Encouraging negotiation without lawyers

The Alternative Dispute Resolution (ADR) Regulations 2015 come into force from
9 July 2015. They are aimed at making it easier for consumers to resolve disputes with traders by avoiding court action. Practitioners are more likely to see cases where some attempt has been made at ADR before their advice has been sought.

There are two new sets of regulations: the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015 and the Alternative Dispute Resolution for Consumer Disputes (Amendments) Regulations 2015. These implement European Directive 2013/11/EU on ADR for consumer disputes.

In this context, ADR has a narrower definition than is normally understood in the Civil Procedure Rules 1998. It requires the involvement of an independent and impartial third party to help resolve the dispute. Inter partes negotiation and the exchange of offers are not included within these regulations, although the consumer needs
to have attempted to resolve the dispute through the trader’s complaints process before ADR can commence. They must do so without the help
of lawyers as instructing lawyers precludes the
use of ADR under these regulations.

Wide scope

These regulations are generally applicable to most UK businesses. They apply to all traders which sell goods or services to consumers (including digital content). An exception is that they do not apply to any business providing health services which falls within the ‘health professionals’ definition in European Directive 2011/24/EU. However, if such a business also provides non-medical services (such as finance for the treatment), then that part of the business does fall within the regulations.

Public sector bodies are not included unless they are charging the consumer directly for the services they are providing. Generally speaking, property transactions are also excluded because contracts relating to the sale of land are not contracts
for the sale of goods or services. Thus, tenancy agreements or freehold and leasehold purchases are excluded. That said, if a landlord is providing maintenance or other services, then these do fall within these provisions.

As this is consumer protection legislation, contracts solely between businesses or consumers are excluded no matter what the disparity in bargaining power between the parties.

Key changes

The regulations are being introduced in three tranches.

From 9 July 2015, all traders will have access to ‘certified’ ADR providers. ‘Certified’ providers are those who have passed accreditation. A current list can be found on the Trading Standards website.

The availability of ADR is being extended from the regulated sectors to all consumer-facing businesses. The intention is for the ADR to be free to all consumers, but the regulations do allow for a nominal fee to be charged by the certified provider (not the trader). This will depend on the individual ADR provider.

From 1 October 2015, all traders must provide the details of a certified provider in their business sector to consumers, along with confirmation as
to whether they intend to use them. Unless that sector’s own rules require ADR to be attempted, then the 2015 regulations do not make it mandatory, nor do they force the trader to use
the certified provider.

The emphasis is on using market forces to encourage the use of certified providers over uncertified ones. Traders cannot provide details of only uncertified providers even where they have been used before. Their details can be provided alongside those of the certified provider, but this risks being seen as confusing to the consumer.
As with other areas of consumer protection, anything which can be seen as misleading consumers is not usually interpreted in the trader’s favour. These regulations anticipate that non-certified providers will eventually be squeezed
out if they do not attain the proper accreditation.

The obligation is to provide this information rather than to use it. Neither party is required to use the certified provider, or even to use ADR.
If traders fail to do this, then they face an
unlimited fine or up to two years’ imprisonment.
It is only where traders can show they resolved every complaint in-house that they do not need to provide these details.

From January 2016, the European Commission will create an internet platform for online dispute resolution (ODR). Consumers who have purchased goods on the web can use this to commence the ADR process. The purpose is to make it easier to resolve cross-border disputes within the EU. Although further details are to be published
later this year, the intention is to offer an online translation function together with assistance
from advisers in each country.

Accordingly, all online traders will be required
to include a link on their websites to this ODR platform, whether or not they market abroad.

ADR timeframe

The 2015 regulations also indicate the proposed timescale for completing the ADR process. There appears to be considerable scope for this to be misunderstood because a lot of emphasis is placed upon the certified provider being able to provide its decision within three months. This is only part
of the process, however.

Under these rules, ADR cannot be started until the parties have failed to resolve the complaint themselves. The regulations do not attempt to prescribe how long should be spent on the trader’s internal complaints process so it will vary from case to case. The trader is only obliged to send the details of the certified provider once it has confirmed that it has been unable to resolve the consumer’s complaint. At that point, it must provide these details immediately.

The parties then have 12 months to send their evidence to the certified provider of ADR and ask them to accept the case. After this period, the provider does not have to accept the case. The provider advises the parties whether the case has been accepted within three weeks – both parties have to agree to the ADR at this stage.

The provider is then obliged to inform the parties of its decision within 90 calendar days. However, this does not run from the date that the provider accepted the case; rather it runs from the date when the provider is satisfied that it has received all of the evidence. The regulations make it clear that this can include expert evidence and that the timescale can be extended in complicated cases, so a certain amount of flexibility (and uncertainty) is built in. Accordingly, the investigation could conceivably take far longer than 90 calendar days.

In cases where this takes the consumer past
the six-year limitation date, the regulations provide that this will be extended to two months after
the conclusion of the ADR (regulation 4 of the Amendments Regulations inserts a new section 33B into the Limitation Act 1980).

Court route

Whether the provider’s decision is binding or capable of enforcement depends on the terms of the scheme being used. It is not binding unless the consumer has been informed of this at the start and has agreed to it. Thus, it would be prudent to request copies of these terms before accepting instructions after ADR has concluded.

If the consumer is unhappy with the outcome of the ADR, then they can bring a court case if it was not binding. As the consumer cannot consult lawyers before using ADR, they may not have carefully prepared their evidence in support of their case. This is likely to be a particularly relevant consideration where the proper interpretation of factual evidence is necessary to fairly determine the outcome of legal proceedings, as would be whether the ADR was confidential or without prejudice.

The option is there for traders to use ADR to recover monies owed to them by the consumer
if both parties agree. Traders, however, are often bound by the outcome of ADR under the majority of existing statutory schemes.

The main purpose of these regulations is to make dispute resolution quicker and cheaper for consumers. The majority of consumer transactions are covered and there are certainly benefits to both consumers and traders in avoiding the delays which can occur during the court process.

It remains to be seen whether the quality of the adjudicators, arbitrators, and mediators in all areas is up to the wide-ranging demands associated with promoting access to ADR. Shifting the onus of preparing the evidence from the lawyers to the consumers is not without risk and may overburden small businesses or sole traders. Consumers may realise too late that ADR was not, in fact, the most appropriate option for them.

Access to justice should always be the primary concern and saving money should be the secondary consideration. As these regulations are needed to implement EU legislation, consumer protection is the paramount consideration.

The Law Society is due to publish its guidance on how these regulations affect our practices shortly and so all practitioners should make themselves aware of this. SJ

Geoffrey Simpson-Scott is an associate solicitor at Colemans-ctts