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The Alternative Dispute Resolution Regulations - do you know what they mean for your business?

In a bid to bolster consumer confidence, new European legislation has been introduced which will require traders to inform customers whether they are willing to use alternative dispute resolution ("ADR").

ADR is a way of resolving a dispute without the need to resort to formal court action. The process can be driven by the parties themselves or by a third party such as a mediator or ombudsman. ADR is usually conducted on a without prejudice basis which means that where communications between parties are part of a genuine attempt to settle the dispute, anything said during those discussions cannot be used in evidence against them as an admission as to the weaknesses or vulnerability of their case.

Why use ADR

  • In the event that a matter proceeds to formal litigation, a Court can penalise a party who fails to consider ADR.
  • ADR can be completed in private and on a confidential basis which will help minimise any reputational risk.
  • Disputes can be resolved quicker and more cheaply in comparison to resorting to litigation.

The ADR Regulations

Following a raft of EU legislation which is collectively referred to as "the ADR Regulations", provisions are now in place relating to the use of ADR in disputes involving consumers.  The new legislation does not make ADR mandatory for a consumer or trader, unless a trader operates in a sector which is regulated and they are already legally obliged to consider ADR. Examples of this are the financial and legal services sectors.   However, the general principle behind the ADR Regulations means that ADR must be made available to both traders and consumers if they wish to use it. 

From 1 October 2015, there are a number of "information changes" to be aware of which will depend on whether or not a trader already offers ADR to consumers:

For traders with either (1) no existing arrangements for ADR in place or (2) who are not  subject to regulatory requirement to participate in ADR.

Where a trader is dealing with a consumer complaint and feels that it is has been unable to resolve the complaint using its own internal processes, the trader must now provide a consumer with:

  • a response (by letter or email) confirming that it is unable to resolve the consumer's complaint;
  • information which gives the name and website of an ADR provider that could deal with the complaint in the event the consumer still wishes to use ADR; and
  • confirmation as to whether the trader is willing (or not) to submit to an ADR procedure operated by the provider it has named.

Traders do not need to join a "scheme" in order to take advantage of ADR. The law requires that all consumer disputes can be dealt with under an ADR procedure providing it meets a certain minimum standard. However, many businesses are looking to trade associations to assist them with ADR in order to take away any uncertainty as to the standard of service (see below).

Traders who are either  (1) bound by a regulator to use ADR or (2) who have arrangements in place for ADR.

Some businesses will already be aware of ADR and may have signed up to an ADR scheme through a trade association or other body.  Where a trader is either subject to compulsory ADR as a result of its sector regulator, or, where a trader is a voluntary member of an ADR scheme, the trader must:

  • provide details of the ADR provider on their website and in any contractual terms which are provided to the consumer. 

ADR provider 

A number of ADR approved bodies have now been set up including: Motor Codes (dealing with vehicle warranty products, servicing and repairs) and the Dispute Resolution Ombudsman Limited which deals with disputes involving furniture and home improvement. A full list of ADR providers can be found here. Before considering whether to use an ADR provider, check whether they are approved by a competent authority (who is either the regulator for a particular business sector or the CTSI).  If the scheme you are considering is unapproved, you should make very careful enquiries as to whether the scheme is suitable for your business and its aims and that it meets the minimum standards required by the ADR Regulations.

If you are unsure about how the new ADR Regulations affect your business please contact Rory Mac Neice.