Out-Law News | 04 Jan 2013 | 4:50 pm | 2 min. read
In a report published late last month, the European Scrutiny Committee said that it agreed with the Government that establishing CESL is not a "viable way" to boost cross-border trade within the EU.
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. It claims that the use of CESL would reduce costs for businesses and give 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 November last year the Government published its response to the views it had received in a 'call for evidence' it had run on the Commission's plans. In it the Government said that, 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".
Justice Minister Chris Grayling wrote to the European Scrutiny Committee, which is tasked with assessing the potential impacts of draft EU legislation on behalf of the House of Commons, to summarise the Government's position in light of the 'call for evidence' responses.
In his letter Grayling had said that language and "divergent tax requirements" had been raised as examples of "more significant" barriers to cross-border trade that CESL would not be able to address, according to the Committee's report. He said Government analysis had concluded that the costs of using the framework would outweigh the benefits.
In addition Grayling had also questioned the legal basis on which the European Commission's proposals are founded. He said that the Court of Justice of the European Union (CJEU) had established case law that prevents EU legislation aimed at providing for the proper functioning of the EU market being brought in purely on an optional basis.
In its report the Committee said that it was of the view that the legal basis for the CESL proposals should be challenged by bringing a case before the CJEU. It has asked Grayling whether he agrees.
Munich-based consumer law expert Joern Fingerhuth of Pinsent Masons, the law firm behind Out-Law.com, 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 Article 114 of the Treaty on the Functioning of the EU, which the Commission has said provides the basis for its proposals, "does not allow the creation of a separate common sales law on an EU level, but only provides for the option to harmonize 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.
"Legal advisors in Germany would probably not advise their clients to introduce the CESL into sales contracts for several reasons," Fingerhuth said. "The draft does not provide a clear regime with regard to the Rome I directive and may even not be validly incorporated into sales contracts under Rome I. Furthermore, the legal uncertainty is high due to missing definitions and the lack of interpreting judgements by the CJEU."
Rome I is an EU law that sets out the rules for determining through which country's laws contractual disputes between consumers and businesses for the sale of goods and services, among other things, should be settled.