The Unintended Consequences of the New EU Law on ADR/ODR?

April 22, 2014

"You do not examine legislation in the light of the benefits it will convey if properly administered, but in the light of the wrongs it would do and the harms it would cause if improperly administered." - Former US President Lyndon Johnson.

 

(Note: You can download a longer version as published in Digital Democracy  and E-Government by clicking here)

 

All legislation starts out with a reasonably clear objective in mind and develops in time during legislative hearings together with consultations with interested parties. It is the development journey involving negotiation and compromise that inevitably leads to the risk that the final draft that becomes law fails to meet some of the initial targets and, more often, does so by risking consequences that had not been anticipated and which may serve to damage the original objectives of the legislation. The recent European Union Directive on Alternative Dispute Resolution and accompanying Regulation on Online Dispute Resolution, both focused on consumer disputes, are no exceptions to this risk. I will be addressing the potential for some unintended consequences as I see them during the UK consultation for the implementation into local law.

 

The Directive on ADR and Regulation on ODR are together targeted at improving both the quality and integrity of ADR services as well, through the building up of consumer trust, the Single Market (making it easier for consumers to buy cross-border within the EU) . Together they set out a number of criteria for, and system for registration of, consumer ADR services as well as facilitate identification of and, through requirements for the option of online filing and information exchange, access to, such services. Key to generating awareness of, and access to dispute resolution services, is, firstly, the Regulation on ODR, which mandates the creation of a European Commission website to act as a central, online, point of access through which consumers can be directed to appropriate ADR services, and, secondly, the requirement of the Directive that all traders who are obliged, whether by other regulation or by contractual commitment, to participate in ADR, to notify consumers of such fact and thirdly, and most significantly of all, the requirement within the Regulation on ODR that all traders must carry a link on their websites to the Commission’s ODR website.

 

The essential question is whether the public will find themselves more empowered in the exercise of their rights as consumers under this legislation or more compromised through the encouragement of less than adequate dispute resolution processes that may not attract participation from traders?

 

The first problem is that the legislation is non-binding on traders, which gives the potential for the unintended consequence that, rather than achieving an increase in consumer trust in online transactions, it will lead to a reduction of trust. Let us consider the impact in practice. Once the EU's ODR platform is in place, everyone making an online purchase on a site other than one exclusively B2B, will know, from the link on the traders website, as required by the Regulation, that, should they have a complaint later, that if they go back to the traders website and click the ODR link, they will be taken to an official EU site where they will fill out a form which will be passed on to an online ADR service. The consumer will understandably assume that the trader will therefore participate and thus he will have trust enough to buy. If the consumer then has a problem with the product/service and clicks on the link to the EU site and completes the form, he may then be later told that the trader will not participate. That is not good. Consumers will feel misled and lose trust in the EU as guardian of their rights.

 

One solution to the risk of misplaced trust, whilst retaining the option on the trader to refuse to participate, would be to have required the trader to not only provide the link to the EU platform but to state whether or not he commits to participating in ODR with any consumer who has a complaint.

 

Another area of concern is that there is nothing in the Regulation on ODR that defines what is ODR in a way that is consistent with the general use of the term as developed by researchers, experts and operators in the field, nor any joining of dots of previous work in the field, some of which was itself funded by the EU. As a result the understanding of consumers and traders will vary from, use of email or web conferencing or, worse, simply the provision of an online platform (the EU's official portal) through which to deliver the communications of an existing process of ADR. It seems to ignore the real potential of ODR under which innovative intelligent systems delivering knowledge management and analysis techniques can provide effective tools to help not just the delivery of communications but the resolution itself.

 

The consultation process undertaken by the Commission does not seem to have engaged with, and benefited from ODR projects it has itself funded over the previous 12 years. The most obvious example is the EU funded CCForm project which was set out to achieve the very same objectives i.e. a neutral signposting website to provide ready access to traders and consumers alike across Europe to all ODR Services. Similarly, although the setting of standards as applied by ADR organisations is covered in the Directive, there is no reference to standards of the technology tools to be utilised, something already covered in depth by a CEN (European Committee on Standardization) Workshop Agreement that I and Colin Rule contributed to and which appears to have been overlooked. Finally, whilst the legislation requires immediate providers to undertake user surveys there has been no link to the EU funded EMCOD project I was a member of that not only produced a report and published a book on the assessment of the quality of ODR services from the users perspective but it also has created an online survey tool that has been paid for by the EC and is ready to be used. Why not make a link to the EMCOD tool obligatory for all ADR providers and so begin to build up a huge, and continually growing, knowledge base for analysis from which all ADR services can benefit and improve?

 

With this narrow scope and the absence of focus on the full potential range of ODR and how new developments can thrive within the referral structures being put in place, there is the risk that the legislation will have the effect of discouraging rather than encouraging technological developments in the consumer dispute resolution field.

 

Article 8 (c) of the Directive requires that:-

 

"the ADR procedure is free of charge or available at a nominal fee for consumers".

 

Understandably, since they comprised the main body of those consulted by the European Commission in the development of the legislation, this provision appear to reflect the ‘free or nominal cost’ tradition for public ombudsmen schemes or those offered by trade associations. There are, of course, reasons to keep costs low, being, firstly, an ADR scheme to resolve complaints related to services that go to the core of 21st century life, such as utilities and telecommunications, or for professional services, have a public interest element to them that should not be behind a barrier of high cost. Similarly members of trade associations gain in marketing terms, over competitors outside of such associations, from contributing to schemes offered free or at nominal cost to their customers. However, the bulk of consumer transactions covered by the legislation will not come within such categories, but will involve single independent traders or service providers. The concern is that the impact of such a requirement may be to undermine the development of more innovative solutions for dispute resolution that will assist in the process of resolution itself rather than a model involving little more than an online facility to initiate a complaint and manage the communication. If all that ODR delivers is a channel for online communication of existing ADR discourse within existing ADR processes, then the EU may be missing an opportunity to exploit the real potential and benefits of ODR. If both trader and consumer are being directed to nominal cost solutions, this risks closing the market for innovation and the future development of improved systems for ODR. Such innovation requires investment that will not so easily flow into an industry that appears closed by legislation supported practice on fees. This may result in consumers being denied access to quality ODR that may otherwise have been developed in other areas of the dispute marketplace. In short Article 8 seems anti-competitive and thus at odds with the underlying principals of the European Union.

 

‘Justice delayed is justice denied’ is a well understood legal maxim (occasionally attributed to the 19th Century British Prime Minister, William Gladstone) to explain how people who suffer delay before they receive a judicial outcome will feel they have been denied justice whatever the outcome. For those of us involved in technological developments in ADR the 90 day period for resolution required by the Directive is extremely excessive. No ODR process should take as long as three months to resolve. I imagine the reason such a long period has been included in the legislation is another outcome of the limited consultation with disproportionate responses from the existing consumer ADR industry for which 90 days is considered swift. Outcomes under ODR typically occur within days if not hours. This depends on to what extent the process is automated but even with human intervention the time limits for exchange of information can be very swift given intuitively assisted form filling. The element most likely to lead to delay is the obtaining and exchanging of information between the parties. The speed of that process will often reflect the level of priority and human resource allocated which, in turn, will expand to fill the tolerances in the system. Surely with justice dependent on speed of delivery as much as content, and with technology able to offer efficiencies reflected in better management of time, the legislation offered an opportunity that the 90 day period to resolution has thrown away. Online access and speedy resolution is always going to be more acceptable and more satisfactory to consumers, but perhaps often less so to organisations managing networks of human neutrals and back office processes that may for some still be paper dependent. The requirement, therefore, for such a lengthy minimum time period for resolution tied with participation being non-mandatory, can only discourage ADR providers from investing in more advanced technologies to speed up resolution over slower, less technology assisted, processes. Clearly that will not be the case for all ADR providers, many of whom will be forward looking, but for so long as the legislation discourages speedy turnover, the opportunities to develop processes that truly reflect the interests of the consumer will be the less.

 

This failure to require speedy justice can only work against the interest of traders in that a growing number of consumers will see launching a small claims court case or, worse, posting or just threatening, a negative consumer review the route to a much faster resolution.

 

Consequences that are unintended are a natural side-effect of the drawn out processes that lead to legislation, especially when produced from an organisation representative of such diverse cultures and interests as the European Union. I have identified some of them and hope that this will alert those responsible for drafting implementation in Member States, as well as those responsible for undertaking operations under the legislation, to consider how to reduce such risk.

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