EU Consults On Harmonised Contract Law

by Ulrika Lomas, LawAndTax-News.com, Brussels

13 July 2010

The European Commission (EC) has proposed, in a strategic policy paper, options for a more coherent approach to contract law across the European Union (EU), to bring more legal certainty for businesses and simpler rules for consumers.

The EC says that businesses – particularly small and medium-sized companies, which make up 99% of all enterprises in the EU, but have limited resources – are hampered in cross-border sales because they must follow different contract laws for each of the EU’s 27 member states.

Both consumers and businesses face significant barriers if they try to take advantage of the single market, through the creation of additional transaction costs (like adapting contractual terms and commercial policies or obtaining translation of the rules), increased legal uncertainty for businesses and lack of consumer confidence.

The EC points out that only 8% of consumers buy online from another member state, and 61% of cross-border sales are rejected because traders refuse to serve the consumer's country, largely because of regulatory barriers and legal uncertainty about the applicable rules. The EC’s policy paper is therefore meant to address some of these problems and boost the potential of EU's single market.

"I want a Polish, German or Spanish consumer to feel as safe when doing business with an Italian, Finnish or French company online as when they are at home,” said Viviane Reding, the EU's Justice Commissioner. “And I want Europe's small and medium-sized companies to offer their products and services to consumers in other countries without having to become experts in the national contract law systems of all other 26 EU countries."

Among the policy options considered by the EC are the publication on the internet of (non-binding) model contract rules which could be used in the single market; or a (binding or non-binding) “toolbox” for EU lawmakers when they adopt new legislation to ensure better and more coherent rules.

A Contract Law Recommendation could call on member states to include a European contract law into their national legal systems (thereby partly following the model of the United States where all but one of its states voluntarily adopted the Uniform Commercial Code); or an optional European Contract Law could be constituted and could be chosen freely by consumers and businesses in their contractual relations.

That optional law would be an alternative to the existing national contract laws and would be available in all languages. It could apply in cross-border contracts only, or in both cross-border and domestic contracts. Its objective would be to guarantee a high level of consumer protection and legal certainty throughout the life cycle of a contract.

Other options include the harmonisation of national contract laws by means of an EU Directive; the full harmonisation of national contract laws by means of an EU Regulation; and/or the creation of a full-fledged European Civil Code, which would replace all national rules on contracts. The latter would cover not only contract law, but also other types of obligations (for example, tort law), and would reduce even further the need to fall back onto national provisions.

There would be a need for any instrument of European contract law to contain specific provisions for the most prevalent types of contract. The most common and relevant from the single market perspective is the contract for sale of goods, but service contracts are also very important.

However, given their heterogeneous character, specific provisions would have to be made for specific types of service contracts. For example, the instrument could contain provisions for 'sale-like' service contracts, such as car leases, or for insurance contracts. Furthermore, contracts in the financial services area are of a very specific and technical nature, particularly when concluded between professionals.

The European Parliament gave its backing to the idea of an optional European Contract Law in a resolution in November 2009. Under the Europe 2020 strategy, which was launched in March this year, the EC is currently tackling bottlenecks in the single market to drive economic recovery. The creation of an optional contract law instrument is also one of the key actions in the EC's Digital Agenda for Europe issued in May.

Consultation on the policy paper will run until 31 January 2011. Its results will help the Commission prepare proposals before 2012.

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