4 European contract law
| (31775)
11961/10
COM(10) 348
| Green Paper on policy options for progress towards a European Contract Law for consumers and businesses
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| Legal base | —
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| Department | Ministry of Justice
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| Basis of consideration | Minister's letter of 14 March 2011
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| Previous Committee Report | HC 428-vi (2010-11), chapter 7 (3 November 2010)
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| To be discussed in Council | Not applicable
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| Committee's assessment | Legally and politically important
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| Committee's decision | For debate in European Committee B
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Background
4.1 This Green Paper concerns 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.
It 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 Common Frame of Reference (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.
4.2 The Commission highlights certain policy considerations
in relation to two categories of cross-border transaction: business-to-consumer
contracts and business-to-business contracts.
4.3 As regards consumer contracts, the Commission
points out that under the Rome I Regulation[22]
a cross-border contract 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.
4.4 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.
4.5 The Commission then sets out seven options that
could be followed, which we reported in October last year.[23]
Previous scrutiny
4.6 In his Explanatory Memorandum of 20 July 2010,
the Minister of State for Justice (Lord McNally) noted the broad
reach of the Green Paper and had concerns about the lack of evidence
to support some of the assertions within it. It would be crucial,
he said, to establish sound evidence to support any changes in
this area.
4.7 He also pointed out that some of the policy options
set out by the Commission envisage the adoption of legally binding
instruments in order to create uniform provisions of European
contract law. These legally binding options marked 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 said.
4.8 The Government had therefore decided to undertake
a thorough public consultation, seeking views on each of the Commission's
options. It would also test the premise that the current divergence
of national law causes difficulties or acts as a hindrance to
the internal market. The Government believed that the appropriateness,
or otherwise, of any proposed solution should reflect a proper
assessment of the nature and extent of any problems which exist.
4.9 Our view of the option of a harmonised European
Contract Law was that of our predecessors, and the Government,
namely that contract law is a matter best left to Member States
to determine. We agreed with the Government that the options for
a legally binding European contract law marked a significant departure
from the Commission's previous approach. We also agreed with the
Government that consultation was essential in order to assess
whether there was indeed evidence of problems that could properly
be attributed to the lack of a uniform European contract law.
So we asked the Government to provide us with a summary of the
results of the consultation exercise it was carrying out and its
response to the Green Paper.
Minister's letter of 14 March 2011
4.10 The Minister writes with a summary of the responses
received from the consultation:
"As you are aware, the European Commission published
its Green Paper in July last year. This set out seven main policy
options for reform concerning the issue of contract law which
included continuing with the existing project aims (the creation
of a toolbox to aid legislators) to much more radical options
which would result in varying degrees of harmonisation of contract
law, including the option of a fully harmonised European contract
law code.
"In August last year, my Department undertook
a UK-wide evidence gathering exercise to inform the UK position
and response to the Green Paper. That exercise was completed in
early December 2010. A total of 54 responses were received from
groups and individuals representing a broad spectrum of interests
including academics, legal practitioners, business (both big and
small), finance, insurance, shipping and exports and consumer
groups.
"The results of the evidence gathering exercise
showed clearly that most respondents considered there was no clear
demonstrable and proportionate need for any of the more radical
changes proposed, such as harmonisation of contract laws or even
the establishment of an optional contract law code. Most wanted
the project to continue working on the previously established
aims and not pursue more radical reform. While there was interest
from a few respondents to the "optional instrument"
proposal (which the Commission has made clear it favours), this
interest seemed more in favour of the notion of exploring the
option rather than a commitment to such an approach.
"The Government agrees that the delivery of
what was broadly the previous project aims (those described in
Options 1 and 2a of the Green Paper) would be a useful and practical
approach. Given the lack of reliable evidence of need for any
of the new legislative options and the problems that might be
associated with them, you will see the UK response to the Commission
did not support any of the other options. Given the Commission's
open support for the optional instrument approach the response
also offers some commentary on some of the main issues that might
arise in association with such a proposal."
4.11 The Minister also encloses the Government's
response to the Green Paper. It says, in summary, that:
- the UK considers there is no
reliable evidence available to show that the current arrangements
under discussion here, and in particular the current divergence
of national laws of contract, cause a problem that affects the
proper functioning of the internal market. The UK considers there
is no demonstrable need established for any of the options beyond
options 1 and 2a. As a result, the UK therefore favours options
1 and 2a only, which seem the most proportionate and potentially
offer real improvements in the quality of legislation in this
sphere for the future. This is also most in line with established
Council recommendations;
- none of the other options (3-7) are considered
necessary or proportionate given the lack of evidence of need
and the difficulties associated with each of those options. Indeed,
the lack of demonstrable need for any of these options gives rise
to serious doubts about the EU's competence under the Treaty to
pursue any of them; and
- the UK is aware, however, that the Commission
has made public statements to the effect that it favours and intends
to pursue Option 4 (a Regulation setting up an Optional Instrument
of European Contract Law). That position, if it is accurate, seems
premature given the paucity of evidence of a problem and the lack
of any clarity or detail as to what substance such a Regulation
might actually contain. In light of the Commission's position,
the UK offers some detailed observations on this option and in
particular flags some of the issues that would need to be confronted
and overcome if it was to be pursued. It is considered crucial
than any attempt to pursue this option further is preceded by
a rigorous Impact Assessment and a full consultation on the proposed
content of any new instrument.
4.12 A full copy of the Government's response is
appended to this Report.
Conclusion
4.13 We are grateful to the Minister for writing
and enclosing the Government's response to the Green Paper. We
fully support the stance taken by the Government, informed as
it is by the responses received to its consultation: there is
no evidence to suggest that a common European Contract law is
necessary for the proper functioning of the single market. Additionally,
we think such a law could infringe the principle of subsidiarity.
We will watch closely how the Commission decides to proceed from
here.
4.14 Given the legal and political importance
of the Green Paper, we recommend it for debate in European Committee
B.
22 OJ No. L 177, 17.06.08, pp. 6-16. Back
23
See headnote. Back
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