Common European sales law should be available to govern cloud transactions say MEPs

The Legal Affairs Committee (LAC) said (113-page / 463KB PDF) that the Commission's draft Common European Sales Law (CESL) regulation should be amended to make it clear that the regime can be used to cover cloud computing transactions.

The Committee has proposed a new recital be included in the regulation to address the point.

"Cloud computing is developing rapidly and has great potential for growth," the LAC's draft recital states. "The Common European Sales Law provides a coherent set of rules adapted to the distance supply and in particular supply online of digital content and related services. It should be possible for those rules to also apply when digital content or related services are provided using a cloud, in particular when digital content can be downloaded from the seller's cloud or temporarily stored in the provider's cloud."

In October 2011 the European Commission published draft proposals to establish CESL as a new '28th regime' of contract law. The regime could be applied to govern the cross-border supply of digital content and for the provision of related services between businesses and consumers, or in a limited business-to-business context, should both parties agree to use the framework. CESL could not be used in some circumstances, such as to provide the framework for online banking or other financial services.

The Commission has said that the new law would offer a harmonised alternative to the differences in contract laws that exist within the national laws, reducing costs for businesses and giving consumers more confidence in their rights and access to cheaper goods. It said businesses currently spend €10,000 on average in legal costs when expanding into selling in a new country within the EU.

However, the UK Government has outlined its opposition to CESL. In November last year it said that the views of businesses on the proposals had convinced it that there are "fundamental flaws in both the principle and practical operation" of the proposed regime.

"The instrument is: too complex, incomplete in parts (some significant aspects of a contractual relationship are not covered), unworkable for certain types of contract, uncertain, both as to whether a contract is valid and as to the certainty of its terms; and unclear on its applicability, in particular how its provisions interact with other EU law," the Government said at the time. "The Government therefore concludes that it does not feel able to support the CESL proposal."

The Government's stance has been backed by the European Scrutiny Committee in the House of Commons. In a report published in late 2012 it said that it agreed with the Government that establishing CESL is not a "viable way" to boost cross-border trade within the EU.

Munich-based consumer law expert Joern Fingerhuth of Pinsent Masons, the law firm behind Out-Law.com, previously said that the German parliament – the Bundestag – had already "voted unanimously" in determining that the CESL, as drafted, is not in line with EU law. He said that the legal basis on which the Commission has founded its proposals "does not allow the creation of a separate common sales law on an EU level, but only provides for the option to harmonise existing national law".

Fingerhuth said that both the Bundestag and the ruling Coalition Government in Germany view the current CESL proposals as "not sufficient and unnecessary". The overriding view in the country is that the 28th law regime would not achieve the Commission's targets of lowering the cost of cross-border sales transactions or provide legal certainty.

However, LAC has given its backing to the creation of CESL, although it has outlined a raft of proposed changes to the Commission's drafting of the framework.

LAC wants to make it clear that those who receive goods or services under the CESL framework generally "have recourse to the full range of remedies" under the regime even if they have paid nothing to buyers. This right to recourse, it said, would cover situations where consumers provide traders with details of their personal data in return for goods or services, so long as the value of that "counter-performance ... equals the payment of the price".

In addition, LAC has proposed that the draft CESL regulation set out that "unfair commercial practices" referred to under existing EU legislation would also be prohibited under the CESL regime "insofar as they overlap with rules on contract law".

"For instance, unfair commercial practices can lead to a mistake of the consumer or constitute even fraud, threat or unfair exploitation, in other cases unfair commercial practices result in the breach of information requirements, for instance concerning the final price," LAC said in a justification in its report for the draft new recital it has drawn up. "These cases should be covered by CESL. Other unfair commercial practices fall outside the scope, especially if no contract is concluded. The national law to be determined according to general international private law rules applies."