European Parliament committee votes to support an optional European Contract Law; idea strongly opposed by the UK
In July 2010 the European Commission (the “Commission”) published a green paper (the Paper) on “policy options for progress towards a European Contract Law for consumers and businesses”. The Paper is here.
The principal argument of this Paper is that a standalone system of European contract law may be needed as ”differences between national contract laws may entail additional transaction costs and legal uncertainty for businesses and lead to a lack of consumer confidence in the internal market. Divergences in contract law rules may require businesses to adapt their contractual terms….Partly for these reasons, consumers and businesses, in particular small and medium enterprises having limited resources, may be reluctant to engage in cross-border transactions”.
The Paper set out a number of options ranging from the adoption of a non-binding set of principles, definitions and rules that could be used as a guide by legislators to improve the quality of Community legislation, to a full European Regulation establishing a European contract law which would replace national contract laws.
A “28th regime”?
The policy option in the Paper that appears to be supported by the Commission is for an optional contract law instrument that would operate in parallel to the existing law of the EU member states. Parties wishing to contract would be able to choose this “28th regime” in place of the existing domestic law of one of the Member States. The Paper summarised this option as inserting:
“into the national laws of the 27 Member States a comprehensive and, as much as possible, self-standing set of contract law rules which could be chosen by the parties as the law regulating their contracts. It would provide parties, primarily those wishing to operate in the internal market, with an alternative set of rules. The instrument could be applicable in cross-border contracts only, or in both cross-border and domestic contracts”.
European Parliament Legal Affairs Committee supports the “28th regime” option; and next steps
On 12 April 2011 the European Parliament Legal Affairs Committee approved a report favouring this 28th regime option. The EU Justice Commissioner, Viviane Reding, welcomed the Committee’s vote, saying that the “Commission will take the European Parliament’s views strongly into account in its further preparation of the European Contract Law initiative”.
The consultation on the Paper closed on 31 January 2011 (the consultation responses of the UK Ministry of Justice and the Law Society are linked to below). The Commission is now working on further proposals which it is expected to publish before the end of 2011.
The UK’s views on a European Contract Law
The Ministry of Justice (the MoJ) led the UK Government’s response to the Paper and strongly opposed the idea that anything more is needed than an informal set of principles to guide legislators. The MoJ response, which is here, is a critique of both the broad intentions behind the Commission’s Paper and, in particular, the specific proposals for a parallel “28th regime”*.
On the Commission’s broad intentions, the MoJ considers that “there is no reliable evidence available to show that the [existing position], and in particular the current divergence of national laws of contract, cause a problem that affects the proper functioning of the internal market”. The MoJ disputes the Paper’s assertion that there is evidence that different national laws deter some parties from trading across borders and states that many of the interest groups consulted in the UK “considered the choice of contract law of little relative importance in determining whether to trade across borders or a particular national border”.
On the specific proposal for a “28th regime”, the MoJ opposes this on the grounds of costs, difficulty of interaction with existing national law (including tort) and with existing EU (such as the Consumer Rights Directive), and uncertainty of interpretation and effect – and suggests that there may be no legal basis for a 28th regime in the EU treaties.
The objections of the MoJ are echoed in the opposition of The Law Society of England and Wales, whose response to the Paper is here.
* The MoJ response archly notes that in fact it should be called a “29th regime”, as it would be in addition to the laws of the 27 Member States “plus Scottish law”.
UPDATE 15 October 2011: The European Commission has now published its proposal for an optional “Common European Sales Law” – see this post.
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