7 Common European Sales Law
| (33227)
15429/11
+ ADDs 1-2
COM(11) 635
| Draft Regulation on a Common European Sales Law for the European Union
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| Legal base | Article 114 TFEU; co-decision; QMV
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| Department | Justice
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| Basis of consideration | Minister's letter of 13 November 2012
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| Previous Committee Report | HC 428-xlii (2010-12), chapter 5 (23 November 2011)
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| Discussion in Council | No date set
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| Committee's assessment | Legally important
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| Committee's decision | Not cleared; further information requested
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Background
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.
Conclusion
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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