, when we get to the articles of the Directive, the word “monitoring” – or anything of the like – cannot be found. In spite of that, in my opinion, national authorities must enjoy those investigation powers and they should be exercised at the request of a party or, even, of its own motion. In that sense: – Article 20(1) says that the authorities shall assess whether or not a Consumer ADR entity qualifies to be listed “in particular on the basis of the information it has received” from the candidate entity itself. It should be emphasized that the use of the expression “in particular” can only mean that other pieces of information may be assessed by the authorities, including information supplied by other persons or obtained by the acting authority itself. – Article 20(2), subparagraph 4, states that competent authorities must contact Consumer ADR entities when they “no longer comply with the requirements”. In truth, this provision of the Directive does not say anything about the ways through which a competent authority can become aware of the lack of compliance; therefore, I believe any means will be valid: either a complaint submitted by any person other than the affected entities, or an investigation carried out by the very same authority of its own motion. – It must also be noted that the Consumer ADR Directive has become one of the “laws protecting consumers’ interests” indicated in the Regulation on Consumer Protection Cooperation19 [see, in this regard, Article 22 of the Directive, as well as Article 3(a) and Annex of the Regulation]. For this 19

Regulation (EC) No. 2006 / 2004, of the European Parliament and of the Council, of 27 October 2004, on cooperation between national authorities responsible for the enforcement of consumer protection laws (Regulation on consumer protection cooperation).

Enrique Vallines García

95

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

reason, it is likely that the very same competent authorities under the Regulation may very well end up being designated as the competent authorities under the Consumer ADR Directive; and both should enjoy investigative powers, as stated in Article 4 of the Regulation. b) Compliance through an injunction Moreover, it may be pointed out that there could be another way to enforce compliance with the requirements set out in the Consumer ADR Directive for entities to be part of the Article 20(2) list: the national legislation implementing the Injunctions Directive.20 Indeed, the Consumer ADR Directive has been included among the Directives whose compliance is protected through the Injunctions Directive [see, in this regard, Article 1(2) and Annex I of the Injunctions Directive, in connection to Article 23 of the Consumer ADR Directive]. Therefore, where national authorities fail to perform their duties and an infringement of the Consumer ADR Directive is affecting collective interests of consumers [Article 1(1) of the Injunctions Directive], the entities listed under the Injunctions Directive [see Articles 3 and 4(3)] are entitled to seek the “cessation or prohibition of the infringement” by way of taking a legal action for an injunction before the appropriate court or administrative body [see Article 2 of the injunctions Directive].

II. General view of impartiality and independence of natural persons: impartiality and independence as requirements to become a “listed” natural person potentially in charge of ADR proceedings within a Consumer ADR entity It is now time to say something about the impartiality and independence of the natural persons entrusted with ADR proceedings, also from a general point of view. In this respect, a number of the already mentioned requirements applying to entities, somehow, become applicable to natural persons too, so that if a natural person meets those requirements, then, he or she will be able to join a list of potential ‘conductors’ of ADR procedures within a Consumer ADR entity [a list referred to in Article 7(1)(c)]. In this sense, the Directive demands that, in order to join any Consumer ADR entity, natural persons shall possess the necessary knowledge and skills, as well as a general understanding of law [Article 6(1)(a)]. Furthermore, if they are to be entrusted with ADR proceedings as part of a “collegial body” they 20

Directive 2009 / 22 / EC, of the European Parliament and of the Council, of 23 April 2009, on injunctions for the protection of consumers’ interests.

96

Enrique Vallines García

© sellier european law publishers www.sellier.de

Impartiality and Independence of the Persons Entrusted with Consumer ADR

shall hold the condition of “representatives” either of consumer interests or of traders’ interests [Article 6(5)]. And, eventually, if a natural person is to join an in-house entity (of those exclusively funded by an individual trader), he or she will have to comply with two additional requirements: (i) nomination by an independent “collegial body composed of an equal number of representatives of consumer organisations and of representatives of the trader”; and (ii) commitment “not to work for the trader or a professional organisation or business association of which the trader is a member for a period of three years after their position in the dispute resolution entity has ended” [Article 6(3)(a) and (c)]. The enforcement of these provisions on general requirements of impartiality and independence affecting natural persons lies mainly upon the Consumer ADR entities, since each entity shall assess whether or not a natural person complies with the necessary legal requirements to be part of its list of potential ADR ‘conductors’. Besides, by way of analogy with Article 20(2), subparagraph 4, of the Directive, national competent authorities may also monitor compliance and, if they find shortcomings, should contact the entities for a solution.

D. Impartiality and Independence in Relation to a Particular Dispute So far, I have examined impartiality and independence from a general point of view only. Let us move ahead to the analysis of impartiality and independence from a particular point of view, i.e., in relation to a specific dispute.

I. Particular view of impartiality and independence of entities: impartiality and independence of a specific Consumer ADR entity when dealing with a particular dispute Regarding a Consumer ADR entity that is currently managing an ADR procedure, if one of the parties has concerns regarding impartiality or independence of the entity, Article 9(2)(a) of the Directive would allow that party to withdraw from the procedure, as long as that procedure aims at proposing a solution. But what can be done to address doubts on impartiality and independence of an entity that is managing a dispute through another type of ADR procedure (namely, a procedure aiming at imposing a solution, such as an arbitration procedure)? Recalling the example I mentioned above, what could be done in cases such as the one of the “European Association of Law and Equity Arbitration”, where such an Association was to administer arbitration proceedings when it had previously worked for one of the parties and had been the author of the challenged arbitration clauses? Enrique Vallines García

97

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

In truth, no answer can be found in the Directive to this question and, therefore, this is one of the fields that remains well open for national laws to enhance the system. I would suggest that an obligation to disclose any circumstances potentially putting at risk impartiality or independence should be imposed on Consumer ADR entities (which would be a duty similar to the one foreseen for natural persons in Article 6(1)(e) of the Directive); and that the entities should make such disclosure, of course, to the parties, who then ought to enjoy the right to withdraw from the proceedings. Besides, if those circumstances had not been disclosed but the parties had become aware of them anyway, a possibility of challenging the entity should be established. As to what procedure the challenge must follow, I would dare give some ideas: 1) at the first stage, the entity should enjoy the possibility of explaining itself, by either confirming or denying impartiality and independence concerns; 2) if it confirms that the circumstances exist and that they may affect impartiality or independence, then the parties should be free to withdraw from the ADR proceedings (certainly, we would be in the same scenario of a disclosure made of the entity’s own motion to the parties); 3) but should the entity deny the truthfulness of the circumstances or simply deny that they affect its impartiality and independence, national laws should choose between (i) also applying the right of withdrawal (which would make more sense when the parties entered the procedure voluntarily and the outcome is not to be binding) or (ii) refer the final decision on the challenge to an independent body.

II. Particular view of impartiality and independence of natural persons: impartiality and independence of a specific natural person when dealing with a particular dispute 1. Duty to disclose circumstances affecting impartiality and independence of natural persons; procedure and consequences

In respect of natural persons appointed to handle specific ADR proceedings, Article 6(1)(e) of the Directive creates a duty to disclose to the entity “any circumstances that may, or may be seen to, affect their independence and impartiality or give rise to a conflict of interest with either party to the dispute they are asked to resolve”. Examples of those “circumstances” (“legitimate doubts” or “legitimate reasons”, in the ECtHR’s words) can be found in recital 34 of the Directive’s preamble: – “Financial interests, direct or indirect, in the outcome of the ADR procedure, or – Personal or business relationships with one or more of the parties during the three years prior to assuming the post; 98

Enrique Vallines García

© sellier european law publishers www.sellier.de

Impartiality and Independence of the Persons Entrusted with Consumer ADR

– Or any capacity other than for the purposes of ADR in which the person concerned has acted for one or more of the parties, for a professional organisation or a business association of which one of the parties is a member or for any other member thereof.” Under the strict wording of the Directive, the natural persons in charge of ADR proceedings must only disclose those circumstances to the entity for which he or she is working, but not to the parties or, at least, not yet to the parties. This first disclosure to the entity only is perhaps based on the view whereby the entity is ultimately responsible for the proceedings (because, as I pointed out above, under Article 2(1) of the Directive, it is “an ADR entity which proposes or imposes a solution or brings the parties together with the aim of facilitating an amicable solution”) and natural persons conducting ADR proceedings are just employees of the entity; therefore, any problems limiting the ability of an employee (i.e., of a natural person conducting ADR proceedings) to do his / her job properly must be made known to the employer (i.e., to the entity) in the first place. Anyway, once the natural person has disclosed the circumstances affecting impartiality or independence to the Consumer ADR entity for which he or she is working, what should be done next? Article 6(2) of the Directive states that, “in the case of circumstances” affecting (or potentially affecting) impartiality or independence, the entity must put in place a procedure leading to one of the following three consequences (that I have already mentioned before, when dealing with the general requirements of impartiality and independence of entities): (a) replacement of the natural person concerned; or, failing that, (b) substitution of the entity for another entity; or, eventually, (c) continuing ADR proceedings under the same entity and the same natural person, provided that the parties have not objected. It should be noted that the Directive uses the expression “in the case of circumstances …”, rather than “in the case of the disclosure of circumstances …”. This seems to mean that, once disclosure to the entity has been made by the natural person appointed for the ADR proceedings, the entity shall assess whether or not the revealed circumstances are really of those “that may, or may be seen to, affect independence and impartiality or give rise to a conflict of interest”. If the entity finds that, indeed, those circumstances put independence and impartiality at risk, we will be in the case of Article 6(2), i.e., “in the case of circumstances”. And then the procedure to achieve one of the three said consequences should be opened. I believe, in such a case, the parties must be informed of the disclosed circumstances and, at least, be given the opportunity to express their own views before any decision is taken. But, what happens if the entity, to which the circumstances have been disclosed, assesses that there are no potential risks whatsoever to the impartiality or independence of the natural person conducting the ADR proceedings, and therefore, despite the disclosure, we would not be within the scope of Article Enrique Vallines García

99

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

6(2) (since we would not be “in the case of circumstances”, but just “in the case of the disclosure of circumstances”)? In truth, there is no clear answer to this question in the wording of the Directive. If Article 6(2) was to be interpreted literally, in such cases the entity would be complying with the Directive’s rules if it just provides for the continuation of the ADR proceedings without informing the parties about the circumstances that have been disclosed (so that both the act of disclosure and its content will be kept secret from the parties). In my opinion, though, this interpretation is not acceptable. I believe that fairness requires that the disclosure should also be made to the parties, because no dispute resolution procedure should be regarded as ‘fair’ if the natural person entrusted has expressed doubts over his / her own impartiality and independence, and those doubts have been hidden to those potentially affected by the outcome of the procedure. It should not be forgotten that, despite the Consumer ADR entity appearance of being ultimately legally responsible for the proceedings under Article 2(1) of the Directive, in practice it is the natural person in charge of the dispute who conducts the proceedings to its very outcome: that natural person is the one actually making the efforts to bring the parties together with the aim of facilitating an amicable solution; the one really building the proposals for dispute resolution; or, eventually, the one truly making the decision that is to be imposed on the parties. This is why, at this point, national legislators can step in to enhance the Directive’s provisions, by demanding a duty of disclosure to both the entity and the parties and by establishing that the procedure referred to in Article 6(2) of the Directive (the procedure leading either to the replacement of the natural person affected, the substitution of the Consumer ADR entity or the follow-up of proceedings with the parties’ consent) will apply “in the case of the disclosure of circumstances” (not only “in the case of circumstances”).

2. Do parties have a right to challenge the natural persons entrusted with ADR?

Finally, there is still one issue to discuss and that is if the parties in dispute are entitled to challenge the impartiality and independence of the natural person entrusted with the ADR procedure. Obviously, this issue may not be very relevant when the natural person has disclosed circumstances potentially affecting his / her own impartiality or independence. In that case we would apply the provisions of Article 6(1)(e) and Article 6(2). But, what if those circumstances have come to the parties’ knowledge and the affected natural person has not disclosed them at all? In my view, the Directive allows the challenge and, therefore, national laws implementing the Directive should also allow it. 100

Enrique Vallines García

© sellier european law publishers www.sellier.de

Impartiality and Independence of the Persons Entrusted with Consumer ADR

Indeed, an analogy with Article 6(1)(e) and Article 6(2) demands that the party willing to challenge the natural person may inform the Consumer ADR entity of the particular circumstances raising concerns over impartiality and independence (what could be regarded as a ‘disclosure’ too, but in this case coming from the parties and not from the natural person affected). Then, the entity will have to proceed in the same manner as if the disclosure of the circumstances would have been made by the natural person affected. Of course, the possibility of challenging natural persons in charge of ADR proceedings overlaps with the right of withdrawal foreseen in Article 9(2)(a) only within procedures aimed at a proposed solution (but not within other types of ADR procedures). That is why when the procedure is to end with just a proposal, the party that has become aware of circumstances affecting the impartiality or independence of the ADR ‘conductor’ may opt for a withdrawal, rather than for a challenge.

E. Conclusions As a final remark, it should be emphasized that the new Consumer ADR Directive shows that great efforts have been made in order to ensure the independence and impartiality of Consumer ADR schemes. However, there is still work to be done by national legislators in order to fully guarantee the independence and impartiality of both Consumer ADR entities and natural persons entrusted with ADR proceedings. Particularly, as I have stated above, in my opinion: – National laws implementing Article 6(1)(a) of the Directive should make clear what is actually meant by “necessary knowledge and skills in the field of alternative or judicial resolution of consumer disputes” and “general understanding of the law”. – National laws implementing Article 6(1)(b) of the Directive should determine the minimum period that can be regarded as of “sufficient duration to ensure the independence of their actions”; and they should also define what types of “just causes” can lead to the removal of natural persons in charge of ADR proceedings. – It is desirable that national laws implementing Article 6(1)(c) state that natural persons in charge of ADR proceedings are not subject to any instructions at all, no matter if those instructions come from either party, from the parties’ representatives, from the ADR entity or from any other person or body. – National laws should clearly confer investigation powers to the competent authorities, so that they can properly monitor Consumer ADR entities. – National laws should clearly regulate the rights of citizens, consumer organizations or business associations as to how they can apply for the exclusion

Enrique Vallines García

101

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

–

–

–

–

of a Consumer ADR entity from the list referred to in Article 20(2) of the Directive. National laws should establish on each Consumer ADR entity a duty to disclose to the parties any circumstances potentially affecting its impartiality or independence, so that if such a disclosure happens, the parties shall be entitled to withdraw from the proceedings. National laws should explicitly confer on the parties a right to challenge the Consumer ADR entity that is managing the dispute, due to its lack of impartiality and independence, they should also regulate the procedure and the consequences that must follow that challenge. National laws should also establish that the disclosure of circumstances referred to in Article 6(1)(e) of the Directive (i.e., circumstances affecting impartiality or independence of the natural person in charge of proceedings) must be made to both the entity and the parties in dispute, as well as that the procedure referred to in Article 6(2) of the Directive will apply “in the case of the disclosure” (not only “in the case of circumstances”). National laws should clarify that it is also possible for the parties to challenge natural persons conducting ADR proceedings on grounds of impartiality and independence concerns, and they should also foresee what procedures and consequences are to follow the challenge.

102

Enrique Vallines García

© sellier european law publishers www.sellier.de

The Role of ADR Institutions: Mere Secretariat or Supervisory Body – Lessons Learned from Institutional Arbitration Nathalie Hofmann*

When asked to hold a presentation at the workshop on Consumer ADR and the Administration of Justice that took place on November 22, 2013 at the Universidad Complutense de Madrid, I was first doubtful whether my previous research, which focused on commercial arbitration rather than ADR methods like mediation, conciliation and the like, would be of much benefit in preparing the symposium. However, when studying the text of the directive 2013 / 11 / EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes (hereinafter “ADR Directive” or the “Directive”),1 I soon realized that the fields of consumer ADR and arbitration are not as distinct as it first appeared. In fact, arbitration is not clearly excluded from the scope of the ADR Directive (infra at A). Moreover, like institutional commercial arbitration, consumer ADR as envisaged by the Directive involves several actors: the trader, the consumer, the ADR entity and the “persons in charge with ADR.” This multiparty situation raises complex issues concerning contractual relationships and obligations. While academic debate contemplates similar questions in the context of institutional arbitration, the text of the ADR Directive and corresponding scholarly discussions as of yet appear to overlook these concerns (infra at B).

A. Setting the scene: arbitration in the context of the ADR Directive This contribution intends to highlight some issues under the ADR Directive related specifically to the role of institutions – or in the terms of the Directive “ADR entities” – by drawing both parallels and differences between arbitration, as a very specific ADR mechanism, and other ADR procedures.

*

1

Nathalie Hofmann is a doctoral candidate at the European University Viadrina, Frankfurt (Oder), Germany. Her thesis project focuses on institutional arbitration. O.J. 2013 L 165 / 63, available at http: // eur-lex.europa.eu / LexUriServ / LexUriServ. do?uri=OJ:L:2013:165:0063:0079:EN:PDF (last accessed 30.01.2014).

103

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

I. Arbitration as a form of ADR Already at this point, some may be inclined to intervene. Is arbitration an ADR procedure? Alternative Dispute Resolution? Or is it more comparable to litigation – a clearly regulated, compulsory procedure following legal provisions and fixed rules and leading to a binding and enforceable decision – with the only difference that the judges are private persons not mandated by the state? If viewed from this perspective, arbitration really does not seem to fit in with other ADR mechanisms. Conciliation or mediation seeks to bring the parties together to find an amicable solution with the help of a third party who may make a non-binding proposal.2 An adjudication decision, although it imposes a solution, is not legally binding, but only contractually, because the decision of the adjudicator can be fully reviewed by a court if a party is unhappy with the result.3 In contrast, arbitral awards are binding, final and enforceable through state authorities, similar to judgments.4 However, if one understands the “A” in ADR to stand for alternative – rather than amicable, one may daringly suggest that arbitration is the only true form of ADR. Because arbitration is the only one of the dispute resolution methods mentioned which parties choose in the alternative – not cumulatively or prior to – state court litigation. Once parties have agreed on arbitration, they are bound by such an agreement. The fact that the result of arbitration is a binding, legally enforceable award with a very limited reviewability makes arbitration highly effective.

II. The obstacles to consumer arbitration However, the same fact also makes arbitration prone to criticism in the context of consumer disputes. In particular, the fundamental rights to an effective remedy and to a fair trial as laid down in Art. 47 of the European Union’s Charter of Fundamental Rights are at risk. For disputes among businesspersons, party autonomy and contract justify the effect of an arbitration agreement to oust the jurisdiction of state courts. In a dispute involving a consumer, the argument of party autonomy is less convincing: Given the general presumption of an imbalance of negotiating power on the B2C level, on which EU consumer protection 2

3 4

See Liatowitsch / Menz, Chapter 13: Alternative Dispute Resolution, in: Geisinger / Voser (eds.), International Arbitration in Switzerland: A Handbook for Practitioners, 2nd ed 2013, pp. 311 et seq. (at 313). See also ibid, p. 315: “The difference between mediation and conciliation is fluid.” Ibid, p. 317. However, at the symposium in Madrid, Christof Berlin rightly stressed the unhelpfulness of labelling different ADR methods and suggested a more descriptive approach.

104

Nathalie Hofmann

© sellier european law publishers www.sellier.de

The Role of ADR Institutions: Mere Secretariat or Supervisory Body

legislation is based, a consumer’s declaration to waive aspects of the right to a fair trial may be ineffective. Accordingly, the European Court of Justice (hereinafter “ECJ”) held in the Mostaza5 and Asturcom6 decisions that national courts controlling arbitral awards in setting aside or enforcement proceedings have to review sua sponte whether an arbitration clause in a contract is an unfair term pursuant to the Unfair Terms Directive.7 This applies even if the consumer failed to raise this point during the arbitration proceedings or even failed to file a motion to annul the award. According to the ECJ, the provisions of the Unfair Terms Directive have the rank of public policy.8 While the ECJ has not explicitly decided this question, a common conclusion drawn from this case law is that pre-dispute arbitration clauses providing for a final resolution of the dispute by an arbitration tribunal without recourse to state courts are ineffective in consumer contracts, whether the member state’s law deems such clauses illegal or consumer disputes non-arbitrable in general. Even if one would not go so far to declare such agreements invalid, the ECJ’s demands for a complete state court review of the questions regarding unfair terms make arbitration with EU based consumers unattractive.9

III. Consequences for the interpretation of the ADR Directive The ADR Directive does not define ADR and neither expressly includes nor excludes arbitration from its scope. Nor does it take a clear position on the admissibility of pre-dispute arbitration agreements in a consumer contract context. Taking a closer look however – although this finding may be surprising at a first glance – the Directive encompasses consumer arbitration if the following two prerequisites are met: – The member state’s law allows consumer ADR entities to “impose” a solution.10

5

6

7

8 9

10

ECJ [2006] ECR I-10421 (C-168 / 05, Elisa María Mostaza Claro v Centro Móvil Milenium SL). ECJ [2009] ECR I-9579 (C-40 / 08, Asturcom Telecomunicaciones SL v Cristina Rodríguez Nogueira). Council Directive 93 / 13 / EEC of 5 April 1993 on unfair terms in consumer contracts, O. J. 1994, L 095 / 29, available at http: // eur-lex.europa.eu / LexUriServ / LexUriServ.do?uri=CELEX:31993L0013:EN:HTML (last accessed 30.01.2014). Ibid., para. 52. Graf / Appleton, ECJ Case C 40 / 08 Asturcom – EU Unfair Terms Law Confi rmed as a Matter of Public Policy, (2010) 28 ASA Bulletin 413, 418. See Art. 2 (4) of the ADR Directive.

Nathalie Hofmann

105

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

– The consumer agreed to arbitration after the dispute has arisen and after he has been informed about the binding character of the award.11 Regrettably, Art. 10 (2) of the Directive is rather vague with respect to the “binding nature” of the decision. For example, a solution imposed by adjudication is also contractually binding unless and until it is overturned by a state court. However, Art. 10 (1) quite clearly appears to allow at least post-dispute arbitration agreements and encompasses these by the Directive’s scope.

B. The role of institutions: commercial arbitration and consumer ADR compared The aspects I will highlight in the following therefore concern both arbitration institutions and other ADR entities, including mediation, conciliation and adjudication centers. I would like to address three points: – What is meant by “ADR entity” and “persons in charge with ADR” under the Directive? – What is the relationship between the parties in dispute, the ADR entity and the persons in charge with ADR? – What is the status of ADR rules and the basis of the ADR entity’s right to refuse a case?

I. What is an ADR entity? Art. 4 (1) (h) of the Directive defines “ADR entity” as “any entity, however named or referred to, which is established on a durable basis and offers the resolution of a dispute through an ADR procedure and that is listed in accordance with Article 20 (2) (emphasis added).”

1. What is an arbitral institution and what does it do?

At first, the term “resolution of the dispute” in this definition of an ADR entity under the Directive could cause some irritation to those familiar with arbitration theory and practice. There, it is usually distinguished between the arbitral tribunal, who resolves – or rather decides – the dispute, and the arbitral institution who administers the arbitration procedure.12 For some arbitral institutions, 11 12

See Art. 10 (1) and (2) of the ADR Directive. See e.g. Blanke, Institutional versus Ad Hoc Arbitration: A European Perspective, (2008) 9 no. 2 ERA Forum 275 et seq. (at 276) (remarking that despite the “termi-

106

Nathalie Hofmann

© sellier european law publishers www.sellier.de

The Role of ADR Institutions: Mere Secretariat or Supervisory Body

administration of the procedure only encompasses secretarial and supporting tasks, like the nomination of the arbitrator in default of a party or both parties, the keeping of files, the forwarding of correspondence between the parties and the arbitral tribunal and the processing of advances and fees.13 This applies for example to the German Arbitration Institution (Deutsche Institution für Schiedsgerichtsbarkeit, DIS). While the DIS secretariat receives copies of all correspondence in the case file, its staff does not influence the outcome of the case at all. Other institutions, the ICC Court is here the prime example, exercise a greater control on the decision making process. Not only does the ICC Court insist on formally confirming those arbitrators which the parties have mutually agreed on, thus incidentally reserving a right to refuse their appointment,14 it also scrutinizes all awards with respect to form, reserving the right to draw the tribunal’s attention to points of substance. No award can be issued by an ICC arbitral tribunal without prior scrutiny of the ICC Court.15 Despite these broad powers, even the ICC Court constantly stresses – and French courts follow that reasoning – that its functions are purely administrative, non-judicial, and that it is up to the arbitral tribunal to resolve or decide the dispute.16 The distinction between arbitral institution and arbitral tribunal is therefore crucial for the understanding and application of arbitration law. Nevertheless, courts often fail to pay attention to this difference linguistically, speaking of “permanent arbitral tribunals” when meaning arbitral institutions.17 Both in ad hoc arbitration and

13

14

15 16

17

nology that reflects a somewhat litigious heritage, neither the ICC Court nor the LCIA Court are courts in the archetypical sense”). See Wolf, Die Institutionelle Handelsschiedsgerichtsbarkeit, 1992, pp. 36 et seq. (§ 4) (developing a model of a typical arbitration institution). See Art. 11 (4) and 13 of the Arbitration Rules of the ICC International Court of Arbitration, ICC publication No 850 E, in force as of January 1, 2012, available at http: // www.iccwbo.org / Products-and-Services / Arbitration-and-ADR / Arbitration / Rules-of-arbitration / Download-ICC-Rules-of-Arbitration / ICC-Rules-of-Arbitration-in-several-languages / (last accessed 30.01.2014) (hereinafter “2012 ICC Rules”). Art. 33 of the 2012 ICC Rules. See e.g. Cour de Cassation (Cass.), 15.07.1994, Revue de l‘Arbitrage (Rev. Arb.) 1987, 479 et seq. (at 480) (Société Opinter France v. S.a.r.l. Dacomex). See e.g. Bundesgerichtshof (BGH), 02.12.1982, Neue Juristische Wochenzeitschrift (NJW) 1983, 1267 et seq. (at 1268): “ständiges Schiedsgericht” [permanent arbitral tribunal], French translation published in Rev. Arb. 1983, 353, English excerpts available at [1990] XV Y.B. Comm. Arb. 660; see also Bundesgericht (Tribunal Fédéral, TF), 25.10.2010, 4 A 279 / 2010 (X Holding AG, X Management S.A., A & B v. Y Investments N.V.) (at consid. 3) (confusingly employing the German term “Schiedsgericht,” meaning arbitral tribunal, instead of “Schiedsinstitution” when discussing which arbitral institution was designated by an ambiguous arbitration clause).

Nathalie Hofmann

107

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

in institutional arbitration the arbitral tribunal, who decides the dispute, is set up after the dispute has arisen and only for that single dispute. An arbitral tribunal is thus never “permanent”. The decisive distinguishing factor between ad-hoc and institutional arbitration is that an institution supports the latter and supervises the proceedings to a lesser or greater degree.

2. Comparing arbitral institutions to ADR entities under the Directive

If one employed this understanding to consumer ADR under the Directive, the resolution of the dispute should be up to the “persons entrusted with ADR”, not defined by the Directive but mentioned in Art. 6, and not up to the “ADR entity.” Yet, the Directive implies that the ADR entity is not different from but rather composed of the “natural persons entrusted with ADR”. This finding is also supported by Art. 6 (1) (e) at the end and (2), which relate to ADR entities consisting of only one natural person, obviously considered identical with the person resolving the dispute.

II. Relationship between ADR entity, the persons entrusted with ADR, and the parties The finding that under the Directive, the natural persons entrusted with ADR are deemed to compose the ADR entity means that these persons are the ADR entity’s staff or members. The relationship between the ADR entity as a whole and a person entrusted with ADR is therefore comparable to a membership or an employment contract meaning a contract which – is concluded for a longer period of time18 – imposes reporting duties on the persons entrusted with ADR towards the ADR entity19 and – gives the ADR entity a right to instruct the persons resolving the dispute. While the Directive stresses the need for impartiality and independence of the persons entrusted with ADR towards the parties and independence from the trader in particular,20 the ADR Directive neither explicitly nor implicitly requires them to be independent from the ADR entity or even from the member state.

18 19 20

See Art. 6 (1) (b) of the ADR Directive. See Art. 6 (1) (e) of the ADR Directive. See Art. 6 of the ADR Directive, cf. also the contribution by Enrique Vallines to this symposium.

108

Nathalie Hofmann

© sellier european law publishers www.sellier.de

The Role of ADR Institutions: Mere Secretariat or Supervisory Body 1. Relationship of arbitrators to the arbitral institution

This contrasts considerably with the status of arbitrators in institutional commercial arbitration. Even though arbitration institutions exercise control over arbitrators – by appointing or confirming them, deciding on challenges and replacements – leading institutions proclaim that the arbitrators deciding the dispute are largely independent from the institution administering the arbitration. That parties are free to select arbitrators not listed by the institution – many institutions do not maintain official lists at all – is an expression of this independence.21 Therefore, arbitration specialists sometimes even doubt that there are contractual relations between the institution and the arbitrators at all. Those acknowledging a contract concede that this contract only exists from the time of appointment for the duration of the arbitration, but not for longer.22

2. In contrast: dependence of the persons entrusted with ADR from the ADR entity

The ADR Directive is taking a different approach because it was mainly the recognition of the principle of party autonomy that has led to the prerequisite of independence of arbitrators from appointing institutions. However, in a consumer contract context, any praise of the principle of party autonomy necessarily fades if one keeps the presumably weaker negotiating power of the consumer in mind. Control, certainty and foreseeability are more important for consumer protection than flexibility. Accordingly, there has to be a long-term relationship between the ADR entity and the persons entrusted with ADR to ensure their qualification and independence in particular from the trader.

21

22

See Brower / Rosenberg, The Death of the Two-Headed Nightingale: Why the Paulsson-van den Berg Presumption that Party-Appointed Arbitrators are Untrustworthy is Wrongheaded, (2013) 29 Arbitration International (Arb. Int’l.) 7 at seq. (at 13): “None of the major international arbitration institutions […] requires that arbitrators be appointed from a closed list.” Of course, exceptions persist. E.g. the Court of Arbitration attached to the Chamber of Commerce and Industry of the Romania (CCIR) still maintains mandatory arbitrator lists, see Art. 18 and 20 of the CCIR Rules, English translation available at http: // arbitration.ccir.ro / engleza / rules.htm (last accessed 30.01.2014); contrary to Art. 618 of the Romanian Code of Civil Procedure expressly banning mandatory lists. See generally Fouchard, Relationships between the Arbitrator and the Parties and the Arbitral Institution, (1995) ICC Bulletin Special Supplement (ICC Bull. Supp.), pp. 12 et seq. (at 21-22, para. 33-34) (with further references).

Nathalie Hofmann

109

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR 3. Consequences for the relationship between the parties and the ADR entity

A consequence of the fact that the natural persons entrusted with ADR are the ADR entity’s staff or members is that the parties to ADR do not enter into a direct contractual relationship with them. Rather, the ADR entity undertakes to resolve the dispute through its personnel. This raises the question whether the trader and the consumer enter into a contract with the ADR entity when approaching such an entity to resolve their dispute. a) The contractual relationships in institutional arbitration In arbitration doctrine, it is widely accepted that the parties enter into a contract with the administering institution, called an administration or organization contract.23 This contract is in my opinion – although other qualifications have been proposed –24 essentially a contract for services. The arbitral institution undertakes to administer the arbitration under its rules;25 the parties agree to pay administrative fees. This contract is separate from the contract concluded with the arbitrators (arbitrator contract) and from the arbitration agreement between the parties to arbitration. With respect to the arbitrator contract, the view prevails that institutions appointing arbitrators act on behalf of the parties. The arbitrator contract is therefore a contract between the arbitrating parties and the arbitrator.26 This theory has the advantage of assimilating the contractual model 23

24

25

26

See e.g. Wolf, 70, 228 et seq.; Münch, in: Münchener Kommentar zur Zivilprozessordnung, 4th ed. 2013, before § 1034 ZPO, note 70; Lachmann, Handbuch für die Schiedsgerichtspraxis, 3rd ed. 2008, para. 1587, 1723 (“Schiedsorganisationsvertrag”); Wilke, Prozessführung in administrierten internationalen Handelsschiedsverfahren: eine rechtsvergleichende Untersuchung der internationalen Schiedsordnung der AAA sowie der Schiedsordnungen der DIS und der ICC, Augsburg 2005, p. 18, available at http: // opus.bibliothek.uni-augsburg.de / opus4 / frontdoor / index / index / docId / 123 (last accessed 30.01.2014) (“Administrierungsvertrag”); Clay, L’arbitre, 2001, para. 699-700 (“contrat d’organisation”). See e.g. Münch, before § 1034 ZPO, note 70 (contract “sui generis”); cf. also Fouchard, (1995) ICC Bull. Supp. 21 (para. 29), further discussing the idea of an agency contract, but also noting at pp. 15, 16 (paras. 15, 17) that the exercise of classification may seem “a rather pointless operation”. Contra Vogt, Der Schiedsrichtervertrag nach schweizerischem Recht, Zurich 1989, p. 84 (suggesting that the arbitral institution undertakes to provide the parties with an arbitral tribunal against a fee). See e.g. Waincymer, Procedure and evidence in international arbitration, 2012, para. 2.04; Gaillard / Savage, Fouchard, Gaillard, Goldman on International Commercial Arbitration, 1999, para. 1106; Schwab, Schiedsrichterernennung und

110

Nathalie Hofmann

© sellier european law publishers www.sellier.de

The Role of ADR Institutions: Mere Secretariat or Supervisory Body

to that applying to ad hoc arbitration: in both cases, the arbitrator contract is concluded between the parties to the arbitration and the arbitrator. b) Contractual relationships with ADR entities under the Directive? The ideas developed in institutional arbitration doctrine on contractual relationships are not easy to transfer to consumer ADR situations under the Directive. As a first obvious difference, the procedure under the ADR Directive is supposed to be free or the cost should not exceed a nominal fee, although mere gratuity does not yet hinder the assumption of a contractual relationship. A second difference to institutional arbitration in commercial matters, as discussed, is that the persons entrusted with consumer ADR belong to the ADR entity. If any, a contractual relationship could therefore only exist between the parties and the ADR entity but not with the individual natural persons entrusted with ADR. Is there a need to assume any contractual relationship at all? Maybe not if the tasks, obligations, rights and liability of ADR entities were sufficiently regulated by statute. However, the text of the ADR Directive does not exhaustively govern such questions. In particular, according to the Directive, ADR entities are allowed and supposed to publish ADR rules. Like arbitration rules, such rules do not have the force of law.27 The only explanation why the parties should be bound to follow these rules is therefore contract, even though the qualification of such a contract is difficult. Member states implementing the Directive should consider whether questions of conclusion of such a contract, minimum standards and liability should be regulated in detail in the implementing legislative act. For the field of commercial arbitration, most jurisdictions have not

27

Schiedsrichtervertrag, in: Lüke / Jauernig (eds.), Festschrift für Gerhard Schiedermair zum 70. Geburtstag, 1976, pp. 499 et seq. (at 508); Schwab / Walter, Schiedsgerichtsbarkeit, 7th ed. 2005, chap. 11, notes 3-5; but see Hausmaninger, Rights and Obligations of the Arbitrator with Regard to the Parties and the Arbitral Institution: A Civil Law Viewpoint, (1995) ICC Bull. Supp. 36 et seq. (at 37); Schäfer, Die Verträge zur Durchführung des Schiedsverfahrens, 2010, vol. 1, pp. 204, 383; Vogt, 82; Schlosser, in: Stein / Jonas, Kommentar zur Zivilprozessordnung, 22nd ed. 2002, § 1025 ZPO, note 7; Saenger, Handkommentar zur Zivilprozessordnung, 5th ed. 2013, before § 1025 ZPO, note 11 (all suggesting that the institution rather than the parties to arbitration enters into a contract with the arbitrator); distinguishing between different institutions and appointment rules: Münch, before § 1034 ZPO, note 70; Onyema, International Commercial Arbitration and the Arbitrator’s Contract, 2010, 93-100 (contemplating up to five different scenarios). See e.g. Blackaby et al., Redfern and Hunter on international arbitration, 5th ed. 2009, para. 3.48; left open by BGH, 14.04.1988, BGHZ 104, 178 = NJW 1988, 3090 et seq. (at 3091) (finding the ICC Rules to be either foreign law or foreign standard business terms).

Nathalie Hofmann

111

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

enacted such provisions. In fact, most arbitration laws are entirely silent with respect to the arbitrator contract, the contract with the arbitration institution and institutional arbitration in general. This shortcoming has entailed a lot of uncertainty in particular with respect to the problem if a discontent party could successfully sue the administering institution.28 Given the silence of the ADR Directive on the question of liability of ADR entities, the member states are in principle free to address this issue, as long as the consumer’s access to complaint handling by ADR entities is not significantly impaired.

III. The status of ADR rules and the basis of the ADR entity’s right to refuse a case An important question is also if arbitration institutions or ADR entities should be under an obligation to contract – in German: “Kontrahierungszwang.” Art. 5 (4) of the ADR Directive entertains the idea that ADR entities need to have good reasons to refuse a case and need to provide for these reasons in their ADR rules. The ADR Directive thus gives a general right to access to ADR which can only be restricted on valid grounds.

1. The debate of arbitration institutions’ right to refuse cases

This calls to recall an ongoing discussion in arbitration doctrine on whether arbitration institutions have to accept and administer all cases filed with them under their rules. The basis for this discussion are the different contract conclusion theories: Some assume that already the publication of arbitration rules is an offer to administer arbitrations, which the parties can accept by concluding arbitration agreements referring to these rules29 or at least by filing 28

29

Actions against arbitral institution are a rare phenomenon but not unheard of, see e.g. Cour d’appel (CA) de Paris, 15.09.1998, Rev. Arb. 199, 103 (Cubic Defense Systems v. ICC), acknowledging the general possibility of contractual liability of the ICC (at 111); see also CA Paris, 22.01.2009, Rev. Arb. 2010, 314 et seq. (SNF SAS v. ICC), doubting the validity of the exclusion of liability clause in the 1998 ICC Rules (at 318, 319). The institution is deemed to have waived the requirement of notice of acceptance, for German law cf. § 151 BGB, see Schlosser, before § 1025 ZPO, note 12; Lionnet / Lionnet, Handbuch der internationalen und nationalen Schiedsgerichtsbarkeit, 3rd ed 2005, para. 197 (arguing that this solution applies also under other laws); for French law cf. the references by Jarrosson, Le rôle respectif de l’institution, de l’arbitre et des parties dans l’instance arbitrale, Rev. Arb. 1990, 386 et seq. (at 387); see also Ditchev, Le ‘contrat d’arbitrage’: essai sur le contrat ayant pour objet la mission d’arbitrer, Rev. Arb.1981, 397 et seq. (at 398) (but distinguishing for

112

Nathalie Hofmann

© sellier european law publishers www.sellier.de

The Role of ADR Institutions: Mere Secretariat or Supervisory Body

a request for arbitration.30 The consequence is that in normal circumstances the arbitration institution would already be bound by a contract at that stage without a possibility to refuse. Others follow a different contract conclusion approach: The publication of arbitration rules is seen as an invitation to treat and the request for arbitration as the offer by the parties, the claimant thereby acting on behalf of the respondent,31 which the institution may either accept or not.32 An obligation to contract – Kontrahierungszwang – is generally rejected by those following the latter view. Apparently, there is no right to access to arbitration.33 Under all views, it is widely acknowledged that institutions are free to reject the administration of cases if parties agreed on material alterations of the institution’s arbitration rules.34 In commercial arbitration theory, the consequences of an institutional refusal to administer the case are unclear. The arbitration agreement may either become incapable of being performed, reopening the door to state court litigation, or the parties may be obliged to arbitrate ad hoc or before another institution willing to take the case. A reason why this question is yet unsettled is that most national arbitration laws do not address the consequences of institutional refusal.35

30 31

32

33 34

35

the Zurich Chamber of Commerce between arbitrations introduced by members and non-members); but see Kuckenburg, Vertragliche Beziehungen zwischen ICC, Parteien und Schiedsrichter, in: Bredow (ed.), Status, Aufgaben, Rechte und Pfl ichten des Schiedsrichters, DIS-Materialien 1997, pp. 78 et seq. (at 83) (arguing that French law differs in this respect from German law). See Jarrosson, Rev. Arb. 1990, 387; Kuckenburg, DIS-Materialien 1997, 82-84. Contra only Schöldström, The Arbitrator’s Mandate: A Comparative Study of Relationships in Commercial Arbitration under the Laws of England, Germany, Sweden and Switzerland, 1998, pp. 200, 401 (rejecting the prevailing agency reasoning as too complicated). See Waincymer, para. 3.14.1 (with further references); Rüßmann, Zwingendes Recht in den Schiedsregeln einer Schiedsinstitution?, in: Bruns et al. (eds.), Festschrift für Rolf Stürner zum 70. Geburtstag, 2013, 482 et seq. (at 485). Ibid. p. 488. Ibid.; some arbitration rules provide so explicitly, cf. e.g. Art. 7 (6) of the Rules of the Vienna International Arbitration Centre (VIAC): “The Board may refuse to administer the proceedings if the arbitration agreement deviates fundamentally from and is incompatible with the Vienna Rules.” But see Art. 621 of the Romanian Code of Civil Procedure, in force since February 2013, providing that the arbitration agreement remains valid as an ad hoc arbitration agreement.

Nathalie Hofmann

113

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR 2. Consequences for the implementation of the ADR Directive

In light of these unsettled controversies in arbitration doctrine, member states are advised to enact an obligation to contract for ADR entities explicitly in order to effectively implement the Directive. The grounds for refusal listed in Art. 5 (4) of the ADR Directive should be formulated as exceptions to such general obligation to contract. In addition, one may also want to consider whether ADR entities should be allowed to refuse cases when parties want to deviate from the entity’s ADR rules. At first glance it is surprising that a deviation from the ADR Entity’s rules is not among the possible reasons for refusal listed in Art. 5 (4) of the ADR Directive.36 However, the fact that such a reason for refusal is missing can easily be explained by the unlikeliness of such a situation. While commercial arbitration parties, often more or less well-informed businesspersons at first glance, may be inclined to agree on derogations to arbitration rules, a consumer would not likely understand this idea. If an ADR entity justifiably refuses to take a case, the consumer is allowed, but not obliged to turn to another entity, but “a Member State shall not be required to ensure” the availability of such other entity.37

C. Conclusions The ADR Directive requires ADR entities to control the proceedings. Unlike commercial arbitration institutions, they are directly responsible for the resolution of the dispute and not only for administrative, secretarial tasks. Different from commercial arbitrators, the “natural persons entrusted with ADR” are in a long-term contractual relationship with the ADR institution, which can be a membership or an employment contract. They are not independent from the ADR entity, but rather, they compose it. When introducing ADR proceedings a contract-like relationship is established between the ADR seekers – i.e. the consumer and the trader – on the one hand, and the ADR entity on the other, incorporating the ADR rules. These rules shall give the ADR entity the right to refuse a case only on the grounds provided for by the Directive. The ADR Directive therefore requires member states to enact a – limited – obligation to contract for ADR entities.

36

37

Although one could argue such case to fall under letter (f): “seriously impair the effective operation of the ADR entity.” Art. 5 (6) of the Directive.

114

Nathalie Hofmann

© sellier european law publishers www.sellier.de

Linking ADR Discourses – Nine Lessons learned from Mediation Development for the Implementation of the EU Directive on Consumer ADR Ulla Gläßer A. Introduction The Directive 2013 / 11 / EU of 21 May 2013 on alternative dispute resolution for consumer disputes, amending Regulation (EC) No. 2006 / 2004 and Directive 2009 / 22 / EC (Directive on consumer ADR, short: ADR Directive),1 does not introduce new forms of ADR procedures from scratch, but enters an already lively playing field: For years a considerable number of actors in various EU member states have been offering well-used ADR-procedures specifically for consumer complaints.2 The situation was quite comparable when the Directive 2008 / 52 / EC of 21 May 2008 on certain aspects of mediation in civil and commercial matters (short: Mediation Directive)3 entered into force in 2009. At this point in time, the factual (and partly also normative) establishment of mediation practice had already been going on for decades in many of the member states. One of the main challenges in the formulation of the Mediation Directive was to create a regulatory framework that, on the one hand, left enough space for differing national understandings and practices of the mediation procedure and, on the other hand, was suitable for sufficiently unifying and streamlining national mediation practices in order to fulfil the explicit goal of fostering the use of mediation (not only4) in cross-border conflicts. Structurally, the two directives – despite both regulating “out-of-court procedures” – are following quite different approaches: Whereas the Mediation Directive applies to a specific procedure (mediation5) which can be used for resolving a wide variety of categories of conflicts, the ADR Directive focuses on a

1 2

3 4

5

O.J. 2013 L 165 / 63. Hodges / Benöhr / Creutzfeldt-Banda, Consumer ADR, 2012; Alleweldt et al, Study on the use of Alternative Dispute Resolution in the European Union, 2009. O.J. 2008 L 136 / 3. The Mediation Directive leaves it to the member states to also use the framework of the directive to regulate domestic mediation. The term “mediation” is defined in the Mediation Directive in Article 3 lit. (a).

115

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

specific category of conflict (consumer disputes6) and suggests a broad spectrum of possible procedural approaches7 to deal with this type of conflict (see ADR Directive Article 2 para 1 – and Lesson 4 below). The overall goal of both directives, however, is very similar: Both directives aim at supporting and fostering the further development of the use of out-ofcourt conflict resolution procedures.8 While scholars still speak of the “Hidden World of Consumer ADR”9, mediation – in the last years quite often linked with general reflections on appropriate conflict management in various realms of society10 – has been the subject of extensive scholarly writing for decades. Nevertheless, the vast body of academic literature on mediation has been largely ignored by mainstream legal scholars for a long time.11 Now that the pertinent European regulatory activities have finally directed the interest of classic legal scholars towards the field of ADR, it seems to be high time to remind the new participants in the rapidly developing ADR discourse that there is a lot of pre-existing experience and knowledge to be taken into account in order to not reinvent the wheel.12

6

7

8

9

10

11

12

The term consumer dispute is defined the ADR Directive in Article 2 para 1 and 2 in combination with Article 3 para 1. Therefore, the acronym “ADR” has been deliberately chosen to signify this broad spectrum of possible procedures that reach from the facilitative approach of mediation over the non-binding / “recommending” approach of conciliation to the authoritative approach of imposing binding solutions in arbitration-like procedures. Classic arbitration is often seen as outside of the ADR spectrum due to its high degree of formalization and thus structural similarity to proceedings before a state court of law. See e.g. recital (2), (5) and Article 1 para (1) of the Mediation Directive; O.J. 2008 L 136 / 3 et seq. and recital (4), (5) and Article 1 of the ADR Directive; O.J. 2013 L 165 / 63 et seq. Th is was the title of a conference at Oxford University at October 28, 2011; see the documentation under http: // www.csls.ox.ac.uk / documents / THEHIDDEN WORLDOFCONSUMERADR-conferencenote.pdf. See e.g. Menkel-Meadow, Developments in “A”DR in the United States, Zeitschrift für Konfliktmanagement (ZKM) 2013, 126 et seq. (part 1) and 151 et seq. (part 2). In Germany, for example, mainstream legal scholars who have started to write in the area of ADR lately, still tend to cite only the few articles on the issue which have been published in the classic law journals, while completely ignoring the relevant specialised journals like “Zeitschrift für Konfl iktmanagement” (ZKM), “perspektive mediation” or “Konfl iktdynamik”, which offer articles on all kinds of ADR subtopics in abundance. Of course, due to the limited scope of this article, it is not possible to deliver a comprehensive literature overview; the citation of single publications is to be seen as merely exemplary.

116

Ulla Gläßer

© sellier european law publishers www.sellier.de

Linking ADR Discourses – Nine Lessons learned from Mediation Development

In particular, it may prove helpful to take a closer look at some aspects that have been specifically beneficial or challenging so far in the establishment processes of mediation in general, and in the implementation of the Mediation Directive in particular, in order to extract some lessons which can be transferred to the field of consumer ADR and might be considered in the implementation of the ADR Directive into national laws. For this end, I will propose a catalogue of nine exemplary learnings that can be sorted into the three thematic areas of “Relationship of Procedures” (B.I.), “Clarity of Roles, Procedures and Terminology,” (B.II.) and “Quality Assurance / Quality Development” (B.III.). I will end with a plea for further cross-fertilization of the different ADR discourses (C.).

B. Transferable Learnings from Mediation Development The ADR Directive establishes a number of requirements that ADR procedures for consumer dispute cases shall fulfil: Expertise, independence and impartiality (Article 6), transparency (Article 7), effectiveness (Article 8), fairness (Article 9), liberty (Article 10) and legality (Article 11). Taking a step back from the wording of the directive, from a consumer’s point of view, the attractiveness of new procedures for conflict resolution is presumably guided by the following factors: – the possibility of choosing the best-fitting procedure easily and freely – the availability of the information necessary to execute such an informed choice – the quality of the concrete procedural experience Accordingly, I have chosen lessons from the development of mediation that take these criteria into consideration.

I. Relationship of Procedures The first set of lessons concerns the relationship of different conflict resolution procedures – including classic court procedures. Lesson 1: Conceptualize ADR as “Appropriate Dispute Resolution” In the beginning of the establishment of mediation, there was a certain missionary impetus which tried to advertise mediation as if it was a universal remedy for all ailing grievances in the realm of conflicts. Even though the mediation procedure can indeed be beneficially used to resolve, or at least attenuate, complicated conflict situations, it has become very clear that a “one size fits all” ap-

Ulla Gläßer

117

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

proach to conflict resolution is not helpful at all, but rather incites (unnecessary) resistance against mediation.13 Therefore, the approach has been taken to replace the “Alternative” in ADR – which suggested competition to the traditional court procedures in promoting “a better way”14 – by the attribute “Appropriate”, signifying that different procedures should be seen as complementing each other – with the overall goal of providing for a differentiated spectrum of procedures from which to choose the best fit for each individual case.15 One indispensable precondition for such an individuated procedural choice is a sufficient information base: The specific characteristics, functionalities, strengths and weaknesses of the different procedures have to be known to and analysed by the process providers – in order to communicate them clearly to the (potential) process users. This leads to the second fundamental precondition: Supporting a consumer’s choice of procedure by balanced information requires a certain degree of “procedural altruism”. Process providers have to align their recommendations with the procedural interests16 of the parties in conflict, instead of exclusively marketing the procedure that they happen to have in stock.17 To sum it up, as a basis for all normative and factual implementation of consumer ADR, the relevant actors should adopt the described mindset of an open “process pluralism” in the service of the process users.

13

14

15

16

17

See e.g. Steff ek / Unberath / Genn / Greger / Menkel-Meadow (eds.), Regulating Dispute Resolution – ADR and Access to Justice at the Crossroads, 2013, p. 15; Graf-Schlicker, Die EU-Richtlinie zur Mediation – zum Stand der Umsetzung, Zeitschrift für Konfliktmanagement (ZKM) 2009, 83 et seq. “Isn’t There a Better Way?” was the title of the keynote speech that Chief Justice Burger held at the famous “Pound Conference” of 1976 which was seminal to the U.S. ADR movement. See Menkel-Meadow, Developments in “A”DR in the United States, Zeitschrift für Konfl iktmanagement (ZKM) 2013, 126 et seq.; Gottwald, Alternative Streitbeilegung (Alternative Dispute Resolution, ADR) in Deutschland – Wege, Umwege, Wegzeichen, Familie, Partnerschaft , Recht (FPR) 2004, 163 et seq. See also the seminal article: Goldberg / Sander, Fitting the Forum to the Fuss: A User-Friendly Guide to Selecting an ADR Procedure (1994) 1 / 10 Negotiation Journal 49 et seq. See for the mediation-specific concept of interests in general and procedural interests in particular Gläßer / Kirchhoff, Lehrmodul 2: Interessenermittlung – Spannungsfeld zwischen Präzision und Emotion, Zeitschrift für Konfliktmanagement (ZKM) 2005, 130 et seq. The latter had been a long standing criticism stating that underused mediation providers only wanted to sell their – not yet sufficiently asked for – services, no matter if they were really suitable to benefit the specific confl ict case or not.

118

Ulla Gläßer

© sellier european law publishers www.sellier.de

Linking ADR Discourses – Nine Lessons learned from Mediation Development

Lesson 2: Safeguard the freedom of procedural choice Lesson no. 2 regards the question of how to create incentives to increase the use of new, not yet well-known or not yet widely-used procedures. One means to this end, which was chosen by several legislators to foster mediation, was to make mediation mandatory by law in certain cases.18 A variation of this measure was the systematic inclusion of mediation clauses in standardized framework contracts, sometimes applied to whole industrial sectors, which also served to prevent the parties in conflict to seek redress directly from the state courts. Both measures incited strong criticism as they impair the fundamental right of access to the courts. The critics especially pointed out that over decades, or even centuries, many traditionally disadvantaged groups of society have struggled for the creation of laws to protect structurally weaker parties in certain categories of conflicts (namely in family, labour, and consumer conflicts).19 By taking away the possibility to claim protective rights in a regular legal proceeding and shifting the conflict to a more informal forum, a possible power imbalance between the parties would become more significant (again). The ADR Directive states that “ADR procedures should not be designed to replace court procedures and should not deprive consumers or traders of their rights to seek redress before the courts.”20 Article 10 para 1 of the ADR Directive also states that “[m]ember states shall ensure that an agreement between a consumer and a trader to submit complaints to an ADR entity is not binding on the consumer if it was concluded before the dispute has materialised and if it has the effect of depriving the consumer of his right to bring an action before the courts for the settlement of the dispute.” These two provisions might give the impression that the freedom of procedural choice has been sufficiently taken care of. However, lesson no. 2 remains relevant: As the meta-goal of removing “minor” cases from a clogged court system stands in the background of ADR legislation in many EU member states, governments might nevertheless be seduced into creating measures of “soft coercion”. Also, the wording and the factual effects of standardized ADR clauses

18

19

20

See here only the infamous mandatory mediation approach in custody and visitation disputes in Californian family law. In the implementation of the EU Mediation Directive, Italy had chosen the approach of making at least a first informative session on mediation mandatory for many categories of cases as well. This line of criticism was promoted early on by the US American anthropologist Laura Nader, see Nader, The ADR Explosion – The Implications of Rhetoric in Legal Reform, Windsor Yearbook of Access to Justice 1988, 269 et seq. or Nader, Essays on controlling processes, 1994; specifically for the context of family law see also Grillo, The Mediation Alternative: Process Dangers for Women, Yale Law Journal 1991, 1545 et seq. See ADR Directive, recital 45, O.J. 2013 L 165 / 68.

Ulla Gläßer

119

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

in consumer contracts should be monitored closely both by member state governments and by organisations devoted to consumer protection. Overall, Article 10 para 1 of the ADR Directive should be understood not only as a prohibition of attempts to bar consumer conflicts from state courts, but also as a push for law makers in the EU member states to develop incentives for increasing the voluntary use of ADR procedures. These incentives, of course, should also be directed at boosting (self-)interest in traders’ use of consumer ADR-procedures.21 Lesson 3: Place ADR procedures in the light (not in the shadow) of the law Closely connected to the attitude of seeing mediation as “the better way”, there existed an approach of conducting mediation without taking legal arguments or considerations into account – or even condemning the attempt to introduce legal considerations as counterproductive to finding an amicable solution. This attitude of conducting mediation “in the shadow of the law”22 is prone to produce unsustainable outcomes and has often been mocked as an escape strategy of untalented / failed lawyers – both of which have not served the overall reputation of mediation and mediators well. Although it is surely true that legal positions and arguments are more often than not prone to accelerate escalation of conflict, an appraisal and discussion of the validity of legal claims and rights is nonetheless a natural and legitimate part of each party’s assessment of process risks and procedural BATNAs23 – which can be, in turn, a necessary foundation for a self-determined and sustainable agreement. An open discussion of legal aspects of a case, however, does not necessarily mean that legal criteria have to be decisive for the outcome of a mediation procedure. There are tried and tested methods of confining legal arguments and then returning to other aspects of fairness and interests of the parties as the main criteria for good decision making in mediation.24 Overall, the specific additional values of primarily interest-based conflict resolution should be strongly promoted and utilized in consumer ADR as well 21

22

23 24

Th is approach of setting positive incentives for voluntary use of consumer ADR procedures is also pointed out in recital (49) of the ADR Directive (O.J. 2013 L 165 / 63 et seq.) which states that the directive “should not require the participation of traders in ADR procedures to be binding on traders […] However, in order to ensure that consumers have access to redress […] traders should be encouraged as far as possible to participated in ADR procedures.” See (however with a partly different connotation): Mnookin / Kornhauser, Bargaining in the Shadow of the Law: The Case of Divorce (1979) 88 Yale L.J. 950 et seq. Best Alternative to a Negotiated Agreement. Gläßer, in: Klowait / Gläßer, Mediationsgesetz  – Handkommentar, 2014, 2 § 2 Rn. 263 et seq.

120

Ulla Gläßer

© sellier european law publishers www.sellier.de

Linking ADR Discourses – Nine Lessons learned from Mediation Development

as in mediation.25 The ADR Directive provides scope for such approaches pointing out that “the proposed solution may be different from an outcome determined by a court applying legal rules” (Article 9 para 2 lit. (b) (iii)). Yet, at the same time, consumer ADR should entertain a friendly relationship with the law not only on the macro level (by not barring access to the courts (see lesson 2)) but also on the micro level by inviting “the law” into ADR procedures. There it could take either a specific role predefined by the process providers, or its role could be tailored according to the the individual parties’ wishes.

II. Clarity of Roles, Procedure and Terminology The second set of lessons has been explicated mainly to ensure a sufficient information basis for consumer decision making on the procedural level. Presuming that there will be a choice between different available procedures for consumer conflicts, consumers can only exercise this choice confidently if they have sufficient information and orientation regarding the characteristics of the various available procedures. In addition, clarity of roles, procedures and according terminology is essential for a fruitful relationship of, and discourse on, different dispute resolution procedures. Lesson 4: Transparently define the role of the neutral / third party The role of a mediator has been largely defined by what a mediator must not do: Mediators definitely do not have decision-making power. Within this limit, there is a broad spectrum of mediation styles ranging from purely facilitative approaches focussing on fostering good communication and interest-based orientation, to a much more authoritative and evaluative role – assessing legal claims, commenting on the validity of the parties views and positions and recommending solutions.26 This variety in possible mediator behaviour makes it hard for conflict parties to assess what exactly they would get if they agreed to enter into a mediation. Therefore, it has been strongly recommended that a clear communication on the practiced mediation style should be essential to every informational session clarifying the option of mediating a case.27 25 26

27

See Berlin, Alternative Streitbeilegung in Verbraucherkonfl ikten, 2014. Riskin, Understanding Mediators’ Orientations, Strategies, and Techniques: A Grid for the Perplexed (1996) 1 Harvard Negotiation Law Review 23 et seq.; Riskin, Who Decides What?: Rethinking the Grid of Mediator Orientations (2003) 10 Dispute Resolution Magazine 22 et seq.; Riskin, The New Old Grid and the New New Grid System (2003) 79 Notre Dame Law Review 1 et seq. Breidenbach / Gläßer, Selbstbestimmung und Selbstverantwortung im Spektrum der Mediationsziele, KON:SENS – Zeitschrift für Mediation 1999, 207, 212.

Ulla Gläßer

121

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

This kind of clarification seems even more important in the field of consumer ADR where the ADR Directive explicitly opens up a spectrum of possible roles for neutrals, which includes bringing the parties together with the aim of facilitating an amicable solution, proposing or even imposing a solution (Article 2 para 1). A clear orientation on the kind of intervention to expect from the third party is not only a fundamental precondition for the choice of procedure for the parties to a consumer conflict;28 it also indicates the degree of self-determination and corresponding self-responsibility in the respective procedural role of the parties. Therefore, it should be assured that in rulemaking on the level of EU member states, as well as on the level of individual ADR providers (ADR entities), the role of the neutral in a specific ADR procedure is transparently predefined and clearly communicated (website, brochures etc) as stated in the ADR Directive Article 7 para.1. In addition to that, the individuals (natural persons) who are conducting certain procedures are to be obliged to explain their roles and the implications of those roles to the parties at the outset of a procedure. Lesson 5: Adhere to standards of methodological craftsmanship The notion that mediation is “nothing but blabbering nicely” – maybe aided by the “lubricants” of coffee and cookies29 – has been a widespread preconception. There are even some mediators who are not able or willing to precisely describe the procedural method they are applying, but rather follow the approach of “everything is permitted that helps (to settle the dispute)”. However, there is a clear procedural structure and a vast pool of specific communication methods for conducting mediation procedures in a state of the art way. Mediated conflict resolution and decision making is conducted by leading the parties through a number of distinct phases:30 starting with explanations, rules and agreements on the procedural level (phase 1), exchanging information and setting the agenda (phase 2), eliminating misunderstandings, translating accusations and working out the individual interest profiles of the parties (phase 3), creating and systematically assessing options for possible solutions (phase 4) and ending with drafting and formalizing an agreement (phase 5).31

28 29 30

31

See Article 9 para. 2 lit. (b) and (c) of the ADR Directive. This is referring to a widespread stereotype of court mediation in Germany. See Gläßer, in: Klowait / Gläßer, Mediationsgesetz – Handkommentar, 2014, 2 § 2 Rn. 81 et seq. These phases are to be understood as logical steps designed to be worked through in the given order to ensure systematic, interest-based and exhaustive decision making.

122

Ulla Gläßer

© sellier european law publishers www.sellier.de

Linking ADR Discourses – Nine Lessons learned from Mediation Development

On the level of communication and intervention methodology there is not only the “all-purpose tool” of the omnipresent “loop of understanding”,32 but also a plethora of question techniques33 and creative, often systemic, methods suitable for breaking impasses, changing frozen perspectives and instilling creativity in order to produce more options for possible outcomes.34 Thus, providers of ADR procedures should not only apply the relevant law, but utilize the well-proven structure and the full spectrum of helpful techniques for conflict resolution in order to offer an alternative to court proceedings not only on a formal, but also on a methodological level. Lesson 6: Choose and use commonly accepted procedural terms and definitions In the phase of establishment of court mediation in Germany, the widespread advertising slogan “Schlichten statt Richten” (which translates to “Conciliate rather than judge!”) lead to severe misunderstandings regarding the procedural role of judge mediators – who were, in fact, held neither to judge nor to conciliate (at least not in the form of case evaluations and recommendations). In particular, the terminological fuzziness of the concept of “conciliation”, which often has been used pars pro toto for all kinds of (amicable) ADR procedures, is prone to lead to confusion and / or misconceptions. Looking at the wide spectrum of different possible third party interventions provided for by the ADR Directive (Article 2 para 1), it seems of particular importance to clearly define and consistently use terms that have already, or might develop a distinct recognition value.35 This is important not only for the procedural orientation of laypersons / consumers. It also provides for the necessary connectivity of terms as a basis for further developing the increasingly complex ADR discourse(s). 32

33

34

35

Friedman / Himmelstein, The Loop of Understanding, in: Menkel-Meadow / Porter Love / Kupfer Schneider / Sternlight (eds.), Dispute Resolution: Beyond the Adversial Model, 2005, pp. 335 et seq.; Gläßer, Mediation und Beziehungsgewalt: Möglichkeiten, Bedingungen und Grenzen des Einsatzes von Familienmediation bei Gewalt in Paarbeziehungen, 2008, pp. 101 et seq. Kessen / Troja, § 13 Die Phasen und Schritte der Mediation als Kommunikationsprozess, in: Haft / von Schlieffen (eds.), Handbuch Mediation, 2nd ed., 2009, pp. 307 et seq. Knapp (ed.), Konfl ikte lösen in Teams und großen Gruppen, 2012; Knapp (ed.), Konfl iktlösungs-Tools – Klärende und deeskalierende Methoden für die Mediations- und Konfliktmanagement-Praxis, 2nd ed., 2012. If, in the international realm, this should prove to be too complicated due to the diversity of diverging national terminologies in the field of ADR, the “functional approach” suggested by Hopt and Steffek should be adopted; see Hopt / Steffek, Mediation: Comparison of Laws, Regulatory Models, Fundamental Issues, in Hopt / Steffek (ed.), Mediation, 2013, p. 15 et seq.

Ulla Gläßer

123

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

III. Quality Assurance / Quality Development In a broad sense, the preceding six lessons are already dealing with the quality of ADR procedures. In a more narrow understanding, quality assurance methods are to provide for criteria and procedures to sustain and / or improve the quality of ADR processes by looking at effects of, and feedback on, individual case handling (micro level), the configuration of process providers (meso level) and at the impact of (implementation) laws and rules (macro level). Lesson 7: Ensure appropriate qualification of the neutral Throughout the last decades of mediation development, the issue of mediator qualification has been highly controversial. Whereas certain professions (in particular lawyers) regarded themselves as “born mediators” – thus needing no or only minimal specific training to be able to act as mediators – others advocated for rather extensive schooling of future mediators without regard of their professional provenance. In Germany, the issue of mediator qualification incited one of the most controversial debates in the implementation process of the Mediation Directive.36 A thorough professional training of neutrals conducting ADR procedures provides not only a foundation of quality assurance, but also increases the respect towards, and acceptance of, the new professional / procedural roles that are generated in the wake of establishing ADR procedures. Therefore, whoever is to conduct consumer ADR procedures in the varying member state models should be thoroughly trained37 – and the training requirements should be tailored according to the specific needs of a specific procedural role. In this context, legal knowledge will rarely suffice – additional procedural skills are needed (see lesson 5). The latter has also been pointed out in Article 6 para. 1 lit (a) of the ADR Directive, which demands that persons who conduct ADR procedures shall “possess the necessary knowledge and skills in the field of alternative or judicial resolution of consumer disputes, as well as a general understanding of law”.

36

37

See the official hearing (“Öffentliche Anhörung”) of the Rechtsausschuss Protokoll Nr. 51, 25.05.2011 http: // www.bundesgerichtshof.de / SharedDocs / Downloads / DE / Bibliothek / Gesetzesmaterialien / 17_wp / mediationsg / wortproto.pdf?__ blob=publication.F.ile; see also Klowait, in: Klowait / Gläßer, Mediationsgesetz – Handkommentar, 2014, 2 § 5 Rn. 1 et seq. According to Article 4 para. 6 of the ADR Directive, “Member States shall encourage ADR entities to provide trainings for natural persons in charge of ADR.”

124

Ulla Gläßer

© sellier european law publishers www.sellier.de

Linking ADR Discourses – Nine Lessons learned from Mediation Development

Lesson 8: Apply quality management approaches to conflict management procedures It has been shown that, until recently, conflict management structures within (large) companies, including the working of in-house mediator pools, seldom fulfilled management requirements when it came to controlling and quality assurance.38 Exactly these (standard) controlling mechanisms (defining objectives, measuring achievement and, if necessary, adapting the course of action) are, however, particularly important for an efficient establishment of new conflict resolution procedures. In the area of consumer ADR, professional quality management should be practiced both on the level of individual process providers and on the level of normative implementation. The latter has been arranged for by Article 26 of the ADR Directive, where a duty to report on the application of the directive has been established.39 Such an EU wide report has to rely on national reports from member states, allowing for similar reporting duties as should be established in the national implementation laws. Following the laws of logic, but still differing from some implementation laws of the Mediation Directive40, the national consumer ADR legislation should look to it that the national reporting deadlines are set before the EU reporting deadline of Article 26 ADR Directive (9 July 2019) in order to make the national reports usable for the EU wide reporting. For both the individual organisational, and the normative, level quality criteria have to be defined as the basis of quality assessment. Here, the ADR Directive offers much more orientation and transparency than the Mediation Directive, by clearly nominating the criteria of expertise, independence and impartiality, transparency, effectiveness, fairness, liberty and legality in Articles 6 to 11. These criteria should be explicitly adopted in the national implementation laws. In the processes of generating implementation laws, as well as of assembling national and EU wide reports on consumer ADR, academic experts should have a voice, as well as practitioners and representatives of the different interest groups (consumers, traders, etc), in order to gain the full picture of the development, use and impact of consumer ADR procedures.

38

39 40

Kampherm / Kraus / Wellmann, Praxis des Konfl iktmanagements deutscher Unternehmen. Ergebnisse einer qualitativen Folgestudie zu “Commercial Dispute Resolution. Konfliktbearbeitungsverfahren im Vergleich”, 2007. The same has been constituted in the Mediation Directive in Article 11. According to sec. 8 of the German Mediation Law (Mediationsgesetz), the deadline for the first national evaluation report on the effects of the new law is July 26, 2017 – whereas the EU-wide evaluation report has to be completed until May 21, 2016; see Gläßer, in: Klowait / Gläßer, Mediationsgesetz – Handkommentar, 2014, 2 § 8 Rn. 16 et seq.

Ulla Gläßer

125

© sellier european law publishers www.sellier.de

II. Institutional Aspects of Consumer ADR

Lesson 9: Invest in research instead of propaganda Looking back at lesson no. 1, consumer ADR should not be promoted as a universal remedy. Instead, just like what happened over time in the field of mediation, critical discourse, writing and research should be fostered. Step one on this road is not to fight off, but to explicitly invite criticism early on with the declared goal of improving procedural concepts and practice. Along these lines, publications on ADR procedures should follow the dialectical style depicting chances as well as risks, and positive as well as negative aspects of certain procedures. In the long run, both the promotion and the factual development of ADR are dependent on empirical, action-oriented research.41 To enable the realization of such research projects, ADR providers are called upon to welcome researchers into their practice areas – of course within the confines of confidentiality. To be able to do so, ADR practitioners have to overcome the widespread – and understandable – fear of exposing new, evolving procedural activities with all possible imperfections and shortcomings, and adopt the stance of participating in a learning and evolving system.

C. Conclusion and Outlook In order to further develop clearly contoured ADR procedures and to make them available and accessible to widespread usage, we need to increase (in quantity) and intensify (in quality) the ongoing discourse on the establishment / institutionalization of the basic conditions and framework requirements, the detailed procedural design and methodology and the quality development mechanisms of such procedures. This discourse should be critical and at the same time constructive, i.e. bringing about concrete suggestions for the future course of action. The richness of the wished-for discourse would surely be improved if it developed “across borders” in a three-fold sense: First, in the literal sense, the discourse should be “cross-border” by comparing the various national implementation models of the EU Directives in the ADR realm, in the search for good and best practices.42 Secondly, looking at the comparatively short history of academic involvement, research and theory building in the field of ADR, it seems particularly important to take into account practical procedural experiences in order to gain relevant research questions and to test the validity of hypotheses. Therefore, the sometimes perceived border or, at least, reservation between academics and 41

42

Gläßer / Kirchhoff, Handlungsorientierte Wissenschaft – Brückenschlag zwischen ADR-Forschung und -Praxis, perspektive mediation 2009, 20 et seq. See Berlin, Alternative Streitbeilegung in Verbraucherkonfl ikten, 2014.

126

Ulla Gläßer

© sellier european law publishers www.sellier.de

Linking ADR Discourses – Nine Lessons learned from Mediation Development

practitioners should be opened up for intensified dialogue – and the so-called scholar-practitioner model of including academic and practical work in one professional biography should be particularly appreciated in the area of ADR. Last but not least, the conversation should cross the borders between different ADR discourses which have so far been cultivated partially isolated from each other. Even though there are, of course, a number of significant differences between the various ADR procedures, there are also enough similarities, intersections and interesting meta level questions to let the additional travails of a unified discourse appear worthwhile.

Ulla Gläßer

127

© sellier european law publishers www.sellier.de

© sellier european law publishers www.sellier.de

III. Consumer ADR Proceedings and Result

© sellier european law publishers www.sellier.de

© sellier european law publishers www.sellier.de

On Minimum Standards in Consumer ADR María Luisa Villamarín López A. Introduction No one can argue that the European Union has made a breakthrough with the achievement of an area without internal borders in which we and our goods move in freedom. But that ability to move throughout Europe – for example, purchasing goods simply with a plastic card – disappears when problems arise. Complaining is not as fast or as intuitive as buying at a national level and much less in a cross border context. The power that is given to us by our credit card to get a product into our virtual cart with a couple of “clicks” turns into weakness against the company that provided the service or product purchased, if they do not reply or fail to give an adequate answer to our complaints. Aware of this situation, the European Union has long been working to strengthen consumer defense by very active policies, both informative and normative (Article 169(1) TFEU and Art. 38 CFREU), promoting, in particular, the improvement of the systems for effective protection of consumer rights. Some of these policies have endeavored to harmonize civil judicial systems of the Member States by establishing minimum common rules, for example, on notification of cross-border procedures (Regulation 1393 / 2007, 13 November), for obtaining evidence (Regulation 1206 / 2001, 28 May) or ensuring mutual recognition of judicial decisions (Regulation 44 / 2001, 22 December 2000). However, the slow pace and high cost involved in the courts in most countries has moved Member States, and, therefore, also other European institutions to reinforce channels to protect rights, promoting the application of the so-called alternative systems of dispute resolution (ADR). Through these, as it is well known, outcomes of a similar efficacy to judgments can be achieved, but with significant advantages, especially in the field of consumer law: less cost, which is usually zero or very low, more speed and more flexibility. However the implementation of ADR does not come without difficulties, primarily for two reasons: first, because there are a lot of different schemes of dispute resolution with different procedural rules even in each country and not all of them work properly. In fact, in 2009 seven hundred and fifty ADR schemes relevant to business-to-consumer disputes were identified in the Member States, of which only circa 60 % were notified to the European Commission.1 Second, because 1

See DG SANCO, Study on the use of Alternative Dispute Resolution in the European Union – Final Report submitted by Civil Consulting of the Consumer Policy Evaluation Consortium, 16 October 2009, pp. 32-33. Available at http: //

131

© sellier european law publishers www.sellier.de

III. Consumer ADR Proceedings and Result

consumers are often unaware of the existence of the ADR procedures, or lack sufficient information about their characteristics, they tend to distrust them and come to them very infrequently.2

B. Minimum standards in ADR according to the ECtHR Within the context of the Council of Europe, the European Court of Human Rights has also made great efforts to establish minimum procedural guarantees, developing the content of Article 6 of the European Convention of Human Rights. The Court has distinguished two different moments in the protection given by this article: first, the access to the courts ex novo; and, second, the development of the proceedings. In this sense, it has recognized that “the right of access constitutes an element which is inherent in the right stated by Article 6 para.1”, which “secures to everyone the right to have any claim relating to his civil rights and obligations brought before a court or tribunal”.3 Regarding the proceedings, the Court understands that, to be fair in the sense of Art. 6 ECHR, a procedure must be conducted in a reasonable time, by an independent and impartial tribunal established by law, with publicity and observing the principle of equality of arms. Focusing now on the subject of our work, we may wonder if these rights are only applicable to judicial procedures or if they could play also a role within the proceedings before non-judicial courts. In the last decades, the European Court of Human Rights has faced different cases in which the applicants sought to apply these rights in the context of ADR proceedings (in particular, in matters related to arbitration). Therefore, this ECtHR case-law could be taken as a privileged reference on minimum standards in ADR. In the application of Article 6 of the Convention to non-judicial proceedings, the Court has made a very important distinction between “forced” and “voluntary” arbitration. “Forced” in the sense that arbitration is imposed by law, so “the parties have no possibility to withdraw their dispute from the arbitration court”. Conversely, the Court understands that arbitration is “voluntary”

2

3

132

ec.europa.eu / consumers / redress_cons / adr_study.pdf. To this conclusion also came more recently the Vice-President of the European Commission (EU Justice Commissioner), Viviane Reding, in her speech on “Ensuring access to justice: Alternative Dispute Resolution”, within the Seminar “Finding balanced alternatives: promoting alternative dispute resolution mechanism in the European Union”, on 19 September 2011. See DG SANCO, Study on the use of Alternative Dispute Resolution in the European Union, 16 October 2009, pp. 113-114. Available at http: // ec.europa.eu / consumers / redress_cons / adr_study.pdf. In Golder v. The United Kingdom, Application No. 4451 / 70, Judgment of 21 February 1975.

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

On Minimum Standards in Consumer ADR

when the parties could freely choose this way of solving disputes. When the parties consent to solve their problems through this mechanism, no problems arise in the field of Article 6. But when they are obliged to come to arbitration, the European Court of Human Rights understands that not any type of procedure or any way of conducting the proceedings is admissible. The system must comply with the same procedural guarantees as in the judicial courts, and the State must control its fairness to safeguard the right to an effective remedy. In Suda v. Czech Republic, the Court came to this conclusion and upheld that no problems arise “in the field of Article 6 when it comes to voluntary arbitration freely consented”, meanwhile when it is forced the proceedings “must offer the guarantees provided by Article 6 § 1 of the Convention”.4 In fact, in “forced” arbitration the Convention requires the State to provide a judicial mechanism to control and guarantee “the fairness and correctness of the arbitration proceedings which they considered to have been carried out in conformity with the fundamental rights”.5 But, in any case, although the guarantees of Article 6 are not demanded by the European Court of Human Rights in voluntary arbitration, ADR providers take them increasingly as a reference point to build ADR schemes to strengthen the trust of individuals in these systems. Because, as pointed out by Schiavetta, “private parties will have to meet basic standards of justice if they want their users to have faith in them. Indeed disputants will not opt for alternatives to the court if they are not confident that the system is fair.”6 Given these considerations, let us focus on the interpretation of Article 6 in the field of arbitration as one of the main features, so far, of ADR. Through the ECtHR’s case-law, the right of access to justice provided in Art. 6 ECHR has been interpreted in a broad manner as a right of access to different systems that solve conflicts respecting guarantees that shall be considered essential. In this sense, it has pointed out that this right “does not imply the obligation to apply to a court of conventional type, integrated in the ordinary judicial structures of the country”. Therefore, Article 6 is “not opposed to the creation of arbitral tribunals to try some patrimonial disputes between individuals. Nothing 4

5

6

See Suda v. Czech Republic, Application No. 1643 / 06, Judgment of 28 October 2010 . Also in Bramelid and Malmström v. Sweden, Application No. 8588 / 79 and 8589 / 79, Judgment of 28 October 2010. See Jacob Boss Söhne KG v. Germany, Application No. 18479 / 91, Judgment of 2 December 1991. A more detailed study on this subject in Ringquist, Do procedural Human Rights requirements apply to arbitration – a study of Article 6(1) of the European Convention of Human Rights and its bearing upon arbitration, 2006, available in http: // www.lunduniversity.lu.se / o.o.i.s?id=24965&postid=1561507, p. 47. Schiavetta, The relationship between e-ADR and Article 6 of the European Convention of Human Rights pursuant to the Case Law of the European Court of Human Rights, Electronic Law Journals, JILT, 2004 (1), p. 7.

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

133

III. Consumer ADR Proceedings and Result

prevents litigants waive their right to a court in favor of arbitration, provided that such waiver is free, legal and unequivocal”. “So, a body which decides a small number of specific disputes can be considered a court if it provides the necessary safeguards” (Suda v. Czech Republic Case). Although we have found no decision on mediation, we find no obstacle to apply this doctrine to other alternative systems of solving disputes. Coming to the procedure itself, we may wonder then if in the field of ADR all the essential guarantees recognized within court proceedings must also be respected if the ADR system wants to comply with Article 6 ECHR or if, on the contrary, the European Court of Human Rights considers that in this field – general or particular – exceptions could be made. Let us first note that, even regarding court proceedings, the European Court of Human Rights admits to the possibility that the procedure might not conform to all of the guarantees, attending to the special subject dealt in the case or the parties’ status (for example, if there are minors at stake). But it does not happen generally. The Court understands that the waiver of a Convention right “must be permissible with regard to certain rights but not with regard to certain others. A distinction may have to be made even between different rights guaranteed by Article 6”.7 So, the ECtHR’s case-law has defined in relation to what rights and in which cases this resignation can be admitted. Publicity is the best example of a waivable guarantee, that could be relinquished even within court proceedings.8 Although the European Court of Human Rights has pointed out several times that “the holding of court hearing in public constitutes a fundamental principle enshrined in paragraph 1 of Art. 6” to protect “litigants against the administration of justice in secret, with no public scrutiny”, it has not denied exceptions: the Court “does not, however, prohibit courts from deciding, in the light of the special features of the case submitted to them, to derogate from this principle”; for example, “in the interests of morals, public order or national security in a democratic society, where the interests of juveniles or the protection of the private life of the parties so require”.9 In the field of ADR, and especially in consumer ADR, even more reasons could be raised because the parties could have chosen this way of solving disputes because they have a special interest in solving them just between the affected parties, and to avoid the information tarnishing the good name of a business. In this sense, the European Court, referring to this kind of exception, has stated that “the same applies, a fortiori, to arbitration proceedings,

7

8

9

134

See in Osmo Suouvaniemi and other v. Finland, Application No. 31737 / 96, Judgment of 23 February 1999. In court proceedings see Häkansson and Sturesson v. Sweden, Application No. 11855 / 85, Judgment of 21 February 1990. In Kolgu v. Turkey, Application No. 2935 / 07, Judgment of 27 August 2013, para. 40-41.

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

On Minimum Standards in Consumer ADR

one of the very purposes of which is often to avoid publicity”.10 But, even so, the exceptions must be analyzed and justified in each case. For example, in the recent Kolgu v. Turkey Case no breach of the Convention was found because of the “private nature of the issue” and the “highly technical questions” discussed (para. 46)11, while in Day S.R.O and other v. Czech Republic, although the European Court of Human Rights recognized that “the obligation to hold a public hearing is not absolute”, it found no reason to justify not holding a public hearing in this case, so it concluded that this deficiency constituted a violation of Article 6 of the Convention. Independence and impartiality are also two essential guarantees within Article 6 of the Convention. The Court has considered that a tribunal can be “independent for the purposes of Art. 6.1” in accordance with the following criteria: “the manner of appointment of its members and their term of office, the existence of safeguards against outside pressures and whether the tribunal presents an appearance of independence”. In order to comply with impartiality, two requirements are to be met: a subjective requirement, that is that “the tribunal must be subjectively free of personal prejudice or bias”; and an objective requirement, because the “tribunal must be impartial from an objective viewpoint, thus it must offer sufficient guarantees to exclude any legitimate doubt in this respect”.12 Although initially these two guarantees were considered unwaivable, in Pfeifer and Plankl v. Austria the Court left the question open.13 Years later, in the field of arbitration, the Court gave a clear answer: considering “the circumstances in which the waiver took place during the proceedings” (because the parties were perfectly aware of the characteristics of the arbitrator and they were represented by a counsel during the proceedings), “the applicant’s waiver of their right to an impartial judge should be regarded as effective for Convention purposes”.14 As far as we know, except the rule that the tribunal must necessarily be established by law (Suda / Day S.R.O.) – which is not waivable –, for the moment the Court has not referred to the other guarantees of Article 6(1) ECHR, so, as Ringquist points out, they could be treated in a similar way as the other rights, “meaning that it is in principle not possible to waive them in advance”, although case by case exceptions could also be made.15 10

11 12 13

14

15

See Osmo Suovaniemi and other v. Finland; in the same sense Nördstrom-Janzon and Nordström-Lehtinen v. The Netherlands, Application No. 28101 / 95, Judgment of 27 November 1996. See supra in footnote 9. Fragner v. Austria, Application No. 18283 / 06, Judgment of 23 September 2010. Pfeifer and Plankl v. Austria, Application No. 10802 / 04, Judgment of 25 February 1992. In Suovaniemi and other v. Finland, Application No. 31737 / 96, Judgment of 23 February 1999. See Ringquist, Do procedural Human Rights requirements apply to arbitration – a study of Article 6(1) of the European Convention of Human Rights and

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

135

III. Consumer ADR Proceedings and Result

C. Minimum standards in Consumer ADR within the European Union I. First steps in the recognition of minimum standards A similar trend in the recognition of minimum standards in alternative dispute resolution systems was followed by the European Union in the last three decades, especially in the field of consumer ADR (CADR). Many instruments have dealt with CADR since the nineties,16 but if we focus our attention on the recognition of minimum standards, following the call of the Resolution of the European Parliament of 14 November 1996, the Commission passed two Recommendations, the 98 / 257 / EC17 and the 2001 / 310 / EC18 , which set out the principles to which the CADR procedure should be adjusted. Recommendation 98 / 257 / EC invites the Member States to respect the following seven principles: (1) Independence and impartiality of the decision-making body. (2) Transparency of the procedure, firstly, guaranteeing the communication to any person of the information on the type of dispute which may be referred to the body concerned, the rules they followed in the proceedings and in taking the decision, the possible costs of the procedure and the legal force of the decision taken (II) and, secondly, publicizing key data on their activity. (3) Adversarial principle, which means in the Recommendation that all the parties could have the possibility “to present their viewpoint before the competent body and to hear the arguments and facts put forward by the other part and any experts’ statement” (III). (4) Effectiveness, in the sense that there is no obligation to use legal assistance, that the procedure is free of charge or of moderate costs, developed in the shortest period possible, in charge of a competent body who has a special active role (IV). (5) Legality, in the sense that “the body may not result in the consumer being deprived of the protection afforded by the mandatory provisions of the law of the State in whose territory the body is established” (V).

16

17

18

136

its bearing upon arbitration, 2006, available in http: // www.lunduniversity.lu.se / o.o.i.s?id=24965&postid=1561507, p. 39. For example, let us cite the Communication of the Commission on “out-of-court settlements of consumer disputes” (1998), the reflections on the subject in Tampere (1999) and in the Lisbon Summit on employment and the information Society (2000), the Green Paper on ADR (2002), the European Code of Conduct for Mediators (2004) and the Mediation Directive (2008). Recommendation on the principles applicable to the bodies responsible for out-ofcourt settlement of consumer disputes. OJ L 115, 17 April 1998. Recommendation on the principles for out-of-court bodies involved in the consensual resolution of consumer ADR. OJ L 109, 19 Abril 2001.

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

On Minimum Standards in Consumer ADR

(6) Liberty because the decision taken could only be binding for the parties if they were previously informed and consented (VI). (7) Right to be represented by a third party in any stage of the proceedings (VII). In 2001 the Commission passed another Recommendation filling the gap left in 1998, in the sense that the Recommendation 1998 / 257 / EC “was limited to procedures which, no matter what they are called, lead to the settlement of a dispute through the active intervention of a third party, who proposes or imposes a solution”. So the Recommendation 2001 / 310 / EC concerns procedures that attempt to resolve a dispute by bringing the parties together to convince them to find a solution by common consent. Four principles are set out in this case: (1) Impartiality of the person responsible for the procedure (II.A). (2) Transparency of the procedure, in a similar sense as in Recommendation 98 / 257 (II.B) (3) Effectiveness, which includes as new features the guarantee of easy access to the parties to the proceedings, even by electronic means and the necessity of a review of the parties’ conduct by the body responsible of the procedure (II.C). (4) Fairness, which includes the parties’ right to refuse to participate or withdrawal of the procedure, the right to be heard and of access to the other party’s materials, the parties’ right to be informed in a clear and understandable language of the solution of the dispute and its possible efficacy before agreeing or rejecting it (II.D). Although it is possible that some consumer ADR schemes in the Member States have been positively influenced by these Recommendations and have adopted these principles,19 the data shows that they had little impact in practice. In fact, only 59 % of the Member States were aware of their existence and from among them only 41 % comply fully the Recommendations. For this reason in 2013 a Directive was adopted, making the content of the Recommendations binding. Although it has a more limited scope, another important step given in the European Union in this direction is the regulation on Mediation. In 2008 the Directive 2008 / 52 / EC20 was passed, recognizing some common criteria to take into account in the Member States Mediation systems. It is remarkable in the field of minimum standards that Article 4 tackles “Ensuring the quality of mediation” in two different ways: firstly, urging Member States to encourage “the development of, and adherence to, voluntary codes of conduct by mediators and organizations providing mediation services, as well as other effective 19

20

In this sense, Benöhr, Alternative Dispute Resolution for Consumers in the European Union, in Hodges / Benöhr / Creutzfeld-Banda, Consumer ADR in Europe, 2012, p. 8. Directive 2008 / 52 / EC, 21 May 2008, O.J. C 286, 17 November 2008.

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

137

III. Consumer ADR Proceedings and Result

quality control mechanisms concerning the provision of mediation services”; secondly, encouraging the Member States to promote a continuous training of mediators “in order to ensure that the mediation is conducted in an effective, impartial and competent way in relation to the parties”. The compliance with these requirements is essential from the moment that the Directive intends that the agreements resulting from mediation would be enforceable even by courts, as provided in Article 6.

II. The consolidation of minimum standards in the Directive 2013 / 11 / EC Directive 2013 / 11 / EC, of 21 May 2013, on alternative dispute resolution for consumer disputes21 represents an important step forward in the consolidation of minimum standards in CADR in the European Union. After having analyzed the case-law of the ECtHR and the Recommendations of the Commission, an important question arises: What is essentially at the European Union’s disposal to achieve fair and effective ADR systems? The Directive enshrined minimum standards in the four following dimensions: ADR entities, people in charge of deciding the question at issue, rights of consumers and traders, and, finally, procedure.

1. Minimum standards regarding ADR entities

An ADR entity, in the sense of the Directive, is “however named or referred to, which is established on a durable basis and offers the resolution of a dispute through an ADR procedure and that is listed in accordance with Art. 20(2)” (Art. 4(1)(h) of the Directive). Therefore, each Member State may have one or more ADR entities in charge of ADR proceedings, supervised by the authorities of the country. In order to unify the characteristics of these entities, the Directive sets out four minimum standards to be complied with in any case if they want to operate properly in a Member State: (1) Independence and integrity. (2) Transparency. (3) Accessibility. (4) Special protection of the personal data. The Directive understands that ADR entities must be independent and forthright in order to gain European Union citizens’ trust (Recital n. 32). These guarantees are tackled in Prof. Vallines García’s contribution to this collective work. 21

138

O.J. 2012 C 181, 21 June.

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

On Minimum Standards in Consumer ADR

The second requirement is transparency, in the sense that the relevant information regarding the entity should be made available to the public’s knowledge. One of the more important worries of the European Parliament has been the fact that the lack of information about these mechanisms to solve disputes makes them almost useless. As noted above, there are many different systems of alternative dispute resolution, with diverse ways of working, which increasingly must solve conflicts involving people from assorted countries who speak different languages and have diverse traditions. The relevant information on ADR entities has two key addressees. First, the state agencies in each Member State that are responsible for consumers, because, in order to keep track of their activities, those agencies have to take interest in knowing how many cases ADR entities handled, what problems they encountered (with recommendations to avoid them in future), in which cases and why they refused to deal with a dispute, the average time to resolve disputes and the degree of compliance (Art. 7(2) Directive). Second, the users of their services (consumers and traders), who need to know, among other things, their location, the scope of their powers, the procedures used, the people who intervene, the languages they may employ, their costs, their average length, the possibility of intervention of the parties or the effects of their decisions (Art. 7(1) Directive).22 To comply with transparency the Directive urges Member States to ensure that ADR entities provide this information on their websites or by other appropriate means in a “clear and easily understandable” manner (Art. 7(1)) and that they make known also annual activity reports by these means (Art. 7(2)). In this sense, what is expected today of these entities is that they have this information in a very comprehensive, visible website, ensuring very easy access and navigation, constantly updated and, if possible, to facilitate the task for foreign users, available in more than one language. In this sense, the DG SANCO underlined that “a lack of website is at best an indicator of lack of resources or lack of public relations strategy for a particular scheme, and at worst it can show lack of transparency since information on the scheme is not easily and readily available to consumer or to those who advise or refer them”. In fact, they showed that no problems of transparency appear to arise in those schemes with a website of their own, but it is remarkable that in 2009, one in five ADR schemes did not have their own website yet.23 In order to reinforce this requirement, the Directive urges Member States to ensure that this information is not only on the ADR 22

23

In DG SANCO, it was recommended that ADR entities also regularly publish the names of non-compliant businesses on their websites, having in mind that it would be expected that the businesses, trying to avoid appearing on such black list (or naming and shaming list), should comply more often. So they do in Denmark and Sweden, and both report it to be highly effective (cfr. DG SANCO, p. 136). The Directive, however, does not include this proposal. See DG SANCO, pp. 132 and 133.

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

139

III. Consumer ADR Proceedings and Result

entities’ website but also in the European Consumer Centre Network’s and that they are linked directly with the Commission website (Art. 15(1)) to encourage “relevant consumer organizations and business associations” to publicize the list of the ADR entities available and their more relevant information (Art. 15(2)). Thirdly, an easy access to the ADR entity is required. As noted, it is not enough to have easy access to information, but it also must be ensured that their own resolution mechanisms are accessible to consumers. In this regard, the Directive urges Member States to ensure that the disputes covered by its Art. 2 “can be submitted to an ADR entity which complies with the requirements set out” in this instrument and, therefore, that the consumer could have easy access to the basic information on the ADR procedure, that they may also submit complaints easily and that entities do not hinder consumers unreasonably or unnecessarily in pursuing issues. In fact, the Directive deals with these two issues in the following ways. Firstly, it requires entities to have an online site to submit claims along with supporting documents. Secondly, it urges Member States to ensure that these entities do not limit access in an unjustified manner. In this sense, the Directive sets out that the Member States may, “at their discretion”, permit ADR entities to “maintain or introduce procedural rules” that allow them to refuse claims if one of the following reasons are met: (a) the consumer did not previously attempt to contact the trader concerned in order to discuss his complaint and seek, as a first step, to resolve the matter directly with the trader; (b) “the dispute is frivolous or vexatious”, very broad terms of difficult interpretation; (c) the existence of something like res judicata if “the dispute is being or has previously been considered by another ADR entity or by a court”; (d) “the value of the claim falls below or above a pre-specified monetary threshold”, although that amount should not be high enough to prevent the consumer “to access to complaint handling by ADR entities” (Art. 5(5)); (e) if the complaint has been submitted to the ADR entity out of a pre-specified time, “which shall not be set at less than one year from the date upon which the consumer submitted the complaint to the trader”; (f) dealing with such a type of dispute would otherwise seriously impair the effective operation of the ADR entity because the conflict is transnational (Article 5(2)(e)), because of its economic value or because they give reasons other than those considered reasonable by Art. 5(4) of the Directive”. Whatever the reason, the Directive requires the entities to provide the parties with a “reasoned explanation of the grounds” of the refusal in the next three weeks after receiving the complaint file. Finally, when processing information related to disputes covered by the Directive, the ADR entities should be especially careful with the protection of personal data (e.g. names of the natural persons or of the companies involved, addresses, personal information), complying with the rules on this matter laid down in the laws of the Member States adopted pursuant to the Directive 95 / 46 / EC (Recital n. 28 of the Directive 2013 / 11 / EC).

140

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

On Minimum Standards in Consumer ADR 2. Minimum standards regarding natural persons entrusted with ADR

The Directive tackled not only the status of the ADR entities but also the minimum requirements that the natural persons in charge of ADR shall possess; in particular, Article 6 points out the following three: expertise, independence and impartiality. As noted above, independence and impartiality are explained by Prof. Vallines in his contribution for this work, so I refer to it. Expertise means that the natural persons in charge of ADR should have knowledge and skills in the field of consumer ADR and “sufficient general knowledge of the law”. These are two very general and unspecified requirements that leave the doors wide open to the Member States to entrust ADR to people from diverse backgrounds – except if they choose to limit the access in their national law –, as no specific qualification or academic title is needed. In any case, the Directive lays the responsibility for their training on ADR entities (Art. 6(6)).

3. Minimum standards regarding the rights of consumers and traders

Probably the best indicator of whether an ADR scheme is fair and effective is its degree of respect for their addressees’ basic rights and fundamental guarantees. In particular, the Directive states that ADR procedures must respect the following rights: (1) Right of access to ADR entities. (2) Right to be heard and respect for the principle of equality of arms. (3) Right to counsel. (4) Right to a grounded outcome (5) Right to privacy. (6) Right of access to the courts. Let us briefly explain these guarantees. To consolidate ADR as an alternative to the courts it must be ensured that citizens have the right of easy access to these systems to deal with conflicts. In this sense, Art. 5 of the Directive provides, firstly, that Member States shall ensure that ADR entities have up-to-date websites ready to give sufficient information about these procedures and which enable consumers to submit complaints online. In 2009 almost half of all ADR schemes did not provide for online access to the procedure. In addition, the Directive urges the Member States to ask the traders established on their territories to inform consumers “in a clear, comprehensible and easy accessible way” on their websites about the ADR entity or entities which those traders are covered by (Art. 13). Secondly, it states that there are only six grounds that entities may include in their procedural rules to deny access to ADR procedures, as explained supra. To facilitate María Luisa Villamarín López

© sellier european law publishers www.sellier.de

141

III. Consumer ADR Proceedings and Result

access in transnational conflicts, the Directive also requires Member States to give special assistance in disputes arising from cross-borders transactions. This support shall be given by the European Consumer Centre Network, by national consumer organizations or by any other body (Art. 14). Although discussed below, the European Union policy of zero or very low cost also helps to ensure easy access to ADR systems. The Directive also considers that the right to be heard and the principle of equality of arms shall be respected. In this sense, although these procedures do not have a series of ordered phases in time in which the parties have equal hearing, Art. 9(1)(a) of the Directive requires that the procedures shall ensure that the parties “have the possibility to express their point of view within a reasonable period of time”, they receive all that has been produced by the opposite party (arguments, documentary evidence, expert reports) and the opportunity to present comments on them. In 2009 the DG SANCO identified no special problems with respect to the adversarial principle. Although the Directive states that it is not mandatory to retain a lawyer or a legal advisor in ADR procedures, consumers are not deprived of their right to counsel. In this sense, Art. 9(1)(a) sets out that the parties shall be “informed that they are not obliged to retain a lawyer or legal advisor”, but that they may choose to come with an attorney to the proceedings or, at least, seek legal advice and even may be assisted or represented by a third party if it is desirable by the nature of conflict. Given the flexibility of these procedures, these advisors can enter at any stage of the procedure. Art. 9(1) of the Directive establishes the duty to inform the parties on the end of the procedures and on the content and grounds of their outcome. What it is not required is to regulate appeals against any resolution, but, if they do not exist, the parties shall know this information before choosing this means (Article 10). The fundamental parties’ right to privacy must also be protected. Since confidential data is handled during the proceedings, the Directive requires care to preserve it and protect parties’ privacy. Finally, the Directive protects the parties’ right of access to the judicial courts. Art. 10 states the liberty principle in the sense that an ADR outcome could not be binding on the parties if they were not informed of its nature, if they have not specifically accepted it, and if they cannot later bring this action before the courts. Within non-binding ADR procedures, and in order to guarantee a complete protection of this right, the Directive also provides in Art. 12 that States shall ensure that they are not “subsequently prevented from initiating judicial proceedings in relation to that dispute”. To this end, “they should have the possibility to provide, inter alia, that limitation or prescription periods do not expire during ADR proceedings” (Recital n. 45).

142

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

On Minimum Standards in Consumer ADR 4. Minimum standards within ADR procedures

Finally, the Directive sets out some minimum standards concerning the ADR procedures that could be used as parameters for the different ADR schemes that operate in the European Union. Two categories can be distinguished: the first, characteristics that the European CADR procedures shall possess, which in general entail advantages over judicial proceedings; and the second, procedural safeguards. The main characteristics of these procedures are the following: flexibility, speed, low or no cost and effectiveness. – Flexibility: The ability to set the procedure made-to-measure for the parties and the matter in dispute is, without doubt, one of the biggest attractions of ADR. Unlike the rigidity of national judicial trials, which necessarily follow the pace set by state procedural law in the language of the site under the direction of a judge, ADR procedures do not have any fixed roadmap, but only a few parameters. Thus, the parties, for example, are free to choose the language, to decide whether or not they want to have legal assistance or if a third party may intervene. ADR schemes are also usually free in their way of taking and evaluating evidence. Moreover, the parties are frequently not required to appear during the proceedings. All this makes ADR procedures particularly suitable for cross-border disputes. But there are even more aspects reflecting flexibility: for instance, an option between ADR at law or in equity. The system of selection of the persons in charge of ADR is also flexible, allowing choosing ad casum a number of people more suited to the needs of the case and specialized in the field of the conflict. For example, in Spain in the recent case of “risky” banking shares that some banks sold in deceptive conditions to customers who were not specialize in banking issues (called “participaciones preferentes”), the avalanche of consumer claims asking for arbitration has not resulted in a delay in the resolution but in a reinforcement of the staff so that 23 attorneys who work for the State (as a kind of Crown Counsel) were joined to the initial staff of 12 arbitrators. – Speed: Flexibility and speed often go hand in hand because if they do not, flexibility automatically becomes useless. Facing slow judicial proceedings, ADR procedures serve as a fast track for dispute resolution. In this regard, by 1998 the Commission had already recommended to finalize proceedings in a “short period”. The Directive of 2013 goes even further: apart from the exceptions justified by the complexity of the case, the outcome of the ADR procedure shall be made available within a period of 90 calendar days from the date on which the ADR entity has received the complete complaint file (Art. 8(e) of the Directive). Probably to set this length the Parliament took into account the statistics from the DG SANCO in which the average dura-

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

143

III. Consumer ADR Proceedings and Result

tion of ADR procedures was 90 days.24 However, in case of “highly complex disputes”, the ADR entity, “at its own discretion”, could extend this period, provided that it notifies the parties of that extension of time and of the expected length of time that will be needed for the conclusion of the dispute. – Low cost: It is generally known that high cost is one of the main disadvantages of national judicial proceedings as opposed to the ADR system25 but, in particular, if in the field of consumer ADR no special provisions were included in the laws, it could represent such an obstacle that it could lead these alternative systems to failure. For these reasons national laws have followed traditionally a low cost or zero cost policy in consumer matters and so does the European Directive. Art. 8(c) of the Directive provides that ADR procedures are to be “free of charge or available at a nominal fee for consumers”. However, this is not particularly new, since in the vast majority of European ADR schemes the cost is zero or below 50 Euros. This was the conclusion in 2009 of the DG SANCO, in which it was pointed out that asking for more than 250 or even 500 Euros was very exceptional.26 However, please note that in certain procedures just the fact that the payment of arbitrators and procedure is zero is not the equivalent of a gratuity if, for example, it is necessary to produce sources of evidence (for instance, if an expert report is required). Anyway, it is true that this obstacle could be partially removed in case the claim is made collectively, as frequently supported by consumer organizations or if, as it occurs in successful ADR schemes, easy access to relevant expertise within the scheme or externally is provided at no extra cost to consumers. – Effectiveness: This is a specific requirement of Consumer ADR, not applicable at the moment to judicial proceedings. But, if ADR schemes want to consolidate as alternatives to traditional justice, they must prove to be successful in their results. In this context, the effectiveness turns into a very important requirement in ADR schemes. Article 8 of the Directive urges the Member States to try to ensure that ADR procedures are effective in the sense that, as noted above, they fulfill some special requirements: a) easily accessible systems to both parties online and offline; 2) no need for compulsory legal assistance; c) low costs; d) quick response of the entity once the complaint is received; e) quick outcome.

24

25

26

144

Cfr. DG SANCO, p. 42. They also pointed out that “even when consumers have to wait longer for a conclusion of the procedure, it takes with relatively few exceptions on average not more than 180 days”. In this sense, in the very recent work Steffek / Unberath, Regulating Dispute Resolution, 2013, p. 18. Cfr. DG SANCO, p. 41.

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

On Minimum Standards in Consumer ADR

After analyzing the characteristics of the ADR procedures, let us study the procedural safeguards set out in the Directive. Article 9 includes most of them under the title “Fairness”, which involves the following traditional procedural guarantees: contradiction and equality of arms, motivation and consistency. – Principles of contradiction and equality of arms: As with the judicial process, ADR procedures are substantiated between two opposing positions subject to a third-party dealing with a dispute, impartial, occupying a neutral position to the parties and the matter. This third party has to ensure that, although the parties are materially different – consumer versus trader –, both enjoy within the procedure identical means to defend their positions; that is, they may receive the same information about the procedure, they may have the same chances of making submissions and giving evidence and they may have identical means of reaction against the opposite parties´ actions. This is confirmed by Art. 9(1)(a) of the Directive. – Motivation and consistency: Once the procedure is put to an end, the parties shall be informed of its outcome. Regardless of the possibility to react or not, either within the field of the ADR procedure or in the courts, against the ADR outcome, it seems reasonable that solutions given by an ADR entity meet two minimum requirements: first, motivation – that is, to make explicit the grounds on which the outcome is based. It helps the parties to understand the reasons for the solution and to avoid potential arbitrariness of the entity in the exercise of its powers and it may, in certain cases, prevent dissatisfied parties to explore other means. Motivation is required in Art. 9(1)(c) to comply with the fairness of the proceedings. Although the European Directive keeps silent on this question, in my opinion it would be reasonable to also require consistency. That is, that the outcome is decided within the topics that have been discussed. It is also desirable that, as far as possible, national law provides mechanisms for controlling this requirement. Having defined the fairness of ADR procedures, the Directive establishes two principles, liberty and legality. – Safeguards against binding effect of their solutions: Though the figures provided by the European Union show that in 84 % of the Member States it is possible to go to court after an ADR procedure, it seems reasonable that if the essential guarantees are reinforced, these figures may be progressively reversed and more and more ADR solutions will be binding. In this context, what the Directive calls the “liberty principle” (Art. 10), which is enshrined in a double guarantee, is especially important. This is because first, the consumer is not bound by an agreement with the trader if it was held before the commencement of the proceedings and it involves the deprivation of their right to go to court (Article 10(1) of the Directive). Second, the parties can only be subject to a binding decision when they have been informed of this characteristic and have explicitly accepted it (Art. 10 of the Directive). This María Luisa Villamarín López

© sellier european law publishers www.sellier.de

145

III. Consumer ADR Proceedings and Result

second guarantee does not apply to traders when national rules state that those solutions are binding to them. – Principle of legality: Though ADR procedures can reach different solutions to the ones adopted by courts, the Directive establishes a minimum requirement in Art. 11 in the sense that, when the procedure imposes a solution to the consumer, it shall not in any way deprive the consumer of the protection afforded to him by the provisions that cannot be derogated from by agreement by virtue of the law of the Member State in which he is habitually resident. – Confidentiality: In the process of resolution a lot of sensitive data (data of identity of the parties and third parties, the company accounting data, etc.) are handled. Indeed, the very existence of the procedure could also be information that the parties wish to keep secret from others. For this reason both parties, ADR entities and natural persons in charge of ADR shall be aware of their duty not to disclose the information that is handled in the procedure and Member States may provide, as far as possible, legal consequences in case this duty is not respected. As was provided in the Directive on Mediation in Art. 7 and, in particular, in the Spanish Mediation Act 2012, which provides for mediators, institutions and parties the duty of confidentiality (Art. 9), these persons do not have to testify in court about topics discussed in mediation, being subject to liability for breach of this duty.27 It is remarkable that the Directive on consumer ADR keeps silent on this requirement.

D. Conclusion and final remarks The recognition of these minimum standards in the Directive of 2013 intends to place consumer ADR procedures on a very high level of protection, virtually identical to the judicial systems. Indeed, in some aspects, it could be argued that they are even greater. Consider, for instance, the demand for transparency or deadlines settled within a very short period. And, of course, these procedures have particular advantages when it comes to cross-border disputes due to the facilities to initiate them, for example, online and to employ different languages. However, I do not want to end without sharing some final thoughts. The first is a general practical assessment on ADR systems in the field of consumer protection. In practice ADR procedures have proved a great success as an alternative to court proceedings: they bring the parties closer to finding an agreement, trying to reach a win-win solution and, as it is well known, that is especially important in the field of consumers and traders, because their relationships can often survive beyond the conflict. And, of course, in this analysis speed plays an essential role because a very late protection of rights is hardly 27

146

Spanish Mediation Act 5 / 2012, 6 July (Spanish State Gazette 7 July 2012).

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

On Minimum Standards in Consumer ADR

effective. To give a practical and very recent example of effectiveness, continuing with the Spanish example of “risky stocks” (the so called “participaciones preferentes”), it could be pointed out that from 182.989 complaints submitted in 2013 by consumers who bought preferred stocks in one of the banks, called Bankia, 38.000 of them have already recovered their money and 122.908 have a favorable opinion of the independent expert, so that in the coming months they shall have an outcome.28 Without the intention of questioning the willingness of the European legislator, I feel I must warn of certain dangers that can arise in our countries as a result of these advances in the ADR systems and that, in fact, have already been faced in England in recent years. For better or worse from a scholar’s point of view, it is clear that the commitment to ADR procedures means a certain resignation to the application of the substantive law to conflicts. In many cases the ADR outcome may result from the application of criteria of equity or as a result of a bilateral agreement that gets away from the solution provided by substantive law. It is true that this waiver can be assumed to a certain extent if it is compensated for by the aforementioned advantages of ADR systems. However, I believe that we must stay vigil in order to observe in our countries if, on the pretext of encouraging effective and respectful alternative systems of conflict resolution, budgets in justice are being severely reduced. This kind of initiative is especially tempting in times of crisis like the present. This trend may be particularly perverse if, as it seems to have happened in the United Kingdom, it results in the gradual removal of legal aid.29 I invite you to watch over this trend that may convert ADR systems into a substitute for the Administration of Justice and not just as its alternative. First, because I understand that the State should not abdicate its role of defending rights. But even if someone does not agree with this first statement, because it is easy to see how the access to justice could be restricted if people with low income – this applies to many consumers – have no possibility to go to court for free and are forced to start an ADR procedure, which frequently could involve paying for expert reports or for the advice of an attorney and, in any case, it does not guarantee the protection of their rights. In this regard, as a conclusion let me quote the words spoken in 2011 by Lady Hale, Justice of the Supreme Court of the United Kingdom, in the Opening Address at Law Centers Federation Annual Conference:

28

29

Data available in http: // www.bankia.com / es / clientes / arbitraje-de-preferentes-y-deuda-subordinada / . Cfr. Genn, What is Civil Justice for? Reform, ADR and Access to Justice, Yale Journal of Law & the Humanities, vol. 24-1, 2013, p. 414.

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

147

III. Consumer ADR Proceedings and Result

“We are a society and an economy built on the rule of law. Businessmen need to know that their contracts will be enforced by an independent and incorruptible judiciary. But everyone else in society also needs to know that their legal rights will be observed and legal obligations enforced … If not, the strong will resort to extra-legal methods of enforcement and the weak will go to the wall.”30

30

148

Lady Hale, Justice of the Supreme Court of the United Kingdom, Opening Address at Law Centres Federation Annual Conference, November 28 2011, cfr. Genn, “What is Civil Justice for? Reform, ADR and Access to Justice, Yale Journal of Law & the Humanities, vol. 24-1, 2013, p. 417.

María Luisa Villamarín López

© sellier european law publishers www.sellier.de

Agreements Resulting from Mediation: Judicial Review, Avoidance, and Enforcement Remo Caponi A. Introduction Issues such as the legal nature, legal effects, and avoidance of ADR settlements are not directly addressed by the EU Directive 2013 / 11 on Consumer ADR. Nevertheless, it is the purpose of this article to deal with these aspects (as far as agreements resulting from mediation are concerned), since the success of ADR will depend to a considerable extent on the capacity of settlement agreements to achieve lasting resolutions of disputes. The major debates on mediation in the mid-1980s in the US and mid-1990s in Europe, as well as the implementation of mediation programs, represented an essential development in the landscape of dispute resolution in western countries. One may wonder whether this new institutional setting should challenge (or at least reframe) the starting point that the legal rules which apply to settlements achieved by the parties without the assistance of a mediator also apply to agreements resulting from mediation. Before the institutionalization of mediation, settling a dispute through an out-of-court agreement or litigating the case before courts was a choice left in the hands of the parties. After the large scale development of mediation schemes, the alternative between settlement and adjudication is rather an institutional choice, supported by a number of policies. Does this new institutional setting have a role to play in interpreting the general rules on settlement agreements and applying them to the agreements resulting from mediation? Is there a need for new rules that might bridge the gap between traditional regulation on settlement agreements and more recently adopted rules on mediation?1

B. Legal Nature and Legal Effects Agreements resulting from mediation can normally be defined as settlements of a dispute by mutual concessions: ‘compromise’ in English legal terminology, ‘transaction’ in French, ‘Vergleich’ in German. The history of dispute resolution 1

For a broader picture s. Caponi, Just Settlement or Just About Settlement? Mediated Agreements. A Comparative Overview of the Basics, Rabels Zeitschrift 79 (2015), issue 1 (forthcoming); Caponi, Adjudiction, Alternative Dispute Resolution and Fair Trial Guarantee, in Festschrift für Peter Gottwald, 2014, p. 65.

149

© sellier european law publishers www.sellier.de

III. Consumer ADR Proceedings and Result

methods based on negotiation between the parties is closely linked to the legal concept of settlement. Settlement agreements remain the most important way to legally implement the successful outcome of such negotiations. Legal rules that apply to settlement agreements are therefore supposed to also apply to agreements resulting from mediation. Recent legislation on mediation processes does not need to thoroughly address topics such as legal effects and avoidance of agreements resulting from mediation. Instead they deal with selected aspects, such as formal requirements and enforceability. In turn the essential foundation for a legally binding settlement agreement is the ordinary law of contract. An effective settlement agreement represents the end of the dispute between the parties. Issues of law that may have formed the subject matter of the original conflict are “buried beneath the surface” of the settlement agreement.2 It is a matter of interpretation of the particular settlement agreement whether the preclusion of certain issues also results in the preclusion of original claims, giving rise to a claim grounded only on the compromise (novation).3 In many jurisdictions the legal concept of settlement requires the element of mutual concessions.4 In order to enhance the flexibility of mediation, other jurisdictions may well avoid this requirement,5 or they may simply broaden the scope of mutual concessions, providing that: “through mutual concessions legal relationships other than the controversial one can also be created, modified or terminated”.6 This definition of the scope of mutual concessions may convey the idea that a judicial decision and a settlement agreement are both able to solve a dispute, although in quite different ways. While fundamentally judicial decisions have to ascertain past relationships of the parties and to stick to the issues of contention, settlement agreements can broaden the view of the parties. Past problems can be resolved with a view to future developments and controversial issues can be addressed with the common ground between the parties in mind. In most cases, compared with judicial proceedings, the more flexible outcomes of a mediation process can be achieved without giving up the idea of considering the agreement resulting from mediation as a settlement that bears the hallmark of mutual concessions. Mutual concessions may not interfere with public policy concerns. Accordingly the question of whether parties enjoy freedom in choosing the method of dispute resolution (settlement agreements may not disregard rights of which parties may not dispose) and the terms of the settlement agreement, which may

2 3 4 5 6

Foskett, The Law and Practice of Compromise, 2010, 111. Bork, Der Vergleich, 1988, 121; Franzoni, La transazione, 2001, 227. Cf. e.g. sec. 1380 Austrian Civil Code and sec. 779 German Civil Code. Cf. e.g. Art. 7:900 Dutch Civil Code. Italian Civil Code, Art. 1965, para 2. Para 1 provides: “1. Settlement agreement is a contract by means of which parties, through mutual concessions, either resolve a current dispute or avoid a future one”.

150

Remo Caponi

© sellier european law publishers www.sellier.de

Agreements Resulting from Mediation: Judicial Review, Avoidance, and Enforcement

not infringe upon mandatory rules provided by the relevant applicable law, are influenced by public policy concerns.7

C. Formal Requirements The principle of freedom of contract entails the freedom of forms. Compliance with particular formal requirements proves to be costly and time consuming. Therefore, any formal requirement needs to be properly justified: “Formalities serve particular policies”.8 There are a number of purposes that formal requirements can serve: documentation and evidence (which are the most frequent), authenticity of declarations, communication, information, warning, protection against haste, expert advice, market regulation, protection of creditors, public oversight, etc.9 Generally, legal rules on formal requirements of agreements arising from mediation fit quite well with the above mentioned framework. As a rule, an oral agreement is sufficient. However, a written form is often required for documentary or evidentiary purposes.10 The EU Mediation Directive requires a written form in order for the agreement to be enforceable.11 The EU Directive on consumer ADR provides that parties be notified of the outcome of the ADR procedure in writing or on a durable medium and be given a statement of the grounds on which the outcome is based.12 At times, such as in the case of transfer of real estate, certification by a public notary may be required. Following the principle that mediation is a procedure enabling the parties themselves to reach a solution to their dispute, the signature of the mediator should not be required. This principle is reflected in the Italian regulation. In Italy the mediator records the settlement for documentation purposes and signs the documentation record, but does not sign the agreement.13 A few jurisdic-

7

8

9 10 11 12

13

As to the concept of mandatory rules, s. Grigoleit, Mandatory Law (Fundamental Regulatory Principles), in Basedow / Hopt / Zimmermann / Stier (eds.), The Max Planck Encyclopedia of European Private Law, 2012, 1126 et seq. So von Mehren, Formal Requirements, in David et al. (eds.), International Encyclopedia of Comparative Law, von Mehren (ed.), vol. VII, Contracts in General, 1998. Cf. Mankowski, Formzwecke, in Juristenzeitung (JZ), 2010, 662 et seq. Cf. Art. 1967 Italian Civil Code. Cf. Art. 6 Directive 2008 / 52 / EC. Directive 2013 / 11 / EU of the European Parliament and of the Council of 21 May 2013 on Alternative Dispute Resolution for Consumer Disputes and Amending Regulation (EC) no 2006 / 2004 and Directive 2009 / 22 / EC, Art. 9 lit. c. Cf. Art. 11, para 3 Italian Mediation Act (Decreto Legislativo no. 28 / 2010).

Remo Caponi

151

© sellier european law publishers www.sellier.de

III. Consumer ADR Proceedings and Result

tions do however require the joint signature of the parties and the mediator.14 The mediator or the legal counsel of the parties may give advice on the drafting of the agreement.15 If the assistance of legal counsel is required, it amounts to a formal requirement of agreements resulting from mediation. The rationale of this provision should be put in the context of different styles of mediation. If ‘bargaining under the shadow of the law’16 is taking place, i.e. a rights based mediation, the purpose of the mandatory assistance of legal counsel is clearly to provide parties with expert advice. If interest based mediation is taking place, i.e. an approach to achieving settlement that does not depend on reference to legal rights or the legal merits of the dispute, but regards the conflict as a problem capable of solution,17 there is no rationale for the mandatory assistance of legal counsel except perhaps the goal of limiting competition from other professionals in the business of dispute resolution.

D. Judicial Review As to the judicial review of agreements resulting from mediation, a pivotal distinction between such agreements, on the one hand, and adjudication as well as arbitration, on the other, should be made. In individual mediation processes parties together have control over the content of the act resolving the dispute (they determine the terms of settlement agreements) as well as over its binding effect (settlements become binding for the parties after they have determined and agreed on their content).18 In contrast, in arbitration and judicial proceedings the parties, as a rule, have control over neither the content of the act solving the dispute nor over its binding effect. This difference explains why there should not be state (judicial) review of the lawfulness of individual mediation processes that give rise to a settlement agreement. Even if there are procedural flaws, they become irrelevant after the parties have agreed on a settlement, except where 14

15

16

17 18

Such as Spain, cf. Villamarín López, Mediation in Spain: Dealing with Its First National Regulation, in Hopt / Steffek (eds.), Mediation: Principles and Regulation in Comparative Perspective, 2013, 839 et seq., 848. Such as in France. Cf. Deckert, Mediation in France: Legal Framework and Practical Experiences, in Hopt / Steffek (eds.), Mediation: Principles and Regulation in Comparative Perspective, 2013, 455 et seq., 472. Cf. Mnookin & Kornhauser, ‚Bargaining in the Shadow of the Law’: The Case of Divorce, The Yale Law Journal, 1979, Vol. 88, 950 et seq. Cf. Genn, Judging Civil Justice, 2010, 81. Luiso, La conciliazione nel quadro della tutela dei diritti, in Rivista trimestrale di diritto e procedura civile, vol. 58, no. 4, 2004, 1201 et seq.; Steffek, Guide for Regulating Dispute Resolution (GRDR): Principles and Comments, in Steffek / Unberath (eds., in co-operation with Genn, Greger, Menkel-Meadow), Regulating Dispute Resolution – ADR and Access to Justice at the Crossroads, 2013, 13 et seq., 16.

152

Remo Caponi

© sellier european law publishers www.sellier.de

Agreements Resulting from Mediation: Judicial Review, Avoidance, and Enforcement

there are circumstances that may render the agreement ineffectual, much like under the ordinary law of contract. Institutional settings and public oversight should reduce, in so far as possible, the risk that the absence of review of the lawfulness of single mediation processes gives rise to mass instances of unlawful mediation processes. In this context it is irrelevant whether the parties together have control over the initiation of the mediation processes. The same rule (no judicial review of individual mediation processes) applies even if the parties have been forced to enter into a mediation process in the context of a dispute that is not subject to mandatory mediation. Even if it is apparent that a procedural flaw has occurred, there is no room for annulment if the parties have reached an effective settlement agreement. As an aside, the problem of mandatory mediation should be briefly addressed. Mandatory mediation, whether by law or by judicial decision, has always been a controversial subject inciting strong reactions.19 It is clear that the purest form of mediation is a voluntary, consensual process in which the parties are assisted to reach a settlement. Mediation is therefore most appropriate and successful when the parties enter the process voluntarily. The readiness of parties to mediate is an important factor in settlement. Cases are more likely to settle at mediation if the parties enter the process voluntarily rather than being pressured into the process.20 However, this is not a perfect world. Not all are fully aware of the options at their disposal and can make choices on a rational basis that reflect the full range of possibilities. Indeed, parties are often not aware of the costs of the process before the courts and of the considerable length of civil proceedings. Moreover, parties are frequently unaware of the possibility of mediation. In order to enter into mediation voluntarily, parties need to know about this method of solving disputes. Since the government is involved as a provider of dispute resolution services, the justice system has the duty to implement policies directed at enabling parties to make an informed choice regarding the dispute resolution mechanism. Introducing mandatory mediation processes, at least for a limited period of time, could be an appropriate means to that end. This provision could spread awareness of negotiated methods of dispute resolution and encourage parties to employ them to solve disputes.

E. Erroneous Assumptions At this stage it is appropriate to discuss circumstances that may render a settlement agreement ineffectual, and in particular events that may occur during the mediation process.

19 20

Genn, 106 et seq., esp. 108, where the mention to the Halsey judgment. Genn, 113.

Remo Caponi

153

© sellier european law publishers www.sellier.de

III. Consumer ADR Proceedings and Result

The first topic to be addressed is that of erroneous assumptions, which can affect the formation of contracts of all sorts. All legal systems deal with the problem of whether an underlying mistake can render a contract invalid. Modern legislation tends to regulate mistake, fraud, duress (threat, coercion, undue influence21) and sometimes misrepresentation22 as different types of ‘defects of the will’.23 In this field, the fundamental problem is the conflict between respecting the intent of the parties and protecting the parties’ trust in the legal certainty and reliability of transactions. Therefore, all legal systems try to strike a balance between the setting aside of contracts on the basis of mistakes and the exclusion or restriction of remedies to ensure the continuing validity of contracts despite the existence of mistakes.24 In the civil law systems a general tendency can be observed to restrict the impact of mistakes25 and other similar circumstances on the validity of settlement agreements. A relevant distinction in relation to the concept of mistake is made between mistakes of law and mistakes of fact. In particular, the problem arises of whether a party that entered into a contract on the basis of an incorrect legal assumption may subsequently avoid the effects of that contract. As in the field of settlement agreements, where French and Italian Civil Codes provide that mistakes of law relating to the controversial issues (caput controversum) normally have no relevance on the validity of settlements agreement,26 continental systems have long distinguished between mistakes of law and mistakes of fact. However, Italian case law extends this rule to mistakes of fact27 and should be placed in a clear trend towards unifying doctrines. This encompasses mistakes in law and mistakes in fact and gives rise to the concept of a fundamental mistake.28 German law treats this problem within the doctrine of “basis of the contract” (Geschäftsgrundlage).29 The relevant rule of the German Civil Code provides that: “(1) A contract by which a dispute or uncertainty of the parties 21

22

23

24 25

26

27 28 29

In English law, undue influence is an equitable doctrine that involves one person taking advantage of a position of power over another person. In English contract law misrepresentation is a concept referring to a (fraudulent, negligent or innocent) false statement of fact made by one party to another party, which has the effect of inducing that party into the contract. Ernst‚ Mistake, in Basedow / Hopt / Zimmermann / Stier (eds.), The Max Planck Encyclopedia of European Private Law, 2012, 1175 et seq. Ernst‚ 1175. Hopt / Steffek, Mediation: Comparison of Laws, Regulatory Models, Fundamental Issues, in Hopt / Steffek (eds.), Mediation: Principles and Regulation in Comparative Perspective, 2013, 45. Art. 2052, para 2 French Civil Code: “[Les transactions] ne peuvent être attaquées pour cause d’erreur de droit, ni pour cause de lésion.” Art. 1969 Italian Civil Code. Corte di cassazione, 3 April 2013, no 5139. Art. II.-7.201 DCFR; Art. 4:103 PECL; Art. 3.5 UNIDROIT PICC. Bork, 359.

154

Remo Caponi

© sellier european law publishers www.sellier.de

Agreements Resulting from Mediation: Judicial Review, Avoidance, and Enforcement

with regard to a legal relationship is removed by way of mutual concession (settlement) is ineffectual if the facts of the case on which the contents of the contract were based do not correspond to reality and the dispute or uncertainty would not have occurred if the facts had been known. (2) If the realization of a claim is uncertain, this is equivalent to uncertainty about a legal relationship.”30 Therefore, on the basis of this rule, only common mistakes relating to uncontroversial issues (caput non controversum) render a settlement agreement avoidable.31 If a mistake relating to the content of the declaration of will or fraud or duress occurs, a settlement agreement can be voided.32 English law makes no sharp distinction between mistakes in law and mistakes in fact. Instead, it seems to be more likely to afford relief in case of mistakes where there has been some misunderstanding about the terms of settlement agreements or where the parties have come to an agreement on the basis of some shared false assumption of fact. Against that background the Court of Appeals held in Brennan v Bolt Burdon that a mutual mistake of law could in principle invalidate a compromise although there was no operative mistake of law in that case.33 However, the scope of this ruling has been somewhat reassessed by the legal scholarship, arguing that the mere fact that parties compromise in a dispute involving competing assertions of law that are of debatable validity will not undermine the compromise, provided the assertions are made in good faith.34 A further restricting of the possibilities to avoid settlement agreements concerns circumstances normally referred to as gross disparity. In line with the modern policy of protecting weaker parties to a contract, recent European harmonization projects provide that one party may avoid a contract if it finds itself in a position of weakness, in particular economic distress, urgent need, improvidence, ignorance, inexperience and lack of bargaining skills are mentioned, and the other party has taken advantage of that position in a way which is grossly unfair or has taken an excessive benefit.35 However, the possibility of asserting such circumstances in order to set aside a settlement agreement has been explicitly excluded in some major civil law systems, such as France and Italy.36 That settlement agreements may not be set aside by asserting the existence of mistakes in law or in fact relating to the caput controversum as well as gross 30

31 32 33 34 35 36

Sec. 779 German Civil Code (BGB). It is controversial whether or not this rule also covers issue of law. For the general rule on the frustration of contracts (Störung der Geschäftsgrundlage), s. sec. 313, para 2 German Civil Code. Bork, 362. Sec. 119, para 1, sec. 123, para 1 German Civil Code. Brennan v Bolt Burdon (2005) Q. B. 303. Foskett, 59 et seq. Art. II.-7.207 DCFR; Art. 4:109 PECL; Art. 3.10 UNIDROIT PICC. Art. 2052 French Civil Code, Art. 1970 Italian Civil Code.

Remo Caponi

155

© sellier european law publishers www.sellier.de

III. Consumer ADR Proceedings and Result

disparity fits very well with the principle of finality. The common good and general interest requires that litigation must come to an end (interest rei publicae ut sit finis litium). French legislation expresses this principle in a very emphatic way, referring to the binding force of settlement agreements as autorité de la chose jugée,37 force of res judicata. This expression is not meant to give the settlement agreement the nature of a judicial decision but rather simply refers to the aforementioned rules, which leave less room for annulling settlement agreements than general rules on the avoidance of contracts. As mentioned above, settlement agreements can broaden the view of the parties and help them to solve past issues with a common view of future developments. What will happen if a common view, which has become the basis of a settlement agreement, is found to be incorrect? A similar problem arises if circumstances which became the basis of a settlement agreement have significantly changed since the agreement was concluded and if the parties would not have entered into the agreement, or would have entered into it with different terms, if they had foreseen this change. When I dealt with this problem in my first book in 199138 , I came to the conclusion that the concerned party has a right to terminate the contract based on the general principle of good faith39. Upon further reflection, I would correct this point, arguing that the concerned party may demand adaptation of the settlement agreement to the extent that, taking account of all the circumstances of the specific case, he / she cannot reasonably be expected to uphold the contract without modification. Only if adaptation of the agreement is not possible or one party cannot reasonably be expected to accept it, may the concerned party terminate the contract.40 Does mediation alter this picture in any way? Of course it does. It creates potential for a more “just” resolution of the dispute than that resulting from negotiations between the parties without the cooperation of a neutral party. It is clear that the concept of justice in mediation is different from justice in adjudication.41 Adjudication fundamentally entails two components: (a) a substantive element, i.e. predetermined legal rules or standards, and (b) a procedural one, i.e. the application of such rules by a judge or arbitrator to facts in the course of due legal process. Mediation reveals parallel, but different, aspects. As to the substantive element, with the exception of mandatory rules, the rules, standards, principles and beliefs that guide the resolution of the dispute in mediation are the same as those held by the parties42 . As to the procedural element, cooperation in a neutral, structured process and mediation techniques can help

37 38 39 40 41 42

Art. 2052 French Civil Code. Caponi, L’efficacia del giudicato civile nel tempo, 1991. Caponi, 214 et seq. Inspiring on this point sec. 313 German Civil Code. Genn, 117. Hopt / Steffek, 44.

156

Remo Caponi

© sellier european law publishers www.sellier.de

Agreements Resulting from Mediation: Judicial Review, Avoidance, and Enforcement

to introduce (or recover) a certain degree of fairness in a dispute resolution mechanism based on negotiations between the parties.43 However, one should not overstate the ability of such a structure to redress the inequality of bargaining power between the parties.44 As a rule one can effectively redress this inequality through both mandatory legal rules and an effective judicial protection of rights (if appropriate, by group litigation). On the other hand in an evaluative mediation process, where the mediator can evaluate the strengths and weaknesses of each side’s argument and express a view on what might be a fair or reasonable settlement, his or her activity could be a source of erroneous assumptions by the parties, who in turn may be able to invalidate the resolution of the dispute if the mediator’s wrongful evaluations are nevertheless taken as a common uncontroversial basis (caput non controversum) of the settlement agreement.45 Furthermore, deception of one party by the mediator can provide grounds for the setting aside of the settlement agreement, depending on the existence of other elements that may be required by the applicable law of contract.46 It is worth sharing the view that a mediator failing to disclose all the circumstances can jeopardize his or her independence and neutrality and also give grounds for the existence of fraud.47 However, one cannot cover the category of settlement agreements based on erroneous assumptions caused by the negligent (or even deceptive) activity of a mediator by applying the rules on settlement agreements and the general law of contract. The new institutional setting, whereby settlement agreements are promoted by mediation schemes, gives rise to a need for new rules regarding the mediator contract (in particular liability).48 Moreover, public oversight is needed to reduce as much as possible the risk that the limited judicial review of

43

44 45

46

47

48

Ganner, Vertragsgerechtigkeit durch Mediation, in Österreichische Juristenzeitung, 2003, 710 et seq., 712; Hyman / Love, If Portia Were a Mediator: an Inquiry into Justice in Mediation, in Clinical Law Review, Vol. 9, 2002, 157 et seq. Cf. Wendenburg, Der Schutz der schwächeren Partei in der Mediation, 2013. Greger / Unberath (eds.), Mediationsgesetz. Recht der alternativen Konfl iktlösung, 2012, 158. Cf. sec. 123, para 2 German Civil Code: “If a third party committed this deceit, a declaration that had to be made to another may be avoided only if the latter knew of the deceit or ought to have known it. If a person other than the person to whom the declaration was to be made acquired a right as a direct result of the declaration, the declaration made to him may be avoided if he knew or ought to have known of the deceit” (translation provided by the Langenscheidt Translation Service). Cf. also Art. 1439 Italian Civil Code. Härtling, Wirksamkeit und Vollstreckbarkeit der Abschlussvereinbarung, in Fischer / Unberath (eds.), Das neue Mediationsgesetz. Rechtliche Rahmenbedingungen der Mediation, 2013, 143 et seq., 149. Hopt / Steffek, 73.

Remo Caponi

157

© sellier european law publishers www.sellier.de

III. Consumer ADR Proceedings and Result

single settlement agreements gives rise to many instances of ‘unjust’ outcomes of mediations processes.49

F. Enforcement Settlement agreements are more likely to be complied with voluntarily. As Lord Bingham of Cornhill put it: “A settlement agreement freely made between both parties to a dispute ordinarily commands a degree of willing acceptance denied to an order imposed on one party by court decision. A party who settles forgoes the chance of total victory, but avoids the anxiety, risk, uncertainty and expenditure of time which is inherent in almost any contested action, and escapes the danger of total defeat”.50 Still, it may well happen that a party fails to comply with the settlement agreement. In this case the party that respects the agreement must be provided with a remedy to protect his / her interest in performance. In a nutshell three reactions to non-performance are conceivable: specific performance, monetary compensation and termination of contract.51 In the field of settlement agreements, specific performance can be achieved without bringing an action in full ordinary proceedings, if the parties have agreed on making their settlement enforceable. Most legal systems provide for the enforceability of agreements resulting from mediation by mutual consent of the parties, if certain formal requirements are met or procedural steps taken, typically a declaration of enforceability by a court, by the parties’ counsels, by a notary public or by an administrative body.52 In this case, the loyal party may 49 50

51

52

For the issue of justice in mediation, see above. Cf. Lord Bingham of Cornhill, Foreword to the Fourth Edition, in Foskett, The Law and Practice of Compromise, 2010, IX. Unberath, Contract, in Basedow / Hopt / Zimmermann / Stier (eds.), The Max Planck Encyclopedia of European Private Law, 2012, 377 et seq. French Code of Civil Procedure (homologation, i.e. validation by the court, checking both the existence of parties’ consent and compliance with public policy): Art. 1565 et seq., in connection with Art. 131 (conciliation, i.e. settlement agreement before the court or a conciliateur de justice ), Art. 131-12 (court annexed mediation), Art. 1534 (out-of-court mediation), Art. 1556 et seq. (procédure partecipative, a kind of out-of-court proceedings with participation of parties’ counsels: Art. 2062 et seq. Civil Code). In German Law the parties have several possibilities of making their settlement agreements enforceable. In case of court settlements (Prozessvergleich), judicial mediation conducted by a Güterichter or settlement agreement reached before a conciliator set up or recognised by the Land administration of justice, s. sec. 794, para 1, no. 1 Code of Civil Procedure. Furthermore according to sec. 278, para 6 Code of Civil Procedure if judicial proceedings are pending, the parties may also provide the court with their settlement agreement and ask the court to confi rm

158

Remo Caponi

© sellier european law publishers www.sellier.de

Agreements Resulting from Mediation: Judicial Review, Avoidance, and Enforcement

pursue (compulsory) enforcement. In some jurisdictions, such as Australia, specific performance of a settlement agreement that the other party has failed to perform will be awarded only under exceptional circumstances.53

53

the settlement by a court order. According to sec. 796a Code of Civil Procedure if judicial proceedings are not pending, settlement agreements reached by parties’ counsel may be enforceable (but the procedure is rather cumbersome). Finally, according to sec. 796c Code of Civil Procedure the parties may have their agreement recorded by a notary public, who then may declare it enforceable. Tochtermann, Mediation in Germany: The German Mediation Act – Alternative Dispute Resolution at the Crossroads, in Hopt / Steffek (eds.), Mediation: Principles and Regulation in Comparative Perspective, 2013, 545. In English law the parties may consent to a judicial order directing them to perform the various obligations provided for under the settlement or to an order directing that the agreement “be fi led and made a rule of court”. The effect of making the settlement agreement a rule of court enables the terms to be enforced without the necessity of bringing an action. Foskett, 169. The EU Mediation Directive (Art. 6) provides that agreements resulting from mediation be made enforceable upon request of the parties, unless the content of that agreement is contrary to the law of the Member State where the request is made or the law of that Member State does not provide for its enforceability. Magnus, Mediation in Australia: Development and Problems, in Hopt / Steffek (eds.), Mediation: Principles and Regulation in Comparative Perspective, 2013, 869 et seq., 887. In the Australian legal system agreements resulting from mediation cannot be immediately enforced. If one party breaches the agreement, the normal remedy available to the other party is damages.

Remo Caponi

159

© sellier european law publishers www.sellier.de

© sellier european law publishers www.sellier.de

IV. The Wider Picture

© sellier european law publishers www.sellier.de

© sellier european law publishers www.sellier.de

Long Term Commercial Contracts and the Need for Relational Intelligence* Paola Lucarelli A. The crisis of the business relationship: the paradox of arbitration It is rare to read a commercial agreement in which there is no arbitration clause concerning future disputes between the parties. It is common knowledge, that the reason why companies choose arbitration is the speed of the procedure compared to the time taken by courts to reach a decision.1 It is also a question of being able to choose the judges, as arbitrators are appointed by the parties. However, there are doubts about the real efficacy of the arbitration process. First of all, certainty about the judges does not mean certainty about the law: even when there is a choice-of-law clause, any gap that is not covered will attract the application of private international law, or, more easily and understandably, the lex mercatoria. Moreover, speed is not guaranteed: there are procedures that are complex enough to take a long time, sometimes more than two years. Additionally the cost of the procedures can be very high, and contesting the arbitration award or execution requires qualified professional competence. Given these plausible arguments, especially in the U.S., there is some talk about the “Flight of U.S. Firms from Arbitration”.2 *

1

2

The essay partially reproduced the study: “Strengthening Commercial Long Term Relationship with the Help of ADR”, in Opinio Juris in Comparatione, 1/2012. In Italy, see Bianco / Giacomelli / Giorgiantonio / Palumbo / Szego, La durata (eccessiva) dei procedimenti civili in Italia: offerta, domanda o rito?, in Rivista di politica economica, IX-X, 2007. In cross-border disputes the reasons are also the problem of the sprachrisiko and the mandatory rules. Barkoff, Is the Bloom Off the Rose of Alternative Dispute Resolution?, in Franchise-Update, 4, 2007; see also Barkoff, Arbitration: No Longer the Fair-Haired Child, in LJN’S Franchising & Bus. L. Alert, 5, 2008; Whiteman, Arbitration’s Fall from Grace, in In-house Counsel, 7, 2006; Arbittier, Conditional Arbitration: A New Approach to Construction Arbitration, in Disp.Resol.J., 2006, 40: “[T]he pendulum is swinging in the other direction. Arbitration has taken on many of the characteristics of ‘scorched earth’ litigation, with abusive discovery and never-ending motion practice. The increased dissatisfaction with arbitration has led the American Institute of Architects (AIA) to eliminate arbitration as the default dispute resolution process in its standard form agreements. Now drafters will have a menu of options

163

© sellier european law publishers www.sellier.de

IV. The Wider Picture

However, instead of a flight caused by deficiencies of arbitration proceedings, we propose a different interpretation of the phenomenon of the slow and gradual shift away from arbitration in favor of other alternative methods of dispute resolution: a sort of natural evolution of the procedures for the management of commercial disputes. In this regard, one might venture to say that the more companies know and practice arbitration with the assistance of their lawyers, the more they become aware of the importance of directly managing the dispute. As a matter of fact, arbitration is able to come much closer to the reality of the case than the judicial process. It may be added, that the more lawyers assist their clients in arbitration, the more they should become aware of the possibility of switching to an even more direct dispute management process, which could be done with their professional assistance. After all, if their own colleagues can decide the case, then it seems plausible that they are not far from directly managing the issue themselves. Let us reflect on this key issue to bring the topic into focus. Jurisdiction has the institutional capacity to ensure legal order and to provide solutions for all litigated cases. In order to do this, the rules applied by the court have to be equal for all and, therefore, have equal and wide distance from everything and everyone, have the measure of abstractness and objectivity as the law, from real life, from the concrete needs, from the details irrelevant to the law and for the individual case. The arbitration panel, on the contrary, was born with the dispute and lives only for the time of the procedure with the aim to resolve it. It is made for this purpose and it governs the dispute and its solution. It is close to reality and its details.3 The most eloquent metaphor is that of a sun visor: far, if it is to protect a large area, closer to shade a small area. But, perhaps, it is enough to remember

3

from which to choose.” Kay, Employers Start to Push Waivers, in Nat’l L.J., 2008: “[I]n the past couple of years, employment defense lawyers say some of their clients have grown disenchanted with arbitration and now prefer either bench trials before a judge or mediation”; Bühring-Uhle / Kirchhoff / Scherer, Arbitration and Mediation in International Business, 2006, 105; Bernstein, Merchant Law in a Merchant Court: Rethinking the Code’s Search for Immanent Business Norms, 144, in U. Pa. L. Rev., 1996, 1765, 1782-87. See also Lipsky / Seeber, The Appropriate Resolution Of Corporate Disputes: a Report On The Growing Use of ADR by U.S. Corporations, 17, 1998, available at http: // digitalcommons.ilr.cornell.edu / icrpubs / 4. On an empirical research, inside the franchising area, see Drahozal / Wittrock, Is There a Flight from Arbitration?, in http: // law.hofstra.edu / pdf / Academics / Journals / LawReview / lrv_is sues_v37n01_CC2_Drahozal_final.pdf. It is a common saying among the most successful mediators that “The devil is in the details”.

164

Paola Lucarelli

© sellier european law publishers www.sellier.de

Long Term Commercial Contracts and the Need for Relational Intelligence

that the details that the human eye perceives at a close range are lost by gradually moving away from what is observed. Having talked about the true dimension of arbitration, namely a private process that originates on the side of the lawyers, an experience with their colleagues, although done with professional and neutral referees, the companies can perceive that what is amplified in the arbitration process: the exercise of autonomy and the scope of interests, which might well be enhanced if only they could deal with the conflict by themselves. Similarly, the professionals who assist companies in arbitration cannot fail to perceive that what their fellow judges determine could be as good as the result of their professional work if only they could cooperate to reach a solution. It is what we might call, to use a strong word, the paradox of virtuous arbitration: by practicing it you will go beyond it. What is being said should not be misunderstood: arbitration is an extremely useful dispute resolution method, sometimes indispensable to the process due to its minimum distance from reality, even with the principles ensuring the protection of rights. In addition, it has been said that companies and their advisers in arbitration should be best placed to become aware of the benefits that derive from the direct management of the dispute: although, this is not always the case in reality. On the other hand, this is not simply the result of the imagination of an optimistic reader of the natural evolution of dispute management practices, but rather signs of this evolution are showing in the business world.4 The awareness of the value of going beyond the delegation of power of deciding a case, the value of dealing from inside the conflict, the value of sharing the problem and the difficulties, and the value of the responsibility of finding a solution, all of these values represent targets that are becoming less and less neglected in the commercial and business dimension, which are associated with the practical needs of rapidity, certainty and lower costs. These signals have recently been confirmed by the intervention of the International Chamber of Commerce, a careful observer of business practices and needs. The new Rules of Arbitration and Mediation provide for a dispute procedure that is not isolated, but rather a path that crosses all the other options available to the disputing party.5 4

5

It is really clear to McIlwrath / Schroeder, The View from an International Arbitration Customer: In Dire Need of Early Resolution, in Arb., 74, 2008, 3, 10: “We know from our interactions with in-house counsel at other companies that many have developed, or are developing, a real reluctance to resolve disputes through international arbitration where it can be avoided.” Private negotiation – with the help of a neutral party – is one of the two ADR procedures that was the object of a new regulation by the International Chamber of Commerce: the new Arbitration and ADR Rules. The ICC is now linking its arbitration and mediation practices, described in the introduction as “two discrete but

Paola Lucarelli

165

© sellier european law publishers www.sellier.de

IV. The Wider Picture

While there is no doubt about the good fortune of arbitration procedures in commercial and international trade, one cannot forget that companies always pursue the goal of utility maximization. Every company is therefore ready to implement alternative models of conflict resolution when they are more efficient than traditional ones. Arbitration procedures are, for the reasons described above, a good alternative to the regular judicial system, and are – at the same time – a response to the need for speed, punctuality, and efficiency. Compared to a trial in front of a court, arbitration is usually to be preferred, but this is not always the case: the same reasons that make it more attractive lead companies toward other methods of dispute resolution that are a better fit with their economic interests and are more efficient. If “need” is the driver of the natural evolution of the tools available to businesses, and we do not doubt this, we must focus our attention on the characters of the business relationship and on the interests of firms, if we want to catch a glimpse of the possible development of efficient models of dispute management.

B. The Ability to Manage the Relationship Due to changes in market conditions, the inadequacy of the agreed upon performance, the replacement of persons involved in the contractual relationship, and opportunistic behavior, it is a common occurrence that the contract enters into a phase of a more or less serious crisis. Traditionally, civil law systems conceived of the contract as an instrument of control and governance of the relationship as it presented itself at the time of closing. Recently, a more conscious openness towards the clauses of renecomplementary dispute resolution procedures”. The Appendix XIV of the Rules (Case Management Techniques) expresses very clearly that complementarity: “The following are examples of case management techniques that can be used by the arbitral tribunal and the parties for controlling time and cost. Appropriate control of time and cost is important in all cases. In cases of low complexity and low value, it is particularly important to ensure that time and costs are proportionate to what is at stake in the dispute. a) Bifurcating the proceedings or rendering one or more partial awards on key issues, when doing so may genuinely be expected to result in a more efficient resolution of the case. b) Identifying issues can be resolved by agreement between the parties or their experts. (…). h) Settlement of Disputes: (i) Informing the parties that they are free to settle all or part of the dispute either by negotiation or through any form of amicable dispute resolution methods such as, for example, mediation under the ICC ADR Rules; (l) where agreed between the parties and the arbitral tribunal, the arbitral tribunal may take steps to facilitate settlement of the disputes, provided that every effort is made to ensure that any subsequent award is enforceable at law.”

166

Paola Lucarelli

© sellier european law publishers www.sellier.de

Long Term Commercial Contracts and the Need for Relational Intelligence

gotiation and adaptation of the original agreement presents a new approach to the problem. A more appropriate culture of crisis management has developed, based on the ability to understand the causes of the conflict and the way to transform, where possible and desired, the business relationship.6 Companies and, more specifically, their consultants and lawyers, already know that commercial agreements create relationships exposed to change, and that the landscape of tools available to them for making flexible contracts – and the relationship ready to change – is broader and more varied. If the traditional work on the contract focused on renegotiation clauses, i.e. the provision of mechanisms for balance, control and contract management, then the new frontier becomes that of assisted negotiation or mediation. A plan of business continuity that contemplates a relationship that evolves as time passes.7 The relationship relies, as is natural and appropriate, on an experience in which the agreement is tailored to the interests of the companies. The agreement is continuously built and re-built during the life of the relationship.8 Mutual trust (confidence), openness, courage, and dynamism, are very intensive needs. In particular, what drives the companies towards internationalization is the interest in the business, but also the ability to overcome the legal dimension as well as the local economy in which the companies feel safe. Adaptation and flexibility in the relationship over time becomes an essential responsibility, and ability, of the parties. We can immediately realize, but we will soon come back to it, that these same elements are also the elective profiles in the mediation experience. It’s not a mere coincidence that a tailor-made agreement matches the ability of the parties to face negotiations without delegation to the law, while the attitude of trust and collaboration shows the ability for dialogue to manage the long term relationship, and change with circumstances together, while adding flexibility. All these are qualities that show sensitivity toward solutions which are not derived from the protection of the right based on the law, but from the relationship itself and from the awareness of the interests. This is the reason why we cannot forget that the issues rely less on legal logic and more on economics.9

6

7

8 9

Macario, Adeguamento e rinegoziazione nei contratti a lungo termine, 1996; Macario, I diritti oltre la legge. Principi e regole nel nuovo diritto dei contratti, in Dem. dir., 1997, 1, 149; Roppo, From Consumer Contracts to Asymmetric Contracts: a Trend in European Contract Law?, in Eur. Rev. Contract Law, 2009, 304. These issues are treated in a forthcoming book, Lucarelli / Ristori, Contratto e relazione commerciale fra crisi di cooperazione e governo negoziale del cambiamento, to be published. Lucarelli / Ristori, Contratto, passim. You can think of the good faith obligation, but collaboration is more, because is co-working, trust, sharing, and these are not necessarily the result of a legal obligation.

Paola Lucarelli

167

© sellier european law publishers www.sellier.de

IV. The Wider Picture

It seems adequate to define the abilities mentioned above as the components of a relational intelligence: the ability to manage the autonomy, the differences of views, the needs and the interests in relation to partners and stakeholders. Mature and ready entrepreneurs thus become able to take the initiative and not rely only on the state to act as a legal guardian and protector. Relational intelligence means the ability to manage the business relationship, but also the possibility of crisis at the same time, leading the company in international relations and in its own growth. The basis of a good business relationship is a culture of ideas and projects. It is a capacity that the companies should apply in network relationships with other entrepreneurs. It is a skill which, however, does not necessarily need a legal and contractual framework, but mainly the ability to share a project. It is a third level of innovation, closer than it seems: it is already in the vision that values the relational part of each individual. This means nothing but focus on the humanistic component that also lives in the business relationship.10 However, as for the individual, declining the enterprise in the real life, considering it as part of an ongoing relationship that could potentially generate opportunities. It is just like placing a fish in an aquarium: eating food however is not enough, because the business man needs to be aware of the context, the opportunities and the value of the relationships with his peers. It is quite possible, now, that the legal scholar will be surprised because we all know, and have known for some time now, that theory explains the nature of the firm as a nexus of contracts.11 A bundle of relationships that is a descriptive summary of real life. This surprise however, still arises because of a never ending need to use only legal categories in order to explain facts due to the fear of losing the rigor of scientific thinking, the classic route of questions and answers that are presented to the interpreter of the law. Thus, what amplifies the complexity of the firm is the presence of a lot of contracts: work and organizational investment, but still contracts related to the organization or to the exchange. Relationships of course, but imbued with the usual categories of right / obligation, subject / activity / responsibility. But if we proceed keeping in mind the real needs of businesses, then we cannot proceed without saying that firms and businessmen do not need legal meanings, but they do need to immerse themselves in real life, like fish in the aquarium, and also to acquire the awareness, the culture, of sharing projects. A further step towards the new paradigm of the firm consists, then, in giving the relationship (that still shows a lot of unexplored spaces) a potential for inno-

10

11

See Zamagni, L’economia come se la persona contasse: verso una teoria economica relazionale, Working Paper 32, 2006, http: // aiccon.it / fi le / convdoc / n.32.pdf. Marchetti, La nexus of contracts theory. Teorie e visioni del diritto societario, 2000.

168

Paola Lucarelli

© sellier european law publishers www.sellier.de

Long Term Commercial Contracts and the Need for Relational Intelligence

vation, moving toward the concept of business relationship as a culture, such as the capacity to generate ideas by sharing experiences with others. In the past, American sociological theory showed the value of the relationship, especially in the context of sociological reasoning.12 Important and unforgettable steps in the history of legal commercial science have been made when scholars left the usual model of exchange contracts as a prototype and allowed the scientific landscape to open up to the view of the meta-individualistic associative nature of contracts. Today, one can see other footprints: the first was left by the relationship, the other by the time in which the relationship inevitably lived. Two footprints that may have been too long and too far from removed from each other and whose connection, nonetheless, lays the groundwork for a new understanding of the firm and its development. Let us look further into this matter. The relationship acquires a more complex nature than the legally relevant one. It’s not the law, as a set of rules that is the source of internal or external collaboration, or the search for generative and profitable opportunities, or the sharing of ideas through dialogue between individuals, or the empathic recognition of common needs, just to suggest some descriptive examples of the business life that we want to represent. These, and the benefits that they generate, are the result of a culture that gives value to the dialogic confrontation, the search for ideas through each other and with each other, and the use of the relationship in a creative and innovative way. Thus, the relationship defined as ability becomes the heartland of our interests.13 Even legal science, in addition to what has been done by economics, has shown on several occasions the importance of time for a conscious reflection upon the firm, its categories and activity.14 Already the overcoming of the atomistic view of the single act in favour of the concept of “activity” as a continuous series of acts, was the happy assignment of a distinctive value to the dynamic entrepreneurial experience. The dimension in which time is perceived as an epistemological concept is, however, that of the long term commercial contracts.15 With the emphasis given to the concept of bounded rationality, the juridical science reached the extreme point of affirming the need for intervening on the 12

13

14

15

Granieri, Il tempo e il contratto. Itinerario storico-comparativo sui contratti di durata, 2007. The legal point of view is in fact unique, technical and specialized: it focuses on the part of the relationship that is relevant for the law and its application. The crisis of the contract is the issue more than its functionality it is. On the topic, forthcoming, Lucarelli / Ristori, Contratto, passim. Morera / Olivieri / Stella Richter jr, La rilevanza del tempo nel diritto commerciale, 2000. Macario, Adeguamento e rinegoziazione nei contratti a lungo termine, 1996.

Paola Lucarelli

169

© sellier european law publishers www.sellier.de

IV. The Wider Picture

contract where unforeseen and unforeseeable contingencies alter the economic balance of the contract as defined at the moment in which it was signed. Still juridical answers are needed from the point of view of the crisis of the contract. Especially answers which tend to put the solution and eventual restoration of balance outside the control of the parties.16 Now, another step is in front of us: toward the relationships that confront changes as time passes, toward the ability to cope with them. Still openness and the ability to deal with time and its effects, not to protect ourselves, but to exploit the virtuous course of it. From bounded rationality to temporal and relational intelligence, the step results in the enhancement of the reflexive capacity of the professional entrepreneur.17 It is from reciprocal confrontation, from listening and communication, that creates the ability to observe change, options and ideas in details. An intelligence that is displayed throughout the case and in real time, in the analysis of the single fragment, of the diversity, and of the differences. If the entrepreneur lives in a social context in which the culture of the relationship is dominant, then his ability to confront changes and manage critical situations might grow. Reflexivity, after all, means being aware of one’s own interests and the other party’s interests.

C. Beyond the solution: the practice of mediation as a lever for the expansion of economic relationships through responsible and productive behavior As we have noted, the practice of mediation is linked to the development of the firm: in mediation the parties to the conflict confront themselves and are obliged to perform a detailed analysis of the conflict and of the interests that stay below it. Mediation leads to self-determination in the management of the controversy. Reflexivity and awareness together with autonomy, are values pursued by mediation through its own action to create structure and function in the relationship. The degree of activation of a constructive dynamic between the parties is the measure of the degree of success of the procedure itself. The acquisition of the ability to identify the negotiation potential of a controversy or the appropriate procedure for the case, either an amicable settlement, arbitration or judicial process, is ideally an indispensable prerequisite for accessing mediation. The choice of mediation does not involve a mere choice between several options, but requires an informed reflection on the critical points of the relationship. It requires getting to the heart of the relationship 16 17

Bellantuono, I contratti incompleti nel diritto e nell’economia, 2000. Schön, The Reflexive Pratictioner, 1983.

170

Paola Lucarelli

© sellier european law publishers www.sellier.de

Long Term Commercial Contracts and the Need for Relational Intelligence

and the reasons for its crisis, understanding the deeper interests and, above all, its vital force. Mediation, if embraced without hesitation and prejudice, is one possible dispenser of the culture of reflexivity and generative relationships. What the firm still needs for growing. After the outbreak of the conflict, mediation and other sophisticated tools, not only alternative, but functionally and ontologically distant from court trial, are efficient tools in both of the following situations: in case of a particular interest in the conservation of the contractual relationship, looking for a new balance that will allow the continuation of the relationship where this is really what the parties want, or in case there is an interest in closing the relationship and in finding the least expensive solution. In both cases the amicable approach has an intrinsic value that comes out as follows: a reflection that does not end in the evaluation of the legal case, which does not consider the economic interests, but tries to aim at the needs of the firm. The area of possible solutions in the field of amicable remedies to contractual crises is as vast as the ability to invent the solution and not at all limited to typical judicial remedies.18 The amicable management of disputes is particularly desirable in international trade. Given the nature of the interests involved, the business relationship is congenial to an alternative voluntary approach. International companies face issues related to the language, the distance, the choice of applicable law, the guarantees for performance, and highly specific investments. The business relationship relies on a common language, a mostly electronic communication, a content of the contract to be drawn up in detail and according to the enterprises’ actual needs (tailor made), the usages, customs, general principles, standard terms, and guarantee payment instruments whose common discipline is recalled by the contract (see, for example, the Uniform Customs and Practice for Documentary Credits and Standby Letters of Credit). Unlike litigation, where typical remedies are used in all the diverse areas of conflict, mediation solutions are as broad and atypical as the extension of the will of the people involved. So wide is the area of possible remedies to the crisis of the relationship, it is as wide as the fantasy in negotiation and entrepreneurial creativity. The parties, instead of delegating to others the solution of the problem, maintain an active role in mediation; either in case they decide to destroy the relationship or to rebuild it with a new agreement. The solution really belongs to the parties, they shape it themselves in order to satisfy their needs: it is therefore a solution that is much more likely to be respected by the parties.

18

We already know that justice and economy are considered too much far on a high ground of problems, see Bianco / Rossi, Giustizia ed economia: due mondi separati, in Rossi (ed.), Controtempo. L’Italia nella crisi mondiale, 2009.

Paola Lucarelli

171

© sellier european law publishers www.sellier.de

IV. The Wider Picture

It seems important, however, to emphasize an aspect regardless of the outcome of mediation. Even if they do not settle the dispute, the parties derive benefits from a serious and deep confrontation, and become aware of the problems in the relationship. A mediation of high quality, in fact, allows the parties to acquire relationship skills, even if the conflict proves to be inapt to amicable settlement. The first result that can be achieved with the help of the mediator is the ability to analyze the conflict and the role of the parties in it. In fact, by sitting at the mediation table, parties are obliged to face their dispute having explored the reasons, evaluated the relationship, and identified the terms of a continuation or of a closure. Such an obviously reflective approach is clearly distant from a passive attitude pending the decision of a heteronomous court. The practice of mediation then moves the business practices and behaviors toward conscious decisions which are thought out in relation to the causes and effects of the crisis. At the same time, and this is of particular interest in the context of international trade relationships, this method is giving companies the instruments to overcome conflicts, especially in long-term relationships. It also reduces problems that arise with the application of the contractual clause of the applicable law to business agreements: as a matter of fact, law becomes the last resort, the residual rule in case the path of negotiation turns out to be sterile and inadequate. The second set of skills that can be enhanced with the help of mediation is: the opportunity to rethink procedures, internal organization, and management of litigation. Facilitating a mature and conscious management of the conflict both within and outside the company can only promote a process of gradual empowerment within the organization. It can create a constructive dialogue about the responsibilities within the company and the practices of anticipation and prevention of possible causes of the crisis.

D. Arbitration or mediation? A client’s interest oriented answer If ADR models are compatible with the domestic and the international dimension of a relationship, they are even more suitable for the interests of the parties. The practice of mediation is surely influenced by the nature of the relationship at the origin of the conflict, since it is in continuity with it and aims at using tools and finding answers that are able to satisfy the interests involved in the relationship. However, it seems that the use of mediation, which is to say the technique of direct management of the conflict, is still sporadic, or at least not fully detectable in reality. One might well wonder why it is not publicly received as a standard model of litigation management in long term commercial agreements, even if it is clearly characterized by a strong bond with the relationship in crisis, in terms of adaptability, creative potential, and satisfaction of needs 172

Paola Lucarelli

© sellier european law publishers www.sellier.de

Long Term Commercial Contracts and the Need for Relational Intelligence

Maybe because lawyers are still used to designing dispute resolution as a judicial and administered procedure, maybe because other tools still take priority in practice, the habit of choosing a neutral third party model does not seem to exploit all its potential. Though there is no doubt that the practice of mediation enhances business management, as a leverage for the growth of firms, the providers of alternative dispute resolution services manage a very low number of disputes. The text of the ICC Rules clearly indicates the intent to encourage companies to choose mediation, assigning the arbitration panel the task of moving the parties toward an informed choice. The benefits that companies can draw from independent and friendly resolution of the dispute are, thus, inside the procedure of arbitration, the one that is traditionally recognized as the most appropriate remedy to cross-border trade disputes. Arbitrators who wonder about the preservation of their role and give the companies the option for a different type of settlement, such as mediation, can only contribute to the development of relational intelligence that creates the growth of enterprises. This assumes, however, that arbitrators must be ready to have a different approach to their role as conflict professionals and to enlarge their expertise with knowledge about different methods of dispute resolution to adequately inform and assist the parties. A behavior which is first of all oriented to the enterprises’ interests, the development of their autonomy and relational intelligence. “An uphill climb, perhaps, to a new culture of conflict management, but it’s about time”.19

19

Using the same words, in a very interesting blog, McIlwrath, Anti-Arbitration: It’s Not Hard to Mediate During Arbitral Proceedings, at the kluwerarbitrationblog. com.

Paola Lucarelli

173

© sellier european law publishers www.sellier.de

© sellier european law publishers www.sellier.de