Christine Maxner, Head of the Danish Clearing House, Danish Consumer Agency

A study on alternative dispute resolution and cross-border complaints
in Europe

TemaNord 2002:569
Nordic Council of Ministers Consumer

• Introduction

« I have been asked to present the Nordic Council study on alternative dispute resolution and cross-border complaints in Europe. For those of you who are interested I have brought some copies of the report.

The study was published last year. It focuses on the different ADR schemes in the European countries, including what ADR mechanisms that exists and to what extent they can co-operate in order to solve cross-border consumer disputes.

I will try to focus on some of the main problems, conclusions and recommendations that might be relevant when discussing promoting and developing ADR mechanisms. I will begin by giving a short, general description of the different ADR systems and then try to summarise some of the main conclusions and recommendations of the report. I will also talk a bit about cross-border complaints and the significance of the EEJ-Net. Finally I will mention a new Act on Consumer complaints in Denmark that is supposed to promote new, private ADR bodies.

• The study on alternative dispute resolution and cross-border complaints in Europe.

Legal framework
The only legal framework that directly concerns the set-up of ADR schemes is the two recommendations from the Commission, rec. 257 from 1998, and rec. 310 from 2001.

The Nordic report concentrates on the out-of-court bodies covered by the first recommendation 98/257. This recommendation was designed to ensure that out-of-court procedures offer the parties certain minimum guarantees. These guarantees have been expressed, as 7 principles [that I suppose you all know, the principle of independence, transparency, the adversarial principle, effectiveness, legality, liberty and representation.
In order to evaluate the possibility of cross-border dispute resolution the report gives a description of the ADR schemes in the different European countries. The schemes are described on the basis of the information available on the Commission homepage on the ADR schemes that follow the 7 principles in the first recommendation. This information is however not always very detailed… but on the other hand it gives you a general impression of the different ADR-systems in Europe to day.

As I just mentioned the report focuses on the different ADR schemes in the European countries. I will not give you a description of the individual schemes, but I will try to highlight some of the main issues.

The outline of the different ADR schemes shows - not surprisingly - some similarities and a lot of differences.

Notified bodies
One of the things that are noteworthy is the great difference when it comes to the number of notified ADR bodies in the different countries. This varies between just a few - in for example France and Luxembourg - and more than 200 notified bodies in Germany. This may not in itself constitute a problem - but on the other hand it indicates a diversity, that is likely to add a great deal of complexity to cross-border complaints and co-operation.

The structure as well as the competence of the schemes varies a lot nationally within the different countries and between the countries. Some countries have almost no ADR schemes and others have some, but they might not be well functioning.

In some countries the ADRs are mainly run by the state or on state initiative, for example in the Nordic countries, whereas in other countries the schemes are a result of consensus between the business and consumer organisations like in the Netherlands. And in other countries there is a preference for codes of practices and ombudsman schemes. This is the case in the UK.

In some countries it is completely voluntary to use the ADR schemes like in Portugal, whereas in other countries the professional willingly has to participate.

At the same time the schemes cover both informal meditation as well as arbitration.

Different types of disputes are dealt with in the different countries. Some countries have ADR schemes covering almost every possible consumer dispute others have almost none. Also the scope of the schemes vary a lot. Some are general covering almost every kind of consumer disputes, while others are sectorial and only concern disputes in particular areas. In some countries the ADR schemes have national coverage, where in other countries the competence is limited to a certain geographical area. Or you can find countries that have a combination of these, fx. national coverage in a specific sector.

Nature of decisions and enforcement
The general picture of the nature of the decisions in the different European countries is that quite many ADRs make recommendations and decisions that are non-binding to the parties. In some countries the parties are bound by the decisions - however this is mostly the case if the parties have accepted this prior to the case procedure.

On the basis of the studies in the report it can be concluded that there is no equal access to ADR schemes in Europe.

From a European consumer’s point of view a perfect ADR system would be a completely similar system for consumer disputes everywhere and with the full possibility of cross-border disputes. One single set-up would enhance predictability, and the process would be more familiar to the consumer.

However it would not be fair - nor realistic - to suggest a single model for ADR schemes in Europe for the time being, given the fact that substantive law differs and due to different traditions.

But the ADR schemes must have some similarities on a European scale and fulfil the recommendations of the Commission.

• Conclusions and recommendations
So what are the conclusions and what can be recommended on the basis of the studies in this report when it comes to structure, competence, legal status of the decisions and financing of ADRs?

Central - regional schemes
An individual structure allows every scheme to be formed in accordance with the particular needs of that scheme and allows a flexible development of ADR schemes. However in the countries in which an individual and unregulated approach is taken, the result is an incoherent ADR system like in Germany, UK, Austria, etc. The more centralised approach used in some Nordic countries is an advantage when giving information about the scheme. The most well functioning schemes are all regulated to some extent and they adopt a more centralised approach where schemes have some similarity, such as the Nordic countries, the Netherlands, Spain, etc. Therefore the report concludes, that more centralised schemes should be furthered in all EU countries, whether on a regional, federal or sectorial level.

General - sectorial schemes
Sectorial schemes, as opposed to general schemes, have the advantage of creating a special expertise in a specific area, and special consideration can be given to the particular needs of this sector. On the other hand the ADR schemes that cover all consumer disputes have the advantage of being general, and allowing every consumer dispute to be dealt with. A sectorial approach will leave out some areas that are not big or important enough to stand alone, especially in areas where the business sector is not well organised. And in such unorganised sectors you will often have more consumer disputes. A general scheme will also be more consumer friendly because the consumer only has to address one single scheme with the same type of procedure.

Compulsory - voluntary systems
In countries like Spain, Portugal, Belgium, etc., it is completely voluntary to use the ADR schemes for both parties unless they are bound by an arbitration clause, or the businesses have accepted to participate. In other countries like most Nordic countries, the professional willingly has to participate, but even if the professional chose not to participate the case can be continued till a recommendation has been made. The fact that schemes are based on voluntary participation is a benefit in some cases because companies that have adhered voluntarily to a scheme will be more likely to follow the decisions or settlement proposals made by the scheme. On the other hand this type of scheme will only reach the companies that are already concerned about customer service, but not the firms that do not follow good practice. Therefore the report concludes that it is an advantage if the ADRs are able to deal with a complaint without the consent of both parties.

Another important issue mentioned in the report is that the ADR schemes can often benefit from public funding. The costs of the ADR schemes have a substantial influence on the schemes. The funding of the schemes varies in the different member states, and you can find systems where the state, local authorities, trade organisations, consumer organisations or a combination of these actors contributes to the ADR systems. These differences are reflected in the ADR schemes and have an effect on how well functioning they are. Therefore the report concludes that it can be recommended that member states provide some kind of funding in order to strengthen national ADR schemes.

However one cannot expect that the ADR schemes throughout Europe will or can be developed in the same direction neither next week nor next year. This will take some time and may even not be possible. In the meantime it is important to concentrate on developing the existing national schemes within the existing framework and make them co-operate better.

• The EEJ-Net and cross-border complaints
The EEJ-Net plays an important part in this process when it comes to cross-border complaints.

As I described before, the ADR schemes in the different EU countries are highly diverse in terms of structure and procedure. It can be difficult to obtain information about them, and a lot of schemes are unknown even to the national consumer. National ADR schemes have not been created with cross-border disputes in mind and no special measures have been prepared for cross-border cases. National schemes are competent only for those companies whose place of business is in the same country as the ADR scheme, and the national ADR schemes base their decisions on the law of this state.

Therefore at this stage there is a need for a network like the EEJ-Net. In its present form, the network will most likely lead to the exchange of cases between already well functioning ADR systems. Countries with a non-functioning ADR system would have difficulties in receiving complaints, but could, of course, send complaints on to well-functioning ADR schemes in other countries. This would only be an improvement for the consumer who trades with companies placed in countries with already well functioning ADR schemes. The network does not change the fact that many parts of Europe have areas that are not covered by an ADR scheme.
This is not promoting cross-border trade since the consumer cannot be expected to seek information about the quality of another country’s ADR schemes before purchasing services or goods abroad. This would mean that the consumer might still prefer to buy in his country of residence.

Therefore the report concludes, that the network needs to actively promote the set-up of ADR schemes within all areas.

Areas of priority
Taking into consideration the difficulties of establishing a general scheme for satisfactory dispute resolution in cross-border consumer disputes, one would have to focus on certain areas and concentrate the efforts on establishing a cross-border ADR scheme in these areas.

The report has examined the possibility of filing complaints within the 5 areas in all of the member states. These areas are timeshare, travel and tourism, vehicles, e-commerce and expensive goods like TV and hi-fi.

When it comes to time-share the studies show that 11 out of 17 countries do not have ADR schemes covering these complaints. Re. Travel and tourism 13 countries have ADRs covering this area. Concerning vehicles the total coverage of ADRs is incoherent, since in some countries it is not possible at all to file a complaint and in others the scope and the competence of the present schemes varies. Talking about e-commerce there are no particular ADR bodies. But 10 countries have ADR bodies that are competent to handle this type of disputes. And finally purchase of expensive goods like TV and hi-fi the report states that only 8 countries have ADRs covering this area.

Having identified 5 areas where cross-border complaints are likely to occur, the report concludes that in none of the 5 areas chosen did all countries have ADR schemes. This means that even in areas where cross-border disputes are likely to occur and where there are many national schemes, the European network will not be complete.

Thus, it is necessary to create well functioning national ADR schemes that can function as a basis for common cross-border dispute resolution and in particular distribute information about the possibility of cross-border disputes.

• Danish Act on Consumer complaints
And the next obvious question is; how do you do that? What will be the best way of developing new and existing ADR schemes?

Of course there is not a single answer to this question. Especially given the fact the ADR systems and the legislation throughout Europe differ substantially.

But as an example I can tell you a little bit about a new Act on Consumer complaints that was adopted by the Danish Parliament in June and that will come into force by January 2004.

As you may already know the Danish complaint handling system consists of a general public funded Consumer Complaints Board - that covers a broad spectre of consumer complaints - and 12 private sectorial complaint boards. The private boards are set up in co-operation between the consumer and trade organisations and are financed by the different lines of business. The Consumer Complaints Board approves the setting up of private complaint boards and it is our experience that they are very effective and highly respected. In order to be approved the private complaint board has to handle complaints against all companies with in that specific sector - even complaints against companies that are not a member of the founding trade organisation. And this is normally where we have the main problem: the trade organisations are normally not willing to pay for the handling of complaints against business that are not at member of that specific trade organisation.

Though the last years the number of consumer complaints filed with the Consumer Complaints Board have increased with more than 50 % from 3.100 in 1996 to more than 4.800 in 2002.

In order to ensure the consumers a fast and efficient consideration of their complaints a reform of the Danish consumer complaints’ system is to be implemented. In order to accomplish different reform initiatives, it was necessary to establish a new legislative base. The Act on Consumer complaints was adopted in June and is going to ensure the practical implementation of the reform initiatives. These are among others,
• inciting the businesses to show greater responsibility
• setting up more private complaints’ boards
• a new scheme for financing the handling of consumer complaints and,
• the possibility of displaying the names of businesses that do not comply with the decisions of a complaint board.

One of the means used in order to initiate the businesses to show greater responsibility and to promote the setting up of more private complaint boards is a new scheme for financing the handling of consumer complaints. To day there is a difference that is likely to create unfair competition when it comes to financing the handling of consumer complaints. In areas where a private complaint board exists the business organisations themselves take care of financing the handling of consumer complaints. In other areas - where the public funded Consumer Complaints Board is competent - the procedure is free of charge for the business. But from January 2004 it will no longer be free of charge to have a complaint handled at the Consumer Complaints Board. A business that looses a case will have to pay an amount to the Danish Consumer Agency for the handling of the case. The cases will be graded according to difficulty and the amounts are expected to be between 360 and 660 Euro. This will not only ensure a more fair competition among the business regarding the financing of handling of consumer disputes. But it is also expected to encourage the business to take a greater responsibility for their own complaints and try to solve them before they result in a complaint at a complaint board.

Another initiative is the possibility of displaying the names of businesses that do not comply with the decisions of a complaint board. This may very well create some bad publicity for the business. This is expected to incite the business to comply with the decisions of the complaint boards. The existing private complaint boards - however - are not too satisfied, since they believe that they themselves should decide, weather they want to expose their own members or not. This issue is currently being debated.

• Final remarks
The Danish model will not necessarily be useful in other countries with different structures and different traditions. But it is an example of how it can be done. »