**2. The alternative consumer dispute resolution ('CADR') in the European Union**

To strengthen consumer confidence in the internal market without barriers, and to allow them to fully benefit from it, it is necessary for consumers to have access to simple, efficient, fast, and low-cost ways of resolving disputes that arise from the sale of good or the supply of services, in particular when shopping cross-border.

#### *The Alternative Disputes Resolution System in the European Union: Consumer Protection… DOI: http://dx.doi.org/10.5772/intechopen.108539*

The Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes aims to contribute to the proper functioning of the internal market and to protect consumers by ensuring that consumers can, on a voluntary basis, submit complaints against traders to entities offering alternative dispute resolution procedures.

The ADRs were born in the United States during the 1970s to lighten the load of the Courts by trying to identify, especially for the simplest and most modest disputes, an alternative dispute resolution solution. The idea was immediately a huge success to the point that it was the subject of a conference at the American Bar Association where it was discussed the best way to introduce this new litigation settlement instrument, still dominant in the United States today, by transferring the competence to hear low-value cases to bodies outside the Courts through a more informal and very flexible procedure [1].

In the EU, on the contrary, interest in ADRs was born and developed mainly with reference to the objective of creating a single market that sets the figure of the consumer and his fundamental protection as its core.

In this sense, the ADRs, from being mainly instruments for the deflation of ordinary litigation, end up becoming instruments suitable for guaranteeing to every individual an easy access to justice, in a simplified manner, for the fast and low-cost resolution of even complex (transnational) but low value disputes (socalled small claims) as well as a simplified guarantee of the rights recognized at a European level [2].

As a result, the ADRs gradually began to play an increasingly important role in the resolution of consumer disputes in the EU and became the subject of numerous interventions by the EU institutions, such as the Green Paper on consumer access to justice of 1993, as well as the Conclusions of the Tampere European Council of 15 and 16 October 1999, which emphasized the need for Member States to establish alternative out-of-court procedures to speed up and simplify the resolution of transnational low-value commercial disputes involving consumers. This was followed by two recommendations (98/57/EC and 2001/310/EC) that provided various guarantees such as effectiveness and independence in the application and establishment of ADRs that Member States had to comply with [3, 4].

On the basis of these recommendations—non-binding instruments—and in the absence of uniform harmonized standards [5], therefore, numerous Member States began to introduce different ADR procedures. According to studies conducted in 2012, there were more than 750 of such procedures [6] which, however, in the absence of harmonized standards and with only a set of identified common principles, led to the spread of indefinite forms of ADRs that were heterogeneous among themselves but differed according to the national legal traditions of the various Member States.

However, these recommendations also had the great merit of beginning to outline, for the first time, the basic features of the CADR, outlining the basic principles of ADR procedures in order to ensure a balance between the protection of consumer rights and, at the same time, the principles of defense and due process.

This also led to an identification of ADRs in two different typologies: adjudicative ADRs and conciliative ADRs. With reference to the first type, they must respect the principles of transparency, independence, effectiveness, legality, cross-examination, and freedom. The consumer must be provided with specific information with reference to the dispute resolution procedure as well as on its possible outcomes and on possible subsequent appeals, on how to introduce the complaint, on the establishment of the cross-examination (as an expression of the principle of defense), on the value of the decision whether it will be binding or not, as well as on the costs and their allocation. Moreover, in adjudicative ADRs, there will be no kind of obligation to be assisted by a lawyer and the focus will clearly be on the short time frame in which a decision must be reached, which, in order to guarantee the principle of legality, will have to be motivated by applying the consumer protection rules based on the national law of the State where the adjudicating body is established or where the consumer is habitually resident or, at least, guarantee the minimum EU standard laid down in the relevant EU directives.

By contrast, with reference to conciliatory ADRs, they simply require that the consumer be made aware of all the alternative possibilities and, therefore, be able to go to the Court or apply to an ADR body to have his rights safeguarded. In the light of this, therefore, this second type of ADR, governed by the Recommendation No. 2001/301/EC, is certainly less stringent than adjudicative ADR, as it simply requires that consumers be made aware of all their possibilities and then consciously choose the solution proposed in ADR or decide to go to the Court. In fact, precisely in this regard, the consumer in conciliatory ADR must always be informed of the issue in a clear and comprehensible manner, advising him of his possibility of accepting or not the outcome of the procedure as well as of the fact that a more favorable solution could be reached in Court; it always remaining understood that, the completion of an ADR procedure does not preclude the consumer from being able to apply, at any time, to an ordinary court or other ADR body to have his interests safeguarded.

### **2.1 The harmonization of "CADR" procedures in the European Union: EU Directive No. 11/2013 and EU Regulation No. 524/2013**

It was, however, with the EU Directive No. 11/2013 that all the aforementioned principles were finally extended and all the ADR procedures that had arisen in the various Member States, with reference to the subject of ADR in consumer disputes so-called "CADR"—were harmonized.

The essential objective of this Directive was precisely to provide ADR procedures for any type of dispute, both domestic and cross-border, concerning contractual obligations arising from sales or service contracts between EU established sellers or suppliers and EU resident consumers, through ADR procedures that meet the requirements of quality and effectiveness by facilitating an amicable settlement of the dispute, especially if cross-border [7, 8].

In addition, the Directive has a very broad scope of application, in fact, pursuant to Article 2, it will apply to all the above-mentioned types of disputes including contracts concluded online, as long as they have, as their purpose, the sale of goods or services, including digital ones. On the contrary, it will not apply to B2B disputes, to transactions and negotiations between the parties, to B2C procedures, and to dispute resolution systems managed directly by the professional or company (so-called "in-house").

Again, a fundamental aspect is that the Directive No. 11/2013, however, will apply only and exclusively to intra-community disputes, since consumers and businesses must both be resident or domiciled in the European Union or must have a secondary branch there.

Clearly, the Directive also establishes, for the purpose of the proper conduct of the ADR procedure for the comprehensive protection of consumer rights, a number *The Alternative Disputes Resolution System in the European Union: Consumer Protection… DOI: http://dx.doi.org/10.5772/intechopen.108539*

of principles that will have to be respected in order to guarantee the necessary procedural standards.

In this sense, based on Article 6 *et seq.***,** the compliance with these principles will have to be ensured:


An additional recently introduced tool of fundamental importance for safeguarding consumer rights is the ODR system, governed by the European Regulation No. 524/2013. The ODR system provide a platform that allows consumers, resident in European Members States, to resolve, out-of-court, a dispute arising from contracts for goods and services, concluded online.

In this respect, major websites and e-commerce applications of companies based in the European Union or in a non-member country, which sell their goods and services to consumers residing in the European Union, from the entry into force of the aforementioned Regulation No. 524/2013/EU, will have to mandatorily inform consumers about the possibility of using the ODR instrument in case a dispute arises. Moreover, with ODR, the consumer, after having purchased online on a website or an e-commerce application, has the possibility to submit his complaint to a competent body and speed up the dispute procedure by trying to avoid lengthy litigation and try to solve the dispute out of court.

A major problem still unresolved with regard to the ODR system, however, is that only large companies have equipped themselves with such in-house mechanisms, making it practically inaccessible for smaller companies to set up such an internal dispute resolution system. As a result, such a system ends up facilitating only the in-house dispute resolution systems of the large multinationals, handling consumer complaints quickly and swiftly, leaving the provision of such a tool inaccessible for smaller companies, against which consumers will have to resort to the other ADRs provided.

### **2.2 The numerous dark issues of EU Directive No. 11/2013 and the tricky balance between the CADRs and national laws**

The Directive No. 11/2013 has undoubtedly tried to protect the position of the "*weak"* party in transnational negotiations, attempting to create a common discipline for CADRs, harmonizing all the principles and bringing together the various types of ADRs that have arisen in the Member States but, nevertheless, many critical aspects remain unresolved by the Directive that require, perhaps, a new and more effective intervention by the European legislator.

First of all, as indicated in recital 6, many professionals/companies established in a specific Member State, with low-quality standards and where no ADR mechanisms are provided for, will undoubtedly be at a competitive disadvantage with respect to professionals/companies established in Member States that guarantee not only welldefined ADR procedures but also much higher quality standards. Precisely for this reason, States have been required to set up consumer-to-business dispute resolution bodies—"C2B"—on their territory that guarantee high-quality standards that are accessible to all. In the light of this, an initial criticism is evident since the directive does not extend to Business to Consumer disputes—the extension of ADR procedures is left to the States' discretion also to "B2C" disputes—but the scope of application is circumscribed solely to C2B disputes.

Secondly, the provision of the enforceability of the Directive No. 11/2013 only to consumers/companies established in the European Union will result in an unjustified exclusion in the access to the CADR procedures for those consumers who have contracted with a company established outside the EU territory, even if the same one, perhaps through an online contract, has addressed its activity to European consumers. In fact, referring also to the EU Regulation No. 1215/2012, it is clear that the aforesaid consumers will have no choice except to file an ordinary judicial proceeding to see their interests protected—a procedure that is certainly much more expensive and much longer and that will therefore cause a potential consumer to think twice about interfacing with a non-EU company.

Thirdly, with reference to respect for the principle of legality and the non-derogation of the mandatory rules of each Member State of the consumer's habitual residence, pursuant to Article 6 of the EC Regulation No. 593/2008, it is noted that ADR mechanisms may easily not be able to know the mandatory rules of a Member State since they only have to guarantee a general knowledge of the law. As a consequence, the Member States, then, will necessarily have to provide a parallel mechanism for reviewing the decisions taken in ADR in order to verify the effective application of and compliance with the national mandatory rules [10].

Furthermore, another fundamental aspect to which attention must be drawn is, without doubt, the difficult balancing between the discretionary power recognized to Member States, in their procedural autonomy in the field of ADR, and EU law. In this sense, with reference to recital 45 of the EU Directive No. 11/2013 and to Article 47

#### *The Alternative Disputes Resolution System in the European Union: Consumer Protection… DOI: http://dx.doi.org/10.5772/intechopen.108539*

of the Charter of Fundamental Rights of the European Union, "the purpose of ADR procedures should be neither to replace judicial procedures nor to deprive consumers or professionals of the right to apply before the Courts," thus leaving the parties the right to choose between starting an ADR procedure or an ordinary procedure. However, this "freedom of choice" inevitably ends up clashing with the discretion of Member States to maintain mandatory mediation or conciliation systems as a condition for any possible or future ordinary proceedings. The European case law has dwelt on the issue establishing, in the light of the famous *Alassini Case-law* [11], that mediation/conciliation as a condition of procedural eligibility to be able to file a subsequent ordinary proceeding was not identifiable as contrary to the principles of effectiveness and efficacy, the cornerstones of the EU Directive No. 11/2013 as long as the outcome of the conciliation/mediation procedure itself is not binding, thus not affecting the parties' right to file an ordinary proceeding.

In the light of this, the Italian judge of the Court of Verona, section III civil division, requested a clarification from the European Court of Justice (ECJ) by way of a preliminary referral, by order of 28/1/2016, on the consistency between the compulsory mediation established by the Italian legislator in consumer disputes and the principles set forth in the Directive No. 11/2013, which is instead inspired by the purely voluntarist nature of the ADR procedures. In light of this, the ECJ [12] replied to clarify the issue definitively by emphasizing that *"Member States are free to choose the means they deem appropriate to ensure that access to the judicial system is not hindered, it being understood that, on the one hand, the fact that the outcome of the ADR procedure is not binding over the parties and, on the other hand, the fact that limitation or prescription periods do not expire during such a procedure represent two remedies which, among others, would be appropriate to achieve this objective*"—paragraph 56.

Further highlighting that, *"the requirement of a mediation procedure as a condition for the admissibility of a judicial remedy may thus prove to be consistent with the principle of effective judicial protection where such a procedure does not lead to a decision binding on the parties…"*—paragraph 61. On the basis of this, therefore, was emphasized the perfect admissibility of the Italian provisions on this matter. It being understood that the mediation procedure—for the performance of which the ECJ also stressed, at paragraph 65, the unnecessary need for the consumer to be assisted by a lawyer—preparatory to the commencement of subsequent ordinary proceedings, should not have any kind of binding character for the consumer who will therefore be fully free not to accept the outcome and to continue through ordinary proceedings to have his interests protected.
