European Scrutiny Committee Contents

7 Common European Sales Law



+ ADDs 1-2

COM(11) 635

Draft Regulation on a Common European Sales Law for the European Union

Legal baseArticle 114 TFEU; co-decision; QMV
Basis of considerationMinister's letter of 13 November 2012
Previous Committee ReportHC 428-xlii (2010-12), chapter 5 (23 November 2011)
Discussion in CouncilNo date set
Committee's assessmentLegally important
Committee's decisionNot cleared; further information requested


7.1 The Commission's proposal contains a set of uniform contract law rules which parties to a contract could choose to cover their contract. This would form part of the national law of each Member State and provide an alternative regime from those currently offered under national laws. This alternative regime would be available for cross-border business-to-consumer contracts or business-to-business contracts where at least one of the businesses is a Small/Medium Enterprise (SME). The key features of the proposal are as follows:

  • It would provide a contract law regime that was common to all Member States, in the sense it formed part of each Member State's own law. It would neither harmonise national laws nor replace them, but rather be available as an alternative regime to the existing contract law regime in each country. Parties would have the choice as to whether to use the Common European Sales Law regime, or the pre-existing national law regime.
  • If selected the optional contract law would govern the parties' relationship to the exclusion of any other law in relation to all matters governed by the optional contract (it should be noted that a number of matters which might arise in a contractual relationship are not governed by the Common European Sales Law — recital 27 lists particular examples). Parties would need to agree to the use of the optional law, in the sense that one party (the vendor) would choose which law to offer but the other party would need to agree to its use. If no agreement were explicitly established in this way, the parties' contractual relationship would be governed by whichever law was indicated by the provisions of EC Regulation No 593/2008 on the law applicable to contractual obligations (Rome I).
  • The measure would cover sales of goods and digital content (e.g. music downloads) and related service contracts ("related service" being defined in Article 2(m) to cover service agreements undertaken with the seller of the goods which relate to the goods themselves, for example installation). The regime would be available no matter what the method of sale (e.g. direct or on-line).
  • The proposal aims to be a standalone set of rules which does not require recourse to national or any other law (although as noted in (b) above, not all aspects of the legal relationship between the parties are covered by these rules).
  • Sales transactions covered would be limited to cross-border contracts (unless individual Member States choose to allow use of the regime in domestic contracts). Cross-border contracts are defined in Article 4.
  • Where used, it would provide an identical set of consumer rights across Member States.
  • It would have an international dimension, i.e. it would be sufficient for only one party to be established in a Member State of the EU to use the regime (Article 4 and recital 14).
  • It would not cover legal personality, the invalidity of a contract arising from lack of capacity, illegality or immorality, the determination of the language of the contract, matters of non-discrimination, representation, plurality of debtors and creditors, change of parties including assignment, set-off and merger, property law including the transfer of ownership, intellectual property law and the law of torts. Furthermore, the issue of whether concurrent contractual and non-contractual liability claims can be pursued together falls outside the scope of the Common European Sales Law.

Previous scrutiny

7.2 We set out further the details of the proposal and the views of the Government and several consumer associations in our Report of 23 November 2011.[26] In the conclusion to that Report, we recommended that the House send a Reasoned Opinion to the EU institutions:

"We limit ourselves at this stage to the question of whether the proposal conforms with the principle of subsidiarity — the deadline for a Reasoned Opinion to be sent is 12 December.

"It is axiomatic that an optional sales law common to all Member States is something that can be better achieved at EU level than at national level. But that is to assume that the proposed Common European Sales Law a) is necessary and b) will produce clear benefits by reason of its scale and effect, compared with action by Member States. On the evidence we have reviewed, we doubt that either requirement has been met. Our reasons for these conclusions are set out in the attached draft Reasoned Opinion.

"In addition, we find again that the Commission has failed to prepare a detailed statement, in accordance with Article 5 of Protocol 2, thereby making it very difficult for national parliaments to appraise compliance with the principles of subsidiarity within an eight-week period. We were greatly assisted in this instance by the submissions we received from representative organisations in the UK; where their concerns overlapped we found to be particularly instructive. The Commission's failure to provide a detailed statement in our view amounts to an infringement of an essential procedural requirement of Protocol 2."

7.3 The House resolved, after a debate on the Floor on 7 December,[27] to send the Reasoned Opinion attached to our first Report to the institutions. In introducing the debate, the then Parliamentary Under-Secretary of State at the Ministry of Justice (Mr Crispin Blunt) said that, although the Government intended to consult widely on the detailed policy implications of the proposed regulation, its initial assessment indicated that the Commission's proposal would be neither simple nor easy to use. Although it was designed to be free-standing, it remained unclear what relationship it would have with other EU laws such as the Rome I Regulation. It also seemed that a range of matters that could affect the legal relationship between the parties had not been addressed in the proposed Regulation. In the Government's view, that had the potential to undermine the aim of removing the need for businesses to incur transaction costs on legal advice on another country's law.

7.4 The Minister said that the scope of the proposal could prove difficult, with its wide application to business-to-business and business-to-consumer contracts whether they were concluded at a distance, away from business premises or on the premises. The Government was not sure whether such an all-encompassing Regulation was the correct way to address the different problems that traders and consumers could experience. In addition, current arrangements already provided that any State's law could be chosen as the law of contract. In that sense, a trader could already choose which law to apply to his or her contract and in most cases that was likely to be that of their own State. The anticipated net value of the Regulation therefore remained to be tested and quantified against the costs of introducing a new law.

7.5 The Government was also concerned about the proposed legal basis of Article 114 TFEU, which was normally used for harmonising laws in order to further the establishment of the internal market. It had doubts about its appropriateness, particularly as most other optional instruments that operate in parallel to domestic law were brought forward on other legal bases.

7.6 The Commission replied to the House's Reasoned Opinion over nine months after it was sent, on 27 September this year, setting out in detail why in its view the proposal complied with the principle of subsidiarity.[28]

The Minister's letter of 13 November

7.7 The Secretary of State for Justice (Chris Grayling) writes on 13 November to inform us of the publication of the Government's response to its Call for Evidence. He explains that the UK position to date had been that the need for the Common European Sales Law remains to be demonstrated, and that a final UK position would only be determined following analysis and consideration of the views aired in response to the UK's Call for Evidence. In light of the Government's own analysis of the proposal and taking into account the views expressed in the Call for Evidence, the Minister is now able to clarify that position.

7.8 In general terms, the Government agrees with the underlying objectives behind Common European Sales Law: strengthening the single market and boosting growth through enhanced cross-border trade, while reducing costs and complexity for businesses and consumers in challenging financial times. The UK has also been supportive of an ambitious approach to the harmonisation of consumer law to support the retail single market, and is seeking to prioritise the development of the Digital Single Market given its potential impact.

7.9 However, the Call for Evidence demonstrated that whilst there is broad support for increasing cross-border trade, the vast majority of UK stakeholders does not see the Common European Sales Law as a viable way of achieving this objective. This is a view supported by the Government's own analysis of the proposal. Whilst a minority of respondents, largely from small business organisations, expressed some support for the aims of the proposal, the legal and consumer sectors and a number of business organisations were particularly strong in their opposition. There was no clear support, from any sector, for the proposal as currently drafted.

7.10 Consequently, the Government is unable to support the proposal as drafted and has identified a number of key concerns:

  • Lack of evidence of need or ability to achieve objectives: An analysis of the Commission's impact assessment of this proposal does not provide sufficient evidence of need to warrant such a wide ranging and complex legal instrument. Respondents to the Call for Evidence also felt that sufficient need for the proposal had not been demonstrated and were unconvinced that contract law presents a barrier of the significance the Commission suggests. Conversely, they believed other barriers, such as language and divergent tax requirements are more significant and that these would not be resolved by this proposal. Many respondents were also unconvinced that the Common European Sales Law could achieve the results anticipated by the Commission. The Government's own analysis indicates that the potential costs of the proposal are greater than its possible benefits.
  • Creation of uncertainty and confusion: The Government's analysis, supported by the Call for Evidence, suggests that the proposal will create too much legal uncertainty to be a practical basis for contractual relations; for example, the practical difficulty in assessing whether a particular business can be categorised as an SME — in a contract between businesses, the Common European Sales Law is a valid choice only if one business is an SME as defined in the proposal. Such ambiguity significantly diminishes the attractiveness of the proposal and therefore the likelihood that any business would choose to utilise it. Jurisprudence in the area would also take years (perhaps decades) to build up from scratch, creating an additional burden on the UK's judicial system and on the ECJ. In the meantime uncertainty about the interpretation of the instrument would create delay and drive up the costs of litigation for parties.
  • The same uncertainty and confusion is likely to be shared by consumers. Domestically the UK is in the process of modernising and simplifying the consumer rights framework with the Consumer Bill of Rights and an associated package of consumer law reforms. This package will implement the Consumer Rights Directive and use common language and definitions to make it easier for businesses and consumers to understand their rights. In contrast, there is insufficient evidence to demonstrate that a new, optional, highly complex legal instrument focussed on contract law for cross-border sales will provide benefits to consumers or business, nor is it clear that it will achieve the presumed benefits to cross border trade and growth.
  • Choice of legal base: The legal basis of the proposal is Article 114 TFEU, which permits the European Parliament and Council to adopt measures that are aimed at ensuring that the internal market functions properly. As such, the proposal is subject to QMV and the Ordinary Legislative Procedure will apply. There are, however, strong arguments to indicate that Article 114 is not a proper basis for the proposal.  Firstly, jurisprudence of the ECJ indicates that Article 114 should not be used in proposals which are optional and which do not intend to harmonise the existing national laws of the Member States.  Article 114 was held to be unavailable for an optional EU legal construct in the case of the "European Co-operative Society", and there are strong parallels between this case and the proposal to create a Common European Sales Law. Secondly, for Article 114 to be used there must be a clear need for the proposal in question to smooth barriers to the functioning of the single market. As noted above, there is significant doubt as to whether evidence of need can be demonstrated in this case. At this stage, the Council and European Parliament Legal Services have both endorsed the use of Article 114. Member States, however, do not consider this matter closed and the Council has agreed it will remain under consideration.

7.11 The Government continues to endorse the harmonisation of consumer law to support the retail single market. The Minister says this is more likely to deliver the Commission's aims than a new, optional contract law. The Government will therefore encourage the Commission to carry out a careful and specific review of the barriers to cross-border trade and to consider the most appropriate solutions. The Government would be content to support the Commission in doing so.

7.12 Finally, the Minister says the Government has noted the positions of both scrutiny Committees on the proposal, including the Reasoned Opinion on Subsidiarity provided by the House of Commons in December 2011.  


7.13 We thank the Minister for his letter, and endorse the Government's conclusion that, for the reasons given above, it cannot support the proposal.

7.14 We are pleased to note that the great majority of the views of the respondents to the Call for Evidence, and the Government's own findings, correspond with the subsidiarity concerns we set out in the Reasoned Opinion that the House resolved to send to the Commission on 7 December 2011 (but to which a reply was not received until September this year).

7.15 We also note the Government's opposition to the single market legal base, and support its legal argument. We think it strong enough to merit a legal challenge before the ECJ should the proposal be adopted, and ask the Minister if he agrees.

7.16 On which note, we ask the Minister whether he thinks the proposal is ever likely to be adopted, and if so when; or whether, alternatively, there is sufficient opposition among Member States to make adoption unlikely.

7.17 Finally, we ask the Minister to say whether any of the four Reasoned Opinions issued on this proposal (German Bundestag, Austrian Federal Council, Belgian Senate and our own) was influential in Council negotiations on this proposal to date.

7.18 Pending the Minister's replies, the document remains under scrutiny.

26   See headnote. Back

27   HC Deb, 7 December 2011, cols. 313-25. Back

28   The Commission's reply is available on the Committee's website. Back

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Prepared 2 January 2013