New requirements for service providers to signpost consumers to independent redress have been in force in the UK since October 2015. This post examines the effectiveness of the UK’s implementation of the EU ADR Directive in light of the practicalities of regulation and the accreditation of redress providers, focusing on compliance by the airline industry and its regulator, the Civil Aviation Authority. This post was first posted on Linked In on 17 May 2016 and is reposted here with permission. The opinions expressed are those of the author. This post is part of our series of commentary on ODR and ADR.
By Peter Causton
It is now more than seven months since the ADR Directive lifted off in the UK. Problems with the Civil Aviation Authority certification process highlight the issues and call into question the effectiveness of the directive.
The purpose of the ADR Directive was to promote the use of ADR, including mediation, amongst member states. Mediation has been shown to save businesses money, as expensive litigation can be avoided, so the ADR Directive was a well-meaning attempt to encourage its use and provide consumers with quicker forms of redress for low-value complaints. Complaints about airlines are clogging up the courts, with several full-time judges dealing with these types of claim in certain county courts in the UK. What a great idea if these could be reduced by being dealt with through alternative dispute resolution?
The original plan was for the Department for Business, Innovation and Skills (BIS) to create a residual ADR scheme to provide alternative dispute resolution for all businesses to offer to consumers where they had no existing statutory or membership scheme. That plan was abandoned in 2015 and the market was opened up to all ADR providers who wished to offer ADR services for consumer disputes. Implementation of the Directive was delayed from July to October 2015, supposedly to tie in with the Consumer Rights Act, but the delay enabled more providers to apply to become certified. The Online Dispute Resolution (ODR) Regulations and the implementation of the EU ODR Platform was also delayed slightly until 15 February 2016, owing to delays in certifying sufficient ADR Providers in EU member states.
The Regulations laid before Parliament provided that ADR providers had to be certified by Competent Authorities. These included the Chartered Training Standards Institute (CTSI) (for non-regulated sectors), Ofcom, Ofgem, the Financial Conduct Authority (FCA), the Legal Services Board, The Gambling Commission and the Civil Aviation Authority (CAA).
It soon became apparent that in order to offer ADR as a certified provider in the regulated sectors, payment would be required and separate certification processes that duplicated the information were mandatory. CTSI charged the statutory £750 per day plus a share of the administration costs of the scheme of £2,000. The scheme was intended to be self funding. If you think about it, though, why should the ADR providers be paying to provide an essential public service? Surely the polluter pays principle should apply?
Complaints about airlines was also an area that ADR providers were interested in. However, the CAA also charged applicants for certification. Following a consultation earlier in 2016, the CAA proposed to increase its charges to £5,600 upon making an application and an annual continuation charge of £13,440, from 1 June 2016, to be payable upon demand. The CAA also required an unqualified audit report dated within six months of the financial year end. For some new mediation providers, they would not even have completed a full year trading, and obtaining an audit report would cost thousands of pounds. The irony is that many ADR providers will already have been certified by other Competent Authorities but have to go through the process again and provide additional information. There is no reason why it is necessary for consumer protection to require audited accounts, as the public are not investing in the ADR provider and would stand to lose only £25 if the provider went bust before dealing with their complaint.
Cloud Cuckoo Land
At the same time, the nonsense at the heart of the Directive is that businesses have no obligation to use the ADR providers that they inform consumers about, or to use the link to the ODR Platform that the EU has created for consumer complaints, which can be submitted in any EU language. This was the way in which the UK chose to implement the Directive, whereas other states made it compulsory. So ADR providers pay to be certified with no guarantee of any work whatsoever. Businesses can refuse to use ADR or put forward an uncertified provider.
The effect of the CAA’s requirements and those of the other Competent Authorities means that fledgling ADR providers are excluded from providing a much-needed service to consumers and the ADR market is restricted. Ombudsman Services has already pulled out of the CAA ADR scheme. Every day, ADR providers receive hundreds of enquiries from consumers eager to engage in ADR, only to be disappointed because businesses are not engaging, particularly in the retail sector, with some notable exceptions. Moreover, the authorities have decided not to take enforcement action against recalcitrant businesses who ignore the directive, preferring to take an ‘educational’ approach. So, the ADR providers which have paid for certification are effectively paying for the privilege of providing a free advice line.
The only legitimate option for ADR providers certified by other competent authorities is to be put forward by CAA members as uncertified providers, as the only requirement is to provide information to consumers about a certified provider and whether they will use them. Businesses can also provide information about other ADR Providers which are not certified, and indeed BIS has suggested this as an option.
Meanwhile Briggs LJ continues with his review of the structure of the Civil Courts and pays no regard to the existence of the ADR Directive and how it could be promoted in order to reduce court cases, such as by requiring businesses to engage in the process. There is no joined-up thinking between the Ministry of Justice, HMCTS and BIS as to the role of ADR.
The EU will not be reviewing the ADR Directive until 2019 and by then the UK may not still be a member of the EU. In the meantime, unless the UK looks at the Regulations again, the Directive will go down in history as a worthy idea but an abject failure. The only possible glimmer of hope is the Competition and Markets Authority, which is currently reviewing the legal services and ADR marketplace and with luck will see this as a system which stifles competition with unnecessary bureaucracy.
About the author
Peter Causton is an independent civil and commercial mediator and director of Promediate (UK) Limited Mediation.