The purpose of the Law (N.85(I)/2017) is to resolve disputes arising between consumers and businesses through an Alternative Dispute Resolution for Consumers Entity. One of the most well-known methods of Alternative Dispute Resolution is Arbitration, through which the parties who have a dispute appoint a third party who is independent i.e. the arbitrator to resolve their dispute.
The Alternative Resolution of Consumer Disputes Law (L.85(I)/2017)
The Alternative Dispute Resolution for Consumer Law of 2017 (“the Law”) harmonizes Cyprus with Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes.
The purpose of the above Law is for disputes arising between consumers (located in the European Union) and businesses (within Cyprus) to be resolved by an Alternative Dispute Resolution Entity. Such Entity uses Alternative Dispute Resolution methods, appointing natural persons to resolve the disputes that arise.
The best-known Alternative Dispute Resolution method is arbitration. Through arbitration, two or more parties to a dispute appoint a third party who is independent – the arbitrator who issues an arbitration award which is binding on the parties upon registration and enforcement in the Court.
Regarding consumer disputes, and in accordance with article 11(1) of the Law:
“An agreement between a consumer and a trader to submit complaints to an ADR entity is not binding on the consumer if it was concluded before the dispute has materialised and if it has the effect of depriving the consumer of his right to bring an action before the courts for the settlement of the dispute”
This means that a consumer who agrees, before the dispute arises through e.g. a standard agreement with the trader, to refer any dispute arising to arbitration, is not bound by the relevant arbitration clause. This is because, arbitration entails the deprivation of the consumer’s right to go to court to settle the dispute. In fact, article 11(2) seals the fact that the arbitration procedure does not bind the consumer. The article states:
“in ADR procedures which aim at resolving the dispute by imposing a solution the solution imposed may be binding on the parties only if they were informed of its binding nature in advance and specifically accepted this. Specific acceptance by the trader is not required if national rules provide that solutions are binding on traders”
Based on the above article, a consumer cannot be bound by a solution, unless he has been informed beforehand – meaning (in line with article 11(1)) before the start of the procedure and after the dispute has arisen.
It is noted that the above provisions apply only when the arbitration clause refers to an Alternative Dispute Resolution Entity and not to clauses referring the parties to ad hoc arbitration. In the case of an ad hoc arbitration clause in a consumer contract, this is subject to review of its unfairness through Part VII of the Consumer Protection Law of 2021. This is because, according to Annex IV of the Law, a clause which obliges the consumer to resort exclusively to arbitration not covered by legal provisions, may be considered unfair.
In conclusion, an arbitration clause that refers to institutional arbitration before an Alternative Dispute Resolution Entity is automatically void and non-binding – unless expressly agreed to by the parties after the dispute has arisen. Where the arbitration clause refers to an ad hoc arbitration process, the clause is subject to a test of unfairness and if found to be unfair, then it is void and not binding on the consumer.