The European Union to harmonize consumer dispute resolution.

Standarizing the use of ADR to resolve consumer disputes in the European Union is proving to be a daunting task that never quite ends, despite numerous consultations, recommendations and directives.

The Danish EU Presidency has initiated discussions on new proposals for the creation of an out-of-court dispute resolution mechanism and a second mechanism for online disputes. The draft directive, presented on 29 November 2011, aims to ensure the existence of non-judicial entities with competence to hear disputes on contracts between companies and consumers and to allow consumers to obtain redress through the intervention of a mediator or a complaints board. The draft regulation will set up a single European platform for online resolution of disputes related to purchases made via the internet in another member state.

A great deal of difficulty stems from the fact that Member States offer their own brand of solutions to resolve internal consumer disputes, generally through arbitration. If harmonizing different schemes were not difficult enough, cross-border shopping for goods and services poses even a greater challenge, not quite yet resolved.

The EU seems determined to standardize consumer dispute resolution on a scale never seen before by regulating the use of various dispute resolution methods, allowing merchants to demand arbitration against consumers, and developing a single ODR platform from which to effectively administer complaints throughout the EU.

ADR organizations will really have a hard time operating under the scheme the draft directive envisions, as it emphasizes transparency, independence, impartiality and proportionality at unprecedented levels, including unprecedented public supervision and scrutiny. Naturally, it all intends to foster consumer confidence, but providing this service as a private ADR organization will almost mean becoming a "private" government agency.

Different countries will react to this proposal differently. Two countries will serve as an example. In Spain, no private ADR organization is authorized to administer consumer disputes. The National Consumer Institute (government) provides this service free of charge so, as government, the INC does not have much a problem with the proposal as drafted.

On the other hand, the UK appears to be rather concerned, as it has a rather unique way to deal with consumer disputes through ombuds and adjudication, generally financed on an industry-by-industry basis through third-party private ADR organizations acting as administrators. Is the UK concerned about not living up to standards of impartiality, transparency, etc.? Not at all; they seem concerned about the new meaning "standards" may take and how it may impact mature consumer dispute resolution schemes time-tested over decades, when other States had little if anything in the way of consumer redress. Most of Europe tires of the UK being "so different", going against the grain; the fact is that the UK is different from most, if not all of continental Europe, and so they are eternally concerned about anything that comes from a Europe they are a part of, though on their own terms and conditions as far as they can legitimately push them.

Defining what is a consumer and what is a trader is a key aspect of any consumer legislation. The draft directive says:

"consumer" means any natural person who is acting for purposes which are outside his trade, business, craft or profession.

"trader" means any natural persons or any legal person, irrespective of whether privately or publicly owned, who is acting, including through any person acting in his name or on his behalf, for purposes relating to his trade, business, craft or profession

What is an "ADR entity"?

"ADR entity" means 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.

Will Spain allow private entities to provide ADR services? We doubt it on two accounts: first, it won't because government rarely feels private organizations are trustworthy; second, the Directive is much too harsh on reporting requirements for any number of people to contemplate establishing a consumer-oriented ADR organization. Additionally, even if established as not for profit, there is no money in it to even finance the bureaucracy required.

Member States are called upon to ensure that disputes covered by the Directive can be submitted to an ADR entity which complies with the requirements set out in the Directive.

Member States must ensure that the natural persons in charge of alternative dispute resolution possess the necessary expertise and are impartial.

Member States must ensure that ADR entities (where the natural persons in charge of dispute resolution form part of a collegial body), provide for an equal number of representatives of consumers' interests and of representatives of traders' interests in that body. This is s bit like the original US FINRA program, though now they have opted for public arbitrators only. We'll see how the EU evolves on this particular matter, particularly because it makes no sense to hear a dispute over a 100 euro camera by three arbitrators, or three anything.

Member States must ensure that ADR entities make publicly available on their websites and in printed form at their premises, information on items from "a to k", meaning quite a bit of information.

Member States must ensure that ADR entities make publicly available on their websites and in printed form at their premises annual activity reports. These reports shall include the following information relating to both domestic and cross-border disputes.

The entire Chapter VI deals with monitoring ADR entities, an active and expensive process for ADR organizations.

Member States must ensure that ADR procedures are effective. Article 8 on "effectiveness" literally says that ADR procedures must fulfill the requirement of being provided free of charge or at a moderate cost. Free of cost is out of the question unless government pays, or a specific industry is made to foot the bill. "Moderate cost" is meaningless. Providing this service under these conditions will cost on a case per case basis, all tallied, substantially more than most blouses and cameras a consumer may purchase and over which they may feel there is a dispute. The best option is to tally actual costs and pay the consumer for any complaint of lesser value than the cost of providing this service. The likely alternative is to pass the cost on to merchants somehow, which will translate into a bit of inflation when they pass on the added cost to all consumers.

As we said, operating under the framework established by this directive is prohibitive. The cost to be assumed by existing ADR organizations to adapt themselves to these requirements will also be high.

The proposal starts by indicating that it intends to be flexible, regulating principles only. When a "principle" requires 11 subparagraphs, it stops being a "principle"; it becomes a rule.

The act of administering concrete consumer arbitration, mediation, adjudication is rather simple for seasoned ADR organizations. However, the number of "principles", while well-intentioned, may make it very difficult to harmonize actual consumer dispute resolution outside of this 24-page document.