Introduction

European officials have, for the first time, discussed the substantive details of a proposed new pan-European contract law regime.

The Common European Sales Law (the CESL) was recently discussed by the EU Council and, although the Council raised concerns about the level of consumer protection the CESL would provide, as well as, the complexity of its implementation officials have been instructed to move swiftly towards its introduction.

What is the CESL?

The CESL is a proposed set of uniform pan-European contract rules that would sit alongside the existing national contract law of each Member State. The rules would be available, at the parties’ election, to be used as the basis for certain business-to-consumer (B2C) and business-to-business (B2B) contracts instead of the national law.

The current proposal is that the CESL could be applied to contracts for the sale of goods, digital content (whether supplied on CD, DVD or by downloading) and certain related services such as installation, maintenance and repair. The intention is that the rules would only be available to be used for cross-border contracts, although Member States would be free to make it available for purely domestic contracts. It is also intended that the rules be restricted to situations where one party is either a consumer or a small or medium-sized enterprise.

The proposed CESL regime covers the full range of contract law issues – although with primary focus on the issues likely to arise in cross-border sales of goods – including:

  • general principles such as a requirement on each party to act in good faith and rules on how “reasonableness” should be ascertained and the contract interpreted;
  • requirements to provide certain pre-contract information (similar to existing distance selling regulations, but also codifying product information to be given ahead of shop sales);
  • rules governing when an effective contract has been entered into and when it will be effectively rescinded due to mistake and fraud;
  • rules on when additional implied terms may be read into the contract;
  • determining what constitutes “unfair contract terms”;
  • general obligations on both the seller and the buyer; and
  • provisions setting out each party’s remedies, including the rules on damages, restitution and specific performance.

The full text of the proposed CESL can be found here.

The European Commission intends that the introduction of the CESL would be accompanied by a publicly available database for the exchange of information and collection of relevant judicial decisions regarding the new law.

Why Has the CESL Been Introduced and What's Happening Next?

The proposal, which has been 10 years in the making, has arisen out of a perceived lack of enthusiasm by businesses – particularly small businesses – to engage in extensive cross-border sales because of the difficulty in negotiating a “patchwork” of competing national sale of goods and consumer protection laws.

Ideally, the European Commission wants to introduce the new legislation in 2012 – to mark the 20th anniversary of the creation of the European single market – although much work would be required to achieve this. The Commission is also conscious of the need to work very closely with all stakeholders, including the European Parliament and European Council; Members States; and businesses and consumers. The CESL’s success will depend on the number of parties who elect to choose it as the legal basis for their agreements.

Challenges

The UK Government has not welcomed the “28th regime” – largely as it believes it undermines many years of developed consumer protection law in the UK – and there will be significant challenges in implementing the new regime, whatever final form it may take.

In particular, questions have been raised as to whether this approach would only further complicate this complex area of the law that the opposite of its intended impact. It would create a supranational body of law which UK courts would have to interpret without reference to the common law, namely the vast accumulation of UK case law and national custom.

There are also questions raised about how claims relating to faulty products would be dealt with which could involve claims under the CESL alongside claims brought under the relevant local law, such as those based in tort.

Such concerns – combined with the optional nature of the proposed regime – have caused many to ask whether it will be a pro-business development in the longer term. Indeed commentators suggest that varying cultural issues, currencies and languages, as opposed to differences in contract law, are greater obstacles to cross-border B2C sales within the EU. However, there appears to be significant impetus within the European institutions to bring this project to fruition, so it is expected that the CESL (in some form) will be coming soon.