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ADR and collective redress

I. Introduction

Alternative Dispute Resolution (ADR) is an umbrella term covering a large number of processes to settle differences between the parties of a dispute by means of extra-judicial mechanisms: mediation, expert determination, arbitration, or a combination of these schemes.

Studies undertaken by the Commission found that a large number of ADR mechanisms are available in the Member States, adapted to particular legal systems. These may be mere facilitation processes or binding decisions made by a third party. Sectoral dispute resolution boards, ombudsmen, or government-run compensation schemes have been established to provide, especially for consumers, alternative ways to resolve disputes. The potential for ADR is not only relevant for single claims but also in collective claims. Its utilisation may provide the parties with advantages of reduced costs and time in dispute and allow the enforcement of small claims. For businesses, ADR can be a tool for maintaining business reputation and preserving customer trust.

In Europe, there is as yet no tradition of seeking collective compensatory redress and, although many Member States have already implemented forms of collective action procedures, there have only been a small number of cases. While in the United States, private enforcement of mass claims is shaped by opt-out regimes, discovery, contingency fees and thus has characteristics of regulatory enforcement mechanisms, mainly based on deterrence, European legal systems have adopted different solutions to mass problems aiming at avoiding overcompensation or other abusive practices.

ADR in collective redress shows a similar diversity, particularly given that the existence of binding (judicial) collective redress regimes is a relevant factor in the question of whether businesses will settle a claim or not. The field of application of ADR mechanisms related to mass claims will largely depend on the development of binding collective redress regimes.

II. ADR and Collective Redress: EU level initiatives

European Union lawmakers have addressed ADR within the field of collective redress and are making efforts to complement the Member States' public enforcement models by developing private rights of action. Two main subject areas requiring mass claims mechanisms have been in sharp focus: consumer collective redress and competition damages. There have been a number of initiatives to create a European policy on collective redress. In a first phase, the Court of Justice acted as pacesetter when it held that competition damages are available to individuals who suffer from breaches of EC competition law and that any individual can rely on a breach of the relevant provisions before a national court and therefore rely on the invalidity of an agreement or practice prohibited under that article (ECJ decisions Courage and Manfredi.

To strengthen the European competition system, the European Commission published a 2005 Green Paper and a 2008 White Paper on damages actions for breach of EC antitrust rules, suggesting greater co-ordination of national rules on claiming damages for breaches of EU competition law on the basis of a European directive. According to the White Paper, collective redress mechanisms were to be established to reach the main goal of corrective justice. However, the European policy on collective redress shall be rooted in "European legal culture and traditions" which means inter alia a rejection of the U.S. class action model.

In the same year, 2008, the European Commission (DG Sanco) also adopted a Green Paper on collective redress focusing solely on consumer protection. These two parallel proposals, one promoting collective damage actions in relation to antitrust infringements, the other developing a collective redress mechanism for breaches of EU consumer law must be seen as intertwined instruments and subsequently, the Commission drafted a combined Proposal on certain rules governing actions for damages under national law for infringements of competition law.

Both proposals emphasised the need for effective ADR procedures to facilitate access to justice and to allow collective redress where possible without the need for a full litigation procedure (without a trial).

The proposals were followed by a Commission Recommendation on collective redress mechanisms (June 2013), recommending that Member States introduce 'opt in' collective redress for those harmed by breaches of directly effective EU law. The recommendation provides that, alongside the court based collective redress mechanism(s), which the Commission encourages Members States to introduce, there must be effective means of alternative dispute resolution so that group claims can be settled before and during the prosecution of the claim in the courts.

The potential of ADR mechanisms to contribute to the effectiveness of competition law enforcement has also been highlighted by various consultation papers. An independent report, entitled "Collective Redress in Antitrust", commissioned by the European Parliament, was published in June 2012. The study emphasizes the importance of encouraging the initiation of damage claims by consumers and small companies seeking compensation for harm caused by anti-competitive conduct. Following on from the study a European Parliament resolution entitled "Towards a Coherent Approach to Collective Redress", openly supported the introduction of an EU-wide form of collective redress and provided important guidance as to the shape such a mechanism should take. The Report emphasises that ADR mechanisms often depend on the trader's willingness to cooperate and that the availability of an effective judicial redress system would act as a strong incentive for parties to agree an out-of-court settlement, which is likely to avoid a considerable amount of litigation. The European Parliament therefore encourages the setting up of ADR schemes at European level so as to allow fast and cheap settlements of disputes as a more attractive alternative to court proceedings.

In addition to EU level encouragement of ADR for collective claims, a number of measures have been taken by the European Union dealing with small claims by consumers and SMEs. These are particularly relevant to mass consumer claims, as they can, in appropriate cases, be used as a spur to encourage a group settlement of a large number of similar small claims. Apart from the creation of a European Small Claims procedure applicable to cross-border claims under €2,000, inter alia, a 1998 Commission communication on out-of-court settlement of consumer disputes and a Recommendation on the principles applicable to out-of-court settlements was followed by a Green Paper on ADR in 2002, a European Code of Conduct for Mediators in 2004, and a Directive on mediation in 2008..

In addition networks such as the Extra-Judicial Network (EEJ-NET) and the Financial Service Complaints Network (FIN-NET) were created to facilitate the access to ADR providers. The SOLVIT network was established as a platform where the Member States solve problems arising from misapplication of Internal Market law by public authorities. SOLVIT centres in the Member States deal with complaints brought by individuals and businesses. Finally, European directives in specific sectors encourage or require Member States to establish effective out-of-court-dispute resolution procedures (e.g. Distance Marketing of Financial Services Directive, Consumer Credit Directive).

III. National ADR in Europe

1. Collective Arbitration Schemes

In collective arbitration or multi-party arbitration, elements of collective action systems are transferred into an arbitral context in order to combine the advantages of collective litigation and arbitration. In collective arbitration procedures, parties to the same contract and arbitration clause jointly arbitrate as a group led by a representative. The pioneer of such a mechanism has been the United States, which had already established forms of class arbitration in the 1980s. Administered either by an arbitral institution or performed on an ad hoc basis, the parties may agree upon specialized sets of rules on class arbitration such as the AAA Supplementary Rules for Class Arbitration, the JAMS Class Action Procedures, and the National Arbitration Forum (NAF) Class Arbitration Procedures.

Although similar systems have been utilized by other countries, in particular Canada and Colombia, and mass claims have already been brought in the context of international investment arbitration, arbitrary solutions for collective disputes outside of the United States are rare and still considered as alien elements from the point of view of many European legal systems.

One explanation for the European reluctance may lie in the fact that the US class arbitration device mirrors elements of the U.S.-style class actions, the design of which has been widely regarded as contradicting European concepts of fair trial. The perception that U.S. class arbitration mechanisms enjoy an different status was given impetus by recent domestic U.S. case law appearing to limit the legitimacy of class arbitration in cases where the arbitration agreement is silent as to group treatment. (Stolt-Nielsen S.A. et al v. Animal Feeds International Corp, No. 08-1198, decision of the U.S. Supreme Court of April 27, 2010). Nevertheless, the number of U.S. class arbitration procedures appears to be expanding rapidly.

However, although international commercial class arbitral awards are enforceable in Europe by virtue of the New York Convention (Convention on the Recognition and Enforcement of Foreign Arbitral Awards), until now, European arbitral institutions appear not to be well equipped with an adequate collective arbitration framework.

However, there are a few stray examples of representative collective procedures through arbitration in national procedures. In Germany, for example, the German Institution of Arbitration (Deutsche Institution für Schiedsgerichtsbarkeit/DIS), following a decision (Decision of 6 April 2009, II ZR 255/08) by the German Federal Court of Justice (Bundesgerichtshof) declaring shareholder disputes arbitrable, drafted "Supplementary Rules for Corporate Law Disputes" (DIS Supplementary Rules) opening the door to group arbitrations in corporate matters.

According to the Spanish consumer arbitration scheme (Sistema Arbitral de Consumo), collective arbitration cases might be bundled in a single procedure. This scheme was introduced by Royal Decree 231/2008 and enables to deal with mass conflicts on the basis of the same factual evidence. Similarly, collective claims concerning travel matters can be filed at the Lisbon Arbitration Centre for Consumer Conflicts in Portugal and at the Service de médiation auprès du Groupe SNCB for rail passenger related matters in Belgium.

2. Other forms of ADR

Most European ADR schemes are designed for consumer-business (C2B) disputes and many mechanisms apply best in cases where there is a widely scattered loss and the enforcement of claims with small value is unlikely. Thus, along with collective redress regimes, ADR can mitigate certain limitations of individual litigation.

Various schemes to enforce consumer protection law can be found in different European states besides arbitration processes. The range of techniques comprise complaints procedures, mediation, conciliation, adjudication, and ombudsman schemes, as well as a combination of these techniques. The role of a neutral third party differs depending on the scheme in use. While, in some cases, the third party solely supports the parties' efforts to settle a conflict, in other instances, the third party can impose a solution. For example, in some countries, social partners traditionally carry out the task to resolve collective disputes between employers and workers by way of negotiation or "cooperation committees" have been established to improve the relationship between employees and management by way of consultation.

  • Direct Negotiation

Direct negotiation, meaning a two-party negotiation without the intervention of a third party, is often the preferred method for handling problems arising in C2B relationships. Consumers in particular will often be anxious to avoid aggressive forms of conflict management and rather be interested in obtaining redress by more gentle ways such as direct complaints to the business. In response, bigger companies in particular have set up formalised internal complaint handling schemes to cope with a series of complaints by customers. In a few sector-specific areas regulated sector wide schemes exist.

Effective complaint handling schemes can reduce business costs and offer a way for consumers to obtain redress directly instead of being required to conduct their claim via a third party. Businesses, in turn, may avoid expensive legal disputes and be able to maintain good relations with their customers. Furthermore, complaint handling may also signal certain flaws in products or services. Best practice codes on complaint handling, drafted by public institutions, consumer organizations, or businesses themselves can help to increase the standard and success of complaint handling mechanisms by avoiding errors or misunderstandings. For example, the "Guidance on the Core Criteria for the Consumer Codes Approval Scheme" (CCAS) issued by the Office of Fair Trading (OFT) in the United Kingdom offers recommendations on complaint handling.

On the European Union level no regulation of internal complaint handling schemes are available. However, a consumer complaint form - issued in the Communication from the Commission on the out-of-court settlement of consumer disputes in 1998 - can be used by consumers to resolve problems with traders located in the European Union.

  • Collective Negotiations

ADR may allow collective investigations and resolution in cases where many similar claims are filed against one business. They either undergo the same investigation or a sample of them will be examined in order to pave the way to individual settlements on the basis of decisions resulting from the investigation. Investigation of multiple complaints can be conducted by several ADR schemes, either by mediation, ombudsman, or by other bodies. For example, collective investigations are conducted by national advertising standards bodies such as the Advertising Standards Authority for the UK and for Ireland, if multiple complaints concern the same advertisement.

The main European example of a collective negotiation ADR mechanism is the Dutch law on the collective settlement of mass damages claims . The law allows a settlement of a 'mass claim' against a particular business to be settled by negotiation between a 'foundation' (stichting) representing the collective interests of those damaged by the wrong-doing of a particular business. If a settlement is negotiated, the foundation and the business can apply to the court (the Amsterdam Court of Appeal) to have the settlement made binding on all potential claimants within the scope of the 'class' represented by the foundation. Although the law does not permit an award of damages by the court - it is only effective if a settlement can be negotiated - it has nevertheless been successful in facilitating compensation by groups of victims in product liability, financial services and consumer cases.

  • Ombudsmen

Prime examples of collective ADR mechanisms are ombudsman schemes, which offer a way to resolve disputes without ordinary court procedures. Ombudsmen are independent neutral parties representing or defending the collective interests of a group, such as consumers or employees. Ombudsmen investigate whether the law has been observed and handle complaints about malpractices allegedly committed by traders and businesses. A differentiation should be made between public sector ombudsmen, concerned with complaints about public bodies or private sector ombudsmen (who may nevertheless be public appointees) , concerned with complaints about businesses.

Consumer ombudsmen are of particular importance to protect the collective interest of consumers. Scandinavian countries have equipped ombudsmen with legal power to require business to observe the law. Assistance of the individual consumer may, however, not be their main task. The Danish Consumer Ombudsman, for example, is an enforcer of consumer law with collective redress powers. The Ombudsman may seek a collective court order against a trader to agree and pay restitution or work out repayment plans with infringers. Collective actions before ADR bodies are also possible in Sweden, where Konsumentombudsmannen has the power to bring a proceeding before the National Board for Consumer Complaints (Allmänna reklamationsnämnden) on behalf of a group of consumers seeking settlement of a series of individual claims stemming from the same circumstances. The National Board for Consumer Complaints is a cross-sectoral ADR scheme with national coverage. If the Ombudsman takes no action, group proceedings can be initiated by a consumer or employee organization. This type of representative collective ADR mechanisms requires no identification of the individual victims in order for the Board to take actions. The claim extends automatically to all members of the group.

The Finnish Consumer Ombudsman is also (under the Group Action Act (444/2007) entitled to represent a group and take a legal action in a general court without express permission of the group members. The judgment is binding both for and against all the members of the group.

Beyond Scandinavia, a system for identifying and processing mass cases has also been developed by the UK Financial Ombudsman Service (FOS) which offer consumer protection in relation ot financial services products (banking, insurance etc).. Although it has no specific collective redress mechanisms, the FOS has developed certain case handling strategies to handle mass claims (for example the mis-selling of 'payment protection' insurance), which represent around half of its caseload. Recently, a consumer ombudsman system was introduced in Greece. It will have the authority to mediate in all business to consumer disputes. Although it will mainly deal with individual claims, the ombudsman might also engage in the protection of collective consumer interests. Collective cases have also been brought before the Rail Ombudsman Service (Service de médiation auprès du Groupe SNCB) in Belgium, before which a complaint can be filed concerning disputes between the rail company and its customers. The service offers to mediate between the parties to reach an amicable agreement. If no agreement can be reached, non-binding recommendations are issued.

  • Mediation

A common ADR technique is mediation, a structured process where a neutral third party, the mediator, has no power to create binding decisions but is appointed to help the parties to settle their conflict and to preserve an amicable relationship. The resolution of a dispute is thus agreed upon by the parties themselves. Mediation is informal and based on voluntary participation of the parties who enjoy the advantages of developing quickly and cost-effectively an extra-judicial agreement to settle their disputes by a mechanism that is orientated at the needs of the parties. By using available public procedures, such a settlement may be rendered as enforceable in a similar manner to a judgment under national law, for example under the Dutch collective settlement legislation.

The European Union has adopted a Code of Conduct for Mediators in 2004 setting out principles to which individual mediators and mediation organizations in civil and commercial matters can voluntarily decide to commit themselves. In 2008, the EU adopted a Directive on certain aspects of mediation in civil and commercial matters harmonizing national rules on mediation in cross-border disputes. The Member States may, however, extend the application of the directive to internal disputes. The Directive defines (in its art.2(b)) a mediator as any third party conducting a mediation, regardless of the denomination or profession of that third party in the Member State concerned and of the way the third party has been appointed or requested to conduct the mediation.

In principle, mediation is not limited to two-party disputes and, depending on the legal system, it might be able to handle mass claims if the interests of absent members are considered appropriately.

RisolviOnline is an online dispute resolution (ODR) scheme that offers mediation services through the Arbitration Chamber in Milan (Camera Arbitrale di Milano). The procedure can be initiated by filing a form online. Its goal is to help parties of a dispute to settle a conflict. The appointment of the mediators is exercised by RisolviOnline. The party who requests mediation can file the request in name of two additional parties. Collective mediation might be possible if one party gains representative rights over parties affected by the same commercial practice.

Large businesses with substantial numbers of consumer contracts, such as energy and telecommunications companies, also often offer recourse to mediation in the event of dispute. For example, the Mediation Service of the energy company GDF SUEZ (Médiateur de GDF SUEZ) dealing with energy, water, and environment matters aims at settling disputes stemming from the relationship between natural or legal persons and the Group GDF SUEZ. Decisions of the Mediator are binding on GDF but not on the consumer. Mediation can also be performed on a collective basis if the Service receives similar claims.

The Paris Mediation and Arbitration Centre (CMAP) has established a set of rules for collective mediation in cases where enterprises and consumer organizations (l'(les)association(s) nationale(s) agréé(s) de défense des consommateurs) are parties to the mediation process. The Investor and Mediation Office (CMVM) in Portugal is an independent public institution offering a mediation procedure in the securities market. A collective procedure might find application if similar claims are filed by several investors for the same problem. In such case a single investigation for all disputes can be conducted and an enforceable agreement between all parties be achieved. The Service de Médiation Banques-Crédit-Placements in Belgium is equipped to deal with similar complaints against the same financial institution by conducting a common investigation. However, decisions are issued individually on the basis of the investigation. The Polish Centre for Mediation is pursuing the same approach.

  • Online DIspute Resolution (ODR)

ODR means that IT and internet communication will be applied to the range of ADR mechanisms. It may be concerned with solving conflicts arising from either e-commerce or traditional commerce. The speed of communication can shorten the procedure and decrease costs.. However, besides problems of impersonal application or security, questions of cross-border enforcement might arise if binding decisions are required.

France's IRIS Mediation offers mediation of disputes arising from e-commerce. Austria offers an Internetombudsmann, a conciliation board dealing with e-commerce disputes. A public funded ODR mechanism can be seen in Italy's Risolvionline, an arbitration body of the Arbitration Chamber of Milan that offers online conciliation free of charge for consumers (see above), or in Lithuania, whose Communication Regulatory Authority offers online dispute resolution.


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