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A business can win customers by committing to alternative or online dispute resolution

Soon consumers in the European Union may obtain new options for pursuing claims, under the proposed Consumer ADR Directive and the proposed Consumer ODR Regulation. The proposals could also generate benefits for businesses.

The abbreviations “ADR” and “ODR” come up frequently in discussions of amicable resolution of disputes—including disputes involving consumers.

ADR is short for “alternative dispute resolution,” a broad category that covers various methods for resolving disputes outside of the traditional context of litigation through the state courts. ADR includes procedures leading to resolution of disputes through the active intervention of a third party, either proposing a specific resolution (e.g. conciliation) or imposing a specific resolution (e.g. arbitration), as well as procedures that are limited to measures designed to encourage the parties to agree on a solution (e.g. mediation).

ODR is short for “online dispute resolution”—a subset of ADR referring to the use of ADR procedures via internet.

The most commonly cited benefits of using ADR include speed, efficiency and low cost, particularly compared to traditional litigation through the courts.

The EU legislative proposals use the term “ADR entity” to refer to “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.” This term does not include internal entities, such as individuals employed within a company’s internal complaints division.

The quality of services currently offered by ADR entities varies, and in some EU member states such entities barely function at all. But if the proposals are adopted, ADR procedures should become commonly available. ADR entities would be required to meet defined standards for impartiality, transparency, effectiveness and fairness. As a result, any disputes between a business and a consumer arising out of the sale of goods or services could be resolved amicably by competent entities. Under the proposal, the EU would like to achieve this goal by the middle of 2014.

In addition, in order to meet the needs arising in connection with cross-border e-commerce, the Consumer ODR Regulation would establish a European ODR platform, planned to be launched at the beginning of 2015.

New obligations of businesses

In addition to introducing standards for ADR procedures, the proposals would also impose certain obligations on businesses—regardless of the industry they operate in:

  • to inform consumers about the ADR entities by which they are covered and which are competent to deal with potential disputes between the business and consumers
  • to specify whether or not the business commits to use these entities to resolve disputes with consumers, and how further information on the ADR entity concerned and on the conditions for using it can be accessed.

Informational obligation

This information is to be mentioned permanently and accessibly on the seller’s website, in the general terms and conditions of contracts for sale of goods or services between the seller and a consumer, and in related invoices and receipts.

The business would thus be required firstly to indicate the ADR entity or entities competent to deal with consumer disputes, providing the website addresses of the entities. Apart from the limitations mentioned above concerning internal entities, the decision on selection of a specific ADR entity would rest with the business. This concerns, more specifically, such issues as the location of the ADR entity (within the same country or abroad) and the specific type of ADR procedure employed by the ADR entity.

Before selecting the appropriate ADR entity, businesses should consider such issues as:

  • the legal effects of submitting consumer disputes to an ADR procedure, particularly whether and to what extent the parties will be bound by the resolution
  • the procedures governing dispute resolution (such as the procedure for admission and consideration of evidence)
  • the standards which the ADR entity may rely on when resolving disputes (e.g. legal regulations, equitable principles, or codes of best practice followed in the given industry)
  • the costs that the parties may have to pay
  • the approximate duration of the ADR process.

Commitment to use ADR procedure

Sellers would need to disclose their decision on whether they commit to use the indicated ADR entity. This obligation could be met in several ways.

The seller could declare that it does not provide general consent to participate in every proceeding commenced against it before the ADR entity it has indicated, or that it will not be bound by the ruling of the ADR entity. In practice, this would mean that the seller would decide on a case-by-case basis whether to participate in a specific proceeding brought by a consumer, or to pursue its own claims against consumers, before the ADR entity.

If, however, the seller does commit to use the services of the ADR entities it has indicated, it should include a relevant ADR clause in the general terms and conditions of contracts which it presents to consumers.

It should be borne in mind, however, that use of an ADR clause may present a risk, although not great, of a finding that the clause grossly infringes the interests of the consumer, because it limits the method of resolving a consumer dispute to ADR, instead of the state courts.

Thus it would be recommended to offer an alternative clause, under which consumers could elect whether to pursue their own claims before the relevant state court or before the indicated ADR entity. In that case, however, the seller could pursue its claims only before the ADR entity.

An appropriate clause to this effect might read as follows:

  1. Any disputes arising out of or related to this contract shall be resolved through mediation before mediators of Mediation Centre X, in accordance with the rules of the centre in force as of the date of submission of the request for mediation, subject to par. 2 below.
  2. If a dispute arises out of or in relation to this contract, the consumer may elect to seek mediation before the Mediation Centre or to file a claim against the seller before the appropriate state court.

Why use ADR and ODR now, before the EU proposals are enacted?

Currently consumers are exposed to losses because of the difficulty in enforcing their claims, due to limited access to dispute resolution mechanisms, including consumer courts. The time and expense of proceedings, and, in the case of cross-border disputes, language barriers, present particular problems. One consequence is a decline in trust in businesses on the part of consumers, leading in turn to a reduced interest in entering into transactions with them.

When a seller proposes to consumers an effective, quick and cheap method of resolving disputes, it may increase consumers’ trust in the seller and encourage consumers to buy from the seller. The increased trust in a seller who has committed to use a specific ADR system would be a form of added value generated from the confidence in the ADR system.

The obligations imposed on businesses as described above would not come into effect until the proposals are enacted by the EU and then implemented into Polish law. Nonetheless, there are already good reasons for businesses to consider proposing alternative methods for resolving consumer disputes. Currently, consumer ADR is a rarity in Poland, apart from instances which it is required by law (e.g. in the Banking Law). Thus offering such services may improve a business’s image in the eyes of consumers and set it apart from competitors. When it becomes mandatory to indicate an ADR entity, this feature will lose its distinctive advantage for the seller.

Dr Ewa Butkiewicz, Ludwina Klein, Wardyński & Partners