On 3 May 2011 the European Commission published its feasibility study on an optional European contract law instrument for consumers and businesses. The aim of such an instrument is to provide an alternative choice for both businesses and consumers when entering into contracts. The European Commission also believes that it would result in the terms on which transactions are concluded between parties in different Member States becoming more uniform.

The European Parliament favours an optional European contract law for cross-border transactions which would sit alongside an act adopted by the Commission on European contract law to be used as a reference tool by legislators to ensure coherence and quality of legislation. The European Parliament considers that the new measures should apply both to B2B and B2C contracts and would be published in all 22 European languages. It will operate alongside national contract laws as a second option rather than being mandatory.

Is there a need for a European instrument?

The Commission argues that there is a need for uniformity in contract law amongst Member States. It states that the current system of diverging national laws creates uncertainty amongst businesses and consumers leading to additional transaction costs for cross-border deals and ultimately hinders the operation of the internal market.

The Commission has expounded a number of benefits of the new instrument. It feels that the new instrument will create uniformity in contract law making it easier and cheaper to conclude cross-border transactions, particularly regarding online sales contracts. This will encourage parties to enter into transactions with other Member States and will ultimately bolster the internal market.

However, there are many who remain unconvinced that such an instrument is necessary and a number of potential issues with the proposed contract have been raised.

One of the main issues is that the optional instrument would lack an established body of case law and academic analysis regarding its use and interpretation. This could lead to issues in interpretation and thus undermine the objective of uniformity. The Court of Justice of the European Union (“CJEU”) does not have a large amount of experience in the commercial sphere and therefore may not be equipped to deal with cases coming before it regarding interpretation. In addition an application to the CJEU is time consuming and expensive and could deter parties from entering into the European law governed contract. Further issues could result from the fact that national laws will still govern some aspects of contracts such as in the case of property law.

Many practitioners are of the opinion that, regarding B2B contracts, an alternative European Contract law could merely serve to give the stronger bargaining party another option in negotiations and with B2C contracts consumers may not be adequately informed to be able to choose which contract should govern their transaction, nor may they want the option of choosing. An issue could arise in a B2C situation where the parties have not expressly agreed which contract is to govern their transaction and therefore do not know what measures they have recourse to should something go wrong with the transaction.

Publication of the Proposal

On 11 October The Commission published its “Proposal for a Regulation of The European Parliament and of The Council on a Common European Sales Law.” The Proposal is based on Article 114 of the Treaty on the Functioning of the European Union. The details of the Regulation will be addressed in a future Ezine. In the meantime, the text of the Regulation is available here: http://ec.europa.eu/index_en.htm