Pan-EU contract law will not cover insurance or financial services, says Commission

Out-Law News | 26 Sep 2011 | 10:51 am | 3 min. read

A new pan-European contract law will not cover insurance and financial services contracts, Out-Law.com can reveal. A European Commission spokesman said that the full proposal for the new law will be published in the middle of October.

The Commission has long trailed its plans to create a '28th regime' of pan-EU contract law to encourage cross border trade. Justice Commissioner spokesman Matthew Newman told Out-Law.com that the new law will not cover financial services and insurance contracts.

A study will be carried out in 2012 on insurance contracts, he said, and Justice Commissioner Viviane Reding has said an insurance-specific contract law could be created.

The new law is designed to clear up consumer confusion over which country's contract law applies when they buy goods from traders in other EU countries. The Commission wants to allow consumers to choose a pan-EU contract law regime that would apply between any consumers and traders within the EU and would be separate from national laws.

Newman said that he could not confirm whether the October proposals will include a right for the new contract law to be used for a transaction completed between parties in the same country.

Although the precise scope of the new contract law has still to be confirmed the Commission will not include provisions for the sale of financial services or insurance as part of its proposals, Newman said. He also said the Commission has been basing its draft on a feasibility study that "does not envisage covering" beneficial ownership. Beneficial ownership is where a person owns an asset for the benefit of another.

EU Justice Commissioner Viviane Reding met with representatives from the insurance industry on Wednesday to "open dialogue" on the "possible added value" an insurance-specific contract law could bring, according to a Commission statement.

Newman said the Commission will conduct a "thorough analysis" on the insurance market next year to determine whether a new European Insurance Contract Law would be appropriate. He said "there are currently no plans" for the Commission to conduct a similar study into the feasibility of a financial services-specific contract law being drafted.

The European Commission first announced that it would look into developing a pan-European contract law last year. The new law would run in conjunction with the national contract laws in the 27 EU member states. The European Commission has previously said that a new contract law would improve consumer confidence in online cross-border trading and reduce a significant cost burden for businesses.

"The 27 different sets of national rules can lead to additional transaction costs, increased legal uncertainty for businesses and lack of consumer confidence," the Commission said in June.

"These can act as a deterrent for both consumers and businesses to shopping and trading across EU borders. Small and medium-sized companies are particularly affected by higher transaction costs," it said

"An optional European contract law could be chosen freely by consumers and businesses in their contractual relations as an alternative to the existing national contract laws when they want to buy or sell goods across a national border. It could save a small online business wishing to trade in Europe an estimated €9,000 in legal and translation fees per market – or over €230,000 if they wanted to take their business EU-wide," the Commission said at the time.

Until now it has been thought the '28th regime' of contracts could cover everything from the sale of goods and services, insurance, digital rights and beneficial ownership.

Earlier this year the Commission published the results of a study into the practical workings of any new European-wide contract law. The study included proposals for the rules for when a contract is considered as being offered and when it is considered to be accepted.

The rights to withdraw from a contract, legal rights for faulty goods and rules governing unfair contract terms are among the other aspects of law detailed in the study.

The study was conducted by lawyers, former judges and academics from across Europe, at the request of the Commission.

The European Parliament has also thrown its weight behind a new pan-EU contract law, after its Legal Affairs Committee had earlier recommended that the new contracts be available 'off the shelf' for companies to use.

The UK has previously opposed the development of a new European-wide contract law, claiming there is "no reliable evidence" of its benefit to the EU market.