EU Commission outlines full '28th regime' contract law plans

Out-Law News | 12 Oct 2011 | 1:17 pm | 3 min. read

The European Commission has published its full plans for a new optional pan-EU contract law it said will help improve cross-border sales for both businesses and consumers.

The Common European Sales Law would be available as a new '28th regime' of contract law alongside the existing contract laws that apply in the 27 EU member states. The terms of the contract law would apply only if both the trader and consumer in a sales transaction opted to use it, the Commission said.

The new law could be used in contracts for the cross-border sale of goods between businesses and consumers or between two different traders providing at least one of the traders is a small or medium-sized enterprise (SME). Under the proposed law an SME is defined as a trader that employs fewer than 250 employees and has either an annual turnover of no more than €50 million or an annual balance sheet worth no more than €43 million.

Traders from outwith the EU could also operate contracts within the new regime providing that the business they are dealing with is based within the EU, the Commission's plans said.

Banks and other financial service institutions will not be able to offer the new contract law regime for financial service transactions, such as online banking. The sale of intangible digital goods, such as the sale of music files online, would be able to be covered by the new regime, the Commission said.

"[The Common European Sales Law] harmonises the national contract laws of the member states not by requiring amendments to the pre-existing national contract law, but by creating within each Member State's national law a second contract law regime for contracts covered by its scope that is identical throughout the European Union and will exist alongside the pre-existing rules of national contract law," the European Commission said in its proposals. (115-page / 328KB PDF)

"The Common European Sales Law will apply on a voluntary basis, upon an express agreement of the parties, to a cross-border contract," the Commission said.

The Commission 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.

"[The new law] would remove obstacles to the exercise of fundamental freedoms which result from differences between national laws, in particular from the additional transaction costs and perceived legal complexity experienced by traders when concluding cross-border transactions and the lack of confidence in their rights experienced by consumers when purchasing from another EU country - all of which have a direct effect on the establishment and functioning of the internal market and limit competition," the Commission's draft proposals said.

Under the Commission's proposals both businesses and consumers would have a duty to "act in accordance with good faith and fair dealing" and may lose certain rights set out in the contracts if they do not.

Under the new regime distance sellers, or off-premises sellers, are also obliged to provide certain information to consumers, including their name, contact details and total cost, in order for contracts to be deemed binding.

Contracts could also be considered to have been agreed to even if there is no written evidence of an agreement, the Commission's proposals said.

"A contract is concluded if: the parties reach an agreement; they intend the agreement to have legal effect; and the agreement, supplemented if necessary by rules of the Common European Sales Law, has sufficient content and certainty to be given legal effect," the proposals said.

"Agreement is reached by acceptance of an offer. Acceptance may be made explicitly or by other statements or conduct. Whether the parties intend the agreement to have legal effect is to be determined from their statements and conduct. Where one of the parties makes agreement on some specific matter a requirement for the conclusion of a contract, there is no contract unless agreement on that matter has been reached," it said.

The Commission's proposals also include details about what constitutes a proposal for the basis of forming a binding contract, how that offer can be revoked, and the time limit for accepting a contract offer.

EU Justice Commissioner Viviane Reding said that the new optional sale law would "help kick-start" EU economic growth.

"It will provide firms with an easy and cheap way to expand their business to new markets in Europe while giving consumers better deals and a high level of protection," Reding said. "Instead of setting aside national laws, today the European Commission is taking an innovative approach based on free choice, subsidiarity and competition."

The Commission said that newly-released research figures indicate that 71% of European companies would take advantage of the new contract law regime if they could choose to do so.

The proposals must be approved by both the European Parliament and Council of Ministers before they could come into force.