Alternative Dispute Resolution for Consumers Implementing the Alternative Dispute Resolution Directive and Online Dispute Resolution Regulation

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Alternative Dispute Resolution for Consumers Implementing the Alternative Dispute Resolution Directive and Online Dispute Resolution Regulation This response is submitted on behalf of the membership of ABTA – The Travel Association. ABTA was founded in 1950 and is the largest travel trade association in the UK, with around 1,200 members and over 5,000 retail outlets and offices. Our Members range from small, specialist tour operators and independent travel agencies specialising in business and leisure travel, through to publicly listed companies and household names. ABTA Members deliver 90% of the package holidays sold in the UK, with Members also selling millions of independent travel arrangements. ABTA’s ADR Scheme ABTA has offered an Alternative Dispute Resolution scheme for over 40 years and the ABTA Arbitration Scheme has long been probably the best known and most utilised consumer arbitration scheme in the UK. We provide advice and assistance to customers on how to resolve disputes with ABTA Member travel agents and tour operators - see http://abta.com/go-travel/travel-clinic. If a customer is unable to resolve their dispute amicably, then they have the option of pursuing this through more formal channels such as the ABTA Arbitration Scheme - see http://abta.com/go-travel/travel-clinic/arbitration-andmediation. The scheme is only available to customers of ABTA Members. The ABTA Arbitration Scheme is currently provided by CEDR Solve. It is supported and promoted by ABTA as a cost-effective and speedy alternative to the courts. It is valued by ABTA Members for the same reasons. Use of and compliance with the Scheme is mandatory for an ABTA Member where an application is made against it by a customer within 18 months of completion of the return journey or the intended return date. It can be used for claims of up to £25,000, limited to £5,000 per person. The Scheme does not deal with pure personal injury cases, but where a claim for personal injury is made the limit on the amount claimed is £1,500 per person. The Scheme produces a result binding on both parties. It has its own appeal procedure, which can be invoked within 14 days of the decision being made. Since 1 January 2014, ABTA has also been handling complaints in the ferry passenger sector which might arise under Regulation (EU) No 1177/2010 concerning the rights of passengers when travelling by sea and inland waterway. The ABTA Arbitration Scheme is available to customers of ABTA Member ferry companies. BIS – ADR for Consumers | 1

Cost The cost of the ABTA arbitration scheme depends on the amount claimed by the consumer: Total amount of claim Cost to claimant under ABTA scheme (including VAT) Cost to member under ABTA scheme (including VAT)

£1 - £2,999.99 £108

£3,000 - £7499.99 £180

£7,500 - £25,000 £264

£252

£180

£96

The average claimed under the ABTA scheme is £2,762 which, per the above, would cost the claimant £108. The fee for the appeal procedure under the ABTA scheme is £350 + VAT. The Small Claims Court uses a different scale but a similar claim would cost:  

Issuing the claim - £115 Hearing fee - £170

Total £ 285

Process A claimant may only apply for ABTA arbitration once he/she has reached deadlock with the ABTA Member and has completed the Pre-Arbitration Notice as supplied by ABTA. The claim is started by the claimant’s application form. There is then the Member’s defence and an opportunity for the claimant to comment on the defence. At that stage the claimant must pay the fee; if they do not then the case is withdrawn. The case is then allocated to an arbitrator who has up to 28 days in which to make an award. The whole process from application to decision normally takes 8 to 12 weeks. Number of Cases In 2011/2012, ABTA dealt with 10,366 cases of which 280 went through the full arbitration process. Of these 156 (56%) cases were found in favour of the customer. In 2012/2013, ABTA dealt with 10,831 cases of which 267 have so far gone to arbitration. Of these 154 (58%) cases have so far been found in favour of the customer. To note there are likely to be more cases to come as customers can bring a claim up to 18 months after the return date from their holiday. We have seen a reduction in the number of cases in recent years as our Member travel agents and tour operators have increasingly sought to resolve disputes without recourse to formal action. The reduction in arbitration numbers has been further helped by the use of the ABTA pre-arbitration notice which is sent to the consumer prior to the arbitration pack being sent.

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Of course, the ABTA Arbitration Scheme is only available to customers of ABTA Members meaning that many travel consumers do not have access to an ADR scheme.

Consultation Questions UK ADR landscape Q1. Do you think there are any significant gaps in the provision of ADR in the UK? Please identify any sectors where you think the provision of ADR is insufficient. Yes. ABTA Members have commented on the current lack of ADR for claims arising under Regulation (EC) No 261/2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights. These claims against airlines are not covered by the ABTA arbitration scheme because airlines are not Members of ABTA. The Civil Aviation Authority in its Strategic Plan 2011-161, recognises that by July 2015, the UK will need to have in place one or more bodies for dealing with disputes between consumers and traders in the aviation sector, which meet the principles set out in the ADR Directive. The CAA states that it will seek to promote good complaint handling by air transport companies and the establishment of an ADR framework, compliant with the Directive, to ensure fair and speedy resolution for consumers without the need for court litigation. Furthermore, they will continue to improve operational delivery of the CAA’s own complaint handling, so as to ensure that any transition to external ADR schemes is a good experience for passengers. We understand that the CAA and the British Air Transport Association2, the trade body for UK registered airlines, are working together on options for an ADR scheme to be applicable to claims under Regulation 261. This could be based on an adjudication scheme being trialled by one of BATA’s members or each airline could have their own. The airlines recognise that a proper ADR process must be put in place. With regard to other, more general, travel complaints as we say above, whilst customers of ABTA Members have access to the ABTA Arbitration Scheme, consumers whose complaint is not about an ABTA Member have no access to an ADR process. ADR for every consumer dispute: Do nothing Q2. Do you agree that the current provision of ADR in the UK is not enough to meet our obligation to have ADR available for all consumer disputes? If you disagree, can you advise 1 2

CAP 1092 Strategic Plan 2011-16 BATA http://www.bata.uk.com/

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which ADR schemes are suitable to handle all disputes, and whether there are limitations to the number of disputes or type of dispute that these schemes could handle? Would these schemes be able to process an increased volume of disputes within the 90 day deadline for concluding disputes set by the Directive? ABTA agrees that the current provision of ADR in the UK is insufficient with particular reference to claims arising under Regulation 261 and for customers of non-ABTA Member companies – see response to Q1 above.

Residual ADR Q3. Can we expect businesses not currently obliged to use an ADR scheme, to refer complaints to a voluntary residual ADR scheme? What steps could Government and others take to encourage businesses to use a voluntary ADR scheme? ABTA Members value our ADR scheme. It provides consumers with a cost effective and easy means of redress. For Members, many of their complaints are resolved before formal action with the help of ABTA and if they do go to arbitration there is a fast result and the absence of travelling to Court hearings around the country. ABTA believes that these factors, coupled with the information that businesses will have to give consumers about the availability of ADR, could mean that businesses will want to use ADR. Q4. What volume of enquiries and/or disputes could we expect a voluntary residual ADR scheme to receive? ABTA does not know the volume of enquiries and/or disputes which a voluntary residual ADR scheme might expect to receive. ABTA’s own figures (see ABTA ADR Scheme: Number of Cases in the introduction above) might give some guidance. Q5. Is there a specific operating model that a residual ADR scheme should adopt (e.g. mirror existing ombudsman models)? ADR schemes vary widely each offering different benefits so it is difficult to suggest a specific operating model. Q6. Can you suggest what an appropriate maximum and minimum settlement value for a residual ADR scheme should be? How have you arrived at these figures? The ABTA Scheme operates a £25,000 maximum settlement value. This has been in place since 2005 and reflects the value of transactions handled by ABTA Members. The minimum is £1. Q7. What funding model would be appropriate for a residual ADR scheme? Can an ADR provider operate effectively if it is reliant on case fees rather than annual fees? BIS – ADR for Consumers | 4

ABTA believes it would be difficult for an ADR provider to plan its business if there was no certainty of income. ABTA therefore believes that operating on a case by case basis would not be appropriate and it would be necessary for a residual ADR scheme to introduce an annual fee. CEDR Solve, which is ABTA’s ADR provider, is more or less guaranteed an income with an average of 281 cases in the last five years. Q8. Should a standard case fee be adopted? What would be an appropriate level? If not, how should the amount charged for each dispute be determined? ABTA believes that a standard case fee should be adopted and that it should be in a scale based on the amount claimed by the consumer. ABTA’s fees are shown in the introduction above. These represent a division of the cost of an arbitration between the parties, with the aim of keeping the cost to the claimant at a level that is low, but reasonable. The lowest fee bracket applies to the vast majority of claims that go through the scheme. The cost to the consumer has not increased since 2010. We believe strongly that both parties involved in the dispute should pay for its cost. Charging a fee to consumers acts as a deterrent to frivolous or ill-prepared claims and also encourages efficiency in the resolution process. Consumers have an interest in keeping overall costs low. As can be seen in the introduction, in 2011/2012 56% of arbitration decisions went the way of the consumer, and in 2012/2013 this was 58%. This means that 44% and 42% respectively were found in favour of the ABTA Member. Further, in 2011/2012, 70 cases were dismissed by the arbitrator as there was no merit in the claim to award compensation to the Claimant and in 2012/2013 this figure was 59. It can be seen that even with fees being charged to consumers, there are still a substantial number of unsuccessful claims. ABTA believes that if no fees were payable by the consumer an even higher number of unsuccessful claims would be started and there would be an increase in frivolous and otherwise unmeritorious claims. Several cases which were dismissed are shown below with reasoning. Case 1. Client booked a 14 night stay and cruise to Egypt costing £5,877. The Claimant cancelled her holiday a matter of days before departure due to the civil unrest in northern Egypt and after hearing that certain ports of call had changed. Changes had indeed been made following the advice from the Foreign and Commonwealth Office, but these were in line with the Terms and Conditions to which the Claimant agreed at the time of booking and hence no compensation was awarded. Case 2 Claimant paid £8,000 for hotel and return flights to the Far East. They claimed £6,438 for damages and alleged acts of negligence due to errors on the itinerary, preparing letters and hotel location. The Arbitrator considered all parts of the claim and defence along with supporting documents and made the decision that no compensation payment was warranted. BIS – ADR for Consumers | 5

Case 3 Claimant paid £4,816 for a package holiday to Thailand. The claim was for £3,800 due to poor accommodation and poor view from room. The Arbitrator considered all parts of the claim and defence along with supporting documents and made the decision that no compensation payment was warranted. The fact was the Claimant did not report any issues whilst at the hotel and therefore did not give the Respondent the opportunity to rectify the issues. However, prior to entering into Arbitration the Respondent did make an offer of goodwill in the sum of £500 which was rejected. Case 4 Claimant paid £1,836 for a ski holiday. All aspects of the holiday were fine until the return journey when there was a significant snowfall and clients were advised there might be problems catching the return flight. Respondent considered other alternative to get the claimant home but again was thwarted by the adverse conditions. An alternative rescue flight was arranged for the following day but was again delayed due to weather. As a gesture of goodwill the Respondent offered £100 which was rejected. The Arbitrator found that the Claimant did not produce evidence to show that there was a breach of contract or that it failed to act responsibly. The Arbitrator therefore concluded that the claim failed and no award of monies was made.

As pointed out in the introduction above, ABTA provides free advice and assistance to consumers, through a consumer helpline and online service, and will, where possible endeavour to mediate between both parties, or advise on how to resolve disputes with an ABTA Member. This process starts with an exchange with the ABTA Member concerned with advice subsequently given to the consumer if they are unable to resolve their dispute amicably on the options open to them including the ABTA arbitration scheme. Q9. Would it be better to have a single ADR body or several ADR bodies operating a residual ADR scheme? What would be the ideal number and what are the reasons for this? ABTA believes that for the purposes of competition and greater cost efficiencies, it would be sensible to have several ADR bodies operating a residual scheme. Better signposting for consumers – a complaints “helpdesk” Q10. In light of the other requirements in the ADR Directive which are intended to assist consumers, would a consumer-facing complaints helpdesk be beneficial? Yes, clear signposting to the most appropriate ADR scheme would be an obvious benefit to consumers.

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Q.11 Do you have any comments on the type of service it should provide and the extent to which it should examine the enquiries it receives? ABTA believes that its role should be limited to providing information and signposting consumers to the relevant complaints scheme and ADR. Q12. Rather than attempt to create a new service, which existing service or body is best placed to provide this function? ABTA further believes that Citizens Advice and Trading Standards are best placed to signpost consumers to the relevant complaints scheme and ADR. Q13. How could a helpdesk be funded? Any helpdesk should be funded by the Government out of general taxation, as it would be for the benefit of all consumers. Appointing a competent authority Q14. Do you agree that regulators should act as competent authorities for the ADR schemes that operate in their sectors? Yes, ABTA agrees with paragraph 61 of the consultation which refers to regulators who oversee regulated sectors acting as competent authorities for their sectors. Q15. How should the fees paid by ADR providers to a competent authority be determined? Should the size of the fee depend on the size of the ADR provider (for example turnover or number of cases dealt with) or based on other factors? ABTA believes that the fee should depend on the size of the ADR provider. Procedural rules for refusing disputes Q16. Do you agree that the Government should allow UK ADR providers to use all of the procedural rules listed in Article 5(4) of the ADR Directive to reject inappropriate disputes? If not, please explain your reasons. ABTA believes that the Government should allow ADR providers to use all of the listed procedural rules to reject inappropriate disputes. ABTA, for example, requires consumers to have at least two exchanges with the ABTA Member with which it is in dispute in an attempt to reach an amicable resolution. We would always advise the consumer to consider carefully whether it wishes to go to arbitration. This is designed to avoid costs for both parties and avoid clogging up a system with claims that will not succeed.

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Information requirements Q17. Would some suggested wording and guidance be useful in helping businesses meet these requirements? What kind of wording would be helpful? ABTA believes that this is a good idea. We already provide our Members with wording to include in their Terms and Conditions. In our experience suggested wording is helpful and, for website information, guidance on where on the website it should appear. Online Dispute Resolution Contact Point Q18. Do you agree that the ODR contact point should only be required to assist with cross border disputes involving a UK consumer or UK business? ABTA believes that one body should be handling both ADR and ODR disputes otherwise companies will have to deal with two systems. ABTA’s ADR is cross-border in as much as ABTA Members sell their product to consumers resident in and outside the UK. Q19. Should the ODR contact point be allowed to assist with domestic complaints on a caseby-case basis? Per our response above, we believe that one body should deal with both ADR and ODR disputes. Impact on limitation and prescription periods Q20. Do you agree that, where applicable, we should extend the six year time limit for bringing disputes to court by eight weeks, and mirror the amendment made to implement the Mediation Directive? If not, please explain why a different extension period is preferable. ABTA can see no merit in extending or need to extend the six year limitation period. The purpose of ADR, as is set out in the Consultation document, is to offer a quicker and cheaper means of resolving a dispute. Any such claim should have been dealt with within the six year period. Q21. Are you aware of any sector specific legislation which contains time limits for bringing cases to court which we may also have to amend? No. Scope of ADR: in-house mediation Q22. Do you agree that in-house ADR should not form part of the UK’s implementation of the ADR Directive? If you disagree can you please explain why? ABTA agrees that in-house ADRs should not form part of the UK’s implementation. It is important that ADRs should be independent. BIS – ADR for Consumers | 8

Binding decisions Q23. Do you agree that the UK should allow certified ADR providers to make decisions that are binding? If you disagree can you please explain why? ABTA agrees that decisions of ADR providers should be binding. If they are not, they could be superseded by other provisions which would just confuse matters. Applying the ODR Regulation to disputes initiated by business Q24. Do you agree that the ODR Regulation should only apply to disputes initiated by a consumer, and should not apply to disputes initiated by a business? If not, can you please explain why? ABTA’s ADR scheme is only applicable to disputes initiated by consumers so we are in agreement with this. Claims may be made by or on behalf of any person named in the booking form or other contractual documents. The ABTA Member may not make a counterclaim against the consumer. Call for evidence on simplifying the provision of ADR Q25. Would the benefits of simplifying the ADR landscape over the longer-term outweigh the costs? Who would the costs and benefits fall to? ABTA does not have any views on this. Q26. What evidence is there that a simplified system would make a major difference to consumers? Are there other ways to achieve the aim of greater awareness and take-up of ADR? ABTA is not aware of any evidence on this. We believe there should be greater consumer awareness of ADR schemes and would suggest that that Courts, lawyers and Citizens Advice services should all encourage the use of ADR as a less burdensome, quicker and less costly alternative to Court action. Q27. Would simplifying the landscape in the longer term be compatible with the introduction of a residual ADR scheme by July 2015? Are there specific ways in which the creation of a residual scheme would need to be undertaken to enable the possibility of later simplification? ABTA does not have any views on this.

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Q28. What are your views on making the use of ADR a compulsory or voluntary requirement if the landscape is simplified? ABTA believes that there are benefits to making the use of ADR a voluntary requirement with the decision left to the company as to whether they should offer an ADR scheme. We believe that a company seeing the benefits of ADR would not hesitate to offer it as a good and transparent practice. Travel agents and tour operators are aware that by joining ABTA they are automatically accepting adherence to ABTA's ADR (this is one of the benefits to consumers of doing business with an ABTA Member). Impact Assessment Q29. Do you have any views on the impacts of the options as laid out in the impact assessment? No. Q30. Do you have any views on the key figures, assumptions and questions set out in Annex C? No. General points Q31. Are there any other issues or areas on which you would like to comment? If so, we would welcome your views. ADR is not just about providing a less costly and time efficient scheme to consumers. As a trade association, ABTA looks at any patterns arising from our complaints process and arbitration scheme with a view to driving change and making improvements for the future, which will ultimately be of benefit to all consumers.

Thank you for taking our comments into consideration. We would welcome the opportunity to discuss any points raised in our response further with the Department.

Further information Susan Parsons, Manager, Trade Relations, ABTA – [email protected] or 020 3117 0524 Charles Fachiri, Consumer Affairs Manager, ABTA – [email protected] or 020 3117 0552

02 June 2014

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