The concept of Ethical Business Practice & Regulation (EBP&R) is a new paradigm drawing on findings from behavioural science, responsive regulation, safety in business and integrity management, to create a practical and holistic approach.
In particular advanced Ombuds Schemes as well as Regulatory Redress mechanisms and any hybrid combinations allow implementation of efficient and effective out-of-court settlements.
ADR has the advantage of multiple functionality compared to normal court procedures. Without including costly intermediaries in the process. Some of these functionalities include, for instance, the early capturing of disputes and identification of issues thanks to feedback loops or a greater digitalization of processes.
Delivering effective and efficient collective redress is a question of system design, i.e. schemes and procedures. Two of the most efficient to do so appear to come from consumer ombudsmen and regulatory redress.
Ombudsmen are the leading model of CDR. They typically offer a wide range of functions and operate as part of the system of market regulation and the national system of dispute resolution. In addition, Ombudsmen liaise with regulators and with courts, creating a permanent and strong channel of communication between them and sectoral regulators.
Compared to courts or arbitration which deliver mainly one function, dispute resolution, Ombudsmen also:
- Provide information and advice/triage to consumers and businesses;
- Investigate and triage complaints;
- Act as platform for mediation between parties;
- Aggregate individual claims;
- Make decisions;
- Aggregate data, feedback, intervene with businesses and regulators;
- Publish information and improve sectorial learning/performance.
Regulatory Redress refers to the concept of an intervention through a public authority. Public authorities may cover besides competition or regulatory issues also questions of redress. Intervention can range from pure influencing behaviour to approval or strict enforcement/coercion.
This means that public authorities can e.g. either use encouraging techniques (e.g. nudging) or time-out periods to achieve changes in behaviours and/or timely implementation of redress.
Public authorities may recommend, approve or order redress arrangements. This mechanism can stimulate parties involved to agree a redress arrangement as an alternative to lengthy court proceedings, providing earlier closure, and allowing the potential infringer to rebalance its consumer interface, and avoid sanctions and possible damage to their reputation without admission of liability.
There are also mixed types possible. Examples exist in the Nordic States (Denmark, Finland, Norway and Sweden). Here the Consumer Ombudsman is the principle national enforcement officer. Enforcement power is then one element of the toolbox.
 C Hodges and S Voet, ‘Delivering Collective Redress, New Technologies’ (Hart, 2018), P.153-161
In critical and highly regulated economic sectors, such as financial services and energy, resolution schemes have been in operation and implemented for many years. In addition, providers of dispute resolution from different Member States have been cooperating closely in various sectors , through central network agencies, for instance:
- FiN-NET for the Financial Services Industry;
- NEON for the Energy Sector;
- ECC-NET Travel, recently created for the transport sector.
Those networks allow the sharing of mutual experience and best practice as well as recognition of market risks and sector-specific challenges.
- The lack of visibility, the high diversity of ADR, ODR and Ombudsmen models, as well as their different ways of operating lead to consumer confusion. This threatens to undermine level of consumer trust in CDR schemes. A situation that is aggravated by cross-border issues. Progress can be made by aggregating, e.g. via one website and a consistent architecture of bodies, covering national and cross-border structures.
- A sound certification process of out-of-court settlement schemes would also support the perception of trust and neutrality.
- It is imperative that further steps are taken to harmonize the CDR landscape and architectures on the ground, for the improvement of both national and cross-border dispute resolution and markets. All elements need to be regarded as part of a single holistic system, which would lead to integrating courts, tribunals, ADR, Ombudsmen and other structures.
- Pathways need to be as simple as possible and integrate relevant steps at the right time. They should be easily identifiable by users and guide them. Different and uncoordinated systems create ineffective/inefficient fragmentation.
- Lack of business coverage. National ADR structures lack residual ADR coverage, meaning there remains e.g. a lack of take-up by many small and medium-sized businesses (SMEs) in joining ADR bodies.
- Sharing of data remains fundamental. Monitoring and preventative actions can only be done via sharing of (anonymous) dispute data. Accordingly it is important to aggregate sectorial data, cross-sectorial data and cross-border data. The development of artificial intelligence and machine learning could help overcome specific barriers and biases, and further develop the habit of seeking compromises through a neutral third party.
Open-ended Real Estate Investment Funds 2012: Legal action for damages according to the German Capital Markets Model Case Act due to prospectus and sales issues.
Ca. 1000 claims on behalf of private investors were filed by a law firm: Ca. 250 cases where private investors had a legal protection insurance went to court and ca. 750 cases where private investors had no legal protection insurance went to the Ombudsman Scheme for Investment Funds, basically to achieve a suspension of the period of limitation. The ombudsman decided to bundle the 750 cases (with reference to Civil Process Regulation) as the complaints where identical in terms of a few legal questions.
The ombudsman issued a final proposal within 6 month after having received the complete complaints files. The Ombudsman Scheme for Investment Funds calculated the costs of the procedure (750 cases) which had to be beared by the investment management company on real efforts. In comparison, the entire court procedure took much longer, was substantially more expensive and not least the German Federal Court of Justice finally came in essence to the same conclusions as the ombudsman. The court cases were closed in 2018, i.e. around six years later.The costs had been paid mainly by the legal protection insurances of the claimants.
Source: Interview with Timm Sachse, Head of Ombudsman Scheme for Investment Funds, on 23rd of May 2019 in Berlin.
In the context of the EU Commission's Draft on Representative Actions as part of the “New Deal for Consumers” misses an opportunity to design a central ADR body, or to encourage first-use of a plethora of available non-court redress systems. Instead it institutionalizes an EU wide representative court procedure for damages derived from the Injunctions Directive.
- Speed of identification of a mass issue;
- Ease of ability to identify relevant consumers and to contact or refund them;
- Ease of access by consumer (user-friendliness);
- Cost of consumers (procedure access, obtaining redress);
- Duration of process;
- Total transactional costs;
- Costs of intermediaries/process;
- Delivery of full redress;
- Regulatory outcome: change of behavior/learning, reducing risk of recurrence
Likewise those criteria represent important goals and guidelines for regulation.
C Hodges and S Voet, ‘Delivering Collective Redress, New Technologies’ (Hart, 2018), P.298.