Practical Law

On 1 October 2015, new far reaching regulations come into force that (subject to limited exceptions) will affect all businesses in the UK which sell goods, services or digital content to consumers. This will include many traders in the construction industry.

The regulations are contained in the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015, as amended by the Alternative Dispute Resolution for Consumer Disputes (Amendment) Regulations 2015 (which I will collectively call the Regulations).

Last time, I looked at issues that included who needs to comply with the Regulations, what traders (and consumers) need to do and the type of ADR envisaged by the Regulations. This post looks at other issues, including the nature of ADR, whether the process is binding, what happens if one party does not want to use ADR, time limits and limitation periods.

As I said last time, it is mandatory for traders caught by the Regulations to comply.

What can the ADR entity or EU listed body appointed under the Regulations consider?

If a trader agrees under Regulation 19(2) to submit to an ADR entity or EU listed body, there is the question of what that entity or body can consider. Can it only consider the particular complaint from the consumer or can it also consider other issues the consumer wishes to raise and/or any potential set-off or counterclaim the trader may have?

Surprisingly “complaint” is not a defined term in the Regulations. However, as the wording of Regulation 19(2) concerns referral of “the complaint” (as opposed, for example, to matter connected to or arising out of a complaint), it appears that the jurisdiction of the ADR entity or EU listed body under the Regulations is limited to considering the consumer’s particular complaint, and nothing more. Indeed the BIS Guidance states:

“The regulations relate to complaints raised by consumers. If you are in dispute over money owed, and provided you both agree to the use of ADR, an ADR provider could look at such a claim.”

Contractors who have not been paid by homeowners who have complained about their works, or who wish to bring related parties into a settlement process, will wish to consider this point carefully before agreeing to ADR under the Regulations.

If a trader is obliged or prepared to submit to an ADR procedure operated by an ADR entity, who is that?

The Regulations refer to an “ADR entity” and an “EU listed body”:

• Regulation 19(1) (which deals with mandatory ADR) requires the trader to provide the name and website address of an ADR entity or EU listed body that the trader is obliged to use.
• Regulation 19(2) (which deals with optional ADR) requires the trader to inform the consumer of the name and website address of an ADR entity or EU listed body competent to deal with the complaint and to say if the trader is obliged or prepared to submit to an ADR procedure operated by an ADR entity or EU listed body.

Paragraph 11 of the BIS Guidance points consumers to a list of certified ADR providers and the sectors they cover.

As is clear from the list, not all current ADR providers are ADR entities. Going forward there will be some ADR providers who are certified as ADR entities for the purposes of the Regulations and some who provide ADR in other situations.

One question is whether (in circumstances where Regulation 19(2) applies) the consumer and the trader can themselves agree to use a different ADR provider. Since the obligation under Regulation 19(2) is primarily to give information, and not to use ADR, the answer to this must surely be yes. This is because once a trader has given the required information under Regulation 19(2), its obligations under the Regulations have surely been met. This situation may occur if, for example, the consumer or the trader wish to use a particular ADR provider who is not certified under the Regulations, perhaps (for the reasons explained above) because that ADR provider has a wider jurisdiction and can consider all issues in dispute.

Will the ADR process be binding?

It depends. By Regulation 14C, the solution imposed by an ADR entity will not be binding on a party unless:

• The ADR entity notifies the party that the outcome will be binding; and
• The party specifically accepts that the outcome will be binding; or
• An enactment, the rules of a trade association or term of a contract provide that a solution will be binding on a trader.

What about if the contract was entered into before 1 October 2015?

The BIS Guidance says that the information requirements apply from 1 October 2015. However, even if the contract was entered into before that date, if traders are writing to consumers after 1 October 2015 to say they are unable to resolve their dispute, they need to provide consumers with the name and details of a certified ADR provider in their final response letter (that is, the information required by Regulation 19(2)).

What happens if ADR fails and/or one party wants to use ADR later?

ADR under the Regulations may not happen, or may just not work. For example, a trader may say that it is:

• Not prepared to submit to an ADR procedure operated by an ADR entity or EU listed body pursuant to Regulation 19(2).
• Prepared to submit to an ADR procedure operated by an ADR entity or EU listed body, but (pursuant to Schedule 3) the ADR entity may refuse to deal with the consumer’s complaint because, for example, the consumer has failed to submit the complaint within the “prescribed period”, which is 12 months from the date on which the trader informs the consumer that the trader is unable to resolve the consumer’s complaint (paragraphs 13(e) and 13A, Schedule 3 of the Regulations, and paragraph 14 of the BIS Guidance).

In such circumstances, one question is what happens if one party wishes to use ADR later down the line, perhaps after proceedings have been issued?

For the reasons outlined above, a trader who gives the required information under Regulation 19(2), but says no to ADR pursuant to the Regulations, must surely be able to subsequently suggest ADR that has nothing to do with the Regulations. The same point must apply if ADR under the Regulations fails at this stage.

However, if a trader says yes to ADR under the Regulations, it is in the consumer’s gift to engage with the Regulations. In these circumstances, unless the ADR entity refuses to deal with the consumer’s complaint, the consumer’s option to seek ADR pursuant to the Regulations appears to be open-ended.

What if a trader says it is not prepared to use ADR under Regulation 19(2)?

Arguments that a trader who refuses ADR should be penalised pursuant to the principle in Halsey for refusing ADR at this early stage will surely be difficult since Regulation 19(2) concerns the giving of information, rather than using ADR, and itself gives the trader an option to say no to ADR at this stage.

What about a looming limitation deadline?

Since 9 July 2015, the Limitation Act 1980 has included section 33B, which applies to ADR in domestic contractual disputes. Essentially, it extends the limitation period by eight weeks where there has been a non-binding ADR procedure under the Regulations that ended less than eight weeks before the limitation period would expire. Time for the eight weeks runs from when the ADR procedure ended.

This amendment will surely lay dormant for a number of years however, since it only applies to contracts entered into on or after 9 July 2015.

Conclusions

Unfortunately, the Regulations are complex to navigate and, thanks to the June 2015 amendments, now require a reader to overlay two lengthy documents in order to work out their rights and obligations. Bearing in mind the breadth of these Regulations and their consequences for all business owners who trade with consumers, perhaps this explains the startling lack of attention and comment they have received so far in the legal and business press.