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Government outlines opposition to pan-EU contract law plans

Out-Law News | 16 Nov 2012 | 5:30 pm | 3 min. read

The Government has outlined its opposition to EU plans to create a new contract law that traders and consumers could use to govern cross-border transactions.

It said that the views of businesses on the European Commission's draft Common European Sales Law (CESL), submitted during a 'call for evidence' held earlier this year, had convinced it that the plans contain "fundamental flaws in both the principle and practical operation" of the proposed regime.

Rather than providing a "simple and practical solution to the immediate challenges presented to businesses, consumers and the growth of the Single Market," the proposed new CESL framework would instead be "both time consuming and cumbersome to negotiate and implement," the Government said.

In October 2011 the European Commission published its full plans for the new optional pan-EU contract law which would be available as a new '28th regime' of contract law alongside the existing frameworks that apply in the 27 EU member states.

The Commission has said that the new law would offer a set of harmonised laws, which could operate as an alternative to contract laws that differ between EU nations, 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. CESL law would apply only if both the trader and consumer in a sales transaction opted to use it.

However, in its official response (50-page /274KB PDF) to the Commission's proposals, the Government said that "elements" of what the Commission has proposed lack "sufficient clarity or legal certainty."

"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. "The Government therefore concludes that it does not feel able to support the CESL proposal."

"The UK has, in the past, supported an ambitious approach to the harmonisation of consumer law to support the retail single market. We continue to think that this is more likely to deliver the Commission’s aims than a new, voluntary contract law. We would therefore encourage the Commission to carry out a careful and specific review of the barriers to cross-border trade, considering the most appropriate solutions to them, before proceeding any further with negotiation of this proposal. The Government would be content to support the Commission in doing so," it added.

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. However, the Government said those provisions were "likely to be abused or lead to protracted disputes".

Further concerns it raised were in relation to the broad nature of the CESL framework which it said "does not serve in resolving the specific problems that B2B, B2C and digital sectors may have". In some situations, such as telephone sales, the regime would be "unworkable," it said.

"Businesses need certainty in their contracts but CESL undermines this," the Government said. "There is doubt surrounding a number of its provisions, as well as doubt about its interaction with other EU laws and confusion surrounding the mechanics for its use. Added to this is the uncertainty regarding its applicability and when and whether it applies to certain contracts (e.g. if a contract was found to be mixed purpose or one party was wrongly identified as an SME etc)."

"Definitions of 'SME', 'mixed purpose contract' and 'cross border' will prove difficult to apply with confidence. This makes the instrument less certain and more open to litigation. This uncertainty has not been assessed nor properly taken into account by the Commission," it added.

Under the Commission's plans, CESL would be available to use 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.

Under the proposals, traders from outside of the EU could also operate contracts within the new regime providing that the business they are dealing with is based within the EU.

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