Implementing the Alternative Dispute Resolution Directive and Online Dispute Resolution Regulation
Comments from ACCA to the Department for Business Innovation & Skills
June 2014.
ACCA welcomes the opportunity to comment on the proposals issued by the Department for Business Innovation & Skills. ACCA is committed to uphold the professional values, ethics and governance of its members and students, and uses its expertise and experience to work with governments, regulators, professional bodies and employers to develop the global accountancy profession with due regard for the public interest.
ACCA members are required to observe appropriate standards of behaviour in accordance with ACCA’s bye-laws, regulations and Code of Ethics and Conduct. ACCA will take disciplinary action against its members and firms where there is evidence of a sufficiently serious failure to observe those standards. This accounts for approximately 20% of complaints made to ACCA.
The remaining complaints made to ACCA relate to complaints that are considered to either be non-disciplinary in nature or relate to a mistake resulting in a loss or inconvenience to the complainant. ACCA operates an alternative dispute resolution (ADR) service, known as the Conciliation Service, which attempts to resolve such complaints.
The Conciliation Service is run by a dual qualified lawyer and accredited mediator. She is assisted by two further lawyers, one of whom is also a trained mediator. The conciliator acts for neither the member nor the complainant.
The conciliation approach used by ACCA is a flexible process that involves negotiation and discussion between the conciliator and the parties. The conciliators are skilled in facilitating communication between the parties, explaining technical accounting issues, and seeking a resolution that will result in agreement between the parties.
In the course of reaching a resolution between the parties the conciliator will also identify any conduct or best practice issues, and will raise these with the member. This dual approach has the advantage of assisting the parties to the dispute and also helps to correct the behaviour of members in the greater public interest (ensuring that possible instances of misconduct nevertheless advance to full investigation).
The Conciliation Service deals with approximately 150 cases per annum. We believe that it substantially meets the requirements to become an approved ADR entity. For example:
Many ADR schemes meet more than just the objectives of the directive. For example, ACCA’s Conciliation Service educates members and consumers, enables instances of misconduct to be identified and dealt with expeditiously, and allows accountants’ disputes with other accountants to be addressed.
Q1. Do you think there are any significant gaps in the provision of ADR in the UK? Please identify any sectors where you think the provision of ADR is insufficient.
Providing, or facilitating access to, an ADR scheme enhances the reputation of a business sector, as well as consumer confidence. However, such a scheme must be effective and operated to a high standard. Access to ADR schemes for consumers bears little relationship to competition in a particular sector, provided all businesses in that sector are required to signpost an effective scheme to consumers. However, the confidence to the consumer that such a system provides would be expected to bear a direct relationship to market activity, as well as having clear benefits to dissatisfied consumers who would previously have had no access to ADR.
The existence of voluntary schemes perhaps gives rise to lack of clarity for consumers, who might not be aware of whether their chosen supplier belongs to such a scheme. As some current ADR schemes will not meet the appropriate standard to be registered as compliant, further gaps in the UK’s provision of ADR will appear. We believe that it is in the public interest (the interests of specific consumers and the UK economy) to strive towards closing those gaps.
There are several sectors in which ADR is available, but only in respect of some businesses within that sector. For example, if ACCA’s conciliation service was to become a registered ADR scheme, it would only be available to clients of ACCA members and firms. In the UK, accountancy is not a regulated profession, and a large part of the accountancy sector – unqualified accountants – would not be affiliated to an ADR scheme unless a residual ADR scheme was made widely available.
Q2. Do you agree that the current provision of ADR in the UK is not enough to meet our obligation to have ADR available for all consumer disputes? If you disagree, can you advise which ADR schemes are suitable to handle all disputes, and whether there are limitations to the number of disputes or type of dispute that these schemes could handle? Would these schemes be able to process an increased volume of disputes within the 90 day deadline for concluding disputes set by the Directive?
We agree that the current provision of ADR in the UK is not sufficient, given the requirement of the Directive that there must be an ADR scheme listed by the competent authority in each sector, and businesses will be required to inform consumers of the ADR entity that covers the goods or services being provided by them. Given that the ADR procedure must be either free of charge or for a nominal fee, it may prove difficult to find existing ADR entities willing to extend their ADR activities. This would require a complicated system of levies and the learning of new regulatory frameworks. In the case of accountants, for example, if an unqualified accountant were to identify one of the existing professional bodies as his or her ADR entity, that professional body’s code of conduct may not be entirely relevant to an unqualified accountant.
An alternative solution would be a new ADR entity established for the purpose of handling professional services disputes in areas not governed by an established ADR entity. There would remain an issue of how such an entity would be funded (presumably requiring a levy on businesses). ADR costs would be minimised by a requirement that businesses genuinely attempt to resolve disputes in-house first. However, this also would create a financial burden on businesses (and perhaps a disproportionate burden on smaller businesses).
We suggest that it is for Government to map out the various sectors covering the whole of the UK economy, and then identify those in which ADR is currently inadequate. In those sectors in which technical expertise is deemed necessary (if any), independent ADR systems will have to be established. In order to ensure that an approved ADR scheme exists to fill the gaps across all other sectors, it will be necessary to introduce a national scheme, created by Government and funded (at least in part) by levies from those businesses that are not affiliated to independent schemes. There is a risk that, in the absence of safeguards, the costs of setting up and operating an ADR entity (for some small businesses in some sectors) will exceed the benefits. Therefore the funding mechanism must take into account risk and businesses’ ability to pay.
Q3. Can we expect businesses not currently obliged to use an ADR scheme, to refer complaints to a voluntary residual ADR scheme? What steps could Government and others take to encourage businesses to use a voluntary ADR scheme?
We believe that the Directive requires Government to do more than ‘encourage’ the use of an ADR scheme. Businesses are required to state which ADR scheme their customers may approach in the event of a dispute. Of course, the parties involved are not required to use ADR to resolve a particular dispute. However, the assumption must be that ADR is an attractive option, given the greater cost of instigating or defending legal action.
Having a fee structure that is weighted towards an annual fee or levy (bearing in mind businesses’ ability to pay, as discussed earlier) will lessen case fees and further encourage parties to use ADR. However, in accordance with the ‘polluter pays principle’, we believe that a just fees model would include a case fee, as explained under question 7 below. We also agree with the assumption that businesses will often want to highlight their membership of an ADR scheme, and their willingness to engage with it, as a reputational benefit.
Following implementation of a residual ADR scheme, it will be in the public interest to monitor use of ADR in the UK, given that the requirements of the Directive will have been implemented. In relation to this, clarity for consumers is paramount. In order to meet the objectives of the Directive (most notably consumer confidence), and also in the interests of fairness, consumers must know that ADR is available. This is deemed to enhance confidence, which serves the public interest. Actual use of ADR, after the business relationship has been established, is a separate issue – to be enhanced over time, in the interests of justice.
Q4. What volume of enquiries and/or disputes could we expect a voluntary residual ADR scheme to receive?
We do not feel able to answer this question, except to state that effective implementation of the Directive should give rise to an assumption that the residual ADR scheme would receive a very high volume of applications to resolve disputes.
Q5. Is there a specific operating model that a residual ADR scheme should adopt (e.g. mirror existing ombudsman models)?
Given the range of disputes that would be within the remit of a residual ADR scheme, we feel that the operating model for such a scheme should be designed from first principles, based on feedback from this consultation.
Q6. Can you suggest what an appropriate maximum and minimum settlement value for a residual ADR scheme should be? How have you arrived at these figures?
Paragraphs 43 to 45 of the consultation document explain the issues of setting such thresholds for a residual ADR scheme. Given the diversity of ranges of permitted claims in different sectors, we believe that the appropriate approach must be to set different thresholds for the different sectors covered by that scheme.
Q7. What funding model would be appropriate for a residual ADR scheme? Can an ADR provider operate effectively if it is reliant on case fees rather than annual fees?
For reasons already stated, we believe that the funding model should be based on higher annual fees. This lowers funding risk, and encourages use of the ADR scheme through lower case fees. It is difficult to see how any other model would achieve the requirement of the Directive that ADR procedures are ‘free of charge or available at a nominal fee for consumers’ without imposing higher case fees on businesses, which would discourage use of the schemes by those businesses. Nevertheless, a just funding model must include a level of case fees payable by businesses using the ADR scheme. A proportion of the variable costs of the scheme should be borne by users of the dispute resolution process (the ‘polluter pays principle’).
Q8. Should a standard case fee be adopted? What would be an appropriate level? If not, how should the amount charged for each dispute be determined?
The overriding requirement is that the fees paid by the businesses using the ADR facility should reflect of costs attributable to those businesses. This principle is fair and reasonable, but is difficult to convert into practice. Therefore, a reasonable approximation should be sought, with transparency in mind.
With different sectors being subject to different claim thresholds, it would appear unreasonable to adopt a standard case fee for all disputes. One might assume that cases involving higher amounts (which would tend to relate to certain sectors) may take longer to resolve, and so higher case fees would be appropriate and just. We suggest that a case fee based on the amount of the claim (in bands) would be transparent, and provide a reasonable approximation to the principle set out above.
Q9. Would it be better to have a single ADR body or several ADR bodies operating a residual ADR scheme? What would be the ideal number and what are the reasons for this?
In the interests of clarity for the consumer, we believe that a single residual ADR entity would be preferred. However, we also believe that there is a third option whereby several ADR bodies could exist – covering a range of sectors – and the appropriate ADR body for each dispute would be allocated by the competent authority, rather than provide the choice to the business (which may appear to disadvantage the consumer).
Q10. In light of the other requirements in the ADR Directive which are intended to assist consumers, would a consumer-facing complaints helpdesk be beneficial?
As stated in paragraph 25 of the consultation document, businesses will have to provide details of their ADR providers in the terms and conditions of any contract for goods or services (article 13(2)). Although we appreciate that this will not be applicable to all businesses, it significantly reduces the risk that consumers will be unaware of the relevant ADR entity at the point of entering into a significant contract for goods or services. In these circumstances, and given other transparency and communication requirements of the Directive, we feel that the creation of a complaints helpdesk would be a disproportionate response, in terms of cost and anticipated benefits.
Q.11 Do you have any comments on the type of service it should provide and the extent to which it should examine the enquiries it receives?
We have stated that we believe that the creation of a helpdesk in the form suggested would not be appropriate. However, if the competent authority were to establish and oversee such an entity, it may serve an advisory role, which might otherwise fall within the remit of the competent authority itself. However, this should not undermine the obligations of the ADR entities with regard to information and transparency.
Q12. Rather than attempt to create a new service, which existing service or body is best placed to provide this function?
In the absence of a helpdesk, we believe that the proposed functions would rest with the ADR entities and the competent authority, as explained above.
Q13. How could a helpdesk be funded?
Given the limited remit of the helpdesk that we propose, we believe it could be funded by the competent authority.
Q14. Do you agree that regulators should act as competent authorities for the ADR schemes that operate in their sectors?
Although such a system would be in the interests of business – minimising the reporting and oversight requirements – we do not believe that it would serve the public interest. We believe that a single competent authority would be preferable, especially given that a residual ADR entity would require its own competent authority in any event. A single competent authority reduces the costs of establishing the regulatory framework (providing opportunities for economies of scale), promotes a single (high) standard in respect of ADR, and enhances transparency and understanding for consumers.
Q15. How should the fees paid by ADR providers to a competent authority be determined? Should the size of the fee depend on the size of the ADR provider (for example turnover or number of cases dealt with) or based on other factors?
The basis of fees to the competent authority must be fair and reasonable, and must also relate to the fees paid by businesses to the ADR entity (in turn related to the ability of businesses to pay). The number of businesses covered by the ADR entity must be a factor. In the case of an accountancy body, for example, this would be the number of its practising firms in the UK. In other words, fees should be based on the costs of overseeing the ADR entity. Turnover would not serve as a reasonable basis for fees to the competent authority, as it would be disproportionately burdensome to require ADR entities to isolate their income relating to ADR activities. In the interests of transparency, we propose that fees paid to a competent authority by an ADR entity should be based on the number of businesses that would normally be eligible to use the entity’s ADR process.
Q16. Do you agree that the Government should allow UK ADR providers to use all of the procedural rules listed in Article 5(4) of the ADR Directive to reject inappropriate disputes? If not, please explain your reasons.
Broadly, we agree with the Government’s view. However, we would anticipate that the appropriate time restriction on submitting a complaint would be different for different sectors. It is also worthy of note that some ADR entities may choose not to allow some of the grounds listed, in order to make the ADR process more accessible for consumers of their members’ goods or services.
Q17. Would some suggested wording and guidance be useful in helping businesses meet these requirements? What kind of wording would be helpful?
The provision of information is intended to benefit consumers and increase consumer confidence, which is in the public interest. The requirements will be different in each sector, and some ADR entities will be able to succinctly combine the relevant disclosures with those required by the Provision of Service Regulations 2009. We believe that the ADR entities are best placed to draft satisfactory wording for the websites of businesses and terms and conditions (subject to oversight by the competent authority). In the case of unresolved disputes, we feel that it may prove too difficult to provide appropriate wording that it widely applicable to businesses. Therefore, the ADR entities should be encouraged to create guidance setting out the requirements in their sector (or sectors). This guidance also will be within the scope of the competent authority’s oversight.
Q18. Do you agree that the ODR contact point should only be required to assist with cross border disputes involving a UK consumer or UK business?
Yes, we agree that the ODR contact point should only be required to assist with cross-border disputes involving a UK customer or a UK business.
Q19. Should the ODR contact point be allowed to assist with domestic complaints on a case-by-case basis?
No, we believe that the ODR contact point should not be allowed to assist with domestic complaints. This would create false expectations in complainants, and reduce clarity regarding the function of the ODR contact point. In addition, the receipt of domestic complaints would require time to review and respond to them, even if it was decided not to assist in their resolution.
Q20. Do you agree that, where applicable, we should extend the six year time limit for bringing disputes to court by eight weeks, and mirror the amendment made to implement the Mediation Directive? If not, please explain why a different extension period is preferable.
We agree with the proposals to extend the six-year time limit, and the reasons for doing so. We should point out that consistency with the Mediation Directive would require an extension of the six-year time limit where the qualifying date would fall before the mediation ends or before the last day of the period of eight weeks after it ends.
Q21. Are you aware of any sector specific legislation which contains time limits for bringing cases to court which we may also have to amend?
We are not aware of any such sector specific legislation to mention here.
Q22. Do you agree that in-house ADR should not form part of the UK’s implementation of the ADR Directive? If you disagree can you please explain why?
We agree that in-house ADR should not form part of the UK’s implementation of the Directive, and the consultation document articulates the reasons well. To recognise in-house mediation would, in effect, deny certain consumers a layer of the resolution process (as an attempt at direct resolution with the business concerned may be a prerequisite of an approach to an ADR entity).
Q23. Do you agree that the UK should allow certified ADR providers to make decisions that are binding? If you disagree can you please explain why?
We agree that the UK should allow certified ADR providers to make decisions that are binding, provided such decisions are binding on both parties.
Q24. Do you agree that the ODR Regulation should only apply to disputes initiated by a consumer, and should not apply to disputes initiated by a business? If not, can you please explain why?
It is anticipated that the volume of complaints reaching the UK’s ODR contact point will be low (only dealing with cross-border complaints), and so it appears that there might be capacity to handle online complaints from businesses as well as consumers. The added confidence to business that this may provide would be in the public interest. However, we acknowledge the value of clarity and consistency mentioned in paragraph 85 of the consultation document, and we consider this to be a compelling reason why the ODR Regulation should not apply to disputes initiated by a business. Implementation of the ADR Directive and the ODR Regulation should be in the interests of consumer confidence, and we believe that focus on this objective will make implementation more effective.
Q25. Would the benefits of simplifying the ADR landscape over the longer-term outweigh the costs? Who would the costs and benefits fall to?
While acknowledging the benefits to be gained from simplification and greater clarity for consumers, we believe that this is a question to be addressed at a later date. The specific costs and benefits cannot be measured at this point. However, implementation of the ADR Directive provides an opportunity for simplification now.
Q26. What evidence is there that a simplified system would make a major difference to consumers? Are there other ways to achieve the aim of greater awareness and take-up of ADR?
A simplified system would enhance transparency, and evidence suggests that transparency is an important regulatory principle. We are not aware of more detailed evidence at this stage, although information provided by the ADR entities under the Directive is likely to provide useful evidence in future.
Q27. Would simplifying the landscape in the longer term be compatible with the introduction of a residual ADR scheme by July 2015? Are there specific ways in which the creation of a residual scheme would need to be undertaken to enable the possibility of later simplification?
We believe that simplification in the longer term would be compatible with the introduction of a residual ADR scheme by July 2015. Our responses provided above have been given with this in mind.
Q28. What are your views on making the use of ADR a compulsory or voluntary requirement if the landscape is simplified?
We have concerns about making the use of ADR compulsory. Effective ADR requires a level of willingness and commitment from both parties, and there is a risk that compulsory ADR would, on occasions, be counter-productive, ie increasing costs and expending time on a process that is unlikely to be fruitful.