7 European Contract Law
|Green Paper on policy options for progress towards a European Contract Law for consumers and business
|1 July 2010
|Deposited in Parliament
|7 July 2010
|Ministry of Justice
|Basis of consideration
|EM of 20 July 2007
|Previous Committee Report
|None; but see (28847) 12269/07: HC 41-xxxvi (2006-07), chapter 13 (24 October 2007), (28847) 12269/07: HC 19-v (2008-09), chapter 17 (28 January 2009), (28847) 12269/07: HC 19-x (2008-09), chapter 9 (11 March 2009) and (28847) 12269/07: HC 19-xxiii (2008-09), chapter 10 (8 July 2009)
|To be discussed in Council
|Legally and politically important
|Not cleared; further information requested
7.1 With its 2001 Communication on European Contract Law,
the European Commission launched a process of extensive public
consultation on the problems arising from differences between
Member States' contract laws and on potential actions in this
field. In the light of the responses, the Commission issued an
Action Plan in 2003,
proposing to improve the quality and coherence of European Contract
Law by establishing a Common Frame of Reference (CFR) containing
a "tool box" of common principles, terminology and model
rules to be used by the Union legislator when making or amending
legislation. It was also proposed to review the Union acquis
in the area of consumer contract law, to remove inconsistencies
and fill regulatory gaps. As a result of the review, in October
2008, the Commission submitted a Proposal for a Directive on consumer
rights, a measure
designed to boost the retail internal market. The Commission also
financed through a grant under the 6th Framework Programme for
Research the work of an international academic network, which
carried out the preparatory legal research for the adoption of
the CFR. The research work was finalised at the end of 2008 and
led to the publication of the Draft Common Frame of Reference
(DCFR). The DCFR covers principles, definitions and model rules
of civil law, including contract and tort law. It contains provisions
for both commercial and consumer contracts. Our predecessors reported
on the DCFR extensively.
7.2 This is a European Commission consultation paper concerning
the implications for the internal market of the fact that different
national laws of contract operate in each of the individual Member
States of the European Union. The paper suggests this divergence
of laws might hinder the smooth operation of the internal market
and it sets out various options for how this issue might be tackled,
ranging from maintaining the status quo through to a mandatory
and common code of contract law. Various alternative approaches
within some of the options are also presented. To date, the focus
of this project had been on the possibility of creating a CFR
for contract law. The EU Commission's paper seeks views on whether
the project might instead move forward in different ways, which
are discussed in the Green Paper itself and summarised below.
7.3 The Commission highlights certain policy considerations in
relation to two categories of cross-border transaction: business-to-consumer
contracts and business-to-business contracts.
7.4 As regards consumer contracts, the Commission points out that
under the Rome I Regulation
a cross-border contract of this kind is likely to be subject to
different laws of contract, depending on where the consumer in
question is living and notwithstanding the fact that the parties
may have agreed in principle to apply a particular contract law
to their contract. The Commission suggests that this imposes additional
costs on business, particularly as regards e-commerce transactions.
It considers that the proposal for a Consumer Rights Directive
which is currently being negotiated and which is intended to achieve
greater harmonisation of key internal market aspects of consumer
contract law should assist business in this respect, but will
not completely solve the problem. In particular it will not fully
harmonise the national contract laws of the Member States and
to that extent the problem of multiple laws applying to consumer
contracts will remain.
7.5 As regards business contracts, the Commission points out that
commercial entities are free to choose a single law to govern
their contracts and can incorporate the substance of existing
international instruments, such as the Unidroit Principles
of International Commercial Contracts. However they cannot
choose a common European contract law which will be applied uniformly
in all the Member States. Further, the Commission argues that
SMEs may lack the bargaining power to negotiate the application
of a single applicable law with which they are familiar and that
this may hamper their full participation in the internal market.
The Commission argues that a European Contract Law, accessible
in all the official languages, could provide additional reassurance
for businesses engaged in cross-border trade and represent an
attractive alternative to laws of contract which operate within
7.6 The Commission sets out seven options that could be followed:
Publication of the results of the Expert Group The Expert
Group was established by the Commission in April 2010 to study
the feasibility of a user-friendly instrument of European Contract
Law for the benefit of both consumers and businesses. While the
Commission believes that publication could provide source material
to contribute to the voluntary convergence of national contract
laws, it considers that this option would not address any internal
market problems arising from the divergences between national
laws of contract.
An official "toolbox" for the legislator (akin to the
CFR) The creation of a useful source of material which
would be designed to ensure the coherence and quality of future
Community legislation. It would not be legally binding. It could
either reflect the results of the Expert Group or it could emerge
from negotiations between the Commission, the Council and the
European Parliament. However, like option (i) the Commission's
view is that it would not address any internal market problems.
A Commission Recommendation on European Contract law Member
States could be encouraged to incorporate into their national
law gradually a non-binding instrument of European contract law.
However the Commission believes this would risk a lack of uniformity
of approach among the Member States.
A Regulation setting up an optional instrument of European Contract
law This would require the Member States to incorporate
into their legal systems a European contract code as an optional
alternative to their existing national laws of contract. The question
of whether this should be restricted to cross-border contracts
is left open. The Commission claims that the application of such
a code would simplify the conduct of legal proceedings by obviating
the current need to resolve choice of law issues but accepts that
the creation of an additional optional contract law might be criticised
for complicating the current legal environment.
Directive on European Contract Law Contract laws of Member
States would be harmonised on the basis of minimum common standards.
Member States would in principle be free to retain more protective
rules, with the resulting differences notified to the Commission
and published for the sake of transparency. While the Commission
believes this would decrease the current legal divergences and
build confidence in the internal market among consumers and SMEs
it would not necessarily lead to uniform implementation and interpretation
of the rules.
Regulation establishing a European Contract law This would
provide a uniform set of European rules, including mandatory rules
affording a high level of protection for weaker parties. The Commission
leaves open whether there should be a restriction to cross-border
transactions. This option is presented as having the significant
benefits for the internal market by virtue of its uniformity,
but also raising sensitive issues of subsidiarity and proportionality.
Regulation establishing a European Civil Code This would
go further than Option 6 and cover other areas of the law outside
the law of contract, such as the law relating to tort (and delict
in Scotland) and unjust enrichment. The Commission accepts that
this would raise in an even more acute form the issues of subsidiarity
7.7 The Commission then poses the question whether
any instrument should cover both business to consumer and business
to business contracts. Some provisions might be common to both
categories and others applicable only to the former category.
It might also be possible to establish separate instruments for
each category of contract. As well as questioning whether there
should be a restriction in scope to cross-border disputes the
Commission raises the possibility of an instrument whose scope
would be confined to contracts concluded on-line where a significant
proportion of contracts are cross-border in nature and where the
sector has "the highest potential for growth".
7.8 Finally, the Commission asks whether the material
scope of the contract law instrument should be understood in a
narrow or broad sense, in any case covering mandatory consumer
contract rules. A broad scope might go further and cover matters
such as restitution and tortious liability. Certain types of contract
only might be covered such a contracts for the sale of goods.
Service contracts might also be covered, although, if so, it might
prove necessary to provide specifically for some special types
of service contracts, such as insurance contracts, and contracts
for financial services.
The Government's view
7.9 In his Explanatory Memorandum, the Minister of
State for Justice (Lord McNally) notes the wide ranging nature
of the Commission's Green Paper and has some initial concerns
about the lack of evidence to support some of the assertions within
it. It will be crucial, he says, to establish sound evidence to
support any changes in this area.
7.10 Some of the policy options set out by the Commission
envisage in different ways the adoption of legally binding instruments
in order to create uniform provisions of European contract law.
The presentation of these legally binding options marks a significant
departure from the Commission's earlier approach to this subject
which had focused on the possibility of a CFR, which had not been
intended to be legally binding in nature. Indeed, any move beyond
this would be a significant shift from the position established
in the recently agreed Stockholm Programme, the Minister says.
7.11 The Government considers it is essential to
undertake a thorough public consultation. It will seek views on
each of the Commission's options. It will also seek to gain evidence
to test the premise that the current divergence of national law
causes difficulties or acts as a hindrance to the internal market.
The Government believes that the appropriateness, or otherwise,
of any proposed solution must reflect a proper assessment of the
nature and extent of any problems which exist.
7.12 As for timetable, the Minister says that the
Commission has asked for views in response to this Green Paper
by 31 January 2011. The Commission's timetable as regards future
action, and in particular as regards the publication of any legislative
proposal, is not yet known but further action is not likely before
7.13 We thank the Minister for his helpful Explanatory
7.14 Our view is that of our predecessors, and
the Government, namely that contract law is a matter best left
to Member States to determine.
7.15 We agree with the Government that the presentation
in the Green Paper of options for a legally binding European contract
law marks a significant departure from the Commission's earlier
approach to this subject, which had focused on the possibility
of a non-binding Common Frame of Reference.
7.16 We also agree with the Government that consultation
is essential in order to assess whether there is indeed evidence
of problems that can properly be attributed to the lack of a uniform
European contract law.
7.17 We ask the Government to provide us in due
course with a summary of the results of the consultation exercise
it is carrying out and its response to the Green Paper.
7.18 In the meantime we keep the Green Paper under
36 COM(01) 298. Back
COM(03) 68. Back
COM(08) 614. Back
See headnote. Back
EC No. 593/2008. Back