dispute settlement

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The new Consumers’ Dispute Settlement Act – What must companies now consider?

From 1 February 2017 onwards, businesses will be subject to new information requirements with respect to consumer contracts resulting from the German Consumers’ Dispute Settlement Act (hereinafter referred to as "VSBG"), which entered into force on 1 April 2016. The VSBG serves the implementation of the European Directive on Alternative Dispute Resolution for Consumer Disputes (EU Directive 2013/11 - the so-called “ADR Directive”). The information requirements, which came into force just recently, will be presented below in a short practical overview.

Extrajudicial Dispute Resolution

With the VSBG, the legislature intends to strengthen the confidence of consumers in out-of-court settlement of conflicts. In addition, consumer disputes, which are rarely fought out in court, for example because the respective claim is too small or they fail to pass a psychological or emotional hurdle as it is often the case in cross-border contractual relations, shall be submitted to due process as well. This procedure is free of charge for consumers. A neutral arbitration body shall resolve the existing dispute in a transparent, simple and effective manner.

New Reference Requirements for Companies since 1 February 2017

Pursuant to section 36 VSBG, companies shall be obliged to inform consumers on their website and in their general terms and conditions in an easily accessible, clear and comprehensible manner about whether they are willing to take part in this dispute resolution system before a recognized private arbitration body or, if applicable, an arbitration body established under the VSBG by the responsible public authority.

With the exception of a few regulated sectors (e.g. section 57a of the German Air Traffic Act (“Luftverkehrsgesetz”) and section 111b of the German Energy Economy Act (“Energiewirtschaftsgesetz”)), the participation in the VSBG regime is completely voluntary. In addition, companies may also limit their participation to specific conflicts or conflicts up to a certain amount of money.

If, however, a company decides to participate in this dispute settlement procedure, the company shall then be obliged to expressly inform consumers about the factually and locally competent arbitration body. Such reference must contain information on the dispute resolution body’s postal address as well as about its website.

If, on the other hand, the company does not wish to participate in the dispute resolution procedure under the VSBG, it must nevertheless inform the consumer explicitly about its decision. This is to save consumers the cost and effort that could be caused by a vain appeal to an incompetent arbitration body.

Exempted from the aforementioned information requirements pursuant to § 36 VSBG are only companies with ten or fewer employees, which is calculated as of 31 December of the previous year.

Consumer Arbitration Bodies

Whether or not a consumer arbitration body meets the statutory and regulatory requirements shall be examined in an official approval procedure, conducted – except when otherwise stipulated – by the Federal Office of Justice (“Bundesamt für Justiz”). Further details are regulated by the statutory order on information and reporting requirements according to the Consumers’ Dispute Settlement Act ("VSBInfoV").

Practical Recommendations

Companies must expressly inform their consumers on whether or not they are taking part in the VSBG arbitration system.

If the company has both a website as well as general terms and conditions, information in this regard must always be made in both media according to section 36 VSBG.

In case a company does not comply with these obligations, consumer, professional or trade associations shall be entitled to file a claim under the terms of the German Act on Injunctive Relief (“Unterlassungs­klagegesetz”). Furthermore, the consumer concerned shall also be able to claim damages against the respective company on the basis of a (pre-contractual) breach of duty.

In our view, however, it remains to be seen whether this new dispute resolution system established by the VSBG will lead to the intended time, cost and resource savings. The same is true for the question of whether participating in this system may even yield advantages with regard to customer service and customer loyalty or if the corporate reputation of companies may actually be enhanced by participating.

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