Consumer To Business Dispute Resolution-1

ERA Forum (2012) 13:199–225
DOI 10.1007/s12027-012-0263-y
ARTICLE
Consumer-to-business dispute resolution:

the power of CADR
Christopher Hodges · Iris Benöhr ·

Naomi Creutzfeldt-Banda
Published online: 20 July 2012

© ERA 2012
Abstract This paper summarises the findings of a study of CADR bodies in ten
European Member States (Hodges C, Benöhr I, Creutzfeldt-Banda N in Consumer
ADR in Europe. Hart Publishing, Oxford, 2012). It first notes the distinct nature of
CADR bodies that have emerged, explains the architecture of national CADR systems,
notes various empirical findings about how they operate, and then critically examines
a series of important issues that arise over their modes of operation. It ends by con-
sidering the potential of CADR to deliver collective redress and to deliver behaviour
control of traders, thereby acting as part of the regulatory system.
Keywords Consumer-to-business dispute resolution · National CADR schemes ·

Collective redress
1 The Commission’s proposals on consumer ADR
On 29 November 2011 the European Commission adopted a Communication and

two legislative proposals on consumer ADR (alternative dispute resolution) and ODR
All Authors are members of the CMS Research Programme on Civil Justice Systems, Centre for
Socio-Legal Studies, University of Oxford; C. Hodges is also Erasmus Professor of the Fundamentals of
Private Law, Erasmus University, Rotterdam. C. Hodges was speaker at the Annual Conference on
European Consumer Law 2011, organised by ERA on 13 October 2011 in Trier.
C. Hodges (B) · I. Benöhr · N. Creutzfeldt-Banda

CMS Research Programme on Civil Justice Systems, Centre for Socio-Legal Studies,
University of Oxford, Manor Road, Oxford OX1 3QU, UK
e-mail: christopher.hodges@csls.ox.ac.uk
123
200 C. Hodges et al.
(online dispute resolution).1 These proposals represent developments of fundamental

importance for a number of reasons. Firstly, the approach to the resolution of consumer-
to-business (C2B) disputes that is adopted is distinctive and will seem new and surpris-
ing to many people. It involves resolving disputes through specific consumer ADR
(CADR) structures, instead of courts or other methods. CADR mechanisms have
grown into an established phenomenon that has significant size and potential. Like
Cinderella their sudden emergence into the spotlight may be startling. Secondly, the
potential of CADR mechanisms lies in their ability to deliver both increased consumer
protection but also behavioural consequences for markets and traders, with great effi-
ciency, low cost and swift results. CADR, when designed and operated properly, has
the power to transform existing dispute resolution and regulatory systems, and to form
a distinctive and effective European approach.
2 The distinct world of CADR
ADR is not new. It has existed in traditional communities for many centuries.2 It has
taken a high profile within some civil procedure systems in the past one or two decades.
In England and Wales, for example, ADR was given an institutional and functionally
important position within civil procedure as a result of the Woolf reforms of 1996,3
implemented as of 1999.4 The integration of mediation into European civil procedure
systems has been given high profile as a result of the 2008 EU Mediation Directive.5
In contrast, CADR systems may be unfamiliar to many. Yet CADR has developed
into its own unique world, with its own architecture. Dispute resolution has tradi-
tionally been analysed on the basis that the courts are the ultimate paradigm, and that
‘alternative’ techniques can occur within the shadow of the courts, such as private arbi-
tration and mediation or conciliation. But systems of civil procedure in most Member
States have struggled to provide pathways to justice that are capable of providing
remedies for consumer claims, which are typically of low value. Even small claim
procedures or the introduction of mediation into civil procedure have not solved this
problem for low value claims in most countries. It is premature to evaluate European
initiatives on cross-border small claims6 and encouraging mediation7 , but they are not
likely to have made a significant difference. It is true that the civil procedure system in
some Member States involves low court costs (such as France) and low and predictable
general costs, especially where claims are covered by insurance (such as those similar
1 Commission (EC) ‘Proposal for a Directive on alternative dispute resolution for consumer disputes, COM
(2011) 793/2, final, 29 November 2011 and Commission (EC) ‘Proposal for a Regulation on online dispute
resolution for consumer disputes ’, COM (2011) 794/2, final, 29 November 2011.
2 Roberts/Palmer [12].
3 Lord Woolf ‘Access to Justice: Interim Report to the Lord Chancellor on the Civil Justice System in
England and Wales, Final Report’, (HMSO, 1996).
4 Dwyer [3].
5 Directive 2008/52/EC of 21 May 2008 on certain aspects of mediation in civil and commercial matters.
6 Regulation (EC) 861/2007 establishing a European small claims procedure.
7 Directive 2009/52/EC on certain aspects of mediation in civil and commercial matters.
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Consumer-to-business dispute resolution: the power of CADR 201
to the German system),8 but even these struggle to be sufficiently attractive for many
consumer claims.
In summary, courts are often too slow and costly to handle small claims that are
typical of consumers’ disputes with businesses. But above all, courts are not user-
friendly for today’s citizens. Consumers do not want to waste time in lodging formal
documents in court, to have to cope with unfamiliar court processes, to attend hearings,
to pay lawyers, to risk having to pay opponents’ costs, to await results, to have to seek
enforcement, and to see companies repeating the same mistakes. Even including medi-
ation processes into court procedures does not solve all these problems. Consumers
cannot be compelled, before or at the time of purchase, to agree to dispute resolution
through arbitration.9 So how can small individual disputes be resolved whilst general
market behaviour is controlled? The answer that has developed on the ground does not
lie in ‘private enforcement’ through the courts but in a separate new world of CADR.
3 CADR schemes in EU structures
The components of this new world have developed in various ways, at different speeds,
in different Member States, so there is little overall cohesion. But the main elements
are identifiable: general principles were published at European level in 2001 to pro-
mote consumer ADR standards for consensual extra-court ADR10 mirroring similar
principles applicable to the bodies responsible for out-of-court settlement of 1998.11
A European Code of Conduct for Mediators was published in 2004, which requires
mediators to have competence, independence and impartiality. It states that a mediator
must keep confidential all information arising out of or in connection with a mediation,
including the fact that the mediation is taking place or has taken place, unless com-
pelled by law or public policy to disclose it. Any information disclosed in confidence
by one of the parties must not be disclosed without permission to the other parties,
unless compelled by law.12
A cross-border network has existed since 2001 to transmit complaints between
official bodies in Member States, which are then directed at the local trader or a
relevant CADR body.13 It began as the Extra-Judicial Network (EEJ-Net)14 and was
8 See Hodges/Vogenauer/Tulibacka [9].

9 See European Convention on Human Rights, art 6; and Case C-168/05 Mostazo Claro [2006] ECR I-
10421 and Case C-40/08 Asturcom Telecomunicaciones SL v Cristina Rodríguez Nogueira [2009] ECR
I-9579.
10 Commission Recommendation 2001/310/EC on the Principles for Out-of-Court Bodies involved in the
Consensual Resolution of Consumer Disputes.
11 Recommendation 98/257/EC on the Principles Applicable to the Bodies Responsible for Out-of-Court
Settlement of Consumer Disputes.
12 European Code of Conduct for Mediators, at http://europa.eu.int/comm.justice_home/ejn/adr_ec_code_
conduct_en.pdf.
13 http://www.eejnet.org/filing_complaint.
14 Council Resolution of 25 May 2000 on a Community-wide network of national bodies for the extra-
judicial settlement of consumer disputes, OJ C 155/1, 6.6.2000.
123
subsequently renamed the European Consumer Centres Network (ECC-Net).15 Over

time, many of the ECC offices have found themselves performing conciliation services,
and ‘leaning’ on traders to settle disputes, using their official status and close links
with regulatory authorities. The ECCs have handled around 50,000 or more complaints
annually, involving products and services, often relating to contract terms. The main
sector concerned by far has been air transport, and a large number of complaints also
concerned on-line transactions (55%).16
Sectoral cross-border CADR networks are emerging at EU level. FIN-NET (Finan-
cial Services Complaints Network)17 was established in 2001 to link 50 CADR
schemes for disputes in financial services. In 2009, FIN-NET reported 1,523 cross-
border cases, of which 884 were in the banking sector, 244 in the insurance sector,
410 in the investment services sector, and 4 that could not be attributed to one sector.
In 2011, a network of energy sector ombudsmen was formed.18
A number of sectoral EU Directives either encourage or require traders to belong to
an ADR scheme. Among those encouraging ADR are those for e-commerce,19 postal
services,20 financial instruments,21 and services,22 and the draft Common European
Sales Law.23 It is required for telecoms,24 energy,25 consumer credit26 and payment
services.27
A 2005 study of consumer redress by Stuyck and colleagues, which included an
examination of the place of ADR within a spectrum of other options, found that since
many ADR schemes and methods are used, and every Member State has put in place an
unique mix, it was not clear how a single ‘ideal’ ADR system could be proposed, but
full national coverage would be desirable.28 A 2009 study suggested that there were
750 consumer-to-business ADR systems across the EU.29 In 2011 a Commission
consultation on ADR stated that ADR had not achieved its full potential, and that in
2009 only 6.6% of the cross border complaints received by the ECC-Net had been
15 http://europa.eu/legislation_summaries/other/l32043_en.htm.
16 See http://ec.europa.eu/consumers/ecc/key_facts_figues_en.htm.
17 See http://ec.europa.eu/internal_market/finservices-retail/finnet/index_en.htm (accessed July 2008).
18 See http://www.energyombudsmen.com.
19 Directive 2000/31/EC of 8 June 2000 on certain legal aspects of information society services, in particular
electronic commerce, in the Internal Market.
20 Directive No 2008/6/EC.
22 Directive 2006/123/EC, art 27.
23 Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales
Law, COM (2011) 635, 11.10.2011, AnnexI, art 13.1(g).
24 Directives No 2009/136/EC and No 2009/140/EC; OJ L337, 18.12.2009 p.11 & 37.
25 Directives No 2009/72/EC and No 2009/73/EC; OJ L 211, 14.8.2009 p. 55 & 94.
27 Directive No 2007/64 /EC.
28 Stuyck [15].
29 Civic Consulting, Study on the use of Alternative Dispute Resolution in the European Union, 16 October
2009 http://ec.europa.eu/consumers/redress_cons/adr_study.pdf. 2 December 2009.
123
transferred to an ADR scheme.30 The 2012 Oxford study has examined the national
schemes in greater detail.31
In November 2011, the European Commission published proposals32 for a Direc-
tive on Consumer ADR33 and a Regulation to establish a web-based ODR (online
dispute resolution) platform34 to which consumers across the EU could direct a com-
plaint, which would refer the complaint to the correct national body. The proposed
Directive on Consumer ADR applies to national as well as cross-border disputes, and
full national coverage of all types of disputes. In turn, the draft ODR Regulation only
applies to the out-of-court resolution of contractual disputes that arise from cross-
border e-commerce transactions. However, not all Member States currently have full
coverage, there is some reluctance by governments to find funds to provide full cover-
age, or to impose the cost of a privatised scheme on business. In some Member States,
sectors argue that they currently handle disputes satisfactorily through in-house cus-
tomer relations functions, and do not need to pay for anything else. In summary, the
Commission’s proposals would create a pan-EU framework of consumer ADR bodies,
operating within inter-linked national frameworks. Each Member State would have a
residual ADR capability that would catch every possible type of ADR claim.
CADR has emerged as an important element in the architecture of consumer pro-
tection, which has grown since the 1960 s and crystallised recently in debates about the
best means of enforcement of the wide range of rights that consumers now enjoy. The
2011 proposals form a major policy watershed for the relations between consumers and
business, and vice versa. As identified below, they also offer considerable regulatory
possibilities and establish binding standards for consumer ADR procedures.
4 The current landscape of CADR bodies
What is CADR and what are its distinct structures? There are differences between
European Member States in the national architectures of CADR systems, in the way
that individual schemes operate, in the number of sectors that are covered by individual
schemes, and in whether coverage is comprehensive.35 It is, however, possible to
discern broad national models, even though a description of the models may fall into
the trap of over-generalisation and fail to reveal the rich diversity of models that exist.
Nevertheless, it is helpful to try to see what broad models exist, and hence to compare
30 Consultation paper on the use of Alternative Dispute Resolution as a means to resolve disputes related
to commercial transactions and practices in the European Union (European Commission, January 2011),
available at http://ec.europa.eu/dgs/health_consumer/dgs_consultations/ca/docs/adr_consultation_paper_
18012011_en.pdf.
31 Hodges/Benöhr/Creutzfeldt-Banda [8]
32 See Communication by the European Commission on “Alternative Dispute Resolution for consumer
disputes in the Single Market”, COM (2011) 791/2.
33 Proposal for a Directive of the European Parliament and of the Council on alternative dispute resolution
for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Directive
on consumer ADR), COM (2011) 793/2.
34 Proposal for a Regulation of the European Parliament and of the Council on online dispute resolution
for consumer disputes (Regulation on consumer ODR), COM (2011) 793/3.
35 Models in ten Member States have been examined in Hodges/Benöhr/Creutzfeldt-Banda [8].
123
broad variations and similarities. The following is a summary of some of the main
features of national models from some of the ten Member States that were included
in the Oxford study.
It also needs to be understood that almost every CADR scheme operates by encour-
aging (and many require) that a consumer should first contact the relevant trader about
any issue. This first stage is not only essential, it also resolves the vast number of
issues. The CADR systems therefore operate as a second line, not a first line. The
existence of CADR schemes, especially where outcomes are transparent and can be
seen by markets and regulators, operates to incentivise traders to establish satisfac-
tory in-house customer relations functions. Indeed, many large traders, operating in
stable and competitive markets, have highly responsive and effective customer care
departments, which resolve almost all issues without the need for any residual CADR
scheme. Some very large traders report only 50 court cases a year, which are often
brought where consumers instruct lawyers.36
In Sweden, a single national CADR body, the ARN (Allmänna reklamationsnäm-
nden), handles claims covering all sectors, and some business sectors have sectoral
boards, such as financial services and insurance. All of these boards are free to con-
sumers. The ARN is funded by the state, and the sectoral boards are funded by the
traders in the sector. The procedure in these boards is based on an arbitration model,
where there is a neutral chair sitting with two other members, one from a list of con-
sumer representatives and another from a business list. Decisions by the Swedish ARN
are not binding on traders (unlike those of the similar body in Norway), and compliance
rates vary between virtually complete compliance in some sectors to perhaps 70 % in
others. Almost no consumer claims go to court, unless after the CADR process, where
the court will usually side with the decision of the ARN.
However, it is important to realise that a description of the CADR schemes as above
misses some important points about what really happens. In the Nordic system, the
priority rests providing information and advice to consumers, both before purchase and
afterwards. Extensive and reliable information can be obtained from local government
Advice Bureaux, and specialist state-sponsored bureaux for the major sectors. These
bureaux are linked with the Consumer Agency, which provides national coordination
and extensive web-based advice, for example on which products and services are the
best choices. If post-purchase issues arise, the bureaux can assist in advising on how
to seek solutions, but disputes can be taken either to a sectoral CADR board or to the
ARN. The reliance on provision of information by a clearly identifiable and inter-linked
network of reliable independent bureaux appears to reduce the number of post-sale
disputes that arise. Figures are not available for all of the sectoral CADR boards, but
the ARN handles around 11,000 disputes a year, which seems to be a small number.
The arbitration model is also found in Spain, which has a network of Consumer
Arbitration Boards funded by regional authorities, and free to consumers and traders.
36 One large UK retailers sold approximately 50 million products in 2011, with average price per item of
£35, and received approximately 40,000 customer queries and 50 court claims; another had 130 million
transactions with 280,000 consumers, average price per item of £15, and received 40 country court cases,
of which 27 were admitted or settled straight away: see G Wynn, European Commission proposal for a
Directive on ADR and a Regulation on ODR, January 2012, BRC Position (British Retail Consortium, 2012).
123
While the arbitration system works effectively for a wide range of consumer sectors,
the use of this ADR mechanism remains voluntary for the parties. Consequently, in
certain areas, such as air transport, the application of arbitration remains very limited,
because some airline companies do not accept the use of this type dispute resolution.
Some sectoral ombudsmen have recently emerged.
In most Central and Eastern European (CEE) states, consumers may complain about
traders to a CADR function that is located within the national consumer authority (a
legacy of Soviet architecture). Examples are the Trade Inspection in Poland and the
State Consumer Rights Protection Authority in Lithuania. There are sometimes a
number of sectoral boards, and the national arrangements are clearly relatively new
and evolving. The current number of disputes is not transparent, but appears to be
comparatively low.
In the Netherlands, disputes may be referred to one of an extensive network of
CADR boards (geschillencommissie), which all operate on the same model and are
administered by a single national private sector foundation (DGS). The number of
sectors that have joined this scheme, which has been built over 40 years, is now over
50. A separate CADR system applies for financial services disputes (KiFiD), for which
there is a three tier structure, with complaints going first to an ombudsman, then to a
geschillencommissie, and then to an appeal board. The geschillencommissie operates
on an arbitration model with a panel of three (one from a list of ‘arbitrators’ nominated
by consumers, the second from a business list, and an independent chair, who is usually
a judge), and there is usually an initial mediation stage, which resolves many issues.
There is a small registration fee for the consumer, which is between e25 and e125
for most types of claims. The costs of DGS and its boards is paid by the state (20 %)
and by trade associations (80 %). Companies usually pay fees as agreed with their
individual trade associations, but can register with DGS individually and pay a fee on
registration, subsequent annual fees, and they usually pay a fee per case. A 2007 survey
found that the range of overall costs contributed by individual companies varied from
under e100 to over e20,000. DGS has remarkable efficiency, with a 2011 budget of
only e5.5 million. The system now has very wide sectoral coverage, but no residual
body, for example for disputes with traders who are not members of trade associations
and have not voluntarily joined the geschillencommissie system.
Once again, this description omits some highly important features. The system has
an essential first stage, which is that terms and conditions are agreed for each sector
between the consumer association(s) and the sectoral trade association every three to
five years, after which the trade association agrees with DGS to fund its sectoral board.
The trade association also agrees to guarantee payment of any monetary award against
one of its members. Hence, the boards’ awards are not binding formally but are in
practice. Furthermore, the involvement of the trade association and agreement of terms
and conditions (which exceed the requirements of consumer trading law) appears to
give rise to comparatively high levels of compliance with the requirements by members
of the association. In other words, this is a self-regulatory mechanism, and explains
why a national Consumer Authority was only created relatively recently (2005) and
largely focuses on criminal activity. In 2010, 7,826 claims were initiated across 50
sectoral Boards (excluding financial services), of which 5,799 were processed by the
boards. The financial CADR system (KiFiD) had a budget of e9 million in 2010 and
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received 6,719 cases. Traders’ minimum yearly contribution to KiFid was e170 for
banks and insurers and the lowest contribution for other members was e163. The
registration fee per case was e25 for traders and e50 for consumers.37
In the United Kingdom, there is extensive CADR that covers many sectors, but
various different models exist, so knowledge varies considerably both of CADR as
an option and of the availability of individual schemes. The main models comprise
some statutory ombudsmen (financial services, pensions, lawyers), some private sector
ombudsmen (telecommunications, energy, housing) and some private sectoral dispute
resolution schemes, usually operating to resolve disputes under codes of business
practice (travel, motor vehicles). There is wide coverage, but no residual facility. All
of the ombudsmen systems are free to consumers: some code-based schemes end in
arbitration options for which consumers would have to pay modest fees, but almost
every type of scheme deploys a mediation technique as a first option.
The leading example of a statutory ombudsman,38 and the largest CADR system
in Europe, is the UK’s Financial Ombudsman Service (FOS).39 The FOS received
one million initial enquiries and complaints in 2009/10, of which around 200,000
turned into disputes. The number of contacts and disputes has risen over the decade,
as knowledge of the existence of the FOS has spread amongst consumers, claim inter-
mediaries and lawyers, and banks have become subject to regulatory requirements to
inform consumers of the availability of the FOS. The content of the FOS’s caseload
has varied considerably since there has been a series of major case-types, such as
investors in failed businesses (Equitable Life, BCCI, Northern Rock), objectors to
high charges for unauthorised overdrafts or transaction fees, and selling of payment
protection insurance. The FOS’s income in 2010 was £98.4 million, 20 % of which
was funded by a charge levied from financial institutions (adjusted every year to reflect
the volume of work undertaken per sector each year: the number of accounts held by
banks, and volume of investment income for insurance), and 80 % from case fees. A
defendant currently pays £500 per case, but no case fees were charged to businesses
for their first three disputes, which resulted in only 5.5 % of firms paying case fees.
The vast majority of cases are against the four largest retail banks. The FOS had a unit
cost (i.e. cost per case) of £555.
The large private UK Ombudsman Services provides CADR services in the energy
(in which it is exclusively appointed by the sector regulator), communications, property
and intellectual property sectors. It had a turnover of £6,385,718 in the year to 31 March
2011.
The CEDR Disputes Group is a major provider of both commercial and consumer
ADR services in many sectors. Both of these organisations operate processes that
37 But if the Ombudsman himself transfers the case to the Geschillencommissie the consumer pays no fee.
If the Ombudsman declares the claim clearly inadmissible the fee is e100.
38 Another is the Pensions Ombudsman, who is fully funded by the government, receiving £2,810,000
in 2010/11, and who accepted 950 complaints for investigation. The subject-matter is often complex, and
average duration of investigations is 10.9 months. The recent statutory Legal Ombudsman had a budget of
£9.9 million in 2011, obtained from a levy on all regulated firms and from a case fee of £400, which was
not payable for the first two potentially chargeable complaints in a year. He received 38,155 contacts and
accepted 3,768 cases for investigation.
39 http://www.financial-ombudsman.org.uk.
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facilitate company contact as first steps, followed by mediation/conciliation, and then

delivery of a decision (whether an influential recommendation or a binding decision
through agreement by both parties to an arbitration process).
An example of a long-established CADR scheme is the private travel sector arbi-
tration scheme operated by the trade association ABTA for its member companies.
In 2010 the scheme involved 12,702 requests, a further 19,169 telephone inquiries.
ABTA handles the mediation and administration process in-house. The final arbitra-
tion stage, for which the consumer pays a fee of £90 and the trader £350, is outsourced
to CEDR Disputes Group, which made 255 awards in 2010, the average award being
£630.
In major regulated sectors, regulators can establish requirements for both traders’
complaint handling40 and private CADR providers, such as The Consumer Code
Approval Scheme (CCAS) operated by the UK Office of Fair Trading.41 CADR
schemes are frequently found as part of the ‘back end’ of a ‘front end’ that is a sectoral
code of business practice. Many such codes exist, ranging across sectors from finan-
cial providers,42 motor vehicles,43 removers,44 and debt managers45 to will writers.46
Under the CCAS, Codes developed by sponsors will only be approved if the OFT
believes that they will be effective in protecting and promoting consumer interests,
and which offer consumers benefits beyond the protection afforded by law. The OFT’s
rules include criteria on the organisation, preparation of the code, the substance of the
code, complaints handling, monitoring and publicity about the code.
The cost of sectoral conciliation-plus-arbitration schemes established in various
sectors varies: a 2006 review of OFT-approved schemes found that the cost to members
ranged from ‘minimal’ sums to £50,000 pa.47 The costs of the Motor Codes were, for
manufacturers, an annual subscription to the new car scheme of £1,250 and case
conciliation fee of £75, and for garages a subscription to the service and repair code of
£75, annual garage inspection fee of £175 and case conciliation fee of £75 (all sums
plus VAT).
In Germany, there are some complaints schemes operated by regulators (telecoms
and energy to the Bundesnetzagentur or financial services to the Bundesbank, but
these have comparatively low usage figures), and by sectoral ombudsmen that being
established in a number of sectors (banking insurance, transport). There is no residual
40 Such as OFCOM’s Approved Code of Practice for Complaints Handling in relation to complaints made
by residential and small business customers, 2011, made under the Communications Act 2003, s 52.
41 see Consumer Codes Approval Scheme: Core Criteria and Guidance 2008 (Office of Fair Trading, 2008),
available at: http://www.oft.gov.uk/shared_oft/Approvedcodesofpractice/oft390.pdf.
42 The Lending Code of the Finance and Leasing Association, at http://www.fla.org.uk/consumer.
43 Motor Industry Code of Practice New Cars 2008, the Motor Industry Code of Practice: Service and
Repair, 2008, and Motor Industry Code of Practice: Vehicle Warranty Products, 2009, at http://www.
motorcodes.co.uk/about-motor-codes/icap.html.
44 Code of Practice of the British Association of Removers at http://www.bar.co.uk/Default.aspx.
45 Code of Practice of the Debt Managers Standards Association, at http://www.demsa.co.uk.
46 The Code of practice of the Institute of Professional Willwriters, at http://www.ipw.org.uk.
47 Review of the impact of business of the Consumer Codes Approval Scheme (Office of Fair Trading,
2006).
123
scheme, and fewer sectors are covered than in the countries discussed above, but it
must be remembered that Germany has a very efficient court system, which operates
on the basis of low and predictable costs, associated with wide insurance coverage for
legal expenses.48
In 2010 the German Insurance Ombudsman received 18,357 claims, 12,720 of
which were admitted. The budget was e3.6 million, for a staff of 45. The principal
transport scheme (Söp) is funded by members’ annual fees (e1,000 for a single com-
pany but groups of companies like Deutsche Bahn pay e5,000 max.) and a case fee
(e25 for unjustified claims and e150, e 200, e 300, e 400, e 600 or e800 per case,
depending on the time and expenditure involved). The scheme is too new for the level
of claims to have stabilized. The cost per case in 2010 was between e25 and e350.
In 2012 a new fee structure has been implemented since case handling efficiency has
increased and this has enabled Söp to reduce the cost per case by 20 %.
France has sectoral complaint mechanisms for financial services, energy and tele-
coms. A network of local government-located complaint systems is mandated in
France, but does not exist because the local functions are only funded in three of
the ninety-six départements. The financial services regulatory agency, L’Autorité
des Marchés Financiers (AMF), houses a scheme that provides assistance to non-
professional investors (consumers and non-profit associations), which encompasses
both information and proposing non-binding out-of-court settlements.49 The national
Energy Médiateur (established by law) had a 2011 budget of e6.6 million for 40 staff,
and in 2010 received 17,467 complaints, 68 % of which were accepted for investi-
gation. The Electronic Communications Médiateur’s budget was e1.3 million for 12
staff, and he received 18,672 complaints, and investigated 3,554 of them.
CADR has been strongly pushed by business in France in the past few years,
and a Charter was published in 2011 that emphasised that CADR should be free
to consumers (that was influenced by the fact that France is almost alone amongst
European jurisdictions in that court fees are rarely charged) and that the process should
be voluntary for both consumer and business. Hence, ‘decisions’ are recommendations,
apart from those of the Energy Médiateur and if companies in a sector have agreed
voluntarily in advance to observe them (as have members of the telcom scheme).
The French picture has one important further feature, which is that there are a
number of in-house médiateurs. They strongly assert that they operate independently
and impartially, but they can sometimes only be accessed after the consumer has been
through lengthy internal complaint tiers, and the low levels of cases that they attract
and accept indicate a low level of consumer trust.
Belgium has some sectoral ombudsmen but its outstanding feature is that it has
created in 2011 a state-sponsored web platform that can direct consumers to the correct
sectoral CADR scheme. The government is now working with business sectors to
create a sufficient number of sectoral schemes to give adequate coverage.
The general picture of CADR across Europe is, therefore, highly diverse and con-
fused. In some states, CADR has an official institutional structure and all types of C2B
48 See Stadler and Hau [14]; Hess and Hübner [7].

49 See http://www.amf-france.org/affiche_page.asp?urldoc=mediateur.htm. The dispute resolution func-
tion is mandated under Article L. 621-19 of the French Monetary and Financial Code.
123
claims are (in theory) covered, whereas in other states, CADR schemes have grown
piecemeal and relatively recently, without the existence of a unified national scheme
or full coverage.
5 Comparative observations on the operation of CADR bodies
The Oxford study is the first comparative evaluation of CADR schemes. It revealed
various findings about the structure and performance of current CADR schemes.50
5.1 Independence
The principle of independence of out-of-court schemes is included in both of

the Commission’s Recommendations to promote consumer ADR. Recommendation
98/257/EC included a number of conditions aimed at ensuring the independence and
impartiality of the ADR body, such as adequate qualifications, office of sufficient
duration, financial independence and equal representation of consumers and traders.
There is considerable variation between schemes in the numbers of contacts
received from consumers. There appear to be various reasons for this. Some sys-
tems attract high levels of contacts from consumers, since they have high profile and
levels of trust, and offer user-friendly services. Other systems are little used, little
known, and not trusted. The host location of some schemes appears to be important,
in that ADR schemes that are run by companies and trade associations may not be
regarded as sufficiently independent. However, in-house customer relations functions
that are accessible and operate quickly can attract high levels of contacts and resolve
many issues. But in-house functions that claim to be independent ombudsmen can have
lower levels of trust, as revealed by lower levels of cases. Equally, dispute resolution
functions that are located in regulators may not be trusted by traders (or sometimes
consumers). The key to attracting disputes is trust, and the key to trust is to manifest
independence and impartial behaviour.
However, wherever consumer ADR systems work—i.e. they are used by consumers
in significant numbers—they have certain clear features. They have high profile; they
are trusted by consumers; they attract high levels of requests for information, which
usually far outnumber disputes, and so can resolve customer issues quickly before esca-
lation; they provide good sources of feedback information for businesses on products,
services, markets and competitors; they are far cheaper and more desirable than courts;
and they are paid for by business.
5.2 The information and advice function
Many of the consumer contacts that CADR bodies attract are requests for information
and advice, rather than disputes. The most striking example is the UK FOS, which
received 1,012,371 contacts in 2010, of which only 20 % turned into actual cases
50 Hodges/Benöhr/Creutzfeldt-Banda [8].
123
(206,121 formal disputes, of which 17,465 required the involvement of an ombuds-

man). In order to process that work, the FOS needed a staff averaging 1,015 and a
2009/2010 budget of £92 million.
This reveals that providing post-sale information and advice to consumers is a
function for which there is sizeable demand, that the sources of such information need
to be reliable (and although many traders might be the best source in relation to their
own products and services, there is some demand for independent advice), and that
a significant part of the cost of CADR services can be spent on information rather
than dispute resolution (so it needs to be considered in particular cases whether that
function and cost is located in the right place or should be elsewhere).
There is some evidence that the incidence of consumer problems may be lower
in some states that provide effective and easily accessible information and advice
to consumers (and traders). It is well recognised in consumer policy that providing
information and advice to consumers is beneficial in helping individuals to make
good choices. In every country, the first priority in responding to problems is to direct
consumers to contact traders. In Nordic states, it has been noted above that there is a
national matrix of pre- and post-sale consumer information bureaux, supplemented by
state-sponsored sectoral information bureaux. The number of disputes that are handled
by the national CADR body, the ARN, seems to be quite low. A different approach
operates in the Netherlands, where the establishment of a sectoral CADR board is a
consequence of agreement between the consumer association(s) and trade association
of terms and conditions. The involvement of a trade association appears to act as a
self-regulatory mechanism in relation to its members, whose level of compliance with
the terms and conditions may be relatively high, and hence the number of disputes
may be relatively low.
Further, in both the Nordic and Dutch systems (and any other effective CADR
system), the existence of an effective CADR system that can be accessed easily by
consumers after a period within which traders must respond to complaints acts as
an incentive for traders to have internal systems to receive, consider and respond
to customer contacts, and to reach agreement on disputes before they escalate to the
CADR system or court. Traders should be given an adequate time to solve the problem,
but not an indefinite time. The time available for UK telecoms providers to respond
to complaints was reduced by the regulator in 2011 from twelve to eight weeks.51
In short, both the Nordic states and the Netherlands appear to have quite low levels
of C2B disputes. This can be attributed to the following factors: (a) on the demand
side, there is strong emphasis on pre-sale information, and post-problem advice on
how to sort it out, and (b) on the supply side, there is a strong self-regulatory mech-
anism, involving acceptance of the regularly revised terms and conditions (the code
of business trading practice) by the members of a trade association, with information
and enforcement functions centred on the trade association. This reduces the number
of disputes.
51 Review of Alternative Dispute Resolution and Complaints Handling Procedures, (OFCOM, 2008). The
original 12 weeks timeframe (now reduced to 8 weeks) came from the companies’ quarterly billing cycle.
The energy regulator made this change before the telecoms regulator.
123
5.3 Modest sums in dispute
The monetary value of amounts in dispute in individual C2B complaints is universally

low, although this varies from sector to sector. Data found in the Oxford study for
2010 included:
– In France, many cases handled by the FFSA médiateur were around e100, and
some as low as e5. The average award of the national energy médiateur was e373,
the average amount in dispute in the cases of the médiateur of EDF was e1,120
(with 23 % of cases over e2,000).
– In Germany, 86 % of claims made to the Insurance Ombudsman involved under
e5,000, and over 90 % were under e10,000. A normal claim made to the transport
ombudsman (Söp) is between e10 and e200.
– In the Netherlands, the average claim value for Geschillencommissie cases varies
between sectors, from e206 for taxis and an average of e5,980 for housing guar-
antees. In 2009, 9 % of the Geschillencommissie claims were less than e250, there
was no claim involving a value of more than e10,000, and the largest segment of
claims (24 %) were for e1,001–2,000.
– The average value of an award in the arbitration system in Spain was e366.
– The average amount claimed in cases before the UK’s Ombudsman Service: Com-
munications was £587 and the average award was £198.
The Leuven Report concluded in 2005 that small claims procedures would only be
used by European consumers if the amount involved exceeded around e500.52 In
many states, the cost of accessing the courts, and certainly the cost of obtaining legal
advice, is disproportionate to the typical value of consumer claims.53 It is precisely
because the sums involved are small that there is a need to design a process that involves
proportionate cost, and does not merely try to adapt previously existing formalistic
processes (like the introduction of mediation into court procedures). This raises the
question of what the level of cost is that CADR systems can process C2B claims.
5.4 CADR costs per case
Some data has been quoted above of the total annual budgets and caseloads of various
CADR schemes. Total costs are not always published by schemes. The Oxford study
found that older style arbitration models tend to be more expensive than newer single
schemes, which involve a case handler who may escalate a case to an ombudsman or
single decider. The average costs per case in 2010 were e300 for the Swedish ARN,
£555 for the UK FOS, and perhaps e900 in the Netherlands but it must be remembered
that such general figures are averaged across many different types of cases. Cost data
is not available from Spain, but cost per case in 2010 was above e400 (compared with
an average value of awards was e366).
The cost of processing a case depends on a number of factors, including the intrinsic
complexity of a case and whether the CADR scheme’s overall cost base has to cover
52 Stuyck [15].
53 Hodges/Vogenauer/Tulibacka [9].
123
not just dispute resolution services but also (as noted above, that many do to a signif-
icant extent) consumer information services. An example of a scheme that involves
intrinsically high processing costs, as indicated by their longer average duration, is the
UK Pensions Ombudsman (roughly £3,000 per case). Personal injury cases also typi-
cally involve detailed expert consideration of complex facts, but the Swedish Patient
Insurance scheme, has streamlined its paper-based process to deliver an average cost
of around e900 per claim.54
In contrast, many C2B disputes are about breaches of contract, such as non-
delivery, non-compliance with specification, and breakage. These issues are intrinsi-
cally straightforward to resolve, and involve established law. The UK’s private CADR
providers (Ombudsman Services, which covers telecoms, energy, housing and other
claims, and the CEDR Disputes Group, which provides many dispute resolution ser-
vices to trade associations and public bodies) can operate for most types of disputes
at under £400 per case.
Processing cost can be reduced where CADR providers have specialist expertise,
and where there are economies of scale and of process. These considerations would
point to designing systems such that disputes in important sectors could be referred
to trans-national CADR providers who have sectoral expertise. Smaller states could
certainly not afford the cost of a series of national sectoral CADR schemes.
The above figures indicate that some recent CADR systems are capable of process-
ing cases for under £400 each, sometimes lower than that, and that these figures
compare favourably with the cost of court procedures in almost all countries, even
small claims procedures.
5.5 Sources of funding
Public funding of CADR shows that dispute resolution is important in national policy.
The comparator of CADR systems, courts, are funded partly by the state and partly
by user fees in almost all European states except France, where court fees are almost
unknown.55 In Nordic states, a number of CEE states and Spain, CADR systems are
funded by the state. In the Netherlands, the government pays 20 % of the cost, repre-
senting the standing overhead charge. However, CADR is funded elsewhere largely
by business.
All the major schemes raise funds by charging an annual fee to traders that are
members or imposed by law, and a separate case fee. In some cases, the case fee is
not charged for the first or second case. The reason for this is to encourage traders to
resolve cases themselves before they become complaints, and to recognize that some
cases have poor merits for which individual traders should not be penalised. Some
case fees can rise as the number of claims received rises. Similarly, the UK’s ABTA
scheme incentivises both sides to resolve their case between them by deferring the fee
until after the consumer is sent the company’s comments on the cases, shortly before
the arbitrator sees the papers.
54 It pays for residual expenses not covered by social security arising out of personal injury, and receives
12,000 claims a year of which about half receive compensation.
123
In some CADR schemes, the cost paid by traders covers more than a dispute han-
dling facility. Firstly, it may cover the administration of a self-regulatory Code of
Practice, which has extra value for traders and involves advice to them from the trade
association (and might be an insurance against the imposition of more costly regula-
tion). Secondly, the system may provide information and advice services to actual or
potential customers, which would otherwise have to be funded separately.
5.6 Coverage thresholds and limits
However, many CADR schemes are subject to high and/or low financial thresholds,
or time limits for resolving claims. Financial limits can often be found in financial
services sectors, both to limit exposure from what might be large individual claims and
to ensure that large cases are deflected to the courts, since they may be more complex
and involve points of legal principle. Some examples as follows.
In Germany, the Insurance Ombudsman can make a legally-binding decision up to
e10,000, and a non-binding recommendation up to e100,000. The transport ombuds-
man (Söp) has an upper limit of e30,000. The Ombudsman of Private Commercial
Banks can make a binding decision up to e5,000, and a non-binding recommendation
above that sum. The Legal Arbitration Board can make a recommendation only up to
e15,000.
In financial services cases in KiFiD in the Netherlands, the second Geschillencom-
missie stage (after the Ombudsman first stage) has a minimum claim value of e100
and a time limit of three months, and the third Arbitration Appeal Board stage has
a threshold case value of at least e25,000. At the second stage, all banks and most
intermediaries have agreed to accept all decisions up to e5 million.
The value of a case in Polish Tribunals of the Trade Inspection cannot exceed
10,000 PLN, unless it is brought before the Tribunal in Warsaw, which does not have
monetary limits. The jurisdiction of the National Banking Ombudsman cannot exceed
8,000 PLN (around e2,000). A claim must exceed 1,000 PLN to be brought before
the Arbitration Tribunal of the Insurance Ombudsman.
Different types of claims brought to the Swedish ARN must exceed certain thresh-
olds: 500 SEK for shoes, textiles or general types; 1,000 SEK for electronics, motor
vehicles, travel, textiles (furniture), or cleaning services; and 2,000 SEK for banking,
housing, boating or insurance. There is a series of types of claims that are excluded.
In UK, the Financial Ombudsman Service cannot award over £150,000.
It would follow that if there were to be an obligation on Member States to provide
full coverage for all C2B disputes, this could not be satisfied unless there were either
some leeway to justify the seemingly quite widespread existing variations in coverage
provided by thresholds and other limitations, or their complete removal.
5.7 Case fees for consumers
The vast majority of CADR schemes are free to consumers. This is a general principle
in France, Spain and Sweden, and applies in almost all of the schemes in Germany
and the UK (save for the post-conciliation arbitration stages of private schemes). An
123
exception applies in the Netherlands, where consumers pay a registration fee to DGS,
which varies depending on the sectoral Board, and generally ranges between e25 and
e125, with only a few being over e500.
The principle of no cost to consumers has not been established in Poland. The
Polish Consumer Arbitration Tribunals are free of charge for consumers, although the
Consumer Arbitration Tribunal operated by the Chairman of the Electronic Commu-
nications Office has a 100 PLN charge to lodge a case. The cost of lodging a case
in the Consumer Arbitration Tribunal of the Office of Electronic Communications is
100 PLN, and may involve further costs. The fee for lodging a complaint with the
National Banking Ombudsman is 20 PLN if the value of the case is lower than 50
PLN, and 50 PLN in higher value cases. Fees for lodging cases with the Arbitration
Tribunal of the Polish Banks Association are far higher, on a tariff basis, which for a
claim over 10 million PLN will be 115,300 PLN plus 0.5 % of the amount of the claim
over 10 million PLN. Costs are also high in the Arbitration Tribunal of the Insurance
Ombudsman.
The Oxford study found that consumer ombudsmen work well where business pays
for them. The scrutiny of commercial payers maintains pressure on CADR providers
to operate economic processes. Business sectors in several countries have switched
from being strongly against CADR systems to being strongly in favour of them—
and at that point they were prepared to agree in advance to accept the non-binding
recommendations of ombudsmen, and to pay for the ombudsmen system, so as to
make the CADR system more attractive to consumers by having no cost and being
swift and effective. This switch in attitude seems to occur in stable and competitive
markets, where CADR systems offer value in reducing the cost of claims being diverted
unnecessarily to courts by lawyers, in maintaining good relations with customers and
hence competitive advantage, and in the value of the ‘market feedback’ effect, which
is discussed further below.
5.8 Techniques and models
The techniques that are used by CADR schemes fall into two familiar types: firstly
mediation/conciliation56 and, secondly, reaching a decision to resolve a dispute (adju-
dication, whether binding or not). Indeed, the best CADR systems operate by using
both those techniques, and using them in sequence so as to resolve the majority of
issues at the earlier stages, leaving more difficult cases to be decided more formally
by more experienced personnel. At the final stage, the number of disputes that need a
decision to be taken by an independent third party is often far lower than the number
of initial contacts, and then the number of contacts that became formal cases.
The adoption of a combination of techniques can deliver not only the adjudicative
function of courts but also the well-known advantages of mediation, such as being low
key, low cost, adopting flexible solutions for problems, restoring relationships between
56 These two terms are sometimes differentiated, but they are treated as the same for present purposes,
involving an independent third party facilitating communication between the two primary parties and seeking
to facilitate an agreement between them.
123
consumers and business, avoiding damaging confrontations and loss of consumer

confidence and business reputation, avoiding lengthy adverse publicity in the media.
This combination of techniques mirrors the trend of courts to incorporate mediation
into civil procedure, but the emphasis in CADR is somewhat reversed.
The models within which CADR providers operate have developed over time. The
model thirty years ago, involving a panel of three ‘arbitrators’, was influenced by
models of courts plus a desire to have balances representation, as in arbitration. More
recently created ombudsmen systems have case handlers at initial stages, and escalate
unresolved cases to single more senior staff and ultimately to a single ombudsman
(large organisations may contain multiple staff qualifying as an ombudsman). The
three-person panel may have the advantage of symbolic representation, individual
expertise of panel members, and a guard against bias. But the one-person model is
quicker and usually cheaper. Different models may be appropriate in different situa-
tions.
5.9 Types of cases
Discussions about cross-border CADR often start with questions such as ‘which law
applies to the dispute and the process?’ These questions turn out to be almost entirely
irrelevant in practice. The types of disputes that are the subject of the Commission’s
2011 proposals are limited to (but form a vast corpus of) breach of contract issues.
Typical problems would be non-delivery, failure of a product to work, non-compliance
with advertising or specification, and mischarging. These cases turn on facts rather
than law, and the law on such issues is well established and subject to European
harmonisation. The consequences of misleading advertising, unfair contract terms and
criminal activity can be dealt with by CADR systems, but where they arise outside
limited individual circumstances behavioural issues arise that are better handled by
regulatory systems. However, instances of such behaviour can be identified through
CADR systems and made known to regulatory bodies, as discussed below.
5.10 Consequences: Binding effects and compliance with recommendations
Some CADR schemes are binding on the consumer, where they have to agree to an
arbitration process after a dispute has arisen, but most schemes are not binding on con-
sumers until they have agreed to the outcome of the mediation or suggested decision.
An issue that has arisen in our discussions in several countries is that some traders
(and the airline sector was mentioned frequently) do not comply with CADR decisions.
In countries such as Spain, such traders do not agree to use the arbitration process.
This raises the issue of whether particular sectors need some compulsion, as occurs
for example for financial services.
In contrast, the decisions of some CADR schemes are imposed as binding on traders
by law (UK statutory financial services scheme) or by prior voluntary agreement
that members will adhere to decisions (the Netherlands, some in UK and Germany).
Non-compliance rates vary (the compliance rate with ARN decisions in Sweden aver-
ages only around 75 %, but is 100 % in some sectors) and some sectors remain
123
problematic.57 If ombudsmen’s decisions are not formally binding on traders, various

models exist to encourage compliance:
(a) Dutch-style trade association guarantees the trade association contracts with DGS
that it will guarantee all decisions and contracts with its members that they will
indemnify such guarantee. Thus, if, as happens only very rarely, a trader refuses
to pay on an adverse decision, the trade association will pay the consumer and
claim reimbursement from its member, probably then expelling the member from
membership of the association. That mechanism is extremely effective, but does
not cover traders who are not members of an association (assuming the association
is part of the geschillencommie structure, which may be true in the Netherlands
but might not be so if the system were to be copied in other states). The answer
in Holland is that traders will be ‘named and shamed’ by the press.
(b) A ‘name and shame’ technique, used in various countries. In Sweden a consumer
magazine (and not the ARN) publishes the name of a trader who has not complied
with an ARN decision. The publisher first contacts the trader offering the possi-
bility not to publish the name in case of a swift compliance, which itself results
in some more traders complying with decisions before publication, since the list
has high national profile.
(c) Enlisting pressure from a regulator This is especially relevant for rogue traders
and where there has been a significant and continuing breach of the law.
(d) An intermediary who blocks trading, such as under a chargeback mechanism,
where media decline to carry advertisements banned by an advertising standards
body, or a decision on domain name ownership by the World Intellectual Property
Organisation.
(e) Fast track enforcement in the courts A possible option may be that, since CADR
telescopes the evidence-gathering process, there could be a leapfrog procedure
in court (leaping the evidence-gathering stage) for enforcement of ombudsmen’s
non-binding decisions: consideration of new evidence that could not be presented
earlier and an objective assessment would be guaranteed.
6 Issues with CADR
6.1 The basis of CADR decisions: law or equity?
Although many CADR schemes apply the law to disputes, it is striking how many take
a different approach. Firstly, there may be a requirement for the decision-maker (if a
case reaches decision or recommendation stage) to apply law and equity (as the French
2011 Charter requires) or fairness (the UK FOS is required to determine a complaint
by reference to what is, in the opinion of the ombudsman, fair and reasonable in all
the circumstances of the case).58 Does such an approach compromise the standards
set by the law? The variants just noted were certainly not introduced to provide lower
protection, but to enhance protection. It should be remembered that the European
57 See ECC-Net Air Passenger Rights Report 2011 (The European Consumer Centres’ Network, 2011).
58 Financial Services and Markets Act 2000, s 228(2).
123
Directive on unfair commercial practices,59 unfair contract terms,60 and misleading

advertising61 are all based on a legal requirement of fairness. Accordingly, is it merely
an academic point of little significance whether decisions on contemporary consumer
protection law differ from standards of (un)fairness?
Secondly, a significant number of schemes apply standards that are higher than the
legal rules. This is the case with any schemes based on business codes of practice that
have official approval (many in UK, increasingly in Germany and France) or on the
agreed terms and conditions system in the Netherlands.
6.2 Quality and appropriateness of CADR
Perhaps a more important question concerns the extent to which consumers, society
and traders can trust CADR schemes, in the way that they would hope to be able to
trust courts.62 Are CADR processes fair (a due process issue) and do decisions have
reliable quality? There should be no reason why decisions of CADR providers should
not reach the same accurate conclusions as should be expected from any court. Those
who are entrusted with performing the function of applying state law and affecting
individuals’ rights should satisfy requirements of trustworthiness, independence and
impartiality, which in turn raise issues of governance, supervision and authorisation.
An important aspect of these considerations reverts back to requirements of indepen-
dence and impartiality, referred to above. It is not surprising that the Commission’s
2011 proposals refer, as did the two earlier Recommendations, to quality require-
ments, and obligations on the Member States to ensure that CADR providers provide
adequate quality.
Some scholars and judges have voiced strenuous objections to the use of alternative
dispute resolution methods, whether generically or individually, as means of deciding
issues of law and rights, which it is argued should be the exclusive preserve of state
institutions.63 The argument is that privatised resolution procedures can result in out-
comes that have little to do with the rights involved, and raise concerns about the risk
of abuse flowing from imbalances of power and conflicts of interest. Supporters of
mediation argue that many people are less concerned with rights than with resolution,
restoring peaceful relationships, and moving on, so outcomes can have little to do with
rights.64 Mediation has strong advantages in the right circumstances, such as where it
is important for the parties to avoid an adversarial confrontation and to restore bilateral
relations and communication.65 Hence, it can be useful in disputes involving families
59 Directive 2005/29/EC.
60 Directive 93/13/EC.
61 Directive 2006/114/EC: article 1 refers to the aim of preventing the unfair consequences of misleading
advertising.
62 It needs to be borne in mind that levels of trust in judges in Central and Eastern European states is not
always high, nor is it in junior professional judges in some states.
63 Verkijk [17].
64 Galanter [5].
65 Roberts/Palmer [12].
123
and children. In the C2B situation, it is often the trader who wishes to retain a rela-
tionship with its customer, and hence wishing to make the CADR pathway attractive
to the customer, rather than the other way around.
Some are concerned that the law itself will not be clarified and developed if court
determinations reduce in number (the ‘vanishing trial’ phenomenon).66 Debate can
polarise around whether enforcement of law should be dominated by concerns of
efficiency or of justice, and the constitutional implications, and whether it is more
appropriate to talk of ‘appropriate’ dispute resolution.67
Whatever the scholarly arguments, it can now be seen that CADR is a well-
established phenomenon, with wide and growing acceptance by consumers and traders,
and that the issue is not ‘whether’ but ‘in what circumstances’ it should be allowed
to operate. As discussed above, the core issue remains that of ensuring that CADR
providers perform with adequate quality, and in particular satisfy requirements of
independence, impartiality and transparency, in proportion to the type of tasks that
they are required to perform.
It is instructive here to compare CADR with courts, especially to consider not only
what standards should be applicable but also what the tasks of each pathway are and the
extent to which they differ. The essential advantages of CADR in relation to courts can
be:68 speed, accessibility, informality, expertise, lower cost to the state (but sometimes
internalised cost to the sector), potentially lower regulatory burden, and increased
motivation.69 The disadvantages of CADR can include failure to deliver just outcomes,
lack of accountability or transparency, failure to act in the public interest (and even
continuation of anti-competitive rents), and lack of performance or inefficiency.
The extent to which CADR offers advantages and disadvantages compared with the
courts differs from country to country. One important factor is the extent to which the
national courts are speedy and operate with low and predictable costs. Those countries
that have efficient and low cost courts (such as those similar to the German civil law
system) have developed CADR to a lesser extent than countries where the courts are
slow and where costs are unpredictable and disproportionate (such as common law
jurisdictions like UK). Accordingly, extensive CADR mechanisms have developed
more quickly in some jurisdictions, notably the UK, the Netherlands and the Nordic
states. Italy also has its own form of CADR, since its courts are hopelessly clogged and
slow. Another key consideration is whether legal advice can be given only by lawyers
(as in Germany) or also by others (which contributed to historical development of
advice and dispute resolution schemes by trade unions and business in the Netherlands
and the UK.)
In the debate about what level of transparency is required for CADR, it should
be recalled that decisions by some courts in some states are not published. Some
arbitrators operate in complete secrecy. They may or may not be senior, respected
66 Yeazell [18].
67 Menkel-Meadow [11].
68 Van Rhee/Uzelac [16].
123
individuals. CADR schemes can include a series of functions that give rise to differing
considerations in relation to quality issues.
It is useful to analyse the various functions involved. Some CADR functions are
administrative (collecting information on disputes, such as sending out claim forms,
sending materials to both sides, and obtaining expert opinions), others involve elements
of general assessment (initial ‘triage-style’ scrutiny, informing one side or the other
that they do or do not appear to have substantial merit), of persuasion (conciliation or
mediation), and some involve making decisions that apply law to the facts and reach
conclusions on the merits. Statistically, the last category is rare, and can be subdivided
into situations in which conclusions are legally binding or not (and can be accepted
or rejected by one or both parties).
These considerations tend to support the situation that has developed in prac-
tice, namely the development of different levels of requirements depending on the
importance of the function involved. For example, some trade associations (such as
UK ABTA) handle the administrative and even mediation functions, but outsource
decision-making to external independent bodies. Other schemes (private ombudsmen
schemes in Germany and UK) have established an administrative body that is struc-
turally independent of the trade association, although very close to it and entirely
funded by it, but with a respected independent person as the senior ombudsman and
perhaps a supervisory board that includes (or has a majority of) independent mem-
bers (including consumers, regulators, judges and so on). In some countries, the title
‘ombudsman’ can apply to company employees: this is likely to confuse consumers
as to the extent of independence of the individual. These observations indicate that
whilst a third party should act with impartiality, the requirement of independence
has given rise to some variability that involves a type of proportionality element,
which varies depending on the relevant function and existence of methods of gover-
nance. However, this will be an area in which boundaries need to be set and scruti-
nised.
One view is that all CADR functions must not be funded by only one side (in
practice, traders) but it is acceptable for both sides to pay a case fee to an arbitrator.
Another view is that funding by a trade association (rather than an individual company)
is acceptable if an independent person carries out the decision-making function and
if the system and its operation are completely transparent. The issues of transparency
and governance are clearly important.
It might be argued that the small amount of money involved in most consumer
disputes raises a proportionality point about how much it matters that a person who
delivers mediation, arbitration or CADR services of such issues should be (seen to be)
independent or subject to other requirements. That argument would be a red rag to most
scholars and lawyers, who are wedded to concerns about the democratic inviolability or
rights and law. But it is worth contemplating, as would Amartya Sen,70 that delivering
some justice is better than no justice, and that if CADR systems did not exist, very
many small consumer claims would never be satisfied, since they are too costly or
involve too much effort for consumers to resolve through most courts.
70 Sen [13].
123
These considerations underpin the promulgation of criteria that CADR systems and
individual decision-makers involved in them (or any other forms of dispute resolution)
must satisfy. Reference has been made above to the European Recommendations of
1998 and 2001, and the 2004 Code of Practice for Mediators. The 2011 proposals
likewise refer to essentially the same criteria, which are summarised as independence,
impartiality, transparency, effectiveness, competence and fairness. The authors of the
Oxford study have put forward an updated version of such essential requirements,
including aspects of accessibility, (cost)-effectiveness, accountability and verification.
They have also recommended that CADR providers should publish their performance
indicators on matters such as cost and duration. Key performance indicators (KPIs) are
agreed annually between some regulators and individual schemes, but as the market
develops, increased transparency will be required.
6.3 CADR and regulation
Ombudsmen or CADR functions have frequently been created as integral parts of

new regulatory regimes for sectors, such as in financial services, telecoms, or energy,
often governed by EU legislation. The CADR function may be intended to be a means
of processing the increased volume of simple disputes that arise as a result of new
regulatory obligations. But an equally important function may be to capture the nature
and incidence of the main types of issues that arise in the sector. This aggregated data
can be fed back to traders, regulators, consumers, trade associations, the market, and the
media. Hence, CADR bodies and regulators increasingly move away from traditional
confidentiality of the details of disputes, and publish data on both the aggregated
market trends that they can identify but also the names of individual traders.71 This
transparency provides the ability for aggregated small complaints to have behavioural
effect, as referred to at the start of this paper. The system therefore operates as ‘CADR
as regulation’ as well as solving small individual disputes. In simple terms, the dispute
resolution function is the ‘back end’ of a system of regulation, or self-regulation, that
is primarily focused on the ‘front end’ of maintaining a standard of general business
practice, and disputes that arise over such practice are funnelled towards the tailor-
made resolution system that accompanies the regulatory system.
A major potential advantage of any dispute resolution system is that it can identify
behaviour that requires attention, and set precedents for future behaviour. All CADR
systems—not just those created as part of sectoral regulatory systems—have strong
potential to assist in market regulation and improving trading standards. This potential
arises from harnessing modern information technology systems. Many dispute reso-
lution systems allow claims to be submitted online, and some have full computerised
procedures, but the value of large CADR systems lies in their ability to aggregate
the nature of issues involved with the identity of traders. Theoretically, courts could
disclose their ‘entry level’ data (some do but many do not), but the focus of courts
is on the content of a relatively small number of decisions that reach the top, output
71 The UK FOS and OFCOM now publish data on the types of issues and the names of traders.
123
stage and provide important legal precedents. In this respect, CADR systems can far
exceed the mass regulatory capability of courts.
The ‘justice market’ has moved from issues about small individual issues to exten-
sive implications about major products that have huge commercial value.72 CADR
schemes can provide an ‘early warning system’ that identifies emerging trends and
addresses the issues before undesirable effects escalate and proliferate. Such issues
may be non-compliance with law (such as excessive bank charges or dangerous prod-
ucts), the need for new or more elaborated rules, or merely changes in behaviour that
would improve situations even if no breach of law has occurred. Issues may relate to
general trends in a market, or the fact that the operations of individual traders give rise
to concern.73 The Oxford study found many examples of CADR schemes delivering
feedback on market issues.
The ability to deliver feedback information that can be used to improve regulatory
compliance at proportionate cost is of considerable value for improving regulatory
compliance by small and medium-sized enterprises (SMEs). SMEs are considered to
be vital for economic regeneration,74 and account for 99 % of enterprises, of which 92
% are micro-enterprises, and provide more than two thirds of private sector employ-
ment.75 It is well-recognised that ‘businesses, in particular SMEs, often lack clar-
ity about how to comply with regulation’,76 and have ‘a limited understanding of
the law. . .. less awareness of the detail of consumer protection laws, and how they
can access relevant information to assist compliance.’77 The Commission wishes to
minimize the regulatory burden on SMEs, and regards providing information and
advice to economic operators (especially SMEs) as a priority.78 The use of CADR
systems to achieve this and to provide effective and targeted feedback to SMEs and
regulators on areas of compliance that they should focus on would greatly assist,
reduce the need for (and hence cost of) enforcement, and increase customer satisfac-
tion.
72 Huls [10].
73 See the discussion on the development of EU wide complaints reporting in Benöhr [1].
74 Communication from the Commission ‘Europe 2020 - A strategy for smart, sustainable and inclusive
growth’ COM (2010) 2020. See also Proposal for a Regulation of the European Parliament and of the Council
establishing a Programme for the Competitiveness of Enterprises and small and medium-sized enterprises
(2014–2020), COM (2011) 834 final, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=
COM:2011:0834:FIN:EN:PDF.
75 Report from the Commission to the Council and the European Parliament Minimizing regulatory burden
for SMEs Adapting EU regulation to the needs of micro-enterprises, COM (2011) 803, 23.11.2011, http://
ec.europa.eu/governance/better_regulation/documents/minimizing_burden_sme_EN.pdf.
76 Delivering regulatory reform. Report by the Comptroller and Auditor General (National
Audit Office, 2011), available at http://www.nao.org.uk/idoc.ashx?docId=89f6cf32-eeeb-4f0a-b862-
d5a9feec4388&version=-1. See also Lightening the Load: The Regulatory Impact on UK’s Smallest Busi-
nesses (Department for Business Innovation and Skills, 2010).
77 Consumer Law and Business Practice. Drivers of compliance and non-compliance (Office of Fair
Trading, 2010), OFT1225, available at http://www.oft.gov.uk/shared_oft/reports/Evaluating-OFTs-work/
OFT1225.pdf.
78 The future of market surveillance in the area of non-food consumer product safety under the General
Product Safety Directive, (BSI, 2011), http://ec.europa.eu/consumers/safety/projects/docs/final_report_
the_future_of_market_surveillance.pdf.
123
The point of using aggregated market data is that adoption of fair and good business
practice can be incentivised and controlled through public pressure acting on traders’
reputations and through the existence of a credible threat of enforcement of both
private law rights and public law trading requirements. In competitive markets, the
power of reputation can incentivise large or local businesses to act responsibly so
as to maintain their reputations. The problem with public enforcement procedures
of consumer law is that, since the market involves a mass of small transactions and
many traders, individual enforcement is not cost-effective for regulators or through
the courts. Aggregation in a collective private action in the courts is also slow, costly
and uncertain, and raises problems of abuse by intermediaries. Enforcement by public
officials raises issues of limited resources. But what has emerged as a strong solution
is to process multiple small disputes as cheaply and swiftly as possible through CADR
systems, and to aggregate the resultant data, which can be re-cycled transparently so
as to bring into play the reputational and public enforcement mechanisms, thereby
encouraging traders to seek best practices themselves. These methods release some
capacity for enforcement officials to focus on fraudulent traders (against whom swift
action is paramount).
The whole process operates as a Quality Management System, capturing the under-
lying data on performance, identifying any issues that need to be addressed (perhaps
by the legislature, court or regulators clarifying the rules), and using the force of the
market to drive up standards of behaviour.
6.4 CADR and courts
The development of CADR calls for a re-examination of what forum is appropriate

to deal with large and small issues: the legislature, court, regulator, trade association,
individual business, committee, consumers and the market?
CADR schemes are good at applying clear law to simple facts. They are not so
appropriate for clarifying what the law is. Courts should perform that function. The
reasons why this differential exists lie in the fact that in order to deliver cost- and
time-proportionate dispute resolution, CADR schemes telescope the process of public
debate and deliberation that society has deemed appropriate for deciding what its rules
should be. The requirements of due process and procedural justice, which involve full
opportunity for all parties to be involved and all aspects to be considered, inevitably
need court processes, including appeal processes, of certain formality, duration, and
cost.
There is an opportunity for a new relationship between courts and CADR. The
function of the former could be described as declaration, of the other as application.
Some CADR schemes have begun to refer points of law to courts, or to regulators.
Equally, courts could refer simple cases back to CADR schemes, for proportionate
resolution, just as many CADR schemes refer cases between themselves to that which
has the relevant sectoral expertise.
There is no suggestion that access to courts should be denied. The ECJ case law
has shown that even mandatory out-of-court procedures for the settlement of disputes
between consumers and providers can be legal provided the right to bring an action
123
before the courts for the settlement of disputes is maintained.79 This is largely a
question of sequencing, rather than access. English courts require litigants to take
appropriate steps to settle cases, both before and during the court process, and may
impose costs sanctions for unacceptable behaviour.80
7 CADR and Collective Redress
Since CADR systems are able to process multiple claims, which often have simi-
lar subject matter, they offer a timely and original solution to problems of mass or
collective redress. Many existing CADR schemes currently process multiple similar
disputes, and hence avoid the need for collective court actions. They inherently iden-
tify groups of similar issues, and process them in a managed fashion so as to apply
appropriate law to them and reach consistent outcomes. They can do this more swiftly,
cheaply, predictably and effectively (avoiding abuse or intermediaries) than (individ-
ual or collective) court processes. Hence, CADR systems offer a significant solution
to the problem of collective redress, for which court collective actions do not seem to
be the answer that is acceptable in Europe.
The case management function, involving some flexibility depending on the nature
of the subject matter, is similar to techniques adopted in some courts. CADR systems
should, therefore, be able to refer points of law to courts or to regulators, so as to
clarify both retrospective and prospective rules, to limit the spread of non-compliance
or lack of clarity of a rule, and to process the rectification of historical cases.
8 Coverage issues
In considering the Commission’s 2011 proposals, governments have been concerned

about two issues. First, although the larger Member States are in general in favour
of consumer ADR systems, which exist in some sectors, they do not currently have
a single unified national ADR system (unlike the Nordics, CEE States and Nether-
lands) that can operate as a residual catch-all for all or any type of consumer dispute.
Secondly, they rightly do not want to impose unnecessary costs on public or business
funds, for example by requiring there to be a single national catch-all ombudsman
system.
The issue is not whether ADR is a good idea for consumer disputes (almost every
country thinks it is), nor how a central, residual body could be established (a structure
that would fit into the national architecture is reasonably obvious in most countries),
but how it could be paid for in a time of economic stringency. CADR schemes save
money elsewhere: on courts, in reducing the spread of mass disputes, and on regulatory
enforcement.
79 Case C-317/08, C-317/08, C-319/08 and C-320/08, Rosalba Alassini v Telecom Italia SpA, Filomena
Californio v Wind SpA, Lucia Giorgia Iacono v Telecom Italia SpA and Multiservice Srl v Telecom Italia
SpA, March 18, 2010.
80 English Civil Procedure Rules, r 44.5(3).
123
Whatever the outcome of the EU proposals, CADR as a phenomenon is here to

stay, and will expand. Coverage will be extended, whether driven by governments
or business sectors. Some CADR schemes will be merged, so as to reduce gaps
and introduce economies of scale into shared overheads, and reduce wasted costs
through the need to reject. More sectors will introduce sectoral CADR schemes,
seeing commercial advantages in doing so, which will reduce the number of resid-
ual disputes not covered by sectoral schemes. Maximising the transparency of com-
plaint data held by CADR schemes and regulatory agencies will reduce the number
of disputes by maximising the ability to identify problems and the speed of doing
so.
9 Conclusions
CADR is a new solution to a mass market problem that courts have not been able to
deal with. It has already spread widely, unseen by many, and is continuing to spread.
Many C2B claims involve very low sums, and CADR schemes can and do process them
at relatively proportionate cost. They appear to have captured many small consumer
claims that would otherwise not be brought in courts, because they are user-friendly,
quick and cheap.
Furthermore, CADR systems can be designed so as to be extremely powerful and
efficient parts of the system of controlling traders (and governments’) behaviour, if
they are linked to regulators and if aggregated data is made transparent. The regulatory
potential could be particularly useful in supporting compliance with regulation by
SMEs.
The 21st century is taking a holistic approach to issues such as regulation and
redress, and public and private enforcement, which were previously thought to exist
in separate compartments that had little relation to each other. Now, the barriers
between the compartments are breaking down, and we see public regulators deliv-
ering private redress, and new forms of dispute resolution delivering regulation.
The real questions that need to be asked are: what solutions work? How much do
different solutions cost? How long do they take? Which options deliver best out-
comes?
The future may see considerable spread in CADR schemes and possible consolida-
tion in providers. Almost every Member State will need to review its existing structure
of CADR bodies and how they operate, if this technique is to realise its full potential in
delivering effective outcomes. New arrangements should be thought through between
CADR schemes, courts, regulators and consumer information systems. Systems need
to be simple, and hence clearly identifiable.
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ERA Forum (2012) 13:199–225

Consumer-to-business dispute resolution:

Christopher Hodges · Iris Benöhr ·

Published online: 20 July 2012

Keywords Consumer-to-business dispute resolution · National CADR schemes ·

1 The Commission’s proposals on consumer ADR

On 29 November 2011 the European Commission adopted a Communication and

C. Hodges (B) · I. Benöhr · N. Creutzfeldt-Banda

(online dispute resolution).1 These proposals represent developments of fundamental

2 The distinct world of CADR

3 CADR schemes in EU structures

8 See Hodges/Vogenauer/Tulibacka [9].

subsequently renamed the European Consumer Centres Network (ECC-Net).15 Over

4 The current landscape of CADR bodies

facilitate company contact as first steps, followed by mediation/conciliation, and then

48 See Stadler and Hau [14]; Hess and Hübner [7].

5 Comparative observations on the operation of CADR bodies

The principle of independence of out-of-court schemes is included in both of

5.2 The information and advice function

(206,121 formal disputes, of which 17,465 required the involvement of an ombuds-

5.3 Modest sums in dispute

The monetary value of amounts in dispute in individual C2B complaints is universally

5.4 CADR costs per case

5.5 Sources of funding

5.6 Coverage thresholds and limits

5.7 Case fees for consumers

5.8 Techniques and models

consumers and business, avoiding damaging confrontations and loss of consumer

5.9 Types of cases

5.10 Consequences: Binding effects and compliance with recommendations

problematic.57 If ombudsmen’s decisions are not formally binding on traders, various

6 Issues with CADR

6.1 The basis of CADR decisions: law or equity?

Directive on unfair commercial practices,59 unfair contract terms,60 and misleading

6.2 Quality and appropriateness of CADR

6.3 CADR and regulation

Ombudsmen or CADR functions have frequently been created as integral parts of

6.4 CADR and courts

The development of CADR calls for a re-examination of what forum is appropriate

7 CADR and Collective Redress

In considering the Commission’s 2011 proposals, governments have been concerned

Whatever the outcome of the EU proposals, CADR as a phenomenon is here to

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