At the end of February 2012, the UK Government launched a consultation on the European Commission’s proposed Common European Sales Law (the “CESL”), issuing a ‘Call for Evidence’ from interested UK individuals and organisations. The Commission believes the CESL will facilitate the expansion of cross-border trade by businesses and cross-border purchases for consumers. However, the UK Government remains unconvinced and issued its Call for Evidence to assist in formulating its response to the draft CESL. Contributors are asked to consider factors such as the CESL’s possible impact, cost, risks and benefits.
The CESL has emerged from the Commission’s Green Paper issued in July 2010 which proposed a number of options for a European contract law. The Commission believes the optional CESL will reduce barriers to cross border trade arising from the differences between the 27 national contract laws of Member States by removing legal uncertainty and reducing transaction costs and complexity. Under the current system, consumers may also be confused as to their rights when buying products from outside their home country.
The CESL is set out in a draft EU Regulation (the “Regulation”). The proposed legislation is comprehensive, covering the whole life-cycle of a contract, including matters such as pre-contractual information duties, formation of a contract, right of withdrawal, rights and obligations of the parties and remedies for non-performance. There is also a general principle that contracting parties must act in accordance with good faith and fair dealing (concepts not familiar to those used to a common law approach). The CESL would be optional, applying only to certain types of contract where both parties agree to its adoption. The contract must be for the sale of goods, including digital content contracts, and at least one of the parties would need to be established in a Member State. Whilst designed for cross-border contracts, Member States would have the option to make the law applicable to domestic contracts as well. The Regulation would cover both business-to-consumer and business-to-business contracts (where one party must be a small or medium enterprise (as defined)). Please see Herbert Smith’s e-bulletin of 13 October 2011 for more information about the Regulation’s contents and background.
The UK Government has previously voiced concerns about the Regulation. For example, it has challenged the legal basis of the Regulation which, once adopted by the European Parliament and the Council of Ministers, would become directly applicable in every Member State. The Commission asserts that disparities in national contract laws deter cross-border trade in the EU and so harmonisation of laws is required. In December 2011, the UK’s House of Commons issued a reasoned opinion to the European Commission, Council and European Parliament stating that the Regulation does not comply with the principle of subsidiarity which requires that the Commission demonstrate that the CESL is necessary and will produce clear benefits, compared with action by the individual Member States. The Law Society of England and Wales has also raised concerns about the CESL, highlighting that with no jurisprudence for the Regulation, guiding case law will take some time to develop thereby creating a period of uncertainty (especially given the likely differences in interpretation by courts of the various Member States).
Aside from the UK, a number of other Member States have also voiced concerns about the proposals and, the Commission will therefore need to persist with its efforts to convince stakeholders that the CESL can achieve its stated goals.