Essentials – clear and brief
Alternative Dispute Resolution (ADR) is an umbrella term for a wide variety of out-of-court mechanisms used to resolve disputes and provide redress. ADR is growing in popularity, as it encompasses valuable and cost-effective alternatives to court proceedings. ADR generally involves one of the following three mechanisms:
ADR via private, co-contracting processes, including arbitration, adjudication, mediation and conciliation, are designed principally to resolve disputes between parties in a contractual relationship, but can have wider application. Nonetheless, this category of ADR is not binding on third parties.
ADR via independent Ombudsman entities (or similar publicly validated intermediaries like “médiateurs”) covers a wide variety of resolution techniques developed to deal with consumer claims, typically involving complaints about a product or service in a particular market sector. This type of ADR has the advantage of being multi-functional: it can be used for resolving unitary or mass claims, which may be contractual or non-contractual, and which may deal with private or public law disputes. Its real added-value lies in combining these complaint handling powers with market surveillance and claims management functions.
These include accumulated market knowledge and intelligence, early detection, monitoring, feedback loops to business, advice to business and consumers, regular market and claims management reviews and reports. This ADR mechanism is frequently deployed through on-line platforms providing improved impact and efficiency and often an excellent consumer interface.
Within this category of ADR, the Consumer Ombudsman model has a wide range of variants within different civil justice systems of Member States. It can be found in regulated sectors, working closely with sectoral regulators, such as a Financial Ombudsman, Energy Ombudsman, Communications Ombudsman etc.
ADR via Regulatory Redress is a mechanism whereby a public enforcement body (typically the regulator of a market sector) has power to encourage or stimulate voluntary settlement of a mass claim as an alternative to imposing a fine, or other penalty, and/or in lieu of pursuing a court order for injunction or damages. It covers a wide range of consumer, public law and competition law issues. The most advanced regulatory authorities approach enforcement by identifying the root cause of the problem and agreeing actions to reduce the risk of reoccurrence of the problem. This mechanism seeks to ensure that such actions are implemented by the infringer and others and that redress/rectification is made by imposing a proportionate supervisory sanction.
ADR has proved to be the most effective and efficient pathway to deliver redress for unitary and mass claims. It is usually much less expensive much more simple and efficient than court proceedings.
Empirical research on an extensive database of case studies in EU Member States has clearly demonstrated the superiority in delivering collective redress via Regulatory Redress and Consumer Ombudsmen, by far surpassing any court-based mechanisms.
In addition, digitalization allows more and more use to be made of big data and machine learning, thereby developing modern techniques which offer further improvements on satisfactory and speedy outcomes for consumers and traders.
The table below provides a comparative overview of the different mechanisms against various criteria:
At EU level, various legislations have framed the application of those mechanisms:
The ADR Directive (2013/11/EU) on consumer disputes came into force in May 2013 and provides alternative ways of resolving unitary contractual disputes between consumers and businesses across the EU. The directive also aims to simplify and standardize the current process of dispute resolution for consumers.
It increases the quality and professionalism of ADR entities by requiring them to maintain up-to-date websites, providing consumers with easy access to information on their procedures and enable them to submit complaints online.
The ADR Directive had been taken in conjunction with the complementary European Online Dispute Resolution (ODR) Regulation (524/2013), implemented by Member States since January 2016. The ODR platform offers consumers and traders a single point of entry for the out-of-court resolution of online disputes. The ODR platform only uses dispute resolution bodies approved by their national governments meeting quality standards relating to fairness, transparency, effectiveness and accessibility.
The ODR platform is easy to use and takes users through the dispute resolution process in a step-by-step fashion. It provides translations in all EU languages and has inbuilt time limits for resolving complaints.
In the context of ADR via Regulatory Redress, the Consumer Protection Cooperation Regulation (EC No 2006/2004 or CPC Regulation) is highly relevant. This regulation establishes a cooperation framework allowing national authorities in the European Economic Area to jointly address breaches of consumer rules in case trader and the consumer are established in different countries.
This collective enforcement network is referred to as the "CPC Network". The European Commission supervises the cooperation between these authorities to ensure that consumer rights legislation is applied and enforced in a consistent manner across the Single Market.
On 17 October 2023, the Commission adopted a proposal for a directive amending Directive 2013/11/EU on alternative dispute resolution for consumer disputes, as well as Directives (EU) 2015/2302, (EU) 2019/2161 and (EU) 2020/1828.
The proposal entails several key changes:
To enhance trader participation, amendments proposed by the IMCO Committee make participation mandatory for certain air carriers and extend the scope to include pre-contractual obligations.
To boost consumer awareness, amendments aim to improve the impartiality and quality of ADR procedures, requiring human review of automated processes and general understanding of private law in cross-border cases by ADR personnel.
On 13 March, the Plenary endorsed the report as Parliament first reading position with 605 votes in favour, 7 votes against and 13 abstentions. In the Council, where it has been referred to the Working Party on Consumer Protection and Information, which debated it for the last time on 22 April.
It is uncertain whether the ADR will be adopted before the European Parliament elections in June. Any institutional change in the midst of this process could influence the regulatory process and final result of the file.
