Following an agreement with the European Parliament, at first reading, the Council has recently adopted, without discussion, a directive on Alternative Dispute Resolution (ADR) and a Regulation on Online Dispute Resolution (ODR). The new system has been described as providing for “simple, fast and low-cost out-of-court settlement procedures designed to resolve disputes between consumers and traders arising from the sales of goods and services.” The Government has supported the overall objectives of the ADR/ODR proposals.
According to the European Commission the legislative package will “ensure that all EU consumers can solve their problems without going to court, regardless of the kind of product or service that the contractual dispute is about and regardless of where they bought it in the European single market”. The new directive will apply not only to cross-border but also domestic disputes submitted by consumers against traders in most areas of commercial activity, including to online transactions. The Regulation on Online Dispute Resolution (ODR) creates a EU single online platform aiming at solving contractual disputes online.
The recently adopted directive requires all member states to put in place ADR schemes to cover all contractual disputes between consumers and businesses. It establishes a common framework for ADR by setting out common minimum quality principles aiming at ensuring that all ADR entities are impartial, transparent and efficient. The national ADR schemes that are already in place will continue to operate but within the new framework. All out-of-court entities must therefore meet the same criteria. Hence, all member states shall ensure that ADR schemes meet the required quality criteria and are available for any contractual dispute between consumers and business.
Member States are also required to designate a competent authority to monitor standards of the entities that provide this ADR, so-called "ADR entities". There have been concerns that some UK’s arbitration and mediation services offering an alternative to court action might not meet the strict EU’s standards being therefore prevented to be registered on a database of approved schemes. National competent authorities will be allowed to remove an ADR entity from the so-called notified list if the ADR entity stops complying with the requirements of the Directive.
According to the Parliamentary Under-Secretary of State for Business, Innovation and Skills, Jo Swinson, as the UK has already in place a set of ADRs providers the directive will not entail substantial changes in the UK legislation. Jo Swinson pointed out that the Government’s approach “during negotiations has been to ensure that the proposals will deliver benefits to consumers but not at disproportionate cost to business”. Although the Government was successful in introducing, during the negotiations, some amendments that will make both proposals “less onerous to implement”, there are still concerns, as pointed out by Jo Swinson, that “certain aspects of the proposals, in particular that the information requirements that fall on business could create unnecessary burdens and cause confusion if they are not implemented effectively.”
The Government has sought to prevent the Directive to impose any information requirements on businesses that are not committed to using ADR. Nevertheless, under article 13 (3) of the directive, in the event of an unsettled dispute between a consumer and a trader, the trader will have to provide the consumer with information about ADR entity/entities indicating whether they will make use of that ADR entity to resolve the dispute.
Member States may issue formal statements in order to voice reservations or to 'clarify' their postion on a legislative or policy proposal. The Government voiced its concerns, in a formal statement, as regards the implications of Article 13(3), which reads “The UK has concerns that imposing compulsory information requirements in this manner on traders who have no intention of using ADR will cause confusion for traders and consumers, impose unnecessary burdens on traders, and create difficulties with compliance and enforcement.”
It is important to mention that following the European Parliament's insistence the directive now includes a provision whereby Member States are required to amend limitation and prescription periods for initiating judicial proceedings, so that they do not expire during ADR procedures. It is important to mention that UK’s primary legislation, particularly the Limitation Act 1980, will have to be amended to implement such provision. According to the Government “The requirement to extend limitation and prescription periods is reasonable and its actual impact would be limited as the type of dispute in question is unlikely to reach court.” It also noted, “The UK has already implemented a similar provision (Article 8 of the Mediation Directive) by way of the Cross-Border Mediation (EU Directive) Regulations 2011.”
But, Part II of the Limitation Act 1980 will have to be amended in order to include a section extending the time period for bringing a claim in the case of the disputes covered by the ADR Directive. Consequently, this provision will have an impact on national civil law procedures.
It is important to note that the legal basis of the Alternative Dispute Resolution Directive is Article 114 TFEU, which is the basis for "measures for the approximation of provisions laid down by law…in Member States which have as their object the establishment and functioning of the internal market". The Government considered this provision as an “appropriate legal basis” for both proposals. Nevertheless, the Government believes that a Title V legal base, which covers matters of freedom, security and justice, particularly Article 81, should have also been used as an additional legal base. This would have triggered the UK's JHA opt-in Protocol.
Taking into account that the ADR Directive contains a provision, which is the same as Article 8 of the Mediation Directive, requiring member states to amend limitation and prescription periods for initiating judicial proceedings and noting that the Mediation Directive has as its legal base Article 61(c) EC, which is now Article 81 TFEU, the Government believes they should have the same legal basis – Article 81 TFEU. During the negotiations the Government has sought to add a title V legal base, which would have allowed the Government to opt out of the above-mentioned provision. However, the other member states took the view that there was no need for this.
The Government was therefore isolated and consequently unsuccessful in adding a title V legal base. Hence, as the European Scrutiny Committee pointed out “In the absence of a Title V legal base, (…), we do not consider the opt-in Protocol applies.” The Committee rightly stressed, “the Government has no scope for opting in or out.” Nevertheless, the Government takes the view “that the UK Opt-in Protocol applies where a measure contains provisions pursuant to Title V, even in the absence of a Title V legal base.”
It is important to note that the Government could challenge the validity of the legal base before the ECJ. In fact, the Government, initially, considered this possibility. However, as Jo Swinson explained, during a debate in European Committee C, the Government “support the aim of the proposals”, so it has decided, “that it is sensible to opt in and that a legal challenge would not be appropriate.” She stressed, “We assert our right to opt in to the provision prior to the Council vote on 22 April.”
Thus, the UK’s statement reads, “The United Kingdom believes that Article 12 of the Directive falls within the scope of Article 81 TFEU and that this Title V legal base should therefore have been cited. In light of the fact that Article 12 is adopted pursuant to Title V, the United Kingdom considers that this provision should have been split from the Directive and placed in a discrete instrument, or removed from the text of the Directive.” Moreover, it stresses “As the United Kingdom can accept the policy objective of Article 12, it has opted in pursuant to Protocol 21 of the Treaty on the Functioning of the European Union.” However, as the European Scrutiny Committee pointed out such decision has “no formal consequences in Brussels as no other Member State accepts that the Title V opt-in applies.” Henry Smith MP noted, “a minuted statement by the UK in the Council will do little to impede the worrying consequences for the UK’s ability to opt out of EU civil legislation.” Thus an undesirable precedent has been created, whereby a measure, such as the above-mentioned measure, requiring considerable changes to the UK’s civil legal procedural rules, has been adopted without a Title V legal base thus removing the UK's ability to decide whether to be legally bound by it. The Government should have challenged the validity of the legal base before the ECJ.
