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Arbitration as an Alternative Consumer Dispute Resolution Method – Where Can It Be Used?

Consumer disputes are any disputes arising out of a contract for the sale of goods or the provision of services between a business and a consumer. The purpose of the European Union in the field of consumer disputes is not simply to protect the consumer at the stage of concluding the contract. The purpose is to protect the consumer at the stage where the dispute arises.

Thus, Directive 2013/11/EU, which concerns the Alternative Resolution of Consumer Disputes, states that the purpose is, inter alia, to ensure consumer access to:

1) Simple

2) Effective

3) Fast and

4) Low cost ways to resolve disputes.

There are several ways to resolve disputes that meet the above criteria. Because these methods are used instead of the court, they are called alternative – hence the name Alternative Dispute Resolution. Examples are mediation, conciliation and arbitration.

Arbitration Benefits

Arbitration is also the most formal of the above alternative dispute resolution methods as it is similar to the procedure in the Court with the difference that the parties, instead of presenting their case before a judge, present it before an independent third party – the arbitrator. The arbitrator’s fee is paid by the parties.

Arbitration is faster than litigation and usually costs less. Upon termination of the procedure, the decision of the arbitrator is considered final and binding on the parties and there are limited rights to dispute the decision.

An important benefit of arbitration in comparison to the courts is that the arbitration is confidential in nature.

As mentioned above, arbitration is lower in cost than litigation. This does not mean, however, that the cost is not prohibitive where the difference is low in value. For example, the fee of a relatively low paid arbitrator is approximately €150 per hour.

Especially in consumer disputes, where many times the value of the dispute is small, it would be strange for this difference to end up in arbitration. For example, if a consumer bought a piece of furniture that is defective, he would not be expected to refer his dispute to arbitration, nor would the trader reasonably accept the arbitration.

It should be noted at this stage that the agreement between the consumer and the trader to lodge a complaint to arbitration with an Alternative Dispute Resolution  Entity does not bind the consumer if it was concluded before the dispute arose and if it entails depriving the consumer of the right to apply to the competent courts for the judicial settlement of the dispute.

This means that, if there is a term for arbitration in a consumer contract through an Alternative Dispute Resolution Body, this term does not bind the consumer unless this term allows the consumer to make use of the courts.

In addition to the ADR procedures where the settlement of the dispute is sought by the imposition of a settlement, the settlement required is binding on the parties only if they have been informed in advance and have explicitly accepted the binding nature of the decision.

The above provisions have not been examined by the Court of Justice of the European Union but our view is that any reference to arbitration in a contract relating to a consumer dispute should not apply to consumers unless otherwise agreed.

But when is it possible to refer a consumer dispute to arbitration?

It follows from the above that, in order for a matter to be referred to arbitration, the consumer must first agree to arbitration after the dispute has arisen. Secondly, if there is an existing arbitration clause it binds the trader but not the consumer who has the right to exercise his right to refer the dispute to arbitration or to the court. Thirdly, because arbitration is a costly alternative method of dispute resolution, it should only be used where the value of the dispute is large. An example is a building difference or a difference that arises from buying a car.

This article is co-funded by the European Union under the Consumer Program (2014-2020).

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