Unnumbered Document
EXPLANATORY MEMORANDUM ON EUROPEAN UNION LEGISLATION
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)
Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on online dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Regulation on consumer ODR)
Submitted by the Department for Business, Innovation and Skills on
February 2013.
SUBJECT MATTER
1. This Explanatory Memorandum should be read in conjunction with an Explanatory Memorandum of 15 December 2011 and Supplementary Explanatory Memoranda submitted on 17 September 2012 for document/legislation: 17795/11 (Directive on consumer ADR), 17815/11 (Regulation on consumer ODR) & 17968/11 (Commission Communication relating to both legislative proposals). The unnumbered text now being reported on represents the text agreed between the European Commission, European Parliament and Council at trilogue negotiations in December 2012.
2. The purpose of this Explanatory Memorandum is to provide an assessment of the substantive amendments that have been made to the Directive on consumer Alternative Dispute Resolution and Regulation on consumer Online Dispute Resolution during the final stages of negotiations, and to respond to a report from the House of Commons European Scrutiny Committee dated 13 February 2013.
3. This Directive has the aim of enhancing the use of Alternative Dispute Resolution (ADR) for consumer disputes within the EU. It will not require parties to use ADR; it will simply increase the supply of quality ADR. It will do this by placing a requirement on Member States to ensure ADR that meets certain quality criteria is available for every possible contractual dispute between consumers and business. Member States will have to designate a Competent Authority to monitor standards of the entities that provide this ADR, so-called “ADR entities”.
4. The Regulation will establish a European Online Dispute Resolution platform (ODR platform). This will be an interactive website which can be accessed free of charge in all official languages of the Union and will create a single point of entry to consumers and traders seeking out-of-court resolution of contractual disputes arising from online sales.
SCRUTINY HISTORY
5. As set out in the original and Supplementary Explanatory Memorandums for document/legislation: 17795/11, 17815/11 & 17968/11.
6. On 17 September 2012 the Consumer Minister (Jo Swinson) wrote to the Chairs of both Committees to ask them to consider potential Justice and Home Affairs (JHA) obligations, and submitted Supplementary Explanatory Memoranda.
7. The Consumer Minister appeared before the Lords Scrutiny Committee in an evidence session on the proposals on 24 October 2012.
8. The House of Commons European Scrutiny Committee report dated 25 October 2012 included a consideration of the Supplementary Explanatory Memoranda and the Minister’s letter of 15 September.
9. The Chair of the House of Lords European Union Committee wrote on 14 November 2012 to confirm the Committee was retaining the proposals under scrutiny, to flag concerns with the potential balance of the costs of the proposals and to confirm their view on the application of the UK’s Opt-in Protocol.
10. The Consumer Minister wrote to both Committees on 11 December 2012 to provide an update on the negotiation timetable and to advise that it was increasingly unlikely that a Title V legal base would be added to the proposals.
11. On 9 January 2013 the Chair of the House of Commons European Scrutiny Committee wrote to ask for further details about the lack of a Title V legal base.
12. The Consumer Minister wrote to both Committees on 7 February 2013 to provide an update on the timetable for adoption of the proposals. This letter confirmed that the text agreed at trilogue negotiations does include a provision that the Government believes triggers the UK’s Opt-in Protocol but that a Title V legal base was not included. The Minister requested that the Committees begin considering the merits of opting-in.
13. The House of Commons European Scrutiny Committee report dated 13 February 2013 asked that the texts be deposited as soon as possible, along with a Supplementary Explanatory Memorandum including further details about the provisions which trigger the Opt-in Protocol.
MINISTERIAL RESPONSIBILITY
14. As set out in the original Explanatory Memorandum of 15 December 2011 for document/legislation: 17795/11, 17815/11 & 17968/11.
INTEREST IN DEVOLVED ADMINISTRATIONS
15. As set out in the original Explanatory Memorandum of 15 December 2011 for document/legislation: 17795/11, 17815/11 & 17968/11.
LEGAL AND PROCEDURAL ISSUES
Legal Basis
16. The Directive has as its legal basis Article 114 which is the basis for “measures for the approximation of provisions laid down by law…in Member States which have as their object the establishment and functioning of the internal market”.
17. Due to the addition of a provision (article 9c of the ADR Directive) during the course of negotiations, that the UK Government believes triggers the UK’s JHA Opt-in Protocol, the UK pushed for a Title V legal base (which refers to the section of the Treaty on the Functioning of the European Union which covers matters of freedom, security and justice, and encompasses Article 81 of this Treaty) to be recognised as an additional legal base for this Directive. Unfortunately the UK was isolated on this issue and was unable to secure the additional citation of a Title V legal base.
18. Article 9c of the ADR Directive is a copy of Article 8 of the Mediation Directive (2008/52/EC). The Mediation Directive has as its legal base article 61(c)[1] of the Treaty establishing the European Community. Article 61(c) provided that the Council should adopt measures in the field of judicial cooperation in civil matters as provided for in Article 65. Article 65 deals specifically with measures in the field of judicial cooperation in civil matters having cross-border implications. Article 65 is officially recognized as being the predecessor provision to Article 81 of the Treaty on the Functioning of the European Union.
19. The Government’s view is that since Article 8 of the Mediation Directive has Article 61(c) TEC as its legal base, the same provision found in Article 9c of the ADR Directive must be regarded as having the same legal base, which is now Article 81 TFEU.
20. Even in the absence of the citation of a Title V legal base, the UK Government believes that the inclusion of Article 9c in the Directive will trigger the UK’s Opt-in Protocol. The Government position is that the UK Opt-in Protocol applies where a measure contains provisions pursuant to Title V, even in the absence of a Title V legal base. Whilst the UK is aware that this interpretation of the Protocol differs from that of the Commission, in cases where the UK nonetheless decides to opt-in, our difference of opinion is unlikely to result in a disagreement with the EU Institutions. If the UK decides, however, that it does not intend to opt-in in to the JHA components of this dossier, we will have to consider how to proceed, including the possibility of challenging the validity of the legal base before the ECJ.
21. The UK Governmentagrees with the broader policy position and issupportive of the overall objectives of the ADR/ODR proposals, butwould welcome the views of the House of Commons European Scrutiny Committee and the House of Lords European Union Committee before reaching a formal decision on whether to opt-in.
Legislative procedure
22. As set out in the original Explanatory Memorandum of 15 December 2011 for document/legislation: 17795/11, 17815/11 & 17968/11
Voting Procedure
23. As set out in the original Explanatory Memorandum of 15 December 2011 for document/legislation: 17795/11, 17815/11 & 17968/11
Impact on UK law
24. As set out in the original Explanatory Memorandum of 15 December 2011 for document/legislation: 17795/11, 17815/11 & 17968/11.
25. The ADR/ODR text agreed at trilogue negotiations provides that in relation to ADR procedures initiated by a consumer against a trader, the provisions of the ADR Directive will prevail over any other EU legislation (and therefore also the domestic legislation implementing this), and we will need to scan such domestic legislation to see whether it needs to be amended.
26. Article 9c of the Directive will require the UK to check, and if necessary, amend any national rules on limitation or prescription periods in relation to complaints made by consumers against traders. The current position set out in the Limitation Act 1980 is that, in the absence of fraud, concealment or mistake, a claimant has six years from the date of the breach of contract to bring a claim. As a result of the implementation of the Mediation Directive, in the case of certain cross-border disputes, if a mediation process has started within the six year window, but is still ongoing when the six year time period terminates, the window for bringing a claim is extended to eight weeks after the end of the mediation.
27. What Article 9c means is that we will need to provide that in the case of disputes that are within the scope of the ADR Directive where a consumer is the claimant, and a trader the defendant, this six year window will also need to be extended where an alternative dispute resolution process (be it mediation, arbitration, or any other form of alternative dispute resolution) has started, but is still ongoing when the six year time period terminates. Therefore Part II of the Limitation Act 1980 will need to be amended to include a section which extends the time period for bringing a claim in the case of the disputes covered by the ADR Directive (i.e. in the case of a dispute regarding a contract for the sale of goods or provision of services where the claimant is the consumer and the defendant is the trader).
28. The Government has not yet considered what an appropriate time extension would be but will cover this in the consultation exercise undertaken to implement the proposals.
29. Equivalent amendments will need to be made to the legislation of Scotland and Northern Ireland, and Gibraltar will also need to screen its legislation on this point. It is likely, for example, that the Prescription and Limitation (Scotland) Act 1973 will be affected. Scottish Government officials will be assessing the implications as part of the implementation process. Likewise, Part IV of the Limitation (Northern Ireland) Order 1989, the Foreign Limitation Periods Act 1984 and the Foreign Limitation Periods (Northern Ireland) Order 1983 may also need to be amended.
30. In the event that sector specific legislation regulates a subset of consumer – business contracts for the sale of goods or the supply of services, which sets out particular time limits on claims brought under these contracts, then these pieces of legislation will also need to be amended to permit an extension where the parties are engaging in ADR at the time that the statutory deadline for bringing a claim has passed. We are not currently aware of such legislation, but will do a more detailed trawl as part of the transposition process.
31. The legislative vehicle to effect these changes to the aforementioned pieces of legislation will be domestic Regulations made using the vires given in s2(2) of the European Communities Act 1972.
GIBRALTAR
32. As set out in the original Explanatory Memorandum of 15 December 2011 for document/legislation: 17795/11, 17815/11 & 17968/11
FUNDAMENTAL RIGHTS ANALYSIS
33. As set out in the original Explanatory Memorandum of 15 December 2011 for document/legislation: 17795/11, 17815/11 & 17968/11
EUROPEAN ECONOMIC AREA
34. As set out in the original Explanatory Memorandum of 15 December 2011 for document/legislation: 17795/11, 17815/11 & 17968/11
SUBSIDIARITY
35. As set out in the Supplementary Explanatory Memorandum of 11 September 2012.
POLICY IMPLICATIONS
36. The Supplementary Explanatory Memoranda of 17 September summarised the amendments put forward in the Council General Approach text that was agreed by a qualified majority of Member States on 30 May 2012[2] and amendments agreed on 10 July 2012 by the Internal Market and Consumer Protection (IMCO) Committee of the European Parliament[3]. Now that trilogue negotiations have concluded, it is possible to provide a clearer summary of the implications of the Directive based on the agreed text.
37. This section lists the key areas in which substantive amendments have been made and the key issues that were agreed during the final stages of negotiations, at any time since the previous Supplementary Explanatory Memoranda were submitted.
Links to national justice systems (ADR Directive Article 9c)
38. The requirement to extend limitation and prescription periods is reasonable and its actual impact would be limited as the type of dispute in question is unlikely to reach court. The UK has already implemented a similar provision (article 8 of the Mediation Directive) by way of the Cross-Border Mediation (EU Directive) Regulations 2011.
Information to consumers (ADR Directive Article 10 and ODR Regulation Article 13)
39. Businesses that are obliged to or voluntarily commit to use a specific ADR entity (or entities) will have to provide information on that ADR entity, including their address or website address. This information will have to be available on the business’s website, and if applicable, in the general terms and conditions of sales or service contracts. The impact of this will be low, as most UK businesses who are obliged to use ADR already provide this kind of information in this manner.
40. In addition to this, in the event of an unresolved dispute, all businesses will have to provide information about an ADR entity (or entities) that could take on that dispute, and specify whether they will make use of that ADR entity to settle the dispute.
41. The ODR Regulation will oblige all EU online traders to provide a link to the ODR platform on their website. Traders who are obliged to use specific ADR entities to resolve disputes will have to provide further information about the platform in any applicable offers or terms and conditions. Furthermore, online intermediaries which traders use to sell goods or services will also have to provide a link to the ODR platform on their websites. These requirements to provide information are in addition to the information requirements of the ADR Directive.