On 18 June 2013 the general framework for alternative dispute resolution (“ADR”) in the EU was boosted through the enactment of Directive 2013/11/EU on Alternative Dispute Resolution for Consumer Disputes (the “ADR Directive”). The ADR Directive entered into force in July 2013, with EU member states having been required to implement its terms by 9 July 2015.

The EU ADR/ODR framework

The ADR Directive aims to facilitate an efficient and low-cost form of dispute resolution for domestic and cross-border complaints by consumers resident in the EU against traders established in the EU. Importantly, the ADR Directive does not make the use of ADR mandatory for such disputes. Rather, it requires the government of each member state to ensure that certified ADR bodies are available to handle disputes where a consumer and trader elect to use them. In that regard the ADR Directive sets out specific operational requirements which certified ADR bodies must meet. Under such criteria ADR must be provided free of charge or at a nominal cost to consumers, disputes must be resolved within 90 days and those overseeing disputes must be independent, impartial and have the necessary expertise.

The ADR Directive is complemented by Regulation (EU) No. 524/2013 on Online Dispute Resolution for Consumer Disputes (the “ODR Regulation”). The ODR Regulation provides for an online platform through which domestic and cross border consumer complaints can be referred to national ADR providers appointed under the ADR Directive. The ODR Regulation applies where a business offers goods or services, or a consumer purchases goods or services, via their website or other electronic means. The ODR Regulation entered into force in July 2013 and automatically took effect as of 9 January 2016, although the online platform (accessible at http://ec.europa.eu/odr) was not launched until 15 February 2016.

The UK Regulations

The ADR Directive and aspects of the EU ODR Regulation requiring transposition into national law were implemented in the UK through the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015 (as amended) (the “UK Regulations”).

In terms of aviation consumer claims, the UK Civil Aviation Authority (the “CAA”) has been appointed as the competent authority for the vetting and monitoring of ADR providers and overseeing the implementation and enforcement of the UK Regulations. As at 6 June 2016 two ADR providers had been approved by the CAA, namely CEDR Services Limited (“CEDR”) and Consumer Dispute Resolution Ltd (“The Retail Ombudsman”). A third, The Ombudsman Service Ltd, being the first to gain CAA approval, subsequently withdrew its services insofar as the handling of aviation claims is concerned. It is understood that a further three prospective ADR providers are currently being audited by the CAA.

The schemes run by CEDR and The Retain Ombudsman both cover the following classes of claims:-

  • Denied boarding, delay or cancellation
  • Destruction, damage, loss or delayed transportation of baggage
  • Destruction, damage, or loss of items worn or carried by the passenger
  • Any more general disputes arising where the consumer alleges that the business is not trading fairly
  • Problems faced by disabled passengers or passengers with reduced mobility when using air transport services

Importantly, and in contrast with the position understood to have been adopted in certain other EU member states, the UK Regulations impose no obligation on air carriers to submit claims to ADR (unless they are otherwise required to do so under the rules of a trade association). Nevertheless, a number of carriers have now chosen to submit consumer claims to ADR. As at 6 June 2016 British Airways and Thomson were listed as having subscribed to CEDR’s services, with Turkish Airlines, Egyptair and Ryanair being part of the The Retail Ombudsman’s scheme.

Part 4 of the UK Regulations sets out a number of ‘trader information requirements’, some of which are specific to those traders having elected to submit claims to ADR; these include the requirement to reference the name and website of the relevant ADR provider in their terms and conditions. However, a number of the ‘trader information requirements’ apply regardless of whether a trader agrees to submit claims to ADR. In summary, where a trader (including an air carrier) has exhausted its internal complaint handling procedure pursuant to Regulation 19 of the UK Regulations it must “on a durable medium” (i.e. by letter or email):

  • Inform the consumer that it cannot settle the complaint
  • Provide the name and website address of an ADR entity or EU listed body competent to deal with the complaint
  • Confirm whether it is prepared to submit to an ADR procedure

Separately, in line with obligations flowing from the ODR Directive, Regulation 19A(3) of the UK Regulations requires online traders (which clearly includes air carriers) to provide:

  • A link to the ODR platform
  • State the online trader’s email address

The CAA has made it clear that the provision of an online enquiry form is insufficient to meet the latter requirement.

CAA compliance project

Regulation 19 ‘trader information requirements’ was originally scheduled to come into force on 9 July 2015, but that deadline was pushed back until 1 October 2015, seemingly due to a degree of inertia in suitable ADR providers being identified and approved. Whilst many carriers have now complied with these requirements, it appears that a number have yet to make relevant amendments to their website and claims handling procedures. As a result, on 10 March 2016 the CAA notified carriers that it was commencing a compliance project with regard to the ‘trader information requirements’.

As part of that project, the CAA required carriers to confirm whether they had contracted with an ADR provider to handle consumer complaints, provide examples of ‘deadlock letters’ sent to passengers in line with Regulation 19 of the UK Regulations and screenshot webpages where details of the ODR platform are provided. As the CAA has reminded carriers in recent correspondence, it has powers under the Enterprise Act 2002 and the Consumer Rights Act 2015 to take enforcement action over infringements of the ADR Regulations and Regulation (EC) 261/2004 (“Regulation 261”). However, to date, such powers do not appear to have been invoked in respect of the UK Regulations.

ADR and the CAA’s PACT service

The CAA’s Passenger Advice and Complaints Team (“PACT”) handles various types of consumer complaints, although in recent years some 80% have related to claims for fixed compensation arising out of denied boarding, cancellation and delay under Regulation 261. The high volume of such complaints and the resulting pressure placed on CAA resources appear to have been a source of significant frustration.

With the above issues in mind and in view of prospective changes that would be brought about through the implementation of the UK Regulations, the CAA conducted an extensive industry consultation which culminated in the April 2015 publication of CAP1286, setting out the CAA’s proposed policy on consumer complaints handling and ADR. As part of that policy the CAA outlined its intention to incentivise voluntary participation of carriers in private ADR arrangements.

As regards PACT, CAP1286 outlined the CAA’s view that the service could be wound down once 50% of passengers departing from or arriving at UK airports are served by carriers who agree to submit consumer complaints for handling by a competent ADR provider. Thereafter, the intention was for the CAA’s involvement in consumer complaints handling to effectively be limited to meeting its obligations as a competent authority under Regulation 261 and Regulation (EC) 1107/2006 (insofar as disability access matters are concerned).

However, as confirmed in the CAA’s 2016/17 statutory charges consultation document (CAP1373) and subsequent correspondence with carriers in March 2016, the CAA’s position on this matter has now changed. The CAA’s revised position (seemingly following further consultation with, inter alia, the European Commission) is that PACT will remain available for use by passengers whose carriers have not voluntarily submitted to ADR. However, where a passenger seeks to make a complaint to PACT, about a carrier who uses ADR, the passenger will be directed to the relevant ADR provider and PACT will not further deal with the matter.

The key change arising out of the above system lies in the costs recovery mechanism adopted by the CAA. PACT has historically been funded through various direct and indirect CAA charges. This led to a situation where a particular carrier’s financial contribution to PACT was not necessarily commensurate with the number of complaints against that carrier handled by PACT. The CAA therefore argued that carriers with lower claims/complaints records could effectively end up subsidising those carriers with a comparably higher volume of claims. As of 1 June 2016, a ‘polluter pays’ system has been implemented, whereby carriers will pay a fee of GBP 150 per complaint accepted for consideration by PACT. The CAA considers that this better balances fairness for carriers with its own statutory obligation to ensure its services remain costs neutral in line with the Civil Aviation Act 1982.

Comment

Whilst there has been some marked inertia in the establishment and industry acceptance of an UK ADR framework for aviation consumer complaints, it is encouraging that a number of carriers have now agreed to submit consumer complaints to ADR through a CAA-approved provider. However, the modest number of carriers having done so is perhaps indicative of some ongoing industry concern regarding the suitability of ADR for the resolution of aviation consumer complaints and claims. Such concerns have included the following issues:

  • The decisions of ADR providers are binding on carriers but not on passengers, with the result that passengers can further pursue their complaint (through the courts or otherwise) where they are dissatisfied with the ADR decision. Carriers have questioned whether that is acceptable. However, the CAA’s position (based on the ADR experience in other sectors) is that in practice consumers are more likely than not to respect the decision of the ADR provider
  • The CAA has capped passenger ADR fees at GBP 25 per claim and remains strongly in favour of free access to ADR. There remains legitimate concern that fees at this level do not provide a sufficient disincentive to spurious or poorly prepared complaints, which are costly for carriers to administer. In that regard it is noted that in many cases the County Court issue fees for an equivalent claim through the Small Claims Track would be more than double the ADR fee cap
  • The degree to which the ADR providers and their staff will have the requisite knowledge and experience of aviation matters, including important legal issues such as the exclusivity of the Montreal Convention 1999 (and associated treaties), has been questioned. Schedule 3 to the UK Regulations requires that “an ADR official possesses a general understanding of the law and the necessary knowledge and skills relating to the out-of-court or judicial resolution of consumer disputes...” Whether a “general understanding of the law” is sufficient is questionable to say the least. The CAA has assisted ADR providers through the publication on its website of list of aviation-specific consumer legislation (both UK and EU) which it would like ADR officials to be familiar with. Whether that expectation is met in practice remains to be seen

In some respects the ADR Directive and UK Regulations also appear to hinder rather than assist consumer rights. For instance, in respect of consumer complaints that have reached ‘deadlock’, it is strongly arguable that forcing carriers not using ADR to nevertheless provide passengers with details of an ADR provider and the ODR platform is entirely counter-productive. These measures would no doubt lead to confusion on the part of passengers, who would be presented with details of an ADR provider and ODR platform that can in no way assist them in resolving their outstanding complaint or claim.

Changes to PACT and associated adjustments to its funding structure have also attracted a degree of industry criticism. For instance, the CAA has recently confirmed that for those carriers not subscribing to ADR, the fee of GBP 150 would be payable for each complaint handled by PACT, even where PACT sides with the carrier’s position in respect of a particular complaint or claim. The CAA’s justification in that regard is that the fee covers the cost of investigating a case and such costs are incurred regardless of the outcome. Whilst the CAA’s position is understandable, this is of course frustrating for carriers, particularly where they may have already made it abundantly clear to the passenger why they will make no recovery, and in circumstances where PACT’s recommendation could be duly ignored and proceedings could subsequently be issued. The CAA has however indicated that in the longer term it may consider the viability of a PACT charge which varies depending on whether the passenger’s complaint is upheld.

Whilst the above may appear to paint a rather pessimistic picture of the ADR landscape for aviation claims, there are clearly significant advantages for passengers and carriers alike if ADR proves to be a viable means for resolving complaints, not least in terms of reaching expedited resolution of small claims and limiting recourse to often expensive and sometimes unnecessary County Court litigation. Many in the industry are currently hedging their bets, and will no doubt be watching the experience of those first carriers to sign up to ADR with great interest.