In the guide
The options for businesses, and the information requirements, for resolving disputes out of court
This guidance is for England, Scotland & Wales
When there is a dispute between a consumer and a trader, there is a range of options for resolving the dispute without going to court. These options can often be quicker and cheaper, and lead to a more satisfactory solution, than taking legal action.
The law seeks to promote the use of 'alternative dispute resolution' (ADR) by ensuring that suitable options are available in all consumer disputes and requiring traders to inform consumers whether they are willing to use ADR.
What is ADR?
ADR is any process for the resolution of a dispute out of court. The simplest and most common form of ADR is direct negotiation, and this often leads to a solution.
Where direct negotiation does not resolve the dispute, a range of other options may be available. In broad terms ADR can take two forms:
Is ADR compulsory?
There is no general rule in law that says that ADR must be used to resolve a dispute. However, there are cases where ADR is compulsory on at least one of the parties (in consumer disputes this is the trader). Even where ADR is voluntary, there are often strong incentives to use it.
In consumer disputes, ADR is compulsory in a number of business sectors. For example, for most financial services consumers can insist that their complaint be decided by the Financial Ombudsman Service.
In some sectors, the law requires traders to belong to an ADR scheme but it gives them some choice about which scheme to join. This is the case, for example, for estate agents and telecommunications businesses.
In sectors where ADR is not compulsory by law, traders may nevertheless be members of a trade association or a 'trusted trader' scheme that requires its members to use ADR. Such schemes often provide or arrange the ADR scheme for their members.
A trader can also use their own contract terms to require themselves to use ADR, although they cannot insist that a consumer does so.
Even where there is no rule of law, no rule of a membership scheme and no contract term requiring the use of ADR, parties to a dispute must consider whether they should use ADR. If they fail to do so, without good reason, then a court may ultimately penalise them (even the party who 'wins' the court case) when deciding who is to pay the legal costs of the case.
Why should traders use ADR?
Where it is not compulsory for a trader to submit to ADR, it will still be worth considering. Some of the advantages include:
How can a trader join an ADR scheme?
A trader does not have to join a scheme in order to offer ADR. Sometimes, and particularly for larger traders or trade associations who may handle significant numbers of disputes or claims, it is worth joining or even setting up an ADR scheme. For smaller traders, the expense and complexity of setting up their own scheme may not be justified.
The law requires that all consumer disputes (with only a few exceptions) can be dealt with under an ADR procedure meeting certain minimum standards. For an ADR provider to show that they meet these standards, they must be approved by a 'competent authority' (which is either the economic regulator for the particular sector they are working in or the Chartered Trading Standards Institute (CTSI)).
Some approved schemes cover specific sectors or specific types of dispute, but others have broad coverage. This means that businesses should be able to identify an approved scheme, whatever the nature of their business and their dispute.
A full list of approved ADR providers is maintained on the European Online Dispute Resolution platform.
There will also continue to be ADR schemes that are not approved by a competent authority, as the legal requirement is only that there be at least one approved ADR procedure for any type of consumer complaint. If a trader is considering using a non-approved scheme they should make their own enquiries and checks as to its suitability.
Although traders do not have to agree to use ADR for a consumer dispute (unless it is compulsory for them by law, by scheme membership or by contract) they are required to provide certain information about ADR to consumers.
Where a trader is considering a consumer complaint, then at the point where the trader's internal complaint-handling procedure is exhausted they must provide the consumer with the following information:
(In other words, the trader has to give the consumer details of an ADR provider but does not have to agree to use ADR.)
The information must be provided in a 'durable medium' - for example, a letter or an email - and it will normally form part of the final 'deadlock' letter in response to a consumer complaint.
In addition, where a trader is subject to compulsory ADR, either by law or through the membership of a trade association, they must provide the name and website address of the ADR provider or scheme on their own website (if they have one) and as part of their general contract terms.
Online dispute resolution
Alternative dispute resolution can take place in various ways, including face-to-face, by telephone, in writing or online. To encourage the use of online dispute resolution (ODR) there is the European ODR platform, which allows consumers, traders and ADR providers to file, respond to, and handle disputes (including disputes where the trader and consumer are in different countries within the EU) online. CTSI runs the ODR Contact Point website, which is designed to help consumers use the European ODR platform.
Where a trader does business online, whether through a website or other electronic means, they must provide a link to the ODR platform website. In addition, all online traders must state their email address on their website (an online contact form that does not show the email address is not sufficient to meet this requirement).
Where a trader is required to use an approved ADR provider (whether by law, by scheme membership or by contract) they must give additional information to consumers. Not only must they link to the ODR platform on their website, they must also inform consumers of the existence of the ODR platform and the possibility of using the platform to resolve disputes; they must include this information in any standard terms and conditions of business. If an offer is made to a consumer by email, the email must contain a link to the ODR platform.
Online marketplaces - which may not sell products direct to consumers but instead facilitate transactions between traders and consumers (for example, online auction websites, and online retailers that also allow third-party sellers to trade through their website) - must provide a link to the ODR platform on their website.
All approved ADR providers are capable of handling disputes filed through the ODR platform. When a consumer files a dispute, the platform sends a notification to the trader, and the trader then either deals with the dispute directly or selects an ADR provider to deal with it. If an ADR provider is selected they then consider the dispute. The ADR provider can only refuse to handle a dispute on certain, limited grounds (for example, a frivolous or vexatious claim, or a claim that falls outside the minimum and maximum values of claim that the provider handles).
For the trader, ADR will often be the best way to deal with a dispute but it is not compulsory.
The Department for Business, Energy and Industrial Strategy (BEIS, which was known as the Department for Business, Innovation and Skills at the time) has produced more detailed guidance for this area: Alternative Dispute Resolution Regulations 2015: Guidance for Business. This includes an annex with guidance on online dispute resolution.
If a trader fails to comply with the information requirements above, trading standards services can apply for a court order requiring them to comply. If the order is not complied with the maximum penalty is a fine and two years' imprisonment.
Last reviewed / updated: May 2018
This information is intended for guidance; only the courts can give an authoritative interpretation of the law.
The guide's 'Key legislation' links may only show the original version of the legislation, although some amending legislation is linked to separately where it is directly related to the content of a guide. Information on amendments to UK legislation can be found on each link's 'More Resources' tab; amendments to EU legislation are usually incorporated into the text.
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