Documents considered by the Committee on 3 November 2010, including the following recommendations for debate: Financial Management - European Scrutiny Committee Contents

7 European Contract Law



COM(10) 348

Green Paper on policy options for progress towards a European Contract Law for consumers and business

Legal base
Document originated1 July 2010
Deposited in Parliament7 July 2010
DepartmentMinistry of Justice
Basis of considerationEM of 20 July 2007
Previous Committee ReportNone; 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 CouncilNot applicable
Committee's assessmentLegally and politically important
Committee's decisionNot cleared; further information requested


7.1 With its 2001 Communication on European Contract Law,[36] 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,[37] 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,[38] 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.[39]


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[40] 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 Member States.

7.6 The Commission sets out seven options that could be followed:

— (i) 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.

— (ii) 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.

— (iii) 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.

— (iv) 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.

— (v) 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.

— (vi) 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.

— (vii) 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 and proportionality.

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 2012.


7.13 We thank the Minister for his helpful Explanatory Memorandum.

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 scrutiny.

36   COM(01) 298. Back

37   COM(03) 68. Back

38   COM(08) 614. Back

39   See headnote. Back

40   EC No. 593/2008. Back

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