The Association of Accounting Technicians (AAT): a Response to a BIS Consultation

Response to a DEPARTMENT OF BUSINESS, INNOVATION AND SKILLS Consultation -Call for Evidence: EU proposals on Alternative Dispute Resolution.

Who we are

The Association of Accounting Technicians (AAT) is a professional body and money laundering supervisory authority for accountants. Established in 1980, the AAT has a worldwide membership of more than 120,000 members, including qualified accountants and students, the majority of whom reside in Europe.

We are responding on behalf of our members, many of whom provide accountancy services, including bookkeeping, payroll, accountancy and business adviceto clients.

Our interest

There are several aspects to our interest in this consultation, as follows:

1. Our members are service providers, sothere is potential for them to provide services to clients in other European countries.The potential impact on,and opportunities created for, our members is of direct interest to us;

1. As a professional regulator, our primary function is to protect the public by taking measures to ensure that our members maintain appropriate standards of competence and conduct. One element of this is to receive and investigate complaints about our members and, where appropriate, to arbitrate such complaints. The receipt and determination of complaints is a very important source of feedback, enabling us, not only to identify deficiencies in individual members but trends in complaints and, therefore, areas of practice in which it may be useful to provide guidance to our membershipas a whole. It could, therefore, be counter to the public interest if complaints against our members were to be diverted to other entities; and

1. In light of 2 above, we need to consider (as should other professional regulators) whether we should be the appropriate ADR Entity for our members (and possibly for accountants belonging to other smaller professional bodies).

Our arbitration process

Our arbitration process is the final stage of a wider ‘fitness to practise’ process for considering complaints against our members.

The first stage is to receive a written complaint and the member’s response to it. These are examined by our Investigations Team. The Investigations Team’s first task is to decide whether the complaint, on its face, could amount to a breach of the AAT’s Code of Conduct or evidence of incompetence. If not, the Investigations Team will dismiss the complaint. If so, the Investigations Team will consider the seriousness of the complaint should it be proven. If the matter does not disclose serious misconduct or incompetence, the Investigations Team may offer the member a specified sanction if s/he accepts the facts set out in the complaint. The Investigations Team will refer the complaint to arbitration if the member does not accept the facts set out in the complaint or if the Investigations Team deems the complaint to be of a serious nature.

The arbitration is formal, mirroring the civil court process. A Disciplinary Tribunal, consisting of professional and lay members, presides over an adversarial process, where the evidence presented by the complainant and member and any witnesses is tested by cross examination. The parties are usually represented by lawyers and the Disciplinary Tribunal is advised by a lawyer acting as Legal Assessor. Upon making a determination, the Disciplinary Tribunal hands down a reasoned decision, which may be challenged in the High Court by Judicial Review.

Our arbitration process is restricted to the consideration of our members’ performance as professions, i.e. by reference to our Code of Conduct and/or standards of competence. It does not (currently) determine contractual right or award compensation.

Question 1

(a)What are your views on the key estimates the European Commission make in their Impact Assessment which are summarised in Annex A?

(b)Overall do you think that the Commission’s proposals will lead to their anticipated benefits for consumers, business and the Single Market?

With regard to 1(a) above:

We have not reviewed the survey evidence, the sample size, sample selection, the survey questions, the methodology of calculating the average or statistical analysis. We, therefore, cannot challenge nor concur with the survey’s findings, nor the conclusions drawn.

However, from what we glean from the text of Annex A, we would suggest:-

-As regards the first paragraph, that the estimate of £17 billionsaving to EU consumers if quality ADR is available may be a significant over-estimate. Our reason for this is that the average loss of £250 was scaled up to the total number of EU citizens over 15 years of age. We doubt whether many 15 to 25 years olds have the financial means to engage in cross-border transactions involving an average of £250.

-As regards the second paragraph, we think that the rationale cited is reasonable but we cannot express a view of the figures mentioned.

-As regards paragraph 3, although we cannot express any view on the figures mentioned, we would urge caution in accepting such figures at face value. An assumption has been made as to the average cost of ADR but that average figure has not been cited. Our own experience is that rigorous arbitration is costly. Also, our own recent costing of a one-day mediation, where the parties are in attendance, is between £1,750-£3,000 plus VAT. It may be that the EU Commission envisages a less rigorous, more ‘rough and ready’ model of ADR than we are used to. Although the Consultation Document refers to the need to maintain the standard of ADR Entities, the standard of rigor of process and procedure to be met has not been defined.

-As regards paragraph 4, again we view the average figure for businesses to provide information about ADR in their terms and conditions and on their websites to be an underestimate for UK businesses. The Averages seem to be for businesses across Europe and we anticipate that UK costs will be considerably higher.

With regard to 1(b) above:

We think that in principle, the Commission’s proposals will benefit consumers and business and the Single Market. It is our belief that the availability of ADR will have 2 effects, namely:

1. to provide comfort for cross border consumers and traders, encouraging an increase in cross border trade; and
2. promote the availability and advantages of ADR generally, both for domestically and cross-border disputes.

However, we are sceptical about:

(a)the assumed costs of ADR; and

(b)the fact that it will be voluntary for traders;

(c)the over-laying of The Consumer Protection (Distance Selling) Regulations 2000.

We suspect that the cost of ADR has been underestimated, unless the model of ADR to be implemented is of the ‘rough and ready’ kind. We assume that arbitrations are to be conducted on paper only. Also, in relation to arbitration (not mediation), the decision of the arbitrator can be challenged in court (see ss. 68 and 69 Arbitration Act 1996) and so, after incurring the costs of arbitration, a certain percentage of disputes are likely to proceed to court post-arbitration, incurring further costs. Our fear is that the cost of the scheme (which will ultimately be borne by the tax payer) might outweigh the benefits.

The option open to traders to refuse to take part in the scheme may ‘catch out’ those consumers who believe that the scheme has universal application. Publicity may counter this belief. We suggest the application of a Kitemark to indicate inclusion in the scheme, the use of such Kitemark to be policed rigorously.

Rather than have a piecemeal layering of consumer protection law, we believe that a consolidated system of consumer protection would be less bewildering to consumers and traders alike. We also note that the scheme is to apply to ‘all contracts’ whereas the Consumer Protection (Distance Selling) Regulations 2000, for good reason, sets out exception to the contracts covered.

Question 2

Can you provide any evidence to quantify the costs and benefits to the UK described in Annex B and Annex C and/or provide details of any additional costs or benefits?

With regard to Annex B

Benefits

The arbitration we conduct is to a high standard and is on a parallel to court proceedings. It is costly but some of our members’ professional standing and ability to practice depends upon a thorough approach.

In our view, any benefit to consumers, traders and the Single Market would be far outweighed if such a high standard of ADR were to be adopted in relation to the EU scheme. Indeed, it would probably be impossible administratively, given the likely number of disputes.

Because mediation is not binding unless both parties agree for it to be so, we do not see mediation as viable, especially in relation to low value disputes. In our view, an ADR finding should be binding, for the sake of finality of outcome and costs.

In our view, the only viable ADR would be an arbitration determined upon written submissions, where the parties are invited to submit their written submission, for the arbitrator to take an inquisitorial approach and to clarify written submissions or ask for further evidence until satisfied that he understands the issues. This is similar to the Ombudsman scheme but with a binding outcome. In our view, this would be superior to the Ombudsman scheme, which has often been described by consumers as inadequate.

Although this model would not be as rigorous as one which receives live evidence, it would provide an accessible pathway for (no doubt, mostly low value) cross border disputes. Even if it were an ‘on paper’ arbitration (less probative than receiving live evidence), we believe that this would be embraced by consumers, leading to comfort in cross border trade. Paper determinations are necessarily ‘rough and ready’ compared to those based upon live evidence but the process is simpler and less daunting for lay participants, and therefore, more likely to be used.

We believe that the readily available ADR may lead to fewer disputes ending up in court, as many people would prefer to go to ADR than to court, but it would also lead to an increase in the number of disputes being actively pursued, as those who are deterred from going to court would not necessarily be deterred from going to ADR.

We agree that a correlation between ADR and an increase in cross border trade is plausible, particularly in relation to the supply of goods, but we cannot predict whether there would actually be such an increase. We are sceptical whether there would be a significant increase in the cross border purchase of services such as accountancy. However, services such as IT, such as website building and maintenance, could flourish.

We would anticipate that there would be a spin-off benefit for domestic ADR providers occasioned by the increased publicity of ADR as a concept. This could lead to fewer court proceedings in relation to domestic matters. However, in our view, the only way domestic ADR providers could benefit from the EU ADR scheme would be by developing high volume ‘paper only’ ADR procedures (depending upon the standards of ADR envisaged by the EU Commission).

Costs

There can be little doubt that many consumers, particularly of low value goods and services, are reluctant to go to court, and that if consumers are willing to go to ADR there will be increased cost to business of having to compensate consumers for defective goods or services. However, in our view, this is not a valid or moral reason not to encourage ADR.

The information requirements could create one-off moderate costs to businesses but there could be a benefit thereby engendering customer confidence.

The cost of ADR will be extremely sensitive to the standard and procedures of the ADR adopted. However, we would envisage that even the lower standard ‘paper determination’ as described above could only be provided at significant cost. Also, as cost could be awarded against a trader, the cost of defending a dispute, particularly relating to a low level transaction, could deter traders from defending a claim by a consumer. Raising a dispute with a trader could then have a ‘nuisance value’ to the benefit of undeserving consumers.

As ADR will be voluntary for both traders and consumers, anything greater than a modest cost to the trader would encourage traders to brazen out any dispute in the knowledge that few consumers would be prepared to go to court, particularly in relation to cross border disputes, and particularly for low value transactions.

In our view, given the cost of providing ADR, there will be a permanent gap between the cost of its provision and any fees that could be recovered by the ADR Entity. Therefore, considerable public funds would be necessary on an on-going basis. Further public funds will be necessary to establish and maintain the Competent Authority.

Annex C

Benefits

We agree that it would not be necessary to signpost the ODR platform, as traders have to provide information about the ADR scheme by which they are covered.

Costs

We agree that the staffing costs of the facilitators could be reduced as suggested.

Question 3

Do you think that the “chargeback” process and/or processes used to resolve claims made under Section 75 of the Consumer Credit Act should be considered as a form of ADR? If not, do you think consumers would (or should) be more likely to use “charge back” or make claims under Section 75 of the Consumer Credit Act where this is available, rather than using ADR to resolve a dispute? Why?

In our view, consumers would welcome the opportunity to obtain redress against traders who have sold them deficient goods or services. The simpler and cheaper the means of redress, the more they are likely to be embraced by consumers.

Chargeback” is certainly arbitration but not ADR as defined in the EU proposals because the credit/debit card issuers are not independent, being jointly and severally liable for breach of contract by the trader. However, we doubt that consumers would be concerned about such technicality. The credit/debit card issuer is in a powerful position in relation to the trader and unlikely to lose out as a result of the dispute, save where the trader becomes insolvent. There is little reason to believe that the credit/debit card issuer would not make an impartial decision.

In our view, therefore, “chargeback” should be considered as ADR and the first port of call for consumers, where available.

Question 4

What do you think of the proposed scope of the Directive? Where do you think there are gaps, if any, in the provision of ADR currently within the UK? Can you provide any estimates on how much public subsidy, if any, would be required to ensure ADR of the required standards is available for all consumer disputes?

The proposed scope of the directive is that ADR will apply to all contracts. As stated above, there might be sense in restricting the scope for certain types of contract or where well established ADR Entities already exist, such as contained in the Consumer Protection (Distance Selling) Regulations 2000. We also have some concern about whether the proposal would divert complaints against our members away from us, thereby causing a loss of information about competence and ethics trends etc.

The proposals set out certain administrative requirements, such as independence and making certain information public, but they do not define the standard of decision-making ormodel of ADR, nor the number and value of likely disputes. As all depends upon these 3 factors, it is not possible to identify gaps in existing provisions or how much public subsidy would be required.

However, on the assumption that the number of disputes would be large and would grow over time, we have assumed that the required mode of ADR would be confined to a consideration of the issue on paper and that standard of case reviewer would be to, at least, trainedparalegal standard overseen by a lawyer. Even with these minimum requirements each dispute could be expected to cost hundreds of pounds. It could be that the degree of rigor and complexity of the ADR could increase according to the sums involved in the dispute but in any event, the cost of ADR is likely to be high and prohibitive unless financed by the public purse. We believe the requirement that the procedures are free of charge or at moderate costs for consumers (which is necessary for the success of the scheme) and the voluntary nature of traders’ involvement makes a self-financing scheme an unrealistic expectation.

Question 5

What do you think of the standards/requirements for ADR providers that are proposed by the EU? If you are an ADR provider can you currently demonstrate that you meet them? If not, why not? Would you be willing to develop your scheme so it could meet these standards? If so, what might this cost you? Are there any standards that you think are not appropriate or not required? Are any missing? Can you see any potential for UK ADR providers to provide their services to non-UK businesses?

We understand the standards/requirements for ADR entities to be:

With reference to Commission Recommendation 2001/310/EC and Commission Recommendation 98/257/EC:

• Impartiality
• Transparency
• Effectiveness
• Fairness

Such requirements are the least one would expect, and easily cited. However, the devil is in the detail of how these are to be achieved and monitored. Impartiality and Transparency are fairly easily achieved, we would suggest. The difficulties, we predict, would come in achieving and monitoring the closely related requirements of Effectiveness and Fairness.