Ombudsman

From Max-EuP 2012

by Anneken Kari Sperr

1. Definition and scope

The term ombudsman derives from the Norse terms ombud, meaning representative, and man (man). Generally, an ombudsman is considered to be a person appointed to conduct alternative and out-of-court dispute resolution by directing the resolution process and giving recommendations rather than making a final decision.

The appointment of ombudsmen originated in the Nordic countries. However, even the Scandinavian original version does not allow for a uniform definition of the position as the respective provisions display significant differences. In short, however, the initial function of the Scandinavian ombudsman was to establish a parliamentary out-of-court agency independent of the executive that would supervise the executive branch ex officio as well as review claims by persons concerned (see 2. below).

Nowadays, various European and non-European nations have drawn upon the concept of the Scandinavian Parliamentary Ombudsman as a prototype, establishing similar but modified institutes within their respective legal systems—often referred to as ombudsmen. The underlying objective is to establish alternative forms of supervision and dispute resolution in the area of public law (see 3. below).

Private law, on the other hand, has also been influenced by the establishment of institutions that are constituted and named following the example of the ombudsman, but which differ greatly from its concept with regard to function and provisions. This is particularly true for legal relations where the relative strength of the parties is imbalanced; in the area of consumer protection—especially banking and insurance law—the establishment of consumer representatives, and ombudsmen particularly, has proven very successful (see 4. below).

Furthermore, even European Community institutions are today calling for the establishment of out-of-court dispute resolution agencies (see 5. below).

2. Historical background

The institution of a parliamentary ombudsman was initially established in Sweden in 1809. With the reform of Sweden’s form of government and the introduction of the separation of powers (as put forward by Montesquieu), the position of the Högste Ombudsman, later referred to as Justitiekansleren, which had served as the king’s agent and representative since 1713 and today serves as the government’s ombudsman, was supplemented by the position of the parliamentary Justitieombudsman. The latter was entrusted with the supervision of the execution of parliamentary enactments through the executive branch and the courts. The Justitieombudsman was to promote a uniform application of the law and to discover unclear, imprecise or ambiguous legislation in order to strengthen and protect citizens’ rights. The impact of the Justitieombuds man’s function on Sweden’s legal system is only to be understood in its historical context: before the establishment of the Regeringsrätten (the supreme administrative court) in 1909, Sweden had adhered to administrative supervision alone and had not yet recognized independent judicial review of administrative decisions. Having gained its independence from Russia in 1918, Finland followed the Swedish approach by establishing the position of Riksdagens Justitieombudsmans Kansli.

Denmark and Norway, on the other hand, had recognized independent judicial supervision of the executive branch as early as the mid-19th century and considered it to be an inherent part of the constitution (Denmark) or of customary constitutional law (Norway). Accordingly, there was at first no need for another supervisory agency independent from the executive branch—at least not to the same degree. The development from the 19th-century liberal constitutional state towards the 20th-century modern administrative state, however, caused fundamental structural changes. As a consequence, judicial supervision, as the only means of legal protection independent from the executive branch, was considered increasingly insufficient. For the individual, court proceedings were (and still are) complicated, time-consuming and expensive. This type of judicial control is also exercised in a comparatively restrained manner, partly because it is conducted by ordinary courts rather than specialized administrative courts. Therefore, in 1953, Denmark decided to supplement existing mechanisms protecting individual rights in the area of administrative law with an additional institution, the Folketingets Ombudsmand. The transplantation of an institution originating from a foreign constitution and different national tradition into an entirely distinct environment—the modern welfare state—was and continues to be a highly debated matter among both legal scholars and politicians. In accord with their parallel legal traditions, Norway followed Denmark’s example in 1962 by establishing the position of the Sivilombudsmannen.

The Alltingets ombudsmann was introduced in Iceland in 1987; however, the institution of parliamentary ombudsman is not only to be found within all Nordic legal systems, but also in the Faroe Islands and Greenland (belonging to the kingdom of Denmark but increasingly autonomous since the political developments of 1948 and 1979). Greenland introduced the Landsting Ombudsman in 1995 while the Faroe Islands established the Lagting Ombudsman in 2001.

3. Adoption of the public law ombudsman

The Nordic nations greeted the introduction of the parliamentary ombudsman with great optimism and enthusiasm, and also non-Scandinavian countries adopted the model of the popular and widely known Danish ombudsman in the following years. In that way, New Zealand was (after Denmark) the fourth and first English-speaking nation to adopt an ombudsman based upon the Scandinavian concept. This adoption of the institution into an Anglophone democratic system served as an example for most nations of the Commonwealth: by 1978 more than 30 countries had established an institution similar to the Nordic ombudsman; in 2005 the number exceeded 100 nations worldwide. Nowadays, particularly nations that have only recently gained their independence (or overcome a totalitarian regime) and are striving for a democratic form of government share a common interest in the introduction of monitoring and corrective agencies such as the Scandinavian parliamentary ombudsman.

The European Union established the position of the European Ombudsman, based in Strasbourg, in 1995. Elected by the European Parliament, the ombudsman is concerned with grievances arising in the course of activities of the EU institutions. Usually the ombudsman takes action subsequent to complaints, but he or she is also empowered to start investigations on his or her own initiative.

4. The ombudsman in the sphere of consumer protection

The idea of establishing an independent control agency appointed by the state was implemented into the system of consumer rights protection in the 1970s. Ever since the beginning of the debates on consumer protection in the 1960s (consumers and consumer protection law), the reluctance of consumers to enforce their rights before ordinary courts has been emphasized. This unwillingness is ascribed to various socio-legal and economic reasons, displaying certain parallels to those circumstances that had led to the establishment of the ombudsman for public law in the first place. Accordingly, informational deficits and a lack of legal expertise, a feeling of inferiority and the consumers’ self-restraint in deploying the judiciary—especially where there are relatively low amounts involved and the potential financial loss seems to be comparatively high—cause (from an economic point of view) risk aversion and a rational indifference of the individual consumer towards the enforcement of his or her consumer rights. Consequences of this mechanism do not solely have an impact on the consumers themselves but the entire society; therefore, insufficient consumer protection is generally viewed as a deficit of the respective legal system. A lack of enforcement of consumer rights leads to deficient implementation of substantive consumer protection law and questions the legitimacy of consumer rights as such, leading to a general distrust. The functioning of consumer markets ability to function is impaired, particularly in connection with growing economic dissymmetry between businesses and consumers.

Therefore, a number of western nations incorporated various remedies into their respective legal systems. In particular, nations where litigation in state courts has proven to be very expensive made a great effort to introduce realistic alternatives to traditional dispute resolution. Apart from arbitration and mediation proceedings (mediation) and the creation of special courts and fast-track procedures for small claims (eg the US’s small claims courts and the special Småkravsprosess in the Norwegian Civil Procedure Code), this includes various ombudsman institutions that are of great importance when it comes to strengthening the consumer’s position in consumer-to-business disputes and supporting individual enforcement of consumer rights.

Two main types of ombudsmen are to be distinguished: the first category includes public supervisory agencies such as the Scandinavian consumer ombudsman (see a) below). Ombudsmen of the second category are, for the most part, private dispute resolution agencies, specific to each industry sector and established by the suppliers themselves. In that way, for example, the Insurance Ombudsman Bureau (IOB), now belonging to the Financial Ombudsman Service (FOS), was introduced in the United Kingdom; in Germany private banks as well as the insurance industry established ombudsmen as well (see b) below). While ombudsmen of the first category, for the most part, are concerned with the protection of collective consumer interests in cases of misleading commercial practices (commercial practices, misleading) and unfair competition (unfair competition (basic principles)) in particular, and rarely conduct specific arbitrational procedures, the latter category’s main objective is to resolve disputes between individual consumers and businesses. Compared to the traditional ombudsman for public law and the Scandinavian consumer ombudsman, the introduction of private ombudsman institutions brought about a certain degree of innovation with respect to the resolution of disputes: private institutions do not merely offer suggestions when resolving a dispute; regularly, the private ombudsman is conferred decisional authority. In most cases, this decision is solely binding on the business (up to a certain amount in dispute) while the consumer remains free to go to court.

a) The state-appointed consumer ombudsman (Scandinavian model)

Introduced in Sweden in 1971, the Konsumentombudsmannen (KO, consumer ombudsman) is today a public official of high repute who, at the same time, is the Director General of the Konsumentverket (KOV, Swedish Consumer Agency). The consumer ombudsman’s predominant task is to ensure market participants’ compliance with regulations on consumer protection. The consumer ombudsman acts upon consumer or competitor complaints, notification by public authority or ex officio. As a representative of the general consumer interest, the ombudsman aims at voluntary compliance with his or her recommendations. Whenever negotiations are unsuccessful, the consumer ombudsman is able to bring an action before the Marknadsdomstolen (Market Court), claiming a breach of the Lag om avtalsvilkor i konsumentförhållanden (Consumer Contract Terms Act) or the Marknadsföringslagen (Marketing Practices Act), if applicable in connection with the violation of other consumer-oriented statutes. In that way, an injunction, disclosure of information or a penalty for market disturbance (up to 10 per cent of the annual turn-over) can be sought. In cases of minor importance and solely by means of consent of the business involved, the consumer ombudsman is authorized to issue prohibition orders or to ask for the disclosure of certain information. In addition, since 1997, the consumer ombudsman has been able to represent even a group of consumers before the Allmänna reklamasjonsnämnden (ARN, Swedish National Board for Consumer Complaints) in the course of out-of-court group actions. The possibility of bringing group proceedings before ordinary courts was established by the Lag om grupprättegång (Group Proceedings Act) in 2002. This marks a great increase in the enforcement of collective consumer interests and rights as either represented by the consumer ombudsman or other individuals.

Another important aspect is that the consumer ombudsman can support individual consumers and their respective interests before ordinary courts in the course of actions lodged by an individual consumer. Initially, this support scheme was limited to consumer disputes within the financial services sector, but it was extended to any type of consumer dispute in 2007. This type of intervention by the consumer ombudsman has been increasingly appealing to consumers. So far, the scheme has only been provisional and is scheduled to end in December 2011.

Finally, the consumer ombudsman takes part in the decision-making process of the ARN concerning disputes between consumers and businesses by delivering statements (in addition to those of the representatives of business and consumer) that are included in the ARN’s final, non-binding recommendation. Businesses involved, however, follow these recommendations regularly.

Likewise, Denmark (and similarly Norway and Finland) introduced the Forbrugerombudsmand whose main objective is to protect collective consumer interests and to ensure compliance with the requirements of the Markedsføringsloven (Marketing Practices Act)—where applicable in connection with further consumer-oriented legislation—with the Betalingsmiddelloven, the Tobaksreklameloven, the E-handelsloven and lastly with the Lov om juridisk rådgivning. Like the Swedish consumer ombudsman, the Forbrugerombudsmand acts upon consumer or competitor complaints, notification by (public) institutions or ex officio and is concerned with out-of-court dispute resolution and voluntary compliance with his or her recommendations. The Forbrugerombudsmand is also authorized to bring actions before the Sø- og Handelsretten i København (Copenhagen Maritime and Commercial Court) on grounds of alleged breach of the consumer protection legislation in question. In cases of imminent danger, the ombudsman is empowered to take provisional decisions him- or herself.

Business and consumer associations established various private complaint boards after Denmark had set into force framework legislation relating to individual consumer disputes. Acting in a complementary way, the public Forbrugerklagenævnet (Consumer Complaint Board) —as laid down in the Forbrugerklagelov (Consumer Complaint Act) of 2003—deals with the residual complaints that cannot be brought before one of the private complaint boards and that are not excluded from these types of out-of-court dispute resolution by the Ministry for Family and Consumer Affairs. The Danish Forbrugerombudsmand, on the other hand, does not intervene in individual consumer disputes.

b) Private sector ombudsman institutions

The English Insurance Ombudsman Bureau (IOB) serves as a prime example of the many private ombudsman institutions. In 1981, the three largest insurance companies established the IOB as an independent, free of charge dispute resolution agency. The underlying objective was to address an increasing criticism of the lack of consumer protection in procedural as well as substantive English law. Giving in to this pressure and drawing upon demands made by the Consumers’ Association and the Office of Fair Trading in the 1970s, the insurance companies established an independent private ‘ombudsman’, so named due to the positive connotations linked to the Scandinavian ombudsman concept—namely integrity, independence and public responsiveness. While one objective of the IOB’s establishment clearly was the improvement of the insurance companies’ image, it should at the same time be viewed as a means of preventing a more direct and binding intervention through legislation. Throughout the following years, the IOB developed into a prime example of dispute resolution through self-regulation; this is apparent in the volume of processed claims, the trust of persons concerned and observers, the high level of public awareness and the scheme’s adoption into various other sectors and countries. In 2001, the insurance ombudsman was implemented into the entire financial services sector: a statutory Financial Ombudsman Service (FOS) was established, merging and standardizing eight different ombudsman and arbitration systems. Thus, the IOB has now become a branch of the FOS. However, this legislative initiative to harmonize and regulate ombudsmen (as seen in other countries such as Denmark and Ireland) should not be perceived as a reform of anachronistic mechanisms, but as the extension of a successful scheme, now protected by law.

Since Germany attempted to integrate consumer disputes into the general court system (using state subsidies), it did not take an active part in European developments concerning sector-specific, private out-of-court dispute resolution agencies until private initiatives established the Banking Ombudsman in 1992 and the Insurance Ombudsman in 2001. Generally speaking, the instruments of legal aid and private legal cost insurance make German courts accessible to everyone. However, the efficiency of the court system is constantly decreasing due to the increasing volume and duration of proceedings. In this way, the Banking Ombudsman and the Insurance Ombudsman, roughly tailored after the British Insurance Ombudsman, have gained a considerable reputation. This is most visible in the growing number of consumer complaints brought to ombudsmen instead of otherwise available courts and the voluntary nationwide organization of insurance agencies through the Ombudsman Association. This reflects a continuously growing acceptance of the ombudsman and gives rise to both mutual trust conducive to the market and a high degree of satisfaction among consumers and businesses. Thus, the establishment of further ombudsmen in other consumer markets seems promising—provided that members of the respective sectors display homogenous interests and take into account the ombudsman’s key to success: limited decisional competency and decisions unilaterally binding on the professional.

c) Consumer ombudsmen in the European Union

By publishing corresponding guidelines and enacting various regulations, many of the EU institutions call for and support the establishment of out-of-court dispute resolution agencies for consumer disputes that include third parties such as arbitrators, mediators or ombudsmen. These include, among other instruments, Dir 97/7 of 20 May 1997 on the protection of consumers in respect of distance contracts; Commission Recommendation 2001/31 of 4 April 2001 on the principles of out-of-court bodies involved in the consensual resolution of consumer disputes; Communication COM(2001) 161 from the Commission on ‘widening consumer access to alternative dispute resolution’; the Commission’s green paper on alternative dispute resolution and commercial law of 19 April 2002; Dir 2002/92 of 9 December 2002 on insurance mediation (insurance intermediaries); Dir 2008/52 of 21 May 2008 on certain aspects of mediation in civil and commercial matters; and the Commission’s green paper (2008) 794 on consumer collective redress of 27 November 2008.

Literature

Donald C Rowat (ed), The Ombudsman (1965); Eike von Hippel, Verbraucherschutz (3rd edn, 1986); Bengt Wieslander, JO-ämbetet i Sverige (1995); Thomas von Hippel, Der Ombudsmann im Bank- und Versicherungswesen (2000); Jens M Scherpe, Außergerichtliche Streitbeilegung in Verbrauchersachen (2002); Hans Gammeltoft-Hansen (ed), The Danish Ombudsman (2005); Jürgen Basedow, ‘Small Claims Enforcement in a High Cost Country: The German Insurance Ombudsman’ [2007] Scandinavian Studies in Law 49; The Study Centre for Consumer Law—Centre for European Economic Law, Katholieke Universiteit Leuven in Belgium, An analysis and evaluation of alternative means of consumer redress other than redress through ordinary judicial proceedings. A Study for the European Commission, Health and Consumer Protection Directorate-General, Directorate B—Consumer Affairs (2007); PE Morris, ‘The Financial Ombudsman Service and the Hunt Review: Continuing Evolution in Dispute Resolution’ [2008] JBL 785; International Ombudsman Institute in Edmonton (ed), The International Ombudsman Yearbook, vols 1–9 (1997–2008); Anneken Kari Sperr, Verwaltungsrechtsschutz in Deutschland und Norwegen (2009).

Retrieved from Ombudsman – Max-EuP 2012 on 01 December 2022.

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