Mikov Attorneys – Konstantin Mikov and Maria Hristova
Bulgaria / June 18 2024
Alternative Dispute Resolution (ADR) has recently become popular worldwide to resolve
various conflicts outside of classic litigation.
1. Litigation vs ADR
This method of dispute resolution offers parties a more cost-effective, time-efficient, and
less adversarial way to settle their differences. One of the major advantages of ADR is that
it provides parties with more control over the outcome of their dispute. In traditional
litigation, a judge or jury makes the final decision, which may not always be satisfactory to
all parties involved, even sometimes all parties being dissatisfied will appeal before the
higher courts. In ADR, the parties could work together towards a mutually agreeable
solution, fostering a sense of cooperation and understanding that is critical when the parties
would prefer to continue their business or other kind of relationships.
2. Forms of ADR
ADR encompasses various approaches both traditional such as mediation, arbitration, and
negotiation, as well as comparatively new such as collaborative law:
2.1. Arbitration comes to mind as the form of ADR closest to classic litigation. The parties to
a contract should agree in writing that an impartial arbitrator acts as a private judge and
makes a binding decision on their dispute. Unlike other ADR outcomes, the arbitrator’s
decision is final and legally enforceable, providing a level of certainty to the parties involved.
Arbitration is often used in commercial disputes or cases where confidentiality is essential.
In most countries the arbitration bodies are institutionalised as arbitration courts at the
chambers of commerce and industry resolving both domestic and international disputes.
2.2. Mediation is a popular form of ADR, where a neutral third party, known as a mediator,
helps facilitate communication between the parties to reach a settlement. The mediator
does not impose a decision but rather assists the parties in clarifying their positions and
demands and reaching a compromise. This process is particularly useful in situations where
preserving relationships is important, such as family property disputes or workplace
conflicts. Depending on the jurisdiction, mediation may be mandatory in certain cases as a
prerequisite for traditional litigation. For example, starting 1st of July 2024 the Bulgarian
courts will oblige the parties to participate in mediation if the claim is related to co-owned
properties, condominium, divorce, child support, shareholders’ rights, employment, etc. In
case an agreement is reached, it will be approved by the judge and have enforceability as a
court decision.
2.3. Collaborative law is a newer approach to ADR that has spread rapidly since 1990
mostly in the USA, the UK and Australia. The legal process involves each party having their
legal representation (trained professionals including lawyers, divorce coaches, and financial
professionals) working together to find a mutually beneficial solution. Collaborative law
focuses on finding creative and sustainable solutions while avoiding the need for court
intervention mostly with a view to keeping the future relations between the parties and their
children as good as possible. While collaborative law started as a method for resolving
divorce, cohabitation, and other family disputes, the cost efficiencies, in addition to other
potential benefits, have led parties in other contexts to explore the use of collaborative law
to resolve various kinds of disputes, including M&A transactions.
2.4. Negotiation is a more informal form of ADR, where the parties communicate directly
with each other to settle their differences. Negotiation can be conducted with or without the
assistance of legal representatives and can be a quick and cost-effective way to reach a
resolution. Usually, other forms of ADR are applied after negotiations have failed.
3. ADR in the Financial Sector
ADR is used in all kinds of civil and commercial relationships, including the financial
services sector. Such sector provides financial services to people and corporations. This
segment of the economy is made up of a variety of financial firms including banks,
investment houses, lenders, finance companies, real estate brokers, and insurance
companies.
Although all forms of ADR can be applied for financial services disputes, a specific type of
arbitration provides a specific means for consumers to resolve disputes with financial
institutions – the Financial Ombudsman Service (FOS). The FOS is an independent and
impartial body that helps individuals and small businesses settle complaints about financial
products and services. This service is essential in ensuring fairness and accountability
within the financial industry. The structure (governmental body, not-for-profit organisation
authorised by law, contractual external dispute resolution schemes) and name of the FOS in
each jurisdiction vary – Financial Ombudsman of the Republic of Cyprus, Czech Financial
Arbitrator, AMF Ombudsman in France, Office of the Arbiter for Financial Services in Malta,
OMBUDSFIN in Belgium, Financial System Mediator in Armenia, Australian Financial
Complaints Authority, etc. However, despite the structural differences the competency and
powers of the FOS are quite similar across borders.
4. Advantages of the Financial Ombudsman Service
The FOS handles a wide range of complaints, including issues related to banking,
insurance, investments, pensions, and loans. Consumers who have been unable to resolve
their disputes directly with a financial institution can turn to the FOS for assistance. The
service aims to provide a quick, fair, and accessible way to resolve complaints without the
need for costly legal proceedings.
One of the key benefits of the FOS is that it is free for consumers and small businesses to
use. This means that individuals who may not have the financial means to pursue legal
action can still seek redress for any grievances they have with a financial provider.
The process of lodging a complaint with the FOS is relatively straightforward. Consumers
can submit their complaints online, over the phone, or by post. The FOS will then
investigate the complaint, gather relevant information from both parties, and decide based
on the evidence presented. The aim is to resolve disputes in a way that is fair and
reasonable for all parties involved.
In cases where a financial institution is found to have acted unfairly or unreasonably, the
FOS has the authority to require the institution to provide redress to the consumer. This
could involve among others refunding fees or charges, correcting mistakes, or providing
compensation for any losses incurred. The dissatisfied party may be entitled to request a
new decision from another panel of the FOS that may uphold, amend or revoke the initial
one. The FOS decisions cannot be further appealed on their merits but like arbitration
decisions can be brought to courts for competency and procedural compliance review.
5. Implications
In summary, the Financial Ombudsman Service plays a crucial role in protecting consumer
rights and promoting trust in the financial sector. By providing a free and accessible means
for individuals to resolve disputes with financial institutions, the FOS helps ensure that
consumers are treated fairly and that financial providers uphold high standards of service
and conduct.
